Fortress Transportation and Infrastructure Investors LLC (NASDAQ:FTAI) Q1 2023 Earnings Call Transcript

Fortress Transportation and Infrastructure Investors LLC (NASDAQ:FTAI) Q1 2023 Earnings Call Transcript April 27, 2023

Operator: Good day and thank you for standing by. And welcome to the Q1 2023 FTAI Aviation Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to introduce your host for today’s call, Alan Andreini, Head of Investor Relations. Please go ahead.

Alan Andreini: Thank you, Justine. I would like to welcome you all to the FTAI first quarter 2023 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; and Angela Nam, our Chief Financial Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only-mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings.

These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe.

Joseph Adams: Thank you, Alan. To start today, I’m pleased to announce our 32nd dividend as a public company and our 47th consecutive dividend since inception. The dividend of $0.30 per share will be paid on May 23, based on a shareholder record date of May 12. Now let’s turn to the numbers. The key metrics for us are adjusted EBITDA. We began the year well with adjusted EBITDA of $127.7 million in Q1, 2023, which is up 3% compared to $123.5 million in Q4 2022 and up 184% compared to $45 million in Q1, 2022, which had been adversely affected by Russia’s invasion of Ukraine. During the first quarter, the $127.7 million EBITDA number was comprised of $107.6 million from our leasing segment, $27.4 million from our aerospace products segment, and negative $7.3 million from corporate and other.

Turning out to leasing. Leasing had a good quarter, posting approximately $108 million of EBITDA. The pure leasing component of $108 million came in at $91 million for Q1, up from $85 million in Q4. With strong demand for assets and the commencement of the Northern Hemisphere summer season, we expect Q2 will continue to grow. We remain very confident in leasing EBITDA of $350 million to $400 million for the year, excluding gains on asset sales. Part of the $108 million in EBITDA for leasing came from gains on asset sales. We sold $92.2 million book value of assets for a gain of $16.5 million, slightly below our expectations, but we have more asset sales coming in Q2 and the rest of the year and are comfortable assuming gains on asset sales of approximately $25 million per quarter, or $100 million for all of 2023.

Aerospace products had another excellent quarter with $27 million of EBITDA. We started these activities at the end of 2020, and in the last six quarters have booked approximately $120 million of EBITDA without any contribution from PMA. We see tremendous potential and continue to feel good about generating $20 million to $30 million in quarterly EBITDA and think $100 million plus in 2023 EBITDA remains very doable. We feel confident about this number because we’re seeing a rapidly expanding backlog of aerospace products business with other leasing companies, maintenance and repair organizations, and airlines. With that, let me turn the call back over to Alan.

Alan Andreini: Thank you, Joe. Justin, you may now open the call to Q&A.

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Q&A Session

Operator: And our first question comes from Josh Sullivan from Benchmark Company.

Josh Sullivan: Hey, good morning. And congratulations on the results and progress here. So you’re now annualizing EBITDA at some good rates, and you walk through some of the components there. Just curious if the $550 million to $600 million EBITDA guidance is still the right framework at this point as well.

Joseph Adams: Yes.

Josh Sullivan: That was yes, I broke up there.

Joseph Adams: Yes, that was yes.

Joseph Adams: Sorry it was a one word, obviously it was one word answer, maybe. But yes, as we indicated each one of segments, if you add up each one of the segments, it’s very much on target. And we think as we’re heading into the strong season, Q2, Q3 that there is probably some upside in these numbers as well.

Josh Sullivan: Got it. And then just within the gain on sales here, I know they can be lumpy quarter-to-quarter, as you mentioned, but was there any particular program that moved around, or how should we think about those gain on sales moving forward?

Joseph Adams: No, it is lumpy, and typically you get a lot of transactions that target closing towards the end of the year, and some of them, they slip over in the Q1. So Q1 is usually the slowest because you’ve emptied out your bucket of deals usually. So it’s not unusual for Q1 to be a bit slow. And then it builds through the year. And most people have annual budgets that end in December, so you tend to see it growing towards the end of the year.

Operator: And our next question comes from Giuliano Bologna from Compass Point.

Giuliano Bologna: Good morning, and congratulations on a great high quality weight quarter, this quarter. The first question I was curious about asking was around PMA. I’m curious if you have any updated thoughts around PMA or if there’s any change in your opinion there, and if there’s any update around the timetable compared to what you’ve laid out in the basket.

Joseph Adams: No, there’s no significant no real change in the timeline or what we outlined before, which is we expect all four products to be ready for final submission in the middle of this year. And I would say good progress has been made on every front that you need to achieve to be able to do that. So there’s no change in what we’ve said previously, and I would just say good progress on all fronts towards getting those parts in the market.

Giuliano Bologna: That’s great. And then a slightly different area that probably doesn’t get much focus. You still have those two offshore assets that are in the other category. I’d be curious if there’s any update around potential thought process, around maybe selling one or two of them this year. And then also I’d be curious if those had any financial impact in the quarter, positive or negative in the results.

Joseph Adams: Sure. There was a little bit of a negative impact of probably $3 million in Q1 because we had some repairs that needed to be done on one of the larger vessels. So that was a bit of a drag on the numbers this quarter and the ship is back in service, so we expect the next two quarters to be good. So that should reverse. In terms of selling, we’re actively evaluating it and still believe that most likely the best timing to do transact would be towards the end of this year, around the end of this year, given that the larger vessel just started operating in the well intervention market. And the more credentialized it becomes, the wider the universe of potential buyers. And that market has recovered a lot. So I feel better and better about being able to achieve that on that timeline towards the end of this year.

Operator: And our next question comes from Frank Galanti from Stifel.

Frank Galanti: Great. Thank you very much for taking my questions. Congrats on the nice quarter here. I wanted to ask sort of on the aerospace business, can you sort of talk about what the component, I guess the makeup or the mix of that $27 million of EBITDA, how much was modules, how much was USM?

Joseph Adams: Yes. So this quarter, it was about two thirds from The Module Factory, one third from US, Used Service launch, USM. It was a little bit more USM this quarter than there has been as we’ve been predicting, that market is picking up given parts shortages and price increases. So that’s a good thing. We’ve indicated we’ll probably be targeting about 40 teardowns a year and we make approximately a $1 million per teardown. So $40 million of EBITDA divided by four would be $10 million. So there’s a little bit of upside, I think, going forward for USM. And then I think there’s a lot of upsides as I’ve mentioned before at our Module Factories, we have a strong backlog of customers who, some of whom are fully committed and some have just given us verbal that they’re looking for programs of eight or more modules a year and the number of airlines indicating that keeps growing.

So we feel very good about the repeat customer mix of which in Q1 there were probably seven customers out of the 10 who were repeats and three that were new customers. So we’re progressing as we expected in terms of both growing the number of customers as well as growing the number of modules per customer.

Frank Galanti: Great. And actually I wanted to follow up on that comment. Is there a sense for, the question is really around customer stickiness sort of like a churn number? I know it might be early in the business to sort of get a sense for that, but do you have like a percentage churn that the business is currently operating under? Or I guess another way to think about it, is there a way to quantify how much capacity those 26 or 29 customers that you’ve used before, like are you at 10% of their shop visits? Are you at 5, 25, 50? Like is there a lot more room to grow in those customers, the 29 customers that you’ve worked with in the past?