Q2 2020 Atlas Corp (Canada) Earnings Call
I'd now like to turn the call over to rank Larsen Chief Financial Officer about.
[music] good morning, everyone and thank you for joining us this to discuss atlas's second quarter earnings.
On the call with me today is outlets as president and CEO Mr. being Chen.
He spends chief commercial officer, Mr., Peter careers and also available during the Q1 <unk> session Seaspans, Chief operating officer, Mr., Thorsten Patterson and Atlas's Chairman Mr., David So cool.
I would like to remind you that our discussion today contains forward looking statements.
Actual results may differ materially from those stated or implied due to the risk and uncertainties associated with our business are known risks factors are discussed in our form 20-F, and a reports on the form 6K filed from time to time in connection with our quarterly financial results.
Which are available on our website overview.
To start this quarter, we have introduced new non-GAAP metrics. We believe these non-GAAP metrics will provide our investors a clear understanding of the financial performance of our businesses I.
I will touch on these new metrics in more detail during the review our financial performance.
For these definitions and reconciliations to the most closely comparable U.S. GAAP metrics.
Please refer to our earnings release or the appendices at the back of this earnings presentation.
In addition, we've also provided historical reconciliations for these non-GAAP metrics through 2018, which are also available on our website for review.
For today's call being will start by providing highlights on our operating performance in corporate recent developments.
Peter will then provide commentary on seaspan and the containership industry, including impacts from Kobin 19.
Well, then wrap up with a review of our recent financial results, including an overview of our new non-GAAP financial metrics.
I will provide an update on our balance sheet liquidity and capital allocation initiatives without I'll now pass the call over to being.
Thank you Ryan and good morning, everyone. Please turn to slide four.
A lot has happened it seems our last earnings call and a this is the first full quarter combined <unk> performance.
Well watch list.
Just to be strong and made cobot 19, due to our resilient business model.
We have experienced several macro economic downturns in the past and throughout each cycle. Our business continues to deliver strong financial results and quality growth.
During this time, we have focused on four initiatives first maintaining asset utilization and expanding our contracted revenue profile.
He joined the health and safety of our global team.
Sorry, deepening our trusted customer partnerships and fourth continuing our disciplined approach to balance sheet management.
I will highlight.
Discussions.
You know you in my.
Update on the development.
Seaspan and they appeal energy.
In terms of our asset utilization and a long term contracted revenue we have demonstrated resiliency, especially over the last two quarters among the unprecedented market conditions.
Grown long term contract revenue to $4.6 billion, which provides stability and predictability of our businesses.
Well were 98% of our Twentytwenty midpoint revenue guidance is currently under contract, which is why we're able to tighten our guidance positive made this quarter.
I see spent we have continuously focusing on expanding existing charter with customers, while strategically acquired new vessels on long term charters.
I have demonstrated with our recent acquisition of two high quality 13000 Teu vessels.
At 80 odd like got Seaspan, we're focused on operational excellence on existing thanks.
Executing on new projects, such as this week Mexicali sites, which achieved commercial operations since acquiring <unk> and focusing on building a pipeline of new quality long term projects.
[noise] these achievements Joel our strong financial performance.
Atlas <unk> record quarterly revenue off.
$63.8 million when Seaspan country mentioned records containership leasing revenue of $303.8 million.
After removing our formal.
Adjusted financial matrix in 2018 to simplify reporting.
Now introducing funds from operations and adjusted EBITDA.
Two new performance matrix I didn't reflect our business performance. In addition to our standard GAAP reporting.
We achieved funds from operations per share of 64 cents and adjusted EBITDA of $238.9 million. This quarter right would discuss the importance of these matrix nature.
The sixtyth consecutive dividend distribution, we announced last month reflects our commitment to long term shareholder value creation.
Yesterday, we announced that Seaspan achieved an investment grade issuance radio triple B minus relating to its cornerstone portfolio financing.
And a corporate rating.
<unk>.
To achieve these during a time when koby 19 is impacting the global economy is truly a testament to the resiliency of our business model and the dramatic credit improvements we have made since 2018.
Please turn to slide five.
We delivered record quarterly revenue.
<unk> health and safety of our global employees, the well being of our staff remains our top priority.
In addition to new business continuity class, we have implemented new processes and protocols that enable us to continue to deliver our operational excellence.
Despite the unprecedented pandemic, we facilitated over 800 crew changes in the months with July and integrating 11 vessels into Seaspans fleet during the last few months.
We completed 10 vessels scrubber retrofits on time and on budget, Despite project complexities and cobot 19.
We also completed 18 vessels dried options.
We continue to focus on involvement and safety receiving our ISO 14 001 certification.
Moving LG I asked.
Hey, U.S. co Scott.
Until protection and being awarded outstanding service and operational excellence by our top global liner.
Oh people at the core of our success.
The 42, and we saw softness of our people in Unprecedent.
Issuance has to be truly remarkable.
I'm extremely proud of our seafarers and want to give our special appreciation for all their hard work and sacrifices that made to operate.
Five vessels 724 across the globe through their Uncompromised the services to our line of customers.
Please turn to slide six.
I will highlight cease fast development for the quarter.
She spends performance has been minimal.
Effected by Cobot 19, as we have proactively adjusted our operations to mitigate potential impacts.
See spend continues to benefit from transformative improvements long term partnerships and disciplined growth.
Given strong financial performance on a backup I was solid balance sheet and liquidity management.
We continue our execution on growth opportunities with the recent acquisition two high quality in 13000, Ti Vo containerships for $146 million, which are backed by long term charter.
Well I know.
This was an attractive acquisition from a risk adjusted return perspective, which increases our long term contracted revenue by over $150 million and they contribution of approximately 7 million $20 million EBITDA for Twentytwenty and 2021, respectively.
This acquisition was made possible through our long term partnership approach.
Minus I'd be called me more dominant they increasingly demand scalable reliable and flexible. Upon this provides thoughtful solutions instead of simply supplying tonnage.
We expect our continue.
To create.
Those opportunities through our trusted partnership.
Well, we have been growing over the passenger including 13.
<unk> vessels will see span and the acquisition of <unk> energy.
We have remained disciplined and have not sacrifice our balance sheet no liquidity simply for the sake of growing.
Ended the quarter with a strong liquidity of over $380 million and a pro forma for the acquisition will maintain its strong net debt to equity ratio of approximately 1.2 times.
Our debt profile remains conservative with no significant maturity until the end of Twentytwenty too.
I want to reiterate that we have been and we'll continue to take a disciplined approach to deploying our capital.
Investment will all backed by long term charters with leading global one liners as well as a meeting our quantitative and qualitative criteria.
In July we expanded Ses Fas $150 million unsecured revolving credit facility by two years, which is important to our liquidity management and a testament of.
Access to global capital markets through the cycles.
Just yesterday, she spent achieved an investment grade credit rating voids cornerstone financing program, which is a major milestones in our efforts to reduce our cost of funding and.
Our asset base.
I'm also pleased to announce the appointment of cost and Peterson as Chief operating officer sort of Seaspan Halston has demonstrated a world class leadership in deliveries. He spends operational excellence over the last two years and I'm confident that excel east new role as we continue to set the frontier for the operational excellence.
On a commercial side, despite very challenging market. Our team has proven again the strength of our platform by delivering best in class two to utilization rate of 97.4%.
As of today, all woman your 25 vessels global fleet have secured charters in place.
Please turn to slide seven where I will provide.
It means for the quarter.
As we communicated at our 2019 Investor day, we see tremendous upside potential in <unk> and are working towards.
You know that the transforming the business to then next level.
I'm very pleased to announce the recent appointment of right, which as the president and COO.
Ryan has deep expertise and networks in the global engine power sector and was formerly president and CEO of.
Between 2012 and 2015.
And is well aligned with <unk> priority focus going forward and we are confident in his leadership to drive operational excellence and sustainable growth.
<unk> power fleet utilization for Q2 was supported by mobilization of eight turbines across three power plant in Mexico Valley.
Turbines contributed $12 million revenue too and we expect these projects to contribute approximately $41 million adjusted EBITDA doing twentytwenty.
Due to the mobile and fast powered nature <unk> suite, we expect the utilization fluctuated fluctuate as these turbines I'd put on a different contracts around the world. However, we're confident in our ability to maintain a strong.
Yeah.
While cobot 19 has impacted us business through a reduction in overall global power consumption. We continue to structure the business as long term oriented and then just solution provider.
Our priority is to sustain and improved asset utilization, while focusing on extending the duration of existing contracts.
This will require shifting focus a little partnerships and solution offerings.
In addition, we will continue to be more selective on potential deployment opportunities One award that meet our risk management criteria.
We also continue to execute on our business strategy with strong commitment to U.S.G.
Divesting idle diesel generators, and the making operational improvements.
Just to highlight doing that you too.
Thank you asked for war plant availability was maintained at over 98% and a LG IR officer <unk> 0.72.
So with that wouldn't I'll hand over to Peter.
Thank you Ben.
Please turn to slide nine well I will comment on developments in the global container shipping industry and the impact on Seaspan.
Overall, the container shipping industry continues to operate has been somewhat challenging conditions.
While these are not ideal seaspans position and performance was mitigated by a long term contracted business, leading position attract a fleet and relationships with a leading global partners.
We have both retained and secure charges fraud, hopefully against the global idle fleet that peaked 12% in may.
And the has contracted since since then to approximately 8% or listen.
Combine this with a disciplined approach displayed by our customers outperformance today is a testament to our business model.
We remain very closely engaged with our customers globally in order to retain business and to seek opportunities to insert ourselves into the niche areas because I have required under solutions.
Volatile period of time.
In fact through those codes the fixed period, we have only increased dialogue with customers in support of our style of full scope service delivery and this is proving to enhance our position further.
'cause it's near term impact was clear the global annualized T U volumes victim to decline approximately 8% to 10% you're a new it from 2019.
With pressure, primarily on the mainline Asia, Europe, and Asia, North America trades that each comprise approximately 13% of global T U moves.
In contrast Asian countries have steadily been recovering, resulting in intra Asia volumes, improving the trade segment, which represents approximately 30% of global T U moves.
As we have moved through the first half of 2020, we've seen the most significant up in volumes having been in March.
Followed by improvements month on month since then.
We anticipate a global trade recovery through 2021, as North America and Europe recover.
Well pressure was experience on charter rates through the first off Seaspans position has been met together, but relatively small spot exposure and attract a fleet with over 70% of vessels being over 9000 T U capacity.
We remain focused on managing our short term exposure. During this time, which comprises approximately 10% of sees fence fleet, but do you were approximately 2% bar revenue for the remainder of 2020.
Please turn to slide 10.
So declining volumes has driven the elevates the idle fleet liners, both read a little bit vessels and idled portions of their own or chartered fleet.
The idle fleet levels peaked at about 12% mid Q2.
That does decline to the current level of just above 7%.
A large proportion of the idle fleet is sub 3000 to you.
Plus 2% in scrubber refunds and the balance is mostly made up of larger vessels on blank sailings.
Against these current challenges, we're optimistic about long term industry prospects not only from a supply and demand side.
It also from a commercial standpoint.
As being mentioned during these difficult times customers increasingly look for providers that off of value added services.
Significant competitive advantage provided plus seaspans fully integrated operating platform and keen sense of collaboration with our customers.
[noise] leave we have witnessed somewhat of a paradigm shift line of behavior in stress times.
This year the exercise the great degree of discipline through capacity supply control and managed to support fright rights and have performed much better financially than was expected.
We expect the discipline will sustain into the future.
And the stability of the industry she'll be improved.
In parallel Lynas, Chelsea stronger tonnage providers more than before and support of this service delivery quality and reliability improvements aspirations.
On the supply side, the order book remains at historically low levels of below 10%.
Lets discipline expected to persist.
Deliveries are expected to continue to moderate into 2020 and 2021 with current builds experiencing slippage.
This along with a pickup in scrapping will continue to provide support towards supply and demand equalization.
Freights Unchartered Reits have remained well above 2000 late in 2016 downturn level.
Even during the height of but we have seen profitable charter rates.
Our customers have also done relatively well supported by their alliance partners, lower bunker prices and government support where needed.
We have been on close dialogue with all of our customers remained strong throughout this difficult time [noise].
We remain confident in our customer mix, which composed of the world's leading line those.
Finally, we remain disciplined and engaging in risk adjusted the creative visible acquisition activities contingent on mutually benefiting both ourselves and cost.
We recently announced agreements to acquire to 13000, T. this'll, which will be deployed on long term time charters with a leading global liner.
We continue to fund optimal solutions for our customers and take advantage of strategic opportunities to grow during this time, while simultaneously maintaining our strong balance sheet.
I know handover the call to run to discuss financial performance.
Thank you Peter if you could all please turn to slide 12.
As mentioned at the beginning of the call, we're introducing new non-GAAP metrics into our financial disclosure to coincide with the first full quarter of consolidated Seaspan and a PR financial results.
These metrics include adjusted EBITDA funds from operation or at that so for short and FFO per share.
We have chosen to introduce these non-GAAP metrics for a number of reasons.
These financial performance metrics align atlas's external financial Discloser with our internal management evaluation of financial performance, which is focused on long term cash flows and return on invested capital.
In the past our focus on the cash flow generation of Seaspan and now he PR without the FFO and AFFO per share aligning how we internally view cash flow generation available to common shareholders.
As a result AFFO per share will be our headline reporting figure going forward instead of earnings per share.
Adjusted EBITDA also provides a way for our investors to evaluate our cash flows prefinancing or capital structure initiatives. This is particularly relevant for the Seaspan business as EBITDA is a very good proxy for cashless available for servicing principal and interest as the business pays very minimal income taxes.
This collection of metrics also allows us to provide a clear picture of our financial performance across time periods on obscured by noncash and onetime items ultimately, allowing investors a more comparable view of performance across these time periods.
Finally, our new disclosures provide comparable performance metrics between atlas's business segments across similar peers as adjusted EBITDA and FFO our performance in valuation metrics across many similar hard asset businesses like ours.
To close our review of these new performance metrics, we want to highlight that we have chosen assets. So as our key reporting metric going forward as it represents on a gross and per share basis. The value that is available to our common shareholders by adjusting out the noncash swings that if historically impacted our S noncore business items. This.
Patrick represents cash available for management to allocate to create value for our shareholders. Our objective is to grow this metric both on an absolute and per share basis, which will allow us to allocate capital for further strictly strategic growth, while continuing to to return capital to our shareholders through our dividends.
Please turn to slide 13, where I will provide a summary of our financial results.
Overall, we're pleased with our performance for this quarter, we achieved record financial results. Despite the challenging macroeconomic environment demonstrating the resiliency in our business. We're confident in the long term stability of our business with $4.6 billion of contracted revenue and Doug EPA R&D spend businesses being fully funded with no major mature.
Ladies until the end of 2022.
Seaspans vessel utilization remains strong at 97.4% for the quarter. This is noticed notable despite the broader containership leasing industries second quarter experiencing the highest idle fleet levels seen in the past decade.
We also note that the number of unscheduled off hire days was limited to only 90 less than 1% of ownership days across the fleet further demonstrating our ability to effectively manage our short term charter exposure.
PR is powerful utilization for the quarter was 60.4% as nprs turbines remobilizing installed for a mexicali projects.
Fourth quarter of these turbines will be reflected in our Q3 utilization.
Revenue increased 32% to $363.8 million for the quarter when compared to the same period in 2019 with the majority of this increase due to the full quarter Vape yours revenue contribution.
He spends revenue increased 10% to $304 million, primarily due to the delivery of 11 vessels year to date, resulting in seaspan, achieving a record quarter in revenue.
Adjusted EBITDA was $239 million, a 37% or $65 million increase relative to the same period in 2019, driven by the contribution of a PR and increase seaspan contribution from the delivery of the 11 vessels noted above.
At the FFO was $161 million for the quarter.
76% or 70 million dollar increase when compared to the same period in 2019, primarily due to the contribution from FBR and improved Seaspan operating performance noted above.
I thought though represents atlas's performance post interest intact with these items driving the remaining difference.
Improvements in our capital structure and decreases in LIBOR drove approximately $9 million and interest savings comparable to the same period in 2019.
His interest savings were partially offset by the inclusion of a prs taxes.
Finally, as AFFO per share of 64, 64 cents increased 53% relative to the same period in 2019 and was up 21% on a quarter over quarter basis.
The good please turn to slide slide 14, I'll provide an update on our guidance.
Given our strong performance in quarter, two we're providing an update to our previously provided guidance as being highlighted on a consolidated basis over 98% of the midpoint of 20 twenties guidance is contracted as of today, highlighting the minimal spot exposure of our business the full break down and see spending they prs contracted revenue is included in our quarterly filings.
For Seaspan, we're tightening guidance on both the revenue side by increasing the bottom end of our revenue guidance and also improving the expense side by decreasing the top end of our operating expense and operating lease expense guidance.
Great PR, we are reaffirming our previously provided guidance and continue to track well to this guidance.
I would like to again note that the HR guidance is for the 10 month consolidation period of February 29 to December 30, Onest 2020.
Maybe as a PR is a business secured by medium term contracts with strong upside as additional capacity is deployed either on additional long term projects or lucrative short term fast track power solutions, while the decline in power consumption from cobot has slowed down our pipeline of potential projects, Brian Rich and his team are focused on deploying our assets and building a high quality pipeline.
On a global opportunities.
Both companies, we're also introducing guidance for adjusted EBITDA with the implementation of non-GAAP reporting we will continue to guide to adjusted EBITDA. We also provide relevant disclosures to the investor community to allow you to forecast FFO and AFFO per share.
Please turn to slide 15, where we will discuss developments in our capital structure and financial position.
We continue to be focused on creating shareholder value through capital allocation.
As demonstrated by our significantly expanded operating fleet, while improving our liquidity position and credit profile and maintaining our preferred and common dividends last.
Last night, we announced that Seaspan achieved an investment grade senior secured issuance rating from Kroll Bond rating agency for Seaspans portfolio financing program on the back of a double B corporate rating as we've discussed this portfolio financing program has grown to over $1.7 billion and commitments and represents the central piece of our capital structure.
We intend to diversify our sources of funding through the institutional credit markets and continue to reduce our overall cost of funding and improved flexibility and amortization profile.
Over the past 12 months, we've added 13 vessels to our fleet alongside the acquisition of a PR during which we have also reshaped our balance sheet lowering our cost of capital improving both our maturity and liquidity profile. This has been accomplished through a relentless focus on maximizing atlas's cash flow generation on a trailing 12 month.
This is Atlas has delivered approximately $500 million of FFO.
As a result, this pursuit of capital optimization and the improvement our debt capital structure, both see spend in a PR fully funded to the end of 2022.
Atlas as a platform and despite challenging economic conditions continues to enjoy access to the global capital markets. The renewed you spend 150 million dollar unsecured corporate credit facility on a two year term is a testament to the businesses capital market relationships and their belief in our capital structure strategy.
Alongside our introduction of non-GAAP metrics, we would also like to introduce our balanced scorecard for evaluating atlas's leverage position.
These are metrics that we focus on internally and metrics that we consider when executing new acquisitions and various capital allocation decisions.
While there is no one metric to properly evaluate our capital structure and credit positioning. We believe these four metrics in concert provide a holistic view of our leverage profile.
Net debt to adjusted EBITDA and contracted revenue to net debt demonstrates cash flows available to service debt obligations and provide returns to our shareholders, while adjusted EBITDA to cash interests represents our interest coverage.
Finally dividends per share to AFFO per share provides a view to the cash flows available to our shareholders, which we returned through dividends and reinvestment into the business for growth on our credit profile improvement.
Lastly, if we could turn to slide 16.
Well I often discussed our focus on improving our balance sheet and credit profile I'd like to end off today by discussing our growth over the last two and half years.
Since the beginning of 2018, we have deployed $3.4 billion of capital towards acquisition, including the acquisition of GCR in 2018 in a PR in 2020.
While deploying capital we aim for strong Rick risk adjusted returns on invested capital.
Although we don't disclose this metric or internal target specifically with the introduction of our new non-GAAP metrics, we are able to provide investors with the adjusted EBITDA contribution and the capital employed for these various acquisitions.
We believe these new disclosures will help demonstrate our track record across our various capital allocation initiatives overtime.
We continue to be pleased with the growth in financial performance that Seaspan and if you are exhibited over the second quarter. Despite industry headwinds. It is a testament to the resilient business models and the hard work of our global team, we have and will continue to remain steadfast our focus on disciplined growth and value creation for our shareholders and with that I'll hand, the call back.
Over to the operator for questions.
Thank you as a reminder to ask a question you'll need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.
Please standby, we compile the Q and a roster.
Our first question comes from Chris Wetherbee with Citi. Your line is now open.
Hey, Thanks, and good morning, guys.
Maybe.
Maybe I could start on the container shipping side so.
From a big picture perspective, it appears that liners, you're getting a bit more disciplined.
Using blank ceilings and other capacity management tools to be able to sort of manage rate supply demand within the business. When you think about sort of that consolidation that's occurred and that sort of greater discipline on a lighter side. What do you think that means for tonnage providers as we think out over the course of the next couple of years.
The pool get a little bit more selective farther other things that were not thinking about trying to get a sense of how you guys sort of thinking about that.
Yes.
Good morning, Spain.
Yes.
Yes. Your question that is absolutely true liners today I think it's through this cold mid Ninetys, whose data I think a pharma industry standpoint is much more sustainable because I think through the consolidation aligners has been more focusing on delivering the quality service. Meanwhile, I think they also focusing on.
Right.
I think yes today may acquired the point and that today Myrisk.
And also I think there.
Some of the minus.
Transportation, so from that perspective, I think aligners.
Focusing on the quality of their service and therefore for the tonnage providers I think the you know what they're looking for the scale the quality and reliability and I think it. This is exactly what see spend. This building is is that that's through this Colgate 19 as an example.
While we be impacted through the.
The charter rates, however, you'd be looking at our utilization, we had been able to maintain a over 97%.
The past quarters and this is really a testament.
You know in doing the even during this past present and did that market situation I think in line.
Two companies tonnage Provida Seaspan, where we provide the quality of service at the same time will provide the flexibility.
Flexibility in terms of our scale for example.
You know when when the when that align as they have different needs on a vessel size. So location that we were able to swap fees.
So suffice size by location and between the customers, which is also the reason why I think we were able to maintain such a high utilization rate. So in general I think a going forward as it happens to provide as we said it before that we need to provide the solution we need to have this.
And we need to have the flexibility than quality and that's definitely what than line is looking for by simply providing a vessel itself I definitely that's not what they're looking for they're looking for a partner to support them for support them to grow their business. Meanwhile, too.
On a variety of a needs.
With the vessel to be a window.
Lucian provide whether it's a technology whether its operation when it's a commercial financing accounting so all aspect and I think it that's why we ability business as a partner and solution provided to them.
Okay. Okay. That's helpful. And then in terms of operating on the containership side during the quarter should we assume that this quarter kind of.
From a cost perspective with some of the covert disruptions is what we should expect to this type of cost performance in sort of Threeq and Fourq you.
Some operators have suggested that things were actually fairly clean from a cost standpoint in twoq should maybe you might actually see some step up but I think you're suggesting you guys were.
Moving assets around and doing some of your changes of crews during this process. It so maybe a sort of the consistent run rate just wanted to get a sense of how clean. These results are from a cost perspective, how we should think about sort of maybe the back half.
Yes, and I will I will keep a general.
Update and then that Ryan and Boston that you cannot give more details on a cost the side, we're very proud to say that given the Colgate 90 impact at the best creates a lot of limitations on operations. However, I think we're extremely proud and that's why I wanted to ask your question because I'm extremely proud of our team given the.
And our team.
Whether its onshore and also the seafarers and being able to demonstrate that our operational excellence in general I think of the numbers speaks for itself in a way that our cost on operational side actually has to be minimally impacted.
Impact to us due to this coal that is really on that revenue side and with that I think that Ryan and cost can you.
Yeah. So.
Thanks for the question. If you go to page 17 of the earnings release, you will see incremental disclosure on an operating cost per day.
As we've discussed before we don't we don't provide specific commentary on.
Ah run rates or what the back half will look like.
Specifically, but I think looking at the implied guidance for the full year provides a.
Helpful view of what we think opex will be for the back half the year.
Now I'll turn it over to Thorsten, but what I will say is a in thorsten. The operation team have done a fantastic job of managing costs. During this environment.
And there have been a number of cost saving elements as it relates to coded whether its.
Crew optimization or working with various repair and maintenance programs.
But with that of course and turn it over to you.
Yeah. Thank Ryan Thanks, Ryan and as Ryan said.
We are we're not disclosing ones and.
Such.
But.
The model we have.
Robust too short and medium term fluctuations, even even as severe as <unk>.
And we have been.
Trying to reduce cost way ever to mitigate so called it impacts so we will see bits and pieces come back in Q3 in Q4, but that's all the included in our guidance.
Okay. Okay. No. That's helpful and last question just sort of bigger picture, you've obviously been busy on the containership side.
Our deal you know about a year ago, I guess I just wanted to get a sense as you're thinking about putting capital to work.
We are you see attractive opportunities I'm, not you know whether that be on the shipping side of it beyond container shipping or for it sort of.
Elsewhere, just I get a sense, where you guys, you're thinking about opportunities and putting capital to work going forward.
Thanks, Thank you Chris I'll answer the question.
It's just that just.
To clarify the on the 80 or side, we actually just acquired a at the end of February this year. So.
I actually just recently acquired.
<unk> acquisition last year in terms of.
The capital allocations that is excellent question because you looking forward I think what we can say is that we will continue to focusing on to be the best in class asset operator, and selectively we owned the asset and you know and operating assets.
What we can say is going forward is that what we will do and what we will not do well, we'll do is that going forward.
We're going to continue to strengthen our management team.
Thank you know that's evidenced by the you know what we have done and what we have built into the management team over the past years, when we were able to focus on execution and delivered the results and that's why we were able to transform the seaspan and that's what we intend to do the same.
<unk>.
So going forward as you know I think it for us that we're going to continue to build a team because with the dynamic team. That's we have I.
I think it whenever there is opportunities that we will be able to realize those opportunities created the value for our shareholders. The second thing that we would definitely is that we're going to continue to grow.
Because we have to financial strengths, we have to management expertise and.
We have the ability to create as we have gone so far.
Rules opportunities.
All of those opportunities has been created with our.
And the customers. So we will leverage those trends and continue to expand our business and create the value going forward. The third part I think we're going to definitely going to do in terms allocating capital is.
The.
Continue to focusing on our existing business of container ship and also.
The power energy at these two.
That gave us the you know the base and the leverage because they are the market leaders in their respective area. We have to customer we have the financial strength and we have the.
[laughter] MSG networks that support this to continue.
Our business. So therefore, we will continue to allocate a cap.
Yes, and you know for fleet I think as we said at the things that we don't too is that we will not allocating the capital for the sake of allocating capital.
Never going to any kind of a growth opportunities because we think it's.
Interesting all we go into any type of for example auction process and also.
We will not let ourselves to be destructed, because we will only.
So if we see this right opportunity that can create long term sustainable value and we're going to continue to focusing on growing whether its organically acquisitive fleet.
And this has which contained the shipping business and also the power business.
Okay, well, thanks very much for the time I appreciate it.
Thank you.
Thank you. Our next question comes from Michael Goldie with Bank of Montreal. Your line is now open.
Hey, guys. Good morning, Thank you for taking my question.
My first question revolves around guidance, especially Ses balance sheet seaspan it seems fairly unchanged despite the new about slot acquisitions.
You can get a sense of the puts and takes in this updated guidance or slightly lower charter rates being offset by the new acquisition.
Thanks, Mike and happy to walk you through some puts and takes on the revenue side. We do have the new acquisitions that are flowing in the back half of the year and that impacts obviously revenue and operating expense.
And then you do have to your point the opposite of some lower charter rates on the back end of the year related to the coated 19 environment that said as being mentioned in his remarks at the beginning of the of the call 98% of our revenue for 2020 at this point is contract and so we feel very comfortable with.
The the tightening of guidance that we provided going back for the rest of beer.
Okay, perfect and and then kind of looking at your conversations with.
Your customers are how are those negotiations going.
How are they looking relative to your existing contracts that are beginning to roll off our customers acknowledging the recovering environment.
Yeah. So it's Peter that's a good question.
I think.
As we've both thing and I have certainly.
In the presentation that we thought we worked very closely with a customizable and we've only become.
So as we've gone through the schools are trying period.
The result of being left Weve.
Maintained utilization of the vessels. So in other words, we've been the one to get the employment versus others.
We can't really control rights in the spot markets as Ryan says the spot area of business accounts for 2% of a business.
Although revenues.
We.
Engaged very early with our customers its not.
But it's not a case of simply getting employment between Reengage earlier, then then when the vessel rolls off.
For example.
We've done earlier Drydocking on a couple of a large vessels with one of the main line those.
We anticipated that they would also be suffering from low container volumes. During this period by advancing that we were able to negotiate out of that an extension to that contract of Ah over three years.
So we see these kinds of opportunities we have the flexibility in the capability to perform along those moves.
Okay, that's really helpful.
Just to add what they say that.
In terms of our our suite of 125 vessels 2021.
5% of our our revenue Seaspan is already contracted so we have about 15% of spot spot from union dose.
Vessels on charter less than one year, so our exposure.
It's rather limited.
Mission to that because we can provide a dose.
They did a solution and services with our customer we close.
Two very closely with our customer and I'm very confident that.
In terms of continue rolling.
So you know kind of these vessels into the long term contract. It's it's part of nature of our business and as a matter of fact right now you know because of the rate is relatively low it's not in our top priority. It's actually entered into into long term charters at this point because I think that.
At the rate as we as we speak.
It's a recovery.
Okay Perfect and then my final question, how often do a PR you know utilization was around 68% for the quarter and it sounds like those mexicali.
Contracts didn't really kick in <unk> or they weren't realized for the full quarter.
Can we think about getting utilization up closer to that mid 70 range that we've seen historically I will those mexicali contracts being in full effect for Q3, I get us closer to that Mark.
Yeah, Michael I think that way too too that's why I think the way we look at the office is two sons studying spend is similar to to cease fences that we're going to work on both opportunities to improve the.
Utilization one is through the extension and the other one is through the new business opportunities.
As you know that.
Yes.
That does lead is that more than half is on that and long term contract.
The current Covance, obviously have certain impact in terms that reductions overall.
Power consumption, however, I think the.
Thats just it I think we believe it's a temporarily slowing down the decision making process and also.
Of course resolved. Some you know I think cancellation of the project for example backing.
In may.
Puerto Rico Pepper hadn't had a.
Demand for about 350 megawatts.
Our but due to this cove it and you know what a peak seasons in not need to have this power. So therefore, there I shouldn't impact. However, I think you know as the as we continue to working on both existing type of opportunities that at the management team working on.
Other opportunities as such as you know flat, we stop and looking at other opportunities such as a fair to gas LPG and other.
Great stabilization so to broaden.
Our portfolio of offerings. So therefore that we will have more opportunities to to get the best to get the turbines utilize so you know over the period I think we're still confident.
We will be able to improve.
The.
Provides utilization.
Through the expansion and also the new opportunities.
And then my Michael just does a clarification for the third quarter pro forma for the Mexicali, what you'll see is 80% utilization for the Hbr power utilization fleet.
Okay perfect. Thank you very much.
Thank you. Our next question comes from Ben Nolan with Stifel. Your line is now open.
Good morning start by saying I appreciate the enhance metrics that you guys put out if.
Any.
Additions to visibility is certainly helpful for my job.
The <unk> I have a handful of questions first when it's pretty easy for you right with the addition of the rating here I'm curious if it's a little non traditional it's not S&P and Moody's why or why did you decide to go that direction not that it matters lot just just sort of curious.
Hey, Ben Good morning, Thanks for the question and it's a good one cool actually has a a dominant position in the rating of industrial transportation companies as we think about potential institutional credit access for our business going forward, we think it's an incredibly.
And one one that we're quite excited to continue to develop.
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Okay perfect.
So.
Then I've got one.
Seaspan type question and one maybe multifaceted [laughter].
A PR question, if I can but on seaspan as it relates to this most recent transaction.
I had seen that it was actually from a another vessel owner rather than a liner that might not be ride maybe you could help me, but im curious if there are a maybe dramatically more opportunities from.
From maybe people like yourselves, who or you know owners, but maybe don't have the same financial position and might be looking to sort of take advantage of you gonna maybe equity that they have in their existing assets to a improve their balance sheets.
[noise], yes, thanks, Ben I think if you look at the fragmentation that exist and we talk about this and a variety of settings.
There's ample opportunity for further consolidation in the owner space and whether it's a you know in the near term or over a longer period of time, we expect that consolidation to play out as being mentioned during his commentary you know our our drive for consolidation isn't for the sake of consolidation it's for a strict.
Basically growing our business with the right risk adjusted returns behind it and so we expect these opportunities on the owner side to continue to be available, but it's important for us to not only I think about what opportunities exist, but how to matching marry those with our customers.
Okay and also just.
Just tied up to the previous question that we're talking about is that the relion. If we're looking at these opportunities not only I think you need to have the equity, but also you need to half the customer needs. All these growth opportunities. We have had so far it's all driven by our customers demand.
Our line is the value our service they want us to provide a service to them and that it's I think that's also one of the.
Primary driver for these type of opportunities <unk>.
<unk>.
And then look if I, if I could switch over to a yard sort of ask a.
Multifaceted question I guess, a you know looking at the we little bit less than half of it is still a diesel.
From what I see and with the balance being gas Im curious number one.
As a what's sort of this strategy in terms of.
The shift towards more gas fired power generation internally is that something that where there are opportunities to buy or any color on sort of what the global.
You know position of that might look like or order book of new capacity.
And then sort of tying in with that it was interesting being that you'd mentioned looking at sort of other tangential opportunities something that we've been hearing a whole lot about lately.
As hydrogen to possibly hydrogen for for power generation Im curious if you guys have.
Have looked at all at that and I I realize it's early stages, but.
Is that you know in area you, Mike wood or are investigating possibly.
Delving into in conjunction with what you're doing them that gas generation.
Sure I would try to answer the first question and I think computer and tossed in would be to answer. The second question on the hydrogen side I says, it's funny that we actually had some discussion this morning.
Yesterday, but when we got into two to eight.
Currently yes, we still have about 500 megawatts of capacity, but over the not to answer your question.
Over the over the time.
We are actually.
Tend to divesting all of these dpms and focusing on gas turbines, because we want to a to b to b in that four fond of.
Environmental or you know a compliance.
Therefore going forward, how we're going to be more focusing on the gas turbine and.
Yes, the diesel generators in terms of the business going forward as as you just mentioned and I think a with the existing fleet that we have we were going to be focusing on increasing.
Station.
And that's the first and foremost priorities before we.
Consider in growing the business, because I think thats a lot more that we can improve from the existing business.
And as the market because you know right now the and engine power market is still evolving I think we have very well I know I think that attuned to the market development. So therefore as the market develops as as I mentioned earlier, whether it's a flair to gas or whether it LPG and.
Technology with climate and also the transition from traditional power to to those alternative power with the wind and and so.
Sola any did they have more increasing demand for example at the grid stabilization. So we've been that we're going to grow our business asked that market evolves and asked our customer demands. So I think that that is something that we are confident that we're going to continue to follow the demand off the market and our customer but first.
Foremost, we're going to focusing on increasing the utilization of existing fleet.
Yeah.
Things being and I'll, let thorsten jump in and if he has any thoughts on the hydrogen ship side I think that that's an area that we've definitely evaluated on as it relates to NPR, Ben and hydrogen opportunities is being mentioned earlier and are.
In the queue in a we evaluate a whole host of different technology applications to.
The various projects that we've engaged and hydrogen being one of the many and I think as we go forward it will be a mix of.
Evaluating these different technologies as well as different asset and project links combinations from a.
Total growth perspective, very PR.
Yeah.
Yeah.
Just just in regards to the a those ships side.
I can't speak very much to the to the power generation other than the.
That being said you know that focuses on utilization and and opportunities.
Yeah near to medium term opportunities such as the utilization of flare.
On the Marine side, you know there's few considerations that we have to take into account one of those are the availability of as a fuel.
Second one is we have to carry the stuff.
Wherever we go.
And thirdly, we have to carry enough of it.
To complete the voyage.
So I think we're all aware of of the various horizons facing the marine industry in regards to alternative fuels.
In line with the the IMO ambitions on greenhouse gas reduction.
Through 2030 in 2050, so we are very active in considering.
Alternatives.
It takes many years in terms of the availability of a sustainable fuel.
To to be available to the market.
LNG for instance.
Oh 2025 years to become readily available in the marine market as a fuel.
Because the you know the the production, which is where the LNG tankers does not necessarily with vessels need to be two to 10 Cup as a fuel.
So we have been engaged in in a number of feasibility projects reengage.
With partners in the broader industries, such as oil majors classification societies engine makers et cetera.
To develop out Oh views and potential visions of where we would go.
I think.
One of these talks around town is about LNG is a fuel things that's not a carbon free fuel. So so it is a pathway to improvement but.
In the end, we'd have to consider alternative fuels such as the ammonia.
It is one potential or or others that would be carbon neutral, but by capturing carbon producing the fuel out of it so you're not actually increase in carbon footprint.
Great I appreciate it thanks guys.
Thank you and our next question comes Randy Givens with Jefferies. Your line is now open.
Hello, gentlemen has gone.
Thank you good <unk>.
Great.
No I guess first question honored in container shipping and power generation solutions.
The other or maybe infrastructure areas like overlap with your customers interest as well as actors interest and then as a rule on how diversified the company becomes.
Randy.
That's very good question.
I think it in terms what.
We are looking at the.
Synergy in terms of between.
The container shipping.
And the power I think right now it's small but.
The business model and and.
The shared services.
Going forward I think.
The opportunity will be largely depends on what kind of.
Customer demands and the right hand right.
Okay.
What are the.
The investment opportunities in that range, we don't we do not set a specific silos of but talking about where we didn't know.
We're going to grow into rather I think right now given these two.
Once that we have and then I think it was going to continue to build on that and I think a vertically and horizontally. We will see the right opportunities. Then then we'll allocated capital, but whenever we do you plan when we're going to do that I think we have to stick to our investment that capital allocation discipline.
And in the criteria.
And so that's what in general what we looking at a future opportunities.
Okay.
Focusing on your conclusive contracts, especially from the longer term one.
No. There's been some recent announcements that maybe a reduction in expenses or carters have you been in cost to some of your counterparties for similar arrangements.
Yeah, you are talking about the modification of the.
Charter contract.
Sure.
Yeah. This is actually this is in our normal course of business that because as you as you know that when she entry into a long term contract is it's a matter of.
Im paid for the stream of cash flow.
Given the nature of the business that we are in a we are constantly actually working with our customers depends on their business needs and therefore that women of develop the solutions with them. However, I think a with the these payments.
Changes, there's a two principles that we looking at number one just has to has to be a win win situation, meaning it's a mutually beneficial for us and also filed customer the second discipline a principle that we hold is that these type of it modification it's not.
In any way to compromise the credit quality, meaning the cash flow qualities, so that being said.
Actually constantly working with our customers in looking at their business needs and modify the contract in the way that what we call less for longer all mall for less for example.
In Q1, 2019, we modified the contract where we actually receive accelerated payment of $270 million and right now I think right due to the pocket due to the market conditions. Some of the for example of the liner customers demand has changed but however, they were.
I would want to retain Seaspans services over a longer period of time and that's why we're going to have this type of opportunity for less for longer but once again these less for longer for us that we won't be able to you know get a longer term loan guarantees utilization at the same time as long as the.
Eight of the charter and it's it's you know meets our return requirements and I think for our customer that we'll be able to get what they need in terms of the in the capacity supply as well as their cash flow management. Once again, there's no circumstances, where weve compromise the quality of the cash flow.
And then Randy maybe just to follow onto that I think when thinking I joined in 2018 a big.
Point of inquiry from the investment community was weather Seaspan was able to work through renewed extensions across our fleet and I think if you. If you go back to 2018 and you look at our long term contracted revenue then versus where we're at now I think the management team has been really focused on ensuring that that backlog to fund.
Attractive cash flows supports not only the liability management program that we have but the scale of the integrated operating platform that were.
Participating with.
And then if you take anymore.
Specific approach to your question for the near term, we've had multiple conversations with customers.
Nearly every one of the leading global liners on contract between five and up to 18 years over the last.
Several weeks, even and so we feel very confident that these long term contracts for.
Key supply partners, such as such as Seaspan, we'll continue to exist for the for the foreseeable future and we're excited about the opportunity to continue to pursue those.
[noise] purpose earn and then last quick person in terms of capital allocation, maybe what is the most important priority right now and how does the current dividend fit into that.
Yeah.
First of all the current dividend.
We think it's a it's appropriate however.
The management team that we regularly evaluate our dividend policy presents our recommendations to our board for the final decision.
In our dividend policy is part of our capital allocation in a sense that.
Certainly.
Evaluate what is the best use of our cash flow. So therefore.
I think it is definitely constantly under evaluation and I I think it if we looking at our current.
Stock price relative to the dividend I think the yield is high but the way we ceased that's it.
Rent situations attributed to maybe two aspects one is that you know the general economic environment and the other one is.
We still being valued as a capital intensive.
And as cyclical.
In reality I think today as we as we continue to demonstrate that the reality of Atlas stiffened defined in the sense that we actually on one hand is capital intensive but we generate.
Pawlenty risk adjusted return.
In terms of cyclical I think that we are able to demonstrate again and again that through these cycles that we can generate stable and predictable cash flows. So therefore, the reality that has a disconnect and disconnect is something that I think as we believe is 10 temporary and we would also continue because.
You know at these these situation I think we'll continue to focusing on.
Executing on delivering.
At the long term value.
At the same time and I think good that.
I guess as asset as the business that we on one hand, we provide transparency and we delivered the results, but I think one thing myself and the management team needs to do better is to better articulate embedded present ourselves to the invest as a market and we believe that out.
Currently as we create the long term value.
It will recognize.
And then Rick Randy maybe just to follow on to that if you think about.
Kind of near term capital allocation decisions I would say it's in line with everything we've communicated in the past, we believe that there's great value to improving the credit profile of our business with our long term goal of achieving a corporate investment grade credit ratings and so as we think about alternative.
It's to deploy capital Theres always value and improving improving the credit profile and one of the things that I think that is difficult to see at any given point in time, but by improving the credit profile. It affords us the opportunity to execute on some of these attractive capital allocation expense initiatives and so if you go back to some of the.
The.
Information that we disclosed in the earnings presentation, you will see you know, we're able to deploy capital at very attractive rates, but we're able to do that because we've been.
So relentless on the pursuit of credit profile improvement and so I think that you'll continue to see us focused on quality growth, but it will also be.
With the vein of improving the credit profile, because we think that both of those things go hand in hand.
Got it right right Thats it for me thanks, so much.
Thank you. Our next question comes from Ken Hoexter with Bank of America airline is now.
Great Good morning, and I'll Echo Ben's comments on on thank you very much for the the additional information.
Maybe thing if you could provide more color on the the current market for for vessel acquisitions is it.
Where these willing sellers, where it was this from the container line ship liner companies, maybe talk about a bit about the the market for acquisitions.
Yes.
Good morning, Ken.
These acquisitions once again, none of these acquisition is through any kind of auction process, rather is a proprietary opportunities I think it's a mixed.
Attunitys either coming from other at.
The vessel owners, all coming from the liners for a variety of different reasons, where I think we were able to structure in such a a a transaction where the line is that was value our service and want to keep us a long term contract. So that is the.
Basically the way we met we construct these type of.
Both opportunity in a way first of all we have to evaluate the type of assets, we want to make sure. These on a good assets they are young deadlock assets.
Fuel efficient.
And so therefore these up good assets.
The demand and also with a good residual value because we are managing the assets and then on the back end of it we need to look at these assets, we never buying assets on a speculation basis, we only by the that's when the customer actually need it and they want to sign and long term contract with us.
These are the that type of you know the opportunities that we will be able to work with the satellite and also with our customer and therefore that we will be able to create these type of attractive opportunities where again, it's a win win situation in the sense that we'd be able to provide our services to me.
Building up our scale and the flexibility in quality from a customer side.
Oh boy, our quality reliability in the scale services and that's something we see as them as we mentioned earlier I asked the liners continue to focusing their end of the services. They are demanding the quality solution provider of the tonnage provider, it's not a vessel rather it's a plan.
It's a solution it's a service.
Great and then I guess I'm going to step back and ask a bigger picture question, but you know we've heard a lot about the move from globalization the localization and supply chains. Just wanted to know how you think about this in terms of your your exposure on the containership side.
And your thought on on long term revenue impacts if any.
Yes. Thank you that's a good question.
The way I mean globalization.
Despite all these political discussions I think the globalization will continue because ultimately I think consumers. So a business will be looking at the cost and that's one thing. The other thing is the globalization if you're looking at from a supply chain standpoint, and I think that these supply chain.
System has been built over the years with serious capital investment over the time, so even though you want to have these localization I think it number one required additional capital number two you would need to take time to build a new supply chain. So therefore, I think the globalization.
It's a testimony is a trend now however is that kind of role as what the globalization has been growing for the kind of speed in the economy is I think that's going to be slowing down and I think your question probably more alluded to in terms of global trade.
I think a global trade was definitely will continue.
And I think that just it is something I don't think that politics, we'll be able to stop it because once again.
You do you do you do have to take into consideration of the reality of assisted the police political agenda.
So in general we we are cautiously optimistic in terms of the continued.
The growth of the global globalization and also the global trade. The casing point for example, I mean, even up to this point.
The cold it.
Not that because of the human rather it's a natural limitation. So you said you know trade and I think you see the very quick response of the global trade and if you're looking at last year with the trade War.
I think steel if you're looking at the industry as a whole.
I think.
Our business actually had a record year last year.
Asian Wise, so therefore I.
I think of pharma, specifically the impact to the container shipping business.
Today I believed that the impact is minimal if and then we'll be any impact that's going to take longer time.
It's not something I think we believe that we'll have the.
The material impact to the industry, particularly for the long term Concho, we tried to secure.
Great points being appreciate that insight last one from me assist.
Really simple one that I guess.
Maybe Ryan is there any thought from the cornerstone investors to make the stock more liquid I think the floats only 30% now and obviously that might be constraint on on some large REIT investors.
Really to move in and out of stocks, so any any thoughts to that process.
This is David.
Perhaps I should take this question.
Sure.
I don't I don't see us increasing that liquidity.
At this point I mean, I think we I think both the Fairfax.
Financial as well as Washington family are happy with their investment and I don't see them selling shares.
And in fact I think.
Consistent with the prior.
Question regarding capital allocation again, depending on where the stock is going where our capital availability is it any any given time I think we're probably more likely to be buying shares then that issuing shares at least under the current environment that I would see it I would think that.
Potential share repurchase would would be more likely today than a dividend shift.
Again, those are all speculative I think at this point through this cobot situation.
Maintaining our capital and continuing to grow the business is going to be the priority dealing with.
Peter share purchases or dividend changes would probably be well into the future. After covert is behind us.
The only other comment I'd make is obviously if there was an acquisition where we felt we were getting more per the stock then the stock current value, we would certainly consider using stock as a as a acquisition tool.
Depending on the acquisition that may or may not increase liquidity, but.
I think.
Having said all that the short answer is I think I think our shares outstanding are not likely to shift a lot in the in the near future.
Great appreciate you jump in and thanks for the thoughts.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to being chairman President and CEO of outlets for any closing warm.
So thank you all very much for taking the time to join our call.
I appreciate your time and no questions.
And I wish everyone.
Stay safe and healthy look forward to speaking to you soon thank you very much.
Ladies and gentlemen, thank for your participation on today's conference. This does conclude your programming you may now disconnect.
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