Sky Harbour Group Corporation

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Sky Harbor 2024 year-end earnings call and webinar. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply submit a question online using the webcast URL posted on our website. Thank you. And I would now like to turn the call over to Mr. Francisco Gonzalez, Chief Financial Officer. Mr. Gonzalez, you may begin your conference.

Thank you, Abby. And hello and welcome to the 2024 Fourth Quarter and Full Year Results Investor Conference call and webcast for the Sky Harbor Group Corporation. We have also invited our bondholder investors in our borrowing subsidiary, Sky Harbor Capital, to join and participate on this call. Before we begin, I've been asked by counsel to note that on today's call, the company will address certain factors that may impact this and next year's earnings. Some of the information that will be discussed today contain forward-looking statements. These statements are based on management assumptions which may or may not come true, and you should refer to the language on slides one and two of this presentation, as well as our SEC filings for a description of the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statements. So now let's get started. The team with us this afternoon, you know from our prior webcast, our CEO and chair of the board, Tal Kanin, our treasurer, Tim Herr, our chief accounting officer, Mike Smith, our accounting manager, Tori Petro. We also have Andreas Frank, our recently promoted assistant treasurer. We have a few slides we'll want to review with you before we open into questions. These were filed with the SEC about an hour ago in form 8K, along with our 10K, and will also be available on our website later this evening. We also filed our fourth quarter Sky Harbor Capital obligated group on the financials with MSRB Emma a few days ago. As I've been mentioned, you may submit written questions during the webcast through the Q4 platform, and we'll address them shortly after our prepared remarks. So let's get started. In the fourth quarter, on a consolidated basis, assets under construction and completed construction continued to accelerate, reaching over $250 million as of year end on the back of construction activity at Phoenix, Dallas, and Denver. Revenues experienced an increase of 13% sequentially over Q3 as we realized more leases in San Jose optimized in the other three operating campuses and had three weeks of operations from the acquisition of the Camarillo and California campus on December 6. For the full year, consolidated revenues doubled over those from 2023. Operating expenses in Q4 increased mainly from two factors. We began to hire general managers and staff for the new campuses coming online this quarter and next in order to do the adequate onboarding and training at our existing campuses. Second factor, as we have explained in the past, we accrue for ground-based payments at 13 airport locations, even if we're not actually making cash payments to the airport or municipal owner of our sites. That non-cash accrual of ground lease expense amounted to over $1.4 million in Q4 and is reflected within operating expenses. Also worth repeating that increase over the last three quarters in ground lease expense is due principally to the ground lease payment at San Jose, which are significantly higher than our typical Greenfield projects, as ground lease payments incorporate the leasing of an existing large hangar, apron, and parking because of these existing buildings or facilities is basically amortized through ground-based payments as part of our operating expenses. On SG&A, we strive to keep it in check as we grow our business. And we also would like to reaffirm our prior guidance that we expect Sky Harbor to reach cash flow break-even on a consolidated basis in Q4 of this year, as we reach sufficient scale with new campus openings to cover our holding company expenses. One last thing to note As you review the 10-K just filed, is that for the first time we're reporting fuel revenues apart from rental revenues. Fuel revenues are mostly margin we get from providing the fuel delivery service as we don't take ownership of fuel in most of our existing campuses. As this plan item grows in importance, we'll break down further to show how much of these fuel revenues correspond to minimum amount guarantees. We embed in most of our current leases as those represent also contracted revenues in a sense. Said simply, if a tenant does not fly or doesn't consume their minimum amount, guaranteed amount, it's like additional contractor rents that get added to their rental invoice. Next slide, please. This slide summarizes the financial results of our wholly-owned Scarborough Capital subsidiary that forms the obligated group. This basically incorporates the results of our Houston, Miami, and Nashville campuses, along with the capex and operating costs of our three projects under construction in Denver, Phoenix, and Addison as of Q4. Two of those are now open. Revenues were basically flat from Q3 to Q4. We expect a step function increase in revenues in Q2, Q3, and Q4 of this year as these three campuses are list-top and rent revenues and fuel revenues commence to flow. Operating expenses increased, but I should note, as we've discussed in the past, that these include ground lease payments or accruals as per U.S. GAAP in all six ground leases in the obligated group. In other words, we do not capitalize ground lease payments or accruals during construction. As may be seen in the bottom right-hand chart, we have firmly crossed into positive cash flow from operations at the project level. We expect this trend to continue and to accelerate, as I mentioned, in the second and third quarters of this year when Denver, Phoenix, and Dallas campuses ramp up in lease rental and field revenues. One last thing to note at the Sky Harbor capital level is that at the end of 2024, we were required to begin the compliance testing as per our own indenture, and we were in compliance in terms of those ratios for the 2024 and for looking for 2025. Next slide. Let us now turn to Mike Smith, our Chief Accounting Officer, for a review of the introduction of the presentation, but just a little bit in our reporting. Mike?

Thank you, Francisco. I would like to take this opportunity to provide and highlight a key business metric that we began presenting within the management discussion and analysis section of our annual report. Adjusted EBITDA is utilized by our management team to evaluate our operating and financial performance, which is supplemental in nature and a financial measure not calculated in accordance with US GAAP. We provided a reconciliation from our GAAP net loss in fiscal years 2022 through 2024 on the right hand portion of this slide. We define adjusted EBITDA as gap net income or loss before the add-backs and subtractions that are enumerated on the left portion of the slide, which I encourage you to review. Amongst these items are a few significant non-cash items that we have discussed both in Francisco's commentary as well as our previous call, including the non-cash portion of our ground lease expense, share-based compensation, and the change in fair value associated with our liability classified warrants. We began including adjusted EBIT in our filings as we believe it is a potentially useful metric for investors, analysts, and other interested parties as it provides a view of our operating performance, analyzes our ability to meet debt service obligations, and facilitates company-to-company operating performance comparisons by excluding potential differences caused by various factors, including items that are non-cash or volatile in nature. Lastly, it's important that I note that our method of calculating adjusted EBITDA may differ than similar measures utilized by other companies, and therefore its comparability may be limited. And with that, I'll pass back to Cal. Thank you, Mike.