Sky Harbour Group Corporation

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sky Harbor 2026 Second Quarter 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 this time, simply press start, followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star 1 again. Thank you. I would now like to turn the call over to Francisco Gonzalez, CFO. Please go ahead.

Thank you, operator, and good afternoon, everybody, and welcome to the 2026 Second Quarter Investor Conference Call and Webcast for the Sky Harbor Group Corporation. We have also invited our bondholder investors and lenders in our borrowing sub-series, Sky Harbor Capital, Sky Harbor Capital II and Sky Harbor Capital III to join and participate on this call as well. Before we begin, I have been asked by council 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 Schmidt, Accounting Manager Tori Petro and our Assistant Treasurer Andreas Frank. We have a few slides we want to review with you before we open into questions. We're starting on this webcast today will be limited to those from the research analyst community that have us under coverage. We decided that, as you may have remembered in the past, we have run out of time usually and not all of the questions get addressed. So we decided to change to this structure. Obviously, we welcome any and all investor questions afterwards through our investor email at investors at Sky Harbour Group. I will make an effort to respond promptly. We just filed a few minutes ago the R10Q with the SEC and our second quarter financials for Sky Harbour Capital related to the Series 2021 bonds and for the Sky Harbour Capital III related to the Series 2026 bonds with MSRB EMA. We also just filed a prospective supplement to our existing sub-registration program. Let's get started then. You will go to this slide with our recent results. At the end of the second quarter, on a consolidated basis, assets under construction and completed construction reached over $393 million. That is a $65 million increase year to date and the highest in six months in our corporate history. What this means is that the pace of investment and new construction on Sky Harbor continues to accelerate and these columns will continue to grow at an ever higher incremental rate. Q2 revenues experienced an increase of 50% over a year ago and 13% sequentially, given the new campus openings in the past year and increases in occupancy and rental rates. Operating expenses in Q2 continue to increase in tandem with new campus openings impacted in particular by increases in campus headcount and the non-cash expense accruals of new ground leases entering in the past year, which are not yet constructed or in operations. As in the prior quarter, a significant amount of the increase in OPEX is related to the signing of new ground leases at the end of last year, and with that expense, more than half is non-cash accruals of new ground leases payments into the future. We look forward to benefiting from the operating leverage for our Phases II with Miami Opeloka, which has now been open for four months, and later this year with the opening of Addison Phase 2. We expect gross profit margin expansion with these two Phases 2, with the same people and fuel trucks serving basically a doubling of those respective hangar campuses. We strive to keep SG&A in check as we grow, keeping frugality front and center in our expense and cost management initiatives. Cash flow provided by operating activities reach positive territory of roughly half a million reaching a significant milestone in the company's history. Going forward, equity proceeds will only go to new project capex and not to fund current operating expenses like in the past. Next slide, please. This is a summary of the financial results of our wholly-owned subsidiary Scarborough Capital and its operating subsidiaries that formed the obligated group. Assets under construction are still growing as we complete Opaloka phase two in Q2 and will soon stabilize with the completion of Addison phase two at year end, which, as many of you know, is the last project of the obligated group first vintage of campuses that were financed by the series 2021 bonds. Revenues of the obligated group increased 79% year over year and 22% sequentially. we expect continuous step function increases in revenues in Q3 and Q4 with the continued new leasing of Phase 2 in the Paloca and then Q1 and Q2 of 2027 after the opening of Addison Phase 2. As I mentioned before, we expect a marked increase in gross profit and EBITDA margin expansion with those added revenues and limited increase in operating expenses, giving the ability to use the same personnel and equipment with expanded campuses that double in size. from operations reached almost $3 million in the quarter and increased from $2.2 million a year ago. This constitutes 10 consecutive quarters of positive cash flow from operations, providing ample and growing debt service coverage for bondholders and bank facility lenders. Let me pass it on to Mike Schmidt for a discussion of our adjusted EBITDA in calculation, something we did a few quarters ago, but it's important to refresh given the importance of this adjustment to our EBITDA. Mike?

Thank you, Francisco. As with prior quarter, I'd like to take this opportunity to provide additional context regarding elements of our reporting results. We've provided a reconciliation from our GAAP net income results for the quarter end of June 30th, 2026. We believe this measure is important due to the impact of non-cash items within our reported results, particularly the non-cash operating expenses that are compasses that are not yet operational, stock compensation expense, and gains and losses arising from marking our liability classified warrants to market. As seen in the diagram, adjusted EBITDA improved to approximately negative 0.9 million in Q226. This is driven by continued improvement of results that are operating Adjusted EBITDA is supplemental in nature and is not calculated in accordance with GAAP. Our definition of EBITDA and other non-GAAP measures can be found in the management discussion and analysis section of our form 10-Q. And with that, I would like to pass it up.

Thanks, Mike. All right, leasing update. I'm not going to go through all the cells on this chart. Let me just highlight a couple things. First, take a look at APA 1. That's Denver Centennial Phase 1. One of the things that should jump out on this chart is our relatively low economic occupancy. So leasing has been slow in Denver. That's just the state of affairs. Not all of these lease up at the same time. Some take longer than others. I will point to examples like Miami and Nashville. Miami took almost a year and a half to lease up phase one and Nashville took even longer than that. Both of those are very, very robust cash flow encompasses campuses today. So we're not concerned about it. We wish we could move faster on this, but that that is a state of affairs. Two other cells that would jump out, I think, are the average rents per square foot in DVT-1, that's Phoenix, and Addison-1, that is Dallas, ADS-1. So a couple things to point out here. This sort of obscures the reality. I think if people have been paying attention on the last couple calls, we'll note our leasing strategy on specifically these three airports includes offering short-term leases at introductory rates, just to get to full occupancy as quickly as possible get the cash flowing get the debt serviced and and then go back and revisit again these are short-term leases go back and revisit the longer-term leases of which all of these campuses have longer-term leases we do sign at target or you know actually in all three of these cases above target levels right to give you a sense in Dallas our multi-year tenants are paying rents in the 40s and 50s per square foot. So the ambition is, as we proceed here, and we're pretty close to, you know, take Dallas as an example, pretty close to 100% leased at Dallas, is as these short-term leases come to term, start cycling back and replacing them with real long-term residents at the rates that we're looking for. So that explains those numbers. Yeah, if we had done the same thing, I think we didn't exactly do this in Nashville and Miami or in Houston at the beginning. But Nashville is one that started even with long-term leases in the 20s. And you see over a relatively short time that comes up and grows into pretty robust rates. So again, we expect that trend to continue on those. The last thing I'll call everyone's attention to on this slide is the release update lower left hand corner. Just a reminder to people of what that metric is, is in the last 12 months we have had 100,360 square feet of hanger leases come to term, expire and get renewed. In nearly all those cases, it's the same resident who is renewing and the average step up from the the last year of the first lease term to the first year of the second lease term is 19%. You'll notice that's a few points down from last quarter. The main reason for that is that a lot of these leases are now not the second term, but the third term of the lease, where we've expected and will continue to expect a bit of a smaller bump on that one. We're closer to what we would call the actual market rates. Next slide is site acquisition. Again, more or less speaks for itself, and I've said on these calls how I think this company should be valued, which is look at the total rentable square footage of hanger that the company has secured underground lease, not developed yet, but secured underground lease, which is that 4 million number on the right. multiply that times the Sky Harbor equivalent rent. And again, everyone can make their own rent projections on that. As you'll see, we've beaten Sky Harbor equivalent rent on all of the existing campuses. So we think that's a pretty good conservative number to use. That gives you a top line revenue number. We'll talk a little bit about operating margins in a few slides, but that is your available revenue capture. which is currently under ground lease. And again, I'll emphasize this certainly on the next at least year of quarterly earnings calls is the entry ticket to this entire business is the ground lease. That is the most important move. At the extreme, this could be a site acquisition company that hands off construction and operations to somebody else. We don't think we should do it that way, But fundamentally, that is where the value gets created is when the ground lease is signed. So, and then take that number, you can put whatever multiple you want on that or cap rate, and then discount it for all of the risks that we're all familiar with, right? There is development risk, construction risk, there's lease up risk, there's operating risk, all that stuff exists. So, you know, it is appropriate to discount those and obviously discount that for the time it takes. to actually build these campuses. But as you'll see, our focus is increasingly on Tier 1 airports. And we have another slide on that, so I'm not going to get deeper into that now. Next slide. One thing that I want to highlight and maybe just head off some concerns. And we've heard this from a number of people. This is something that we thought of ourselves as this was happening. As you'll notice, there is a lot of expansion going on in California, just as there's been quite a bit of capital flight among the most wealthy residents of California. We're seeing that firsthand because those people are signing up in our Miami, Nashville, Dallas campuses. We've got a lot of wealthy California Refugees, so to speak in those campuses. The reason that we continue to invest in California and and grow it. The first part is self evident. Look at the rents that we're getting in California. You know, other than the New York market, it's probably the best market in the country. That's both Bay Area and Southern California. But if you look at the trend as well. Most of the people who have left and it's well over a trillion dollars of wealth that's left in the last 12 months, most of those people return with a frequency that justifies keeping permanent hangar space. And a lot of our residents in California exactly fit that bill. They're people who are no longer domiciled in California, but visit enough that they keep hangar space with us. The second is, and we actually, we put it on the slide, is if of that trillion plus of wealth that's left California in the last year, the vast majority of that is 10 people. 10 people constitute the majority of that flight. And in the same period, 37 new billionaires have been minted in California, primarily Northern California, not only. And I think the insight that will, I think, be intuitive to everyone on this call, the average number of aircraft owned by somebody with, let's say, $2 billion is not significantly lower than the average number of aircraft owned by somebody with $80 billion. So our market in California continues growing, even as wealth on a net basis is leaving California. So expect even more emphasis on California site acquisition in the coming quarters. We have very, very high conviction on that market. Okay, our development update. So this is one of the areas where the rubber is meeting the road. We spent a lot of time talking about our gear up on the development and construction side of the business. A lot of increase in capacity, the vertical integration being completed, our entry into general contracting, building our own campuses. All of that was put in place to achieve scale. And right now that's where that's being borne out. So we are on track on both on budget and on time with all of the developments in this plan. And you see some pictures on the right from the campus is going to go open soon. Bottom right is Bradley, Connecticut. That is the the the nearest term. We've got Dallas Addison. We don't have pictures of that. Sorry. We have Salt Lake City, which is going to be delivered early next year. And we'll talk a little bit about construction costs as we go. But again, this should give people a sense of just how much is under development at Sky Harbor right now. And with that, let me turn it back to Francisco to talk about liquidity.

Thank you, Tal. We have closed the quarter with significant liquidity with over $207 million in cash and U.S. Treasuries and about 130 million still available from J.P. Morgan Committed Construction Loan. As Tal mentioned, you know, those red bars in the prior slide, you know, our pace of CapEx expenditure is accelerating. Very important to know that. These amounts that you see in this slide in terms of liquidity exclude the fresh 40 million cash proceeds we received earlier today at the holding company as part of a ratio direct equity placement that settled today. Next slide, please. As in the past, from time to time, we have received reverse increase of investors' interest in going to our company. Discussions for the past couple of weeks with two particular investors who have strategic value to us, especially from a leasing standpoint, have resulted in a 40 million straight common issuance at $10 per share, a roughly discount of up 4.6% to the last 30 days volume-weighted average price of $10.49. through this past Monday when we executed the stock purchase agreement for this placement. This equity issuance was very cost-effective, raised to direct placement from our shelf registration. We have now a cumulative surpassed $300 million in equity investments by our shareholders in the company. We decided to take these funds now as a tactical measure as we await for the potential exercise of our public warrants at the end of next January. As many of you know, if fully exercised, public ones will yield around 94 million in primary process for the company. We see the current rates combined with the potential for an additional 94 million in January as covering all our equity needs at the company for the foreseeable future and maybe indefinitely as we await increasing operating cash flow to be available in the future to reinvest in more projects. Next slide, please. Just want to take a second to and reiterate our guidance for the end of the year that we introduced back in May. On revenues, we have reaffirmed that we expect to finish the year with an analyzed run rate of revenues between $42 and $46 million, up from the $39.4 million run rate in this past quarter. This increase will be driven by the incremental revenues of Phase II at Opa Loca as it approaches full occupancy and increased occupancy at DVT and APA. Similarly, we reaffirmed that adjusted EBITDA will end up year at an annualized run rate of between 4 to 6 million, up from an annualized run rate of still negative in Q2. Let me now pass it back to Tal for a discussion of the highlights and next steps in the four pillars of our business model. Tal.

Airport with one. Oh, I'm sorry, I think we're muted. I'm going to start that again on site. Yeah, thank you. Thanks for Cisco on the site acquisition side. The theme of the last quarter and and going forward will continue to be big plays at Tier one airports, right? If you can expand. If you can expand on a Tier 1 airport, you know, put 300, 400,000 square feet on a Tier 1 airport, that is worth a lot more than three, you know, smaller sites on a Tier 2 or a Tier 1 airport for that matter. Obviously, the revenue per square foot is higher, but also your OPEX, your operating margin goes up, right? Because two phases, and we're seeing this right now, you know, very clearly in Miami, two phases is, costs almost the same to operate as one phase, but your revenue goes up in this case nearly doubles. So look out for that theme at the Tier 1 airports. On the development side, so you've watched all of the steps we've taken to scale up the vertical integration all the way to the general contracting. Now it's time to prove it out empirically. As I mentioned a couple slides ago, we are on schedule on budget at all of the airports in the pipeline right now. So continue watching that. And then prototyping. So the third version of our prototype has gone through third party testing now. It's approved. It's ready to go. And the first airport at which that will launch is Fort Worth, which breaks around later this year in Q4. We'll show you pictures of that. More functional, cost less per square foot to put up. It's a better hangar for cheaper. So that's obviously what we're striving to do here. On the leasing side, so we made the point about those larger footprints that we're trying to see at the Tier 1 airports. The occupancy optimization program, as we've discussed, especially in the newer campuses, you'll see this at Opelika phase two, where we're working to achieve significantly greater than 100% occupancy on these campuses. San Jose is the first airport that we really, I think, maximize that. We already talked about the release rates. Operations will continue to see operating margins improve if we do this right. That program is in place and already saving us OPEX dollars. And then perhaps most importantly of all is the resident experience itself, which yes, you need the physical asset in order to deliver it, but fundamentally what our customers actually experience is the service. And consistently, we keep going out with resident surveys. We are being ranked by far as the number one home base solution in business aviation. You can see that empirically that we charge a lot more than any other solution and still have waiting lists at all of the stabilized campuses. So we will continue working on that. That is increasingly, I think, the key differentiator. in the HBO business model. Next slide. Looking forward, so look for more of the same on site acquisition, meaning Tier 1 airports, Tier 1 geographies, and more same field expansions to the extent that we can do those. On the development side, If you look what's happening over the next two quarters, we're going from a little over 600,000 square feet now under construction to a little over 1200 square. Sorry, sorry, one point. Little over 600,000 square feet now under construction to over 1.2 million square feet under construction by year end. So this is the scale up that we're talking about. watch our schedules, watch our budget versus actual. That's what we're going to be trying to deliver on. And at the same time, as we grow and continue to refine the prototype, look for that cost per square foot to continue going lower. On the leasing side, just to give people a sense of what we hope to achieve in revenues. Let's start with it. I guess it's a smaller component, but 65,000 square feet that of lease that will come to term by the end of 2026 and will need to be released and we'll be looking for big step ups on those. 161,000 square feet that are currently in lease up right that places like Dallas and and Denver. And then we have. This is the big number that 218,000 square feet that is currently under construction, but will be slated for lease up by the end of 2026. So a big list for the leasing team. We have an expanded team. We continue with our tried and true practice of bringing in military veterans and our leasing team has expanded, I think, exclusively now with military veterans. And we talked about pre-leasing on the last call, which had good results in Opelika phase two. We have Bradley, Connecticut coming up in Q3, Q4. The proof will be in the pudding. Watch to see how that campus opens in terms of occupancy. And then lastly, operations. So we speak every time about starting with defense, Safety, security, and efficiency come before everything else. We spoke a little bit on the last slide about innovation working with the residents. The last point that I want to mention, and people have asked about this a little bit because the network has grown to a point where it's starting to make sense, which is people using multiple Sky Harbor campuses. So we just rolled out a program called SkyKey. which gives Sky Harbor Network access to some of our top residents. That's, you know, call those our guinea pigs where they get the full Sky Harbor service exactly as they're accustomed to with all of the privacy and the security that that entails wherever they go within the Sky Harbor Network. So that's a new revenue driver in the business. I don't think we've captured much revenue yet. We just rolled it out, but look for that to start contributing to our revenues going forward. and contributing, I think, to the value to residents of the Sky Harbor offering. With that, I think we are ready for questions.

Yes, operator, please go ahead with the queue from our research cohort analyst. And again, reminder for everybody else to submit questions through investors at Sky Harbour Group and we'll answer those promptly in the coming hours and day. Operator.

At this time, I would like to remind everyone in order to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Michael Diana with Maxim Group. Please go ahead. Michael, Diana, your line is open.

Actually, I didn't signal for a question.

Your next question comes from the line of Tom Catherwood with ETIG. You may go ahead.

Great. Thank you. Good afternoon, everybody. Lots of Lots and lots to talk about here. Tal, maybe starting with you. So appreciated all the detail that you gave on leasing at the operating properties and you quickly touched on the pre-leasing, but it seems like you made some significant progress there in 2Q, especially with the second phase in San Jose, which I think is fully wrapped up now before you even started construction. Can you talk a little bit more about pre-leasing progress, you know, both there, maybe at Dulles as well? And then as you're rolling out that program, are you utilizing the kind of introductory rate strategy that you've done at ADS and DVT and APA, or are you using a different approach?

Thanks for the question. Thanks for the coverage, Tom. So, look, I think what's maybe conspicuous about pre-leasing at San Jose, which is different from Bradley and Dulles, It's much more like Miami phase two, is that when you have a phase one in operation in a market, you know, I think maybe just now becoming a national brand in business aviation. What we've been to date is a collection of local brands in every geography. If you own an airplane in Miami, you're trying to get into Sky Harbor, right? There's a waiting list in Sky Harbor, Miami. in other locations were just not as known. Again, we think that's beginning to change now. There is a little, you know, more of a national recognition of where we're coming. But it is definitely easier. There's so much pent-up demand in the Phase II markets that pre-leasing goes a lot easier. San Jose II, I mean, I should say for all three of those airports, there is no introductory rate. If you think about it, you know, I keep going back to Miami phase one, where we opened up 12 new hangers, whatever that was, 160,000 square feet of hanger. Simultaneously, more hangers than never been put on a market at once, as far as we know, ever. I don't think we quite appreciated what that glut would do with a sophisticated customer base who understands there's 12 hangers and 12 vacancies. There's a lot of leverage in that negotiation. on the part of the resident. The main concern of a chief pilot or flight department negotiating a lease on an existing campus like Miami at that time was overpaying. It does not want to be the person who volunteered to pay more than their neighbors are paying. When you pre-lease, we're seeing that the main concern is really FOMO. And as we get closer to fully lease, and as you see the rates climbing up, right, the first leases are signed, they're not introductory rates, but they're lower rates than the last leases are signed. That becomes the primary concern. So when you have a year before you open up, or in the case of San Jose, even more than a year before you open up, there are a lot of people who want to lock in that space. and know it's going to be gone. By the way, we have, I'm sorry to say, some angry people who did not get space in San Jose phase two. And if you gave us a phase three there, we would grab it.

I appreciate those answers. Maybe sticking with that kind of last comment, what you had said about site selection and this focus on top airports and top markets, You've talked in the past about how airports and municipalities are limited in their ability to push ground rents. But are you seeing airports looking for other avenues to extract higher economics? Maybe it's more required capex spending or infrastructure spending or fuel purchases. And because you have a sense of what it takes to do these now, does that give you an advantage over others that might be competing when it comes to site procurement?

I mean, it's a good question. I don't think there's any one-size-fits-all answer. What I will say, kind of a rule of thumb that can be applied pretty broadly is, you know, I mean, by the way, there are certain airports where the total CapEx is what's important. There are certain airports where, you know, there are other items that are important. What seems to be fairly common, though, is that our interests are aligned with the airports and our interests are aligned with base residents in that geography, right? So when you show up in Atlanta, there is a hangar deficit and the FBO model doesn't really address that deficit because remember the FBOs make their money outdoors from fueling. You're not allowed to fuel indoors inside a hangar for regulatory fire code reasons. So their revenue is produced outdoors. They want as much outdoor space as possible, right? transient traffic in, get them fueled, and get them out as quickly as possible. That is the business model. So for the municipality or county that wants to maximize hangar space, they're not really getting everything they want out of the FBOs. We come in and show them from the beginning. We make our money from rent. Our money is made indoors, not outdoors. Our interests are aligned with you. We want to maximize our hangar footprint. And as you know, I think know our campus layouts have very little ramp and a lot of hangar. They look very different from an FBO's campus layout. That is a winning proposition for a lot of airports. You take another is that repositioning, particularly in heavily trafficked markets, New York being the primary among them, but also Southern California, Northern California, increasingly South Florida, Dallas area. There is simply no room. You cannot get anchor space at Teterboro. So most of the New York, for example, Manhattan aircraft owners who operate out of Teterboro, their departures and arrivals with passengers are to Teterboro. The airplane doesn't live at Teterboro. It lives at Bradley, Connecticut or Trenton, New Jersey. In those situations, there's a lot of pressure to reduce repositioning flights, right? And here's what I'm talking about, kind of that triple alignment of interest. From the aircraft owner's perspective, those repositioning flights are expensive. That's fuel, that's pilot hours. They're logistically cumbersome. If you're flying far, you're flying to Eastern Europe or Asia from New York, when your day began with a repositioning flight and a fueling and hold on the ground at Teterboro, your pilots will run out of duty hours, right? So we have people who fly with double cruises. It's very logistically cumbersome to do that repositioning. From the airport's perspective and the local government's perspective, that's environmental impact. That's airplanes flying empty and no passengers. That's noise impact. Those flights are straight and low and loud. They're typically conducted under VFR when the weather permits. You're just going straight. You want to get there as quickly as you can. It's wear and tear on the airport infrastructure. Think about it, four operations for every round trip rather than two operations for every round trip. And it's taxing on the air traffic control system. come in and say, look, when we come to your airport, we're actually going to reduce repositioning. That is a big deal, right? And again, from the FBO's perspective, and I'm not trying to knock the FBO's, great business model, and they're great partners to us as well, but you should understand, they are a hotel. Fundamentally, that movement drives fuel sales. That is their incentive. We're incentivized very, very differently. So I hope that answers your question. That's an example of how interests can align. between us and the airports.

That's perfect. Thank you for all that insight, Tal. That's it for me, and I appreciate all the answers.

Your next question comes from the line of Timothy D'Agostino with B Raleigh Securities. You may go ahead.

Yeah. Hi. Thanks for taking the questions today. Just on the release, I understand the commentary of you kind of expect that to tick down over time. It sounded like, you know, obviously it was 23% last quarter, 19% this quarter. But I guess, how should we think about that revenue escalation, you know, maybe over the next two, three years, given new campuses will come online, those leases will be resigned. And then as well, you know, at ADS and APA where you're, dropping the lease lower to fill the hanger, obviously that next lease would have a pretty meaningful escalator, I would assume. So just trying to understand of how we should think about that going forward, because it seems like with new campuses coming online, like the churn there could push that maybe higher, but just trying to get your thoughts on that. Thank you.

Yeah, thank you. Thank you, Tim. So I think your instinct is is probably right. Right. On those three campuses where we're doing the introductory rate strategy. Yeah, I think it's reasonable to accept to expect a bigger bump up on that first release. You're right. And we're you know, those introductory rates can be very low on some of those campuses. It's really about just not not flying empty. You know, while while we do the kind of the release up, And then on those pre-lease campuses where we're actually getting, you know, above target rents before we even open the doors, probably less of a bump on the pre-lease. So, you know, we've avoided trying to make predictions on inflation rates on airports. You know, as I think you know, I think they're going to be completely divorced from CPI. There's just no land to develop on airports and the fleet just keeps growing. There's nowhere to put these aircraft. So we think inflation is baked in, but we're not. We're not giving out numbers. We figured the best we can do is just publish this release rate. Remind everybody that all of our leases feature a annual escalators of CPI with a floor of 4% and then let people come to their own conclusions about what the inflation rate should be. Because again, if you're building a model for the company, one of your most sensitive inputs is going to be your assumption on inflation rates going forward in hangar rents. So, again, we're not making any predictions on that, but we want to provide you with as many tools as possible so you can.

Okay, great. Thanks for the answer there. And if I could just ask a second one. Just on the half million net cash provided by operating activities, obviously this was first quarter of positive operating cash flow and company's history. Was there anything in the quarter that stands out as maybe a one-time non-recurring item that would have pushed that positive? Should we think about that cash number being positive going forward or as new campuses open up, it could take back to negative? Thank you.

Yeah, good question. And again, thank you for your coverage. So this is a recurrent type of number, of course, you know, in the next two quarters, we're going to continue benefiting from increased revenues, as I mentioned earlier, from the, you know, the leasing of, or the finished leasing of Paloca Phase II, and then continue leasing the APA and DVT. Now, in Q1 of 27, you're going to see the very strong effect of adding the opening of Bradley and the opening of ADS Dallas 2, and that will make that number a jump, a step function into the positive, you know, and from then never look at negative number hopefully again. But so between now and then, it's probably going to be trend and higher because, again, of the continued leasing of the existing facilities, but it will not be until Q1, Q2 of next year that it propels and never looks back on the back of the opening of Bradley and Edison II.

Okay, great. Thanks for the commentary and congrats again on the quarter. Thank you.

Your next question comes from the line of Ryan Myers with Lake Street Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. You know, first one for me, with the unchanged guide and the roughly, you know, million-dollar EBITDA loss here in the corridor, can you just walk us through sort of the key drivers required to reach the $4 million to $6 million annualized run rate by the year-end on adjusted EBITDA?

Yes. Let me put some comments and then also, Mike, if you want to jump in as well. So on revenues, obviously, we're trending nicely to meet or exceed, but let's see right now, meet the guidance we provided. And obviously, we'll look at the guidance again in November at the time of our Q3. I wish time, by the way, let me take the opportunity to state that we will be starting to get guidance for 2027 in the next quarter webcast for Q3. Now, in the context of adjusted EBITDA, you know, we're coming into this coming month with a lot of momentum of the leasing of OPA LOCA phase two at a very, very attractive rate. And also, remember that that is a phase that has a lot of operating leverage because we're basically operating with the same staff because it's an extension, you know, it's a phase two. And that does wonders for gross profits. So you don't need too much to move from the current run rate into the run rate in our guidance to meet the targets that we outline. I don't know, Michael, if you have anything to add.

Francisco, you hit on the two main things that I was going to touch on, particularly the operating leverage. to achieving the guidance as we expect.

Got it. No, that's great to hear. And then lastly for me, you guys noted the development team continues to lower costs. So where does current construction cost per square foot stand and, you know, how much further opportunity do you think remains through just, you know, vertical integration and then just, you know, any prototype improvements that you guys have seen?

Do you want to take that and then we'll maybe add to that?

I'm sorry, can you repeat the question?

Yeah, just, you know, an update on current construction cost per square foot and just, you know, how much opportunity you think remains with the vertical integration and then just any of the prototype integration that you guys have done.

You know, Ryan, we're kind of overdue, I think, for resetting a target. You know, when we're up above 300, we set 250 as a target. We're at about 242 right now. We do think there's a lot more juice to squeeze. But we haven't actually set a target yet. You know, what you'll see is that we're using, I think we should provide some photographs when we actually break ground on the version three of our prototype in Fort Worth. But you're going to see, you know, new and different construction materials, some different construction techniques. The layout of the hangar is going to look very similar. The outside actually looks a lot better. I think it's aesthetically a lot more pleasing. National procurement, right? So we're no longer purchasing things like fixtures and lighting and electrical components, campus by campus. We're now buying 10 airports ahead. So those numbers haven't really manifested yet. They're not complete, at least. in that 242. So look for more to come. On the other side, we could have some macro headwinds on just construction inflation that we're going to have to battle. But I think I'm glad you raised the point. I think maybe on the next call, we're going to have to set another target.

Yeah, let me add to that, if I may. So as you saw from the chart that Tal covered earlier, showing that now we're entering a couple of quarters where we're going to be in construction in about eight and moving probably to 10 different campuses at the same time. The coming quarters are going to provide a lot of data, a lot of volume and economies of scale to really turn what is right now a projection into hard numbers for us to share with our investor base and with you guys and so on. Nothing pleases me more to hear that our manufacturing facility in Texas is a tool two and almost two and a half type of shifts. And we don't go to three because people have to take some day off. But it is that type of economies of scale with volume that's going to be one of the key drivers of our keeping and maintaining construction costs overall low.

Got it. No, that's helpful. Thanks, guys.

Your next question comes from the line of Gaurav Mehta with Alliance Global Partners. Please go ahead.

Yeah, thank you. I wanted to ask you on your pre-leasing going forward, how should we think about how you would approach pre-leasing? Is it going to be a standard offering across the new construction, or would you be selective where you implement pre-leasing?

Hi, Gaurav. Yeah, thank you. Yes, that's standard going forward. Opelika phase two was the first campus we did with that. You'll see Bradley as next and then Dallas phase two as the one after that. And then Salt Lake City. We're working on all of those, as you know. We see no reason to change it. I think we might fiddle with the pre-leasing goals. Like right now we're saying 50, you know, half to two thirds leased. by opening. That's what we're targeting. Obviously, you're leaving a little bit of money on the table when you do it like that, because these are long term leases. This is very different from Dallas, Phoenix and Denver. So you are locking yourself in and the rates do creep up as you advance with the leasing of a campus. So we might adjust the total ambition of how much we want to get pre-leased over time. Again, we might not, but yes, look for that to be standard in all the campuses.

All right. Thanks for those details. Second question on the ground leases. How many new ground leases are you guys looking to add this year?

So as we discussed on the last call, we're not actually counting those in terms of number of ground leases anymore, it's square footage. How much square footage of hanger are we able to put in? And again, ultimately, after everyone's accustomed to that metric, we're gonna move to what is the real metric, is what is the actual NOI that you can capture from an airport? Really, that's what you should be going after. I think everyone would agree, if we had five airports each with 100,000, square feet of hanger, but you could achieve that with a single airport with 500,000 square feet of hanger in a tier one location. That's obviously preferable, right? You're going to have lower off effects and easier lease up. It's got a lot of advantages to do it that way. We haven't actually put out a square foot target. We, you know, we're kind of, migrated on guidance to really the bottom line. What are we projecting in revenue? What are we projecting in EBITDA? But we announce these airports as they come. Sometimes the cities and counties announce them before we do. So I'm guessing everyone on the call is aware of some of those. But we haven't actually put out guidance on that.

All right, then lastly, in your prepared remarks, you mentioned something around leasing being slow in Denver. I was wondering if that's in line with what you guys wrote, or has that been a surprise?

It's been a surprise. It's been a disappointment. We wanted to be moving faster in Denver, and it's just, again, some of them are fast, some of them are slow. Denver's a slow one.

All right, thank you. That's all I have.

Your next question comes from the line of Dave Storms with StoneGate Capital Partners. Please go ahead.

Hello, this is Maximus. I'll be asking questions for Dave Storms today. Wanted to start off on SDR and OPF. Economic occupancy hasn't been running above reported occupancy. Is that mainly a function of the private versus semi-private hanger mix, or is there something else about those campuses that limits how much you can optimize occupancy? Thank you.

Yeah, you're exactly right, Maximus. The Sugarland is 100% private, right? We have, I don't know if you were following us at the time, but the whole notion of semi-private kind of occurred to us later on, actually toward the end of lease up in Nashville. So Sugarland had been completely leased up long term at that point. It is private. It can't go above 100%. We're capped there. Miami is similar in that the first round of leases were all private. We have a little bit of semi-private going on in Miami phase one, but Miami phase two does have semi-private. Again, we have people taking full SH-34 hangers in Miami phase two, so there's one case of a fully private hanger that's just a large tenant, but Most of Miami Phase 2 is semi-private, so we should see significantly more in Miami.

Thank you. I appreciate that caller. I wanted to move forward with pre-leasing. Historically, kind of just based off our math, it's taken roughly three quarters for a new campus to reach full lease up. With pre-leasing, can you see that accelerating, maybe closer to two quarters or even shorter on average?

Yeah, it's possible. You know, again, the proof will be in the pudding again. So yeah, I'd say on the next earnings call, look to see where Opelika phase two stands. By the way, we're treating Opelika really as one campus now. So because, you know, A, it is one campus, but also we've actually done some shifts, right? We took people into phase two and then actually ended up moving them to phase one. moving phase one people to phase two. We've done a little bit of shuffling in Miami, but look to see, are we at 100% or higher by the next earnings call in Opa-locka? And then the next data point will be Bradley.

Great. Thank you for answering my questions.

Your final question comes from the line of Joe Gomes with Noble Capital Markets. Please go ahead.

Good afternoon. Thanks for taking my questions. As you're moving more and more into the Tier 1, are you seeing the competitive environment start to tighten up there? Given the dearth of airport land, How does that play into the old land grabs, so to speak, strategy? Are you trying to be maybe a little more aggressive in trying to get land at various airports? Are you still trying to more focus on the ones that you currently have in hand?

Yeah, thanks for the question, Joe. We remain aggressive. We remain creative and we remain patient because, and I think the last one, patience and persistence is probably the most important of all three of those. If you're following, you'll see all of these wins have been the result of multi-year efforts, in some cases five, six years working on an airport. We haven't figured out a way to really accelerate that. Maybe that already is accelerated. That's the bad news. The good news is that we started a process on dozens and dozens of airports five or six years ago. So some of those are starting to pop now. Again, there are things that we haven't exactly announced yet but are out there and I think a lot of people on the call are aware of. These are all the result of multiple years of effort on those airports. So, no, if anything, we're accelerating on the on the debt acquisition side. No, no plans to slow that down.

OK, thanks. And then just maybe clarify something here, you know, on your presentation on the talking about the registered direct placement. You talked about that and then kind of had a last point there that you acquired are certain investors acquired three hundred sixty thousand shares from Boston, Omaha. Maybe just give a little more color on that, who approached whom, you know, what was all about that transaction about?

Yes, let me take that on, Maximus. And so some of you may be aware, at the time of the lease pact, there is a shareholder's agreement in place that any investor or anytime there's a transaction that the company does or an investor as part of the shareholder agreement institutes a process, we all kind of like coordinate and give notices to all those legacy investors and so on and so forth. So on that spirit, although we were not required on that spirit, when we were approached a couple of weeks ago to do the primary issuance that we just announced and closed today, We went around and asked all our quote unquote legacy investors, you know, Center Capital, Due West, and Bosomaha if they had an interest in selling shares as part of this process. And Due West and Center Capital said no, and then Bosomaha. said that they will, if there was an opportunity, they would like to sell 300,000 shares. So prior to this process and conversations with a couple of investors that were also in discussions with us, we were successful in not 300,000, but 360,000 being sold by Bustle Omaha in a separate transaction to ours to those investors, and those stock purchase agreements were executed also during day-to-day. And those transactions, we understand, again, they're between both Omaha and certain investors, not us, but they were coordinated through us. But I think the highlights here to take away from that, again, I don't want to speak for both Omaha. People should reach out to them directly. By the way, we're going to be attending their annual shareholders conference next week in Omaha. We have not done so in four years now or three years now. And so we're looking forward to be there. But I think the two takeaways are one, that all our shareholders at this juncture have reaffirmed their interest in continuing being long-term investors of Sky Harbor and that the Boston Omaha appetite to sell right now at this moment was just 360,000 shares and so forth. And those who have been following our stock, this is their first sale in a year and a half, and obviously of a very significantly low amount of shares. They have reaffirmed their interest of being long-term investors of Sky Harbor.

Okay, great for that caller. Thank you for taking my questions.

There are no further questions at this time. I would like to turn it back over to Francisco Gonzalez, CFO, for closing remarks.

Thank you, operator, and thank you, everybody, for participating. Before you go, let me just give an announcement that Tal Canaan, our CEO, is going to be scheduled to participate tomorrow, Thursday, at 3.20 Eastern Time in the Clayman Countdown Show in Fox Business. So those of you guys who uh you know follow some uh visibility tells um first meet mass media appearance again that's claiming countdown around 3 20 eastern time a and folks business channel uh tomorrow Thursday a you know please tune in to see uh talking and uh you know maybe answering questions from from this claimant uh and with that we have um concluded our um our conference here. And again, please look for additional information in our website at www.skyharbour.group and reach out with additional questions directly to us at investors at skyharbour.group. So again, thank you again for your participation. And with this, we have concluded our webcast operator.

Ladies and gentlemen, this concludes today's call. You may now disconnect.