Sky Harbour Group Corp Q3 FY2024 earnings call

• Construction and Projects: Assets under construction and completed construction progressed, with projects like DVT Phase 1, APA, and ADS on schedule. Revised airport expansion guidance to 9 airports by end of 2025, totaling 23 airports.
• Revenues and Expenses: Revenues increased from the San Jose campus and campus optimization. Operating expenses included noncash items, with SG&A efforts to keep costs flat.
• Capital Formation: Closed first $37.6 million of PIPE, with expected second closing in December. Aim to raise additional debt, dual-tracking bank and bond solutions. Internally generated cash flow expected to be breakeven next year.
• Site Acquisition and Development: Focus on best airports, with site acquisition progress, development scaling up, and RapidBuilt retooled for vertical integration. Semiprivate hangars emerged as a revenue breakthrough.
• Leasing and Operations: Established brand in business aviation, fanatical focus on resident experience, safety, security, and value-enhancing services. Hired Marty Kretchman for airport operations.

In the third quarter, consolidated assets under construction and completed construction accelerated as the company advanced towards completing 3 campuses in Dallas, Denver, and Phoenix. Revenues increased due to the San Jose campus starting in Q2 and optimization of other campuses. Operating expenses rose mainly from higher ground lease payments in San Jose and noncash expenses from ground leases, warrants, depreciation, and stock-based compensation. Sky Harbour Capital showed positive operating results with operating cash flow moving north.

• Revised airport expansion to 9 airports by end of 2025, totaling 23 airports.
• Expect to be at breakeven on a consolidated basis next year with 3 campuses opening and leasing in spring/summer 2025.
• PIPE expected to close second tranche in December. Aim to raise additional debt, dual-tracking bank and bond solutions.
• Plan to begin investment-grade ratings process in 2025.

• Construction inflation and design corrections posed past funding gaps, but current cash at trustee is sufficient for remaining projects.
• Market changes and political environment could impact business, though business is relatively agnostic to political cycles.
• Dependence on successful leasing of new campuses and maintaining pricing leverage.

Q: 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?

A: Yes, have injected equity in the past to address funding gaps. Confident current cash at trustee is sufficient for remaining projects. More than halfway through funding for 20 airports, pairing equity with debt.

Q: How do you foresee the Trump administration's policies will affect your business?

A: Business is relatively insensitive to economic cycles; fleet growth is robust. Potential benefits like bonus depreciation for aircraft could be a tailwind, but overall agnostic to political environment.

Q: Can you talk about the shift to the semiprivate hangars versus original thesis of fully private?

A: Semiprivate was born due to accommodating mid-market aircraft owners who didn't need full private hangars. Semiprivate allows higher revenue density, with Sky Harbour 37 prototype designed for efficient aircraft accommodation, easily demisable for flexibility.

Q: What is the average weighted-average lease term on your hangar tenant leases?

A: Average weighted-average lease term is 3.2 years, with a mix of shorter and longer terms, staggered to manage risk, and averaging 3-5 years as a sweet spot.

Q: Can you please walk us through the BSCR calculation and where you are as of third quarter on a run rate basis?

A: Expect higher cash flow available for debt service than initial projections once stabilized. Current run rate too early to assess, but aim for over 3x debt service coverage once stabilized.