Good afternoon. My name is John, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Sky Harbour 2024 First Quarter Earnings Call and Webinar. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Francisco Gonzalez, Chief Financial Officer. You may begin your conference.

Thank you, John. Francisco Gonzalez, CFO of Sky Harbour. Hello and welcome to the '24 first quarter investor conference call and webcast for the Sky Harbour Group Corporation. We have also invited our bondholder investors in our borrowing subsidiary Sky Harbour Capital to join and participate in this call. Before we begin, I have 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 contains 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 Slide 12 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 includes Tal Keinan, our CEO and Chair of the Board; Will Whitesell, our COO; Mike Schmitt, our Chief Accounting Officer; Tim Herr, our Treasurer; and Tori Petro, our Accounting Manager. We have a few slides we want to review with you before we open it to questions. These slides have been filed a few minutes ago in Form 10-Q with the SEC and will also be available on our website shortly. As the operator stated, you may submit questions during the webcast during the Q4 platform and we will address them shortly after our prepared remarks. Let's get started. This is a summary of the financial results of our wholly-owned subsidiary Sky Harbour Capital and its operating subsidiaries. As you may see, we continue the path of construction activity and expect that to accelerate in the coming quarters as Will discuss shortly. Revenues moved higher in Q1 and we expect them to continue to move higher in Q2 now that the three campuses are fully leased. Operating expenses remain relatively flat, leading to a positive cash flow from operations as you may see in the lower right-hand chart. We expect to remain cash flow positive going forward at the operating level. We expect this trend to continue and to accelerate in the first half of next year when the Denver, Phoenix, and Dallas campuses open. Next slide. On a consolidated basis, the results in Q1 tracked similar results at Sky Harbour Capital except for SG&A, which is mainly a repair company and reflects the impact of non-cash employee stock and cash-based compensation expenses. The next step function in revenues on a consolidated basis is expected to occur in Q2, the current quarter with the opening last month of our new campus at the San Jose de Janeiro International Airport. We expect Sky Harbour Capital on a consolidated basis to reach cash flow positive in the summer of 2025 as we reach sufficient scale to cover our holding company expenses. Let us turn to Tal Keinan, our CEO for an update on site acquisition.

Thanks, Francisco. As people are becoming accustomed to, we think of our activities in four silos: site acquisition, development, leasing, and operations. Site acquisition, as you can see, is the major hurdle in our business. It's not that our work is done when we acquire a site, but most of the value of our growth is captured at the point of site acquisition. This chart shows revenue capture historically and what we project going forward. We're on track to meet our projections, perhaps even exceed them this year. I'm going to hand it over to Will to talk about development.

Thanks, Tal. This Gantt chart represents a high-level summary of our development and construction pipeline as we see it today. Behind each of these phases, there's a significant amount of detail that represents both the planning and execution approach of each of the fields to deliver the assets. This Gantt chart will continue to be detailed as our pipeline grows. This represents a three-fold increase in projects from 2023, moving into 2025. Our first-quarter focus has been on determining the structural remediation plan of the three fields discussed in our previous call. The second quarter has been driven around defining our processes to scale up operations towards nine projects in 2025, and the third and fourth quarters will be centered on finding efficiencies and delivering projects faster and at scale.

It's Tal Keinan again. Our leasing update, as discussed in our last earnings call, the first three airports are functionally fully leased. I will say we're targeting effective occupancy that is higher than 100% on those campuses. I think we did discuss this in the last earnings call where we have what we call semi-private hangars in Nashville and Miami, with more than one tenant in a hangar, based on aircraft square footage instead of hangar square footage. As Francisco alluded to earlier, we opened our fourth campus in San Jose, California on April 1. We're currently coming up on 60% leased, and our revenue per square foot is significantly higher. I think it's important to note that we are orienting the company over the next 24 to 36 months towards targeting the best airports in the country. San Jose is the first Tier 1 airport in the Sky Harbour portfolio, and our focus will largely be on Tier 1 airports moving forward. On airport operations, there is not much material to report at this point except to say that the objective set at the board level for 2024 is to build a brand for Sky Harbour while demonstrating clear differentiation from legacy solutions. We're focused on efficiency, personalization, privacy, and safety. Our goal is to provide the best service to our residents, ensuring their needs are met meticulously. With that, let me hand it back to Francisco to discuss our liquidity position and long-term permanent debt.

Thank you, Tal. We continue to enjoy strong liquidity as we roll our cash in 1 to 3-month U.S. Treasury bills and notes pending their use in construction. In the meantime, we continue to earn more on our cash than the interest expense of our bonds. At quarter end, we had close to $160 million in cash and U.S. treasuries. Our debt consists of permanent fixed-rate bonds, with the first maturity eight years away. The recurring cash flows from operations that we expect at the obligated group in 2025 will amply cover the expected net service of $5.6 million next year without needing to touch the $4 million wrap-up reserve put in place at the time of the bond issuance. One more comment on our bonds: our longest 30-year maturity, during 2054, traded recently to yield 5.75, highlighting the strong demand for our bonds. We feel comfortable projecting that after stabilization, future debt service coverage ratios will exceed those projected at the time of the bond issuance three years ago. We continue to receive funding proposals for equity and debt to meet our growth capital needs, and we are being disciplined in our consideration of these. Our balance sheet on liquidity allows us to be fully funded for the first ten airports and to reach cash flow breakeven without any additional capital raise. We will continue to seek opportunities as they arise. Back to Tal for a brief review of our areas of focus in the next 12 months.

Our radar suite looking forward is as follows: site acquisition is now about maximizing revenue capture, meaning the most square footage on the best airfields in the country. Our site acquisition team has grown significantly and will continue to grow. We expect a significant focus on Tier 1 airports. On the development side, we're moving towards standardization and structuring ourselves for scale, with high run rates and parallel processing of many fields across the country. On the leasing side, this year we want to generate brand awareness. We aim to become a national story alongside the number of campuses coming online and recognition of the value we bring to airport sponsors. Lastly, operations will continue to maintain a focus on the resident community and ensuring we meet their particular needs while also focusing on safety. With that, I think we can take it to questions.

This concludes our prepared remarks. We now look forward to your questions. Operator, please go ahead with the queue.

First question comes from Philip Ristow. He asked if Sky is considering legal action regarding the additional costs for Phoenix and Denver, and if there could be any potential recovery for those extra expenses. Thank you.

This is Francisco. First of all, thank you for your question and for following Sky Harbour these past few years as an investor. Yes, we have engaged outside counsel to pursue claims against those parties related to these flood designs that we have now addressed. The outcome of that is too early to tell. We know that some of the parties have insurance behind them, so more on this in the near future. We do expect some recovery, although it will not be a full recovery for the increased costs we have endured, but we will fully pursue our legal remedies under the contracts and laws in the jurisdictions impacted, such as Texas, Denver, and so on.

The next question comes from Philip Ristow. Can you discuss the non-rental revenues mentioned on March 27th? What is the potential for that segment over the next five years as a percentage of the overall revenue and margins?

This is Tal. We are seeing actually two similar questions on this. So, let me start by saying our focus right now is on growth – putting more dots on the map with better placements. We are currently dedicating relatively little bandwidth to additional revenue streams. The idea is to circle back once we establish ourselves at the airport. There are fueling revenues that supplement our rental revenues. We facilitate third parties providing services and take a cut, which will be the model for most of the additional revenue streams we are looking to put in place. Our primary focus remains on growth.

The next question comes from Greg Giddis. Do you think you can achieve over 100% occupancy at other campuses, or is it more of a one-off?

That's definitely something that we'll aim for everywhere going forward. Our prototype hanger has evolved to about 34,000 square feet, allowing us to achieve higher revenue density than in the 12,000 square foot format. This format can be structured in ways to support increased occupancy levels, so I expect occupancy to be higher at future campuses compared to the current campuses.

The next question comes from Christine Thomas. What is the current trend in construction for SQF cost? Are there benefits to scale as you add hires to a bigger installed base?

Currently, construction costs on most of our campuses range from $240 to just north of $300 per square foot. Some inflationary pressures have started to settle down from ranges of 6% to 10% to a more normal range of 3% to 5% on a per annum basis.

The next question comes from the line of Matthew Hallett. Are you still on pace to sign three ground leases in 2H '24 and six in 2025? If so, will all be Tier 1 locations?

Yes, we are on pace. Our ambition is to exceed guidance. In terms of targeting, we have over 100 airports in process. While the focus is on the best Tier 1 airports with the highest revenues, we won’t turn down other business if capital isn't a constraint moving forward.

The next question comes from Peyton Skill regarding guidance on full occupancy at SJC.

We currently have the entire hangar under LOI. How much of that will materialize as a full lease will be known in the coming month. Our internal target is midsummer to have that hangar fully leased. It looks likely we might beat that target with the entire hangar around 105% occupancy under LOI currently.

Let me add, this is Francisco. San Jose is already cash accretive at the current level, and as it reaches full occupancy, it is expected to contribute over $1 million to $1.5 million of incremental cash flow on a consolidated basis.

The next question comes from Christine Thomas. Why does an airport sponsor choose Sky Harbour over other providers? How many other providers generally compete for each airport?

The choice often depends on the airport and its situation. One advantage we offer is that adding a Sky Harbour base does not cut into the transient fueling business of FBOs, which is beneficial to the airport and helps ensure revenue for current tenants. This provides an economic development boost and drives tax revenue for airport jurisdictions, making us an attractive option. While different airports have various considerations, these are some of the reasons airport sponsors might prefer Sky Harbour.

The next question comes from the line of Matthew Hallett. Are you still on pace to sign three ground leases in 2024 and six in 2025? If so, will all be Tier 1 locations?

Yes, we already addressed that question, so let's move to the next.

The next question comes from the line of Alan Jackson. As you begin to establish the national brand, do you anticipate more competition emerging? Does Sky Harbour have a first-mover advantage as compared to future competitors that could insulate the company from potential rent reductions?

Yes, we expect competition to emerge. Right now, nobody else is doing what we are doing. We believe there is a first-mover advantage here, especially on the site acquisition side. Sky Harbour is currently in process across a large number of airports, and we have the best team in the country for this purpose. This aspect will be difficult for future competitors to emulate.

The next question comes from Peyton Skill. What is the dollar per gallon difference between fueling with Sky and fueling at the neighboring FBO?

We bundle rent and fuel. Our prospective residents should consider total basing costs. The majority of our revenue comes from rent while the majority of FBO revenue comes from fuel. Fuel prices and rent rates are individually negotiated based on tenant preference, which can vary.

The next question comes from Matthew Howlett. Can you give us an update on the warrants? How should investors think about them? They can be a significant source of capital to the company. You can call them when the stock is $18 for a certain period of time.

Yes, we inherited warrants at the time of the leaseback and have provided some in our last PIPE. There have been sources of capital already as we mentioned previously, totaling about $3 million from the exercise of warrants. As for the terms, this is standard for the warrants, with a call cap at $18. We don’t have immediate plans for them but will continue to monitor their status as a source of capital.

Operator, there seem to be no additional questions. Thank you all for joining us this afternoon and for your interest in Sky Harbour.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.