Good afternoon. My name is Sarah, and I'll be your conference operator today. At this time, I would like to welcome everyone to Sky Harbour 2024 Third Quarter Earnings Call and Webinar. Please follow the operator's instructions.

Thank you, Sarah. I'm Francisco Gonzalez, CFO of Sky Harbour. Hello, and welcome to the 2024 Third Quarter Investor Conference Call and Webcast for the Sky Harbour Group Corporation. We have also invited our bondholder investors in our parent subsidiary Sky Harbour Capital to join and participate in this call as well. 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 contains forward-looking statements. These statements are based on management assumptions that may or may not become true, and you should refer to the language on Slides 1 and 2 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 may know from prior webcasts: our CEO and Chairman of the Board, Tal Keinan; our COO, Will Whitesell; our Chief Accounting Officer, Mike Schmitt; our Treasurer, Tim Herr; and a recent addition to our team, Marty Kretchman, our Head of Airports. We have a few slides that we want to review with you before we open it to questions. These were filed with the SEC an hour ago in the Form 8-K, along with our 10-Q, and they will also be available on our website in a few hours. We also filed our Sky Harbour Capital obligated group financials with MSRP/EMMA. As the operator stated, you may submit written questions during the webcast using the Q4 platform, and we'll address them shortly after our prepared remarks. Let's get started, next slide. In the third quarter, on a consolidated basis, assets under construction and completed construction continue to accelerate as we continue to advance towards completion of the three campuses in Dallas, Denver, and Phoenix, and Will will update on those and other projects shortly. The revenues experienced an increased step-function given the San Jose campus that began in Q2, but also the optimization of our three other campuses. Even if we don't open any new campuses, we expect revenues to continue to grow as we exceed 100% occupancy, achieve higher rental rates on renewals, and enter into other types of arrangements that allow us to take advantage and monetize the various assets, including our airport. The operating expenses in Q3 increased mainly from two factors. First, as we discussed in the last quarter, the ground lease payments in San Jose are significantly higher than our typical greenfield projects. This is because, essentially, that ground lease includes the payment for the fact that we control and took over a hangar, a large hangar apron, and related parking, and because these existing facilities are being amortized through the ground lease as part of our operating expenses. Second, and very importantly, and Mike will be covering a bit on this, as we sign more ground leases, we end up starting to recognize operating expenses ahead of any actual cash payments on those ground leases, and Mike will go into more detail on that. Obviously, as we sign more ground leases, the impact of that becomes bigger and bigger in our results. Lastly, on SG&A, we continue to work to maintain our SG&A as flat as possible. As we scale, that will drive the operating cash flow and profitability on a consolidated basis. As you can see, we continue to move to parity in our cash flow from operations, and we reiterate our guidance that we expect to be at breakeven at this time next year, on the back of the opening of our three campuses and the leasing of those in the spring and summer of next year.

Thank you, Francisco. I'd like to take this opportunity to provide additional context regarding the differences between our actual cash payments on operating leases and the reported expense. This slide includes a visualization of the cash payments and reported expense of a ground lease within our portfolio. Beginning with our ground lease at Addison, all of our ground leases for greenfield developments generally defer cash rent payments until the completion of construction. Our ground leases at each of our airport development sites are accounted for as operating leases under U.S. GAAP, which requires us to begin recognizing and reporting expense on a straight-line basis upon execution, even though we may not be making cash payments for years under the terms of the ground lease. As Francisco indicated, the noncash portion of our ground lease expense is quite significant in terms of our overall operating expenses. It amounts to approximately $1.3 million and $3.3 million for the three and nine-month periods presented here. This represents 36% of our reported operating expense for both of the periods presented. Moving on, we also believe it is important to illustrate other significant noncash components of our reported net loss for the three and nine months ended September 30, 2024. For both periods presented, the most significant component of our reported net loss was the noncash expense recognized associated with the changes in fair value of our outstanding warrants. For the three months ended September 30, 2024, this noncash expense accounted for approximately $16 million, or 77% of our total reported net loss. As a reminder, these warrants are liability classified and are required to be marked to market each reporting period. This slide also illustrates our depreciation expense, which is noncash and amounted to $0.6 million and $1.9 million for the quarter and year, respectively. A key part of our ongoing employee compensation strategy is the inclusion of stock-based compensation. This noncash expense associated with our equity compensation programs is reported as a component of selling, general and administrative expenses and totaled $0.9 million and $3.0 million for the three and nine months ended September 30. Lastly, we have the noncash lease expense, which we discussed on our previous slide. When adjusted for these noncash items, our reported net loss for the three and nine months ended September 30, 2024, was approximately $1.9 million and $5.6 million, respectively. With that, I'll pass it on to Tal.

Thank you, Mike. So viewers are accustomed to seeing this slide from previous earnings calls. We continue to ramp up. As you can see, we're just to remind people, what this slide represents is the land under lease, under binding lease, with Sky Harbour, multiplied by the square footage of hangar that is going to fit on that land multiplied by the Sky Harbour equivalent rent, which is what aircraft owners are currently paying on a per square foot basis for a hangar at that specific airport. It's, in our view, a conservative estimate of what the revenue capture is from the current portfolio that's under lease. As I've explained in previous earnings calls, we have significantly exceeded the Sky Harbour equivalent rent on every single campus that we have so far, which is why we believe it's a conservative estimate. If you're looking at the company from a valuation perspective, I believe this is the place to start: figure out how much revenue is available and then discount that for various risk factors that you want to apply, like construction risk, lease-up risk, operating risk, that sort of thing. That's how we look at it. The last airfield we announced was Salt Lake City in August. We revised our guidance up last quarter to an additional eight airports by the end of 2025, which would take us to a total of 22 airports in the portfolio by the end of 2025. Today, we are going to revise that estimate up again to nine airports by the end of 2025, which would take us to a total of 23 airports by the end of 2025.

Thanks, Tal. On this slide, the top portion, we have DVT Phase 1, APA, and ADS. As we issued guidance in the first quarter, these three projects remain on schedule. Both ADS and APA remain on track, with actually DVT trending a little bit ahead of schedule in relation to our guidance in the first quarter. Regarding the $27 million budget for remediation, that also remains on track as we sit here today. The snapshot below the bar graph really represents a picture of our accelerated growth for 2025 and 2026. Last quarter, we previously had starts of eight new fields. This quarter, we're announcing nine starts. In lieu of finishing three last quarter, we have finishing five in 2025. We've added two fields, both OPF Phase 2 and Addison Phase 2, as a targeted completion in the fourth quarter of 2025. So, in summary, we have 14 fields in some state of either completion or starting construction in 2025, and a total of 20 fields either starting or finishing construction in 2026.

Thanks, Will. Just a quick review of our current cash and investments. The bar chart on the left is our September 30 cash and Treasuries amounts. You'll notice that the $110 million is the combined Sky Harbour Capital amount, with about $85 million dedicated to our fields at the obligated group. This will be the fields that Will just touched on that are being completed in the next few months, as well as the remaining phases at Opa-Locka and Centennial Airport in Denver. On the right-hand side, we have a pro forma balance sheet of cash and investments following the completion of the PIPE that we announced in October. We closed the first $37.6 million of that at the end of October, and we plan to execute the second closing of that PIPE, which will be an additional $37.6 million. This will be used to fund the equity portion for the additional fields beyond the obligated group that Will also just mentioned in 2025 and 2026. One more note on our bond debt service: we are approaching the end of our debt capitalization period in 2025. With the completion of Addison, Centennial, and Deer Valley in Phoenix in the next few months, we'll be leasing those up and have more than enough coverage to start our interest payments in 2025.

Thank you, Tim. Just a quick comment on our existing outstanding 2022 bonds. First and foremost, at the appropriate time, we plan to begin seeking investment-grade ratings and will be approaching rating agencies during the course of 2025. For us, it's not a question of if we'll achieve investment-grade ratings, as we expect to do so following the completion of our construction projects. As we've seen, we have been achieving rents significantly higher than what we projected at the time of the bond deal, which means our debt service coverage penetration is going to be higher than what we projected at the time of the bond issuance. The market seems to recognize this. This is the trading of our shortest bond and our longest bond over the past 1.5 years. As you can see, there's been a significant appreciation of the bonds. This is partly due to a decline in rates in recent months, but there's been significant spread compression on our credit, and we believe there's still room to go as we approach investment-grade. Which takes us to the comments on our capital formation and growth. We continue to be opportunistic and very prudent in our raising of equity and debt. We want to do these things always in advance of needing funds and take the opportunities that the market provides us. You may have seen in our closing announcement a few weeks ago that we were able to upsize the first closing of our PIPE by about $6 million. These are long-term investors that have either participated before or are new to our long-term investor group and are signing lockup agreements. We are cautiously optimistic that in early December there will be the expected exercise of those options that we granted those investors for an additional $38 million, which will complete this exercise on PIPE common shares. In terms of internally generated cash flow, we expect that to be available at this time next year, which will help us provide capital for our growth or make a decision on our dividend policy. However, we have too many growth opportunities in front of us to be thinking about dividends at this point. Lastly, on debt, as we mentioned in prior disclosures, we aim to raise about $150 million of additional tranches of debt, and we are dual-tracking bank and bond solutions. We're several months from implementing this, but we want to monitor markets and seek what's most optimal for the company.

Thanks, Francisco. As people know, we like to think of our business in four discrete but linked buckets. The first is site acquisition. We only report binding site acquisition wins, and we haven't been able to find a better way to keep the public informed of our progress on this front. We haven't announced site acquisition wins until they're binding and irreversible. However, there has been significant success in expansion on existing airports, such as acquiring the Ramada hotel adjacent to Chicago Executive Airport, which we integrated into the airport property, effectively expanding square footage and increasing the efficiency of our site plan in Chicago. In development, as Will mentioned, we have three projects set for delivery between now and the end of the first quarter of 2025. Leasing has already commenced on those projects, and we hope to see the cash flows from those projects begin sometime in the first or second quarter of next year. We have another two projects slated for delivery in 2025: Miami Phase 2 and Dallas Phase 2. As Will described, there are 11 new project phases now in development. The Sky Harbour 37 prototype design is complete; this will be the hangar design you'll see at future airports. Of course, we'll continue to refine it, but it's the same hangar everywhere, which ties into vertical integration with RapidBuilt, a fully configured Sky Harbour production facility, allowing for cost efficiencies and quality gains. On the leasing side, we are under NDA with our residents. Number one, these are the most visible individuals and corporations in the country. This model has garnered significant attention, and Sky Harbour locations are the preferred choice for jet owners in metropolitan areas. Even significantly higher prices than other basing solutions do not deter interest. We've exceeded 100% occupancy across the board, driving revenues significantly. In operations, we are fanatically focused on enhancing the resident experience. With that in mind, we had a wonderful opportunity to attract Marty Kretchman to join our team as the Senior Vice President of Airports, who is highly suited for that role and will help us enhance our service offerings. This is reflected in a spotless safety record and exceptional efficiency, which we're measuring in terms of time to wheels up. We have three additional fields in advanced staffing and equipment, anticipating opening at Denver Centennial, Phoenix Deer Valley, and Dallas Addison. Looking at the next 12 months, we are revising our estimate of new sites from eight to nine, which would put us total at 23 airports by the end of 2025.

With this, we conclude our prepared remarks, and we now look forward to your questions. Please submit your questions through the Q4 platform, and we'll answer them accordingly.

Your first question comes from Cameron Giles. Do you plan on contributing to Sky Harbour Capital again to help close the funding gap for the remaining construction? And when do you plan to raise the $300 million to $420 million equity portion of the $1.2 billion needed for the first 20 sites?

Thank you, Cameron, for your two questions. Let me address them in order. Yes. As you know, we project finance our construction projects, which means we put in equity, raise debt, and put a trustee dedicated to these projects. Over the past 3.5 years, we had to inject additional equity into the construction fund to address what has been significant inflation in construction costs due to COVID, along with design corrections. However, we currently feel confident that the $87.3 million of cash at the trustee is more than sufficient to complete the remaining projects, including the three opening next quarter. Regarding the second question, we are more than halfway through our equity raises, which we then pair with debt to complete our 20 airports. It's crucial to clarify that we do phases at these campuses, and every dollar of equity that we raise corresponds with about $2.30 of tax-exempt debt in our capital formation. We believe it's prudent to raise equity and pair it with debt to accelerate these projects rather than wait for internally generated cash flows.

Thank you, Shila. Our business is relatively insensitive to the economic cycle. Once an airplane exists, it needs a place to be, and the fleet is growing. The backlog at the OEMs is solid, and this will remain true regardless of who is in office. However, there could be potential benefits from policies, such as reinstating 100% bonus depreciation on aircraft, which would encourage growth in the fleet. The way we got into semiprivate originally was in Nashville, where we saw an opportunity in the heavy business jet market. Initially, we captured many midsize jets but realized many owners didn't need 12,000 square feet of hangar space for a smaller aircraft. We recognized there's significant demand for shared hangar space, leading to the creation of our semiprivate concept. We quickly outgrew initial expectations, achieving occupancy above 100%. Our hangars are designed to maximize revenue density, demonstrating that semiprivate tenancy can yield substantial profits. While some clients may prefer full privacy, our Sky Harbour 37 design is adaptable, allowing for either semiprivate or fully private layouts. On the fields expected to commence operations in Q1 of 2025, including Denver, Phoenix, and Dallas, I would say they will compare favorably to Nashville and Miami. Although the pricing for each aircraft might not see a significant change, the overall revenue will increase dramatically due to our provisions for semiprivate occupancy. Our pricing leverage is maximized once the physical product is visible; we find that our hangars offer an unparalleled experience compared to traditional FBOs.

This is Tim Herr. Our weighted average lease term is 3.2 years; that's a mix of tenant lease terms. Our goal is to maintain a geographically and tenant-diverse portfolio with CPI increases typically starting at a floor of 3% or 4%. We strive for a staggered lease term approach to capitalize on increases when leases come due, and while we have some shorter leases, we also have some longer-term ones for strategic tenants.

I always welcome the opportunity to increase my ownership stake at the end of the year. To answer your question, the proxy statements may understate my actual ownership. There are three employees, including myself and our treasurer, whose participation is not reflected in the RSUs. I have not sold any shares, nor do I plan to in the foreseeable future, but I'll refrain from commenting on our valuation and leave that to analysts.

Regarding West Hampton Airport's expansion with Signature Aviation, I would say this is a strong market for business aviation, and both of our companies will continue to invest significantly in that area. While we operate in different business segments—Signature in the fuel business and FBOs while we focus on rent—we can cooperate extensively in ways that add value to our customers. The expansion is not a concern but rather an endorsement of the market.

To address the BSCR calculation, we need to refer back to the original projections made during our bond offering. We've updated these projections since then and have been guiding that, once stabilized, we expect to have cash flow available for debt service greater than three times our debt service, which is an expected $6.9 million interest expense between now and 2032. From current run rates in Q3, we expect to open three campuses in Q1 of next year, but it's still early to look at those numbers.

On the Opa-Locka Phase 2 project, there has been significant inflation in construction costs, and while Will is managing this, the outcome is yet to be determined. However, hangar rent inflation has outpaced construction inflation considerably. The current waiting list for aircraft in Phase 1 is about double the occupancy level, demonstrating strong demand for our product. While Phase 2 is an interim hangar not yet the Sky Harbour 37 prototype, it still offers a considerable revenue density and could significantly exceed expectations. Regarding pricing and renewals, we have not factored any pricing increase into our current projections; we are projecting 0 growth. The Sky Harbour Equivalent Rent is crafted as a floor for estimating our total basing costs, helping us manage risk since we don’t pre-lease our hangars. If pricing exceeds our estimates, that is simply a positive outcome. I would recommend checking in with analysts for any revisions to their models based on recent results.

Thank you, Tal. Operator, there seems to be no additional questions. Thank you all for joining us this afternoon and for your interest in Sky Harbour. Additional information may be found on our website, and you can always reach out with any questions through email. Thank you again for your participation. With that, we have concluded our webcast.

Thank you. This concludes today's conference call and webcast. You may now disconnect.