Q2 2020 Teekay Corp Earnings Call
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Welcome to Teekay Corporation's second quarter 2020 earnings results Conference call.
During this call all participants will be in listen only mode.
Afterwards, you will be invited to participate in a question and answer session.
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As a reminder, this call is being recorded.
Now for the opening remarks, and introduction I would like to turn the call over to the company. Please go ahead.
Before we begin I'd like to do direct all participants to our website at www Dot Teekay dot com, where you'll find a copy of the second quarter 2020 earnings presentation.
Kenniston events will review this presentation during today's conference call.
Allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from results projected but those forward looking statements additional information concerning factors that could cause actual results may materially differ from those in the forward looking statements contained in the second quarter 2020 earnings release and earnings presentation available on our website.
I'll now turn the call over to kinda to begin.
Thank you Ryan Hello, everyone and thank you very multiple joining us today for Teekay Corporation's second quarter Twentytwenty earnings Conference call.
But you and your families all safe and healthy.
On the call today, I'm joined by Vince Lok Teekays Group CFO.
Before we get into all results again like to take a moment soon thank all of our seafarers and shore based staff for their continued an extraordinary dedication to maintain business continuity.
The unprecedented impact of covert nine team continues to be a major major area of focus for us, but we have thus far successfully navigated the evolving logistical and regulatory challenges with minimal impact on our operations, we truly proud and thankful, how all the seafarers and onshore colleagues.
Wanted to cope with 19 implementing you stand ups to ensure the continued health and wellbeing everyone involved in our organization, especially all colleagues at sea, while maintaining consistently safe and efficient operations for customers.
Moving to our recent highlights on slide three of the presentation in the second quarter of Twentytwenty. We you reported all third consecutive quarterly adjusted profit recording consolidated adjusted net income of $40 million.39 per share compared to an adjusted net loss of 13 million.
And all those all 13 cents per share in the same period of the prior year.
We also generated total adjusted EBITDA of $316 million, an increase of $119 million or 61% from the same period of last year.
Our strong results in the second quarter can be attributed to solid earnings and eat solve all main businesses.
Teekay LNG, you've reported and another quarterly record high in adjusted net income and total adjusted EBITDA Teekay tankers experienced another quarter of strong spot tanker rates and I will directly on that gives all operating results improved as a result of the new bareboat charter contracts secured in late March on the Foinaven FPSO.
Which eliminated all exposure to the previous lossmaking contract.
Looking ahead. So next quarter, we expect Teekay LNG will continue earning stable cash flows as a result of its LNG fleet being fully fixed through the rest of 20 to 20.
Okay tankers to spot tanker market has come under pressure since mid may following three quarters of strong spot tanker rates the near term outlook for the tanker market is uncertain at this point and to some degree linked to the global auto production and demand, which presently is about 10% lower than the average demand in 20.
In 19.
You know tanker business, we continue to follow the prudent path that we laid out at our Investor Day last November and we're pleased to have significantly reduced our effective free cash flow breakevens and near term spot exposure by locking in 23% of the tanker fleet on fixed rate contracts.
At attractive rates and we are encouraged by fleet supply fundamentals, which saw favorable relative to prior market cycles.
Finally, we have now commenced the wind down of the second of all three of Fpsos, which I no longer coal business. The Banff FPSO cease production on its field in June 20 to 20, and we have commenced the various decommissioning and sub sea remediation procedures on the field, which I'll touch on in more detail on the next slide.
We continue to utilize these improved cash flows to further strengthen our financial foundation, which is one of our strategic priorities over the past year, we have reduced our consolidate admit that by $887 million or 20%, which creates significant exits of value throughout.
The group we have also increased our total consolidated liquidity to approximately.
$940 million as of June Thirtyth, which provides financial strength and flexibility. Lastly, we have also secured bank commitments for new equity margin revolver of up to $150 million to refinance Teekay corporation's existing revolver that is currently undrawn.
And matures in December 20 to 20 at substantially similar terms.
We continue to further simplifying our structure with the refinancing of Teekay tankers full suezmax tankers. This month, we have eliminated all remaining guarantees of daughter company debt, which stood at over $225 million just two years ago.
And as announced in May we eliminated the incentive distribution rights. So I'd OS we held in Teekay LNG in exchange for 10.75 million GDP common units lastly, and most importantly, the health and safety of all crew and show staff is Paramount for the Teekay group, we have implemented strict mace.
Sure as on all of our vessels to protect our seafarers, while the mass vast majority of all Shaul staff are working remotely from home.
As a result of dependent they make the overall maritime industry has experienced significant challenges related to crude changes, but I'm pleased to report that we have managed to at least to a partial refresh of our crews on effectively all of our vessels and all that seems a focused on minimizing the number of crews that Oh would do well.
Synutra work hop with both the industry and inside governmental organizations to tackle this challenge and bring all remaining overdue colleagues home safely assume as possible.
I'm truly proud of how all seafarers <unk> onshore colleagues have responded to ensure safe and successful transitions with no reported cold at nine seen cases, while providing uninterrupted service to all customers.
Turning to slide four we continue with the wind down of our Fpsos segment as we discussed at our Investor Day in November in late March we secured a new up to 10 year payable contract on the Foinaven that effectively covers the remaining life and the eventual green cycling of the unit, we received $6 million to $7 million of cash.
Asked pursuant to this new contract in April in.
In addition, we've received a nominal per day fee for the contract life that effectively covers any and salary costs and a lump sum payment at the end of the contracts or that is expected to cover any cleanup and green recycling costs. All the units importantly, this new contract eliminates all operate.
Regional exposure to the previous lossmaking contract.
The band cease production on its field in June and is expected to come off the existing fields. During the third quarter of 20 to 20 with green recycling of the unique expected to be completed by the end of the year bands has a unique contract structure. What she case also responsible for part of the remediation of the subsea infrastructure.
We've been accruing for these costs on all balance sheet with a current net asset retirement obligation or a all all $44 million, which is net of an $8 million receivable balance that is to be funded by the customer roughly half of this nature A.R.O. is expected to be incurred in 2020 with the remaining to be carried out in.
To sum up 21.
Part of a two faced subsea remediation process. In addition to the Arrow costs. We're also expecting to continue to incur certain operating cost associated with the de commissioning of the FPSO and after so units most of which we expect will be incurred and third quarter of 20 to 20, coinciding with when we.
We expect the units to leave the Banfield.
Lastly, the humming, but after so what's come which just completed a planned customer funded shutdowns for maintenance continues to operate on its fixed rate contract and is currently producing approximately 7000 barrels per day.
Over the next two slides I'll briefly touch on the results and highlights of our daughter companies I would encourage you to listen to their respective earnings conference calls for more details following this call.
On slide five we have summarize Teekay LNG is reason for salts and highlights Teekay LNG partners reported and although record high adjusted net income and total adjusted EBITDA during the quarter generating total adjusted EBITDA of $192 million and adjusted net income of $63 million.
As well six to seven cents per unit up significantly compared to the same period of the prior year as a result of a complete quarter contribution in Q2 from its fully delivered growth program Q2 also marks the eighth consecutive quarterly increase in total adjusted EBITDA.
Gdps LNG fleet is 100% fixed for the remainder of 20 to 20 at 94% fixed in 21, Cdps average daily fixed charter rate and went to twins is expected to be above $80500 per day, which compares very favorably compared to the weaker and LNG spot market.
To be clear this $80500 per day fake or is the rate earned on a 100% utilization basis because of the time charter nature of the employment. In addition, GDP has also reaffirmed its 2020 adjusted EBITDA and adjusted net income guidance.
Lastly, TTP continues to further de leveraged balance sheet and make steady progress towards achieving its target leverage trains four and a half to five and a half times on a net debt to total adjusted EBITDA basis in made CGP repaid, it's nok bond maturity with existing cash and on a second quarter annualized.
Spaces GDP ended up at 5.9 times on a net debt to total adjusted EBITDA basis, which includes proportionate share of its underlying joint ventures, which has significantly improved from 7.2 times in 2019.
With a strengthening financial foundation and de leveraging that is expected to provide financial flexibility market, leading positions and a very compelling valuation at a 4.5 times PE ratio based on the midpoint of GDP is Twentytwenty you guidance, we believe that GDP has significant long.
Time value potential, which benefits T.K. as the largest common unit holder.
For every 10% increase in GDP is unit price Teekays equity increased interest would increase by 45 cents per teekay share or 16% based on yesterdays closing price of $2.74 per share.
See the appendix to this presentation for more details.
Turning to slide six Teekay tankers reported its third consecutive quarter of strong earnings and cash flows in Q2 TNK generated total adjusted EBITDA of $124 million up from $36 million in the same period of the prior year and.
Adjusted net income of $81 million or $2 at 39 cents per share in the second quarter of a significant improvement from an adjusted net loss of $12 million all 36 cents per share in the same period off the prior year.
TNK has transformed its balance sheet, bringing its net that down to.
$549 million, a decrease of over $180 million or 25% in the second quarter alone and increase its total liquidity to $468 million as at June Thirtyth.
Over the past three quarters TNK has reduced its net that by $448 million, 45%. In addition to it but as mentioned in my opening remarks, TNK has secured and new $67 million debt financing secured by four suezmax tankers to refinance debt facility maturing in 20 to 20.
One which eliminated the last remaining daughter company that guaranteed by Teekay Corp. Teekay TNK now has no debt maturities until 2023.
Since reporting in May see MK has delivered nine vessels Entre previously announced time charter contracts, bringing its total number a fixed vessels to food seen or a total of 23% of the fleet. These fixed contracts log in rates at attractive levels and reduce spot fleet.
Free cash flow breakeven, so $12700 per day through mid 20 to 21, which means the company is expected to and positive free cash flow in almost any tanker market.
With a low free cash flow breakeven as a result of reason well time fixed rate charter contracts, a strong liquidity position low balance sheet leverage and no debt maturities until 20 to 23, we believe that Teekay tankers is financially well positioned for any near term volatility in the tanker market.
Then it's a prospects in the crude tanker markets are currently unclear, but we take comfort from the fact that the order book has remained well below levels seen in earlier recovery is limiting vessel supply growth over the next two to three years lastly for every 10% increase.
In T. and Kase unit price Teekays equity increased interest would increase by 15 cents per teekay share of 5% based on yesterdays closing price of $2.74 per share.
In summary for every 10% increase in CDP and see in case share prices Teekays acreage to increase interest would increase by 60 cents could teekay share or 22% based on yesterdays closing price of $2.74.
Our share please see the appendix to this presentation for more details I'll now turn the call over to Vince.
Thanks, Kenneth turning to slide seven over the past year, we have significantly strengthened her financial foundation.
This includes delevering, our balance sheet, increasing or cash flows and proving our profitability.
We have reduced our consolidated net debt to three and a half billion at the end of June a decrease of 887 million or 20%.
We reduced our consolidated net debt to cap from 62% to 57% and increased our total consolidated liquidity to approximately 940 million compared to 644 million a year ago.
On the last 12 months or LTM basis, our total adjusted EBITDA was 1.18 billion, an increase of 298 million or 34% from the same period of the prior year.
This included consolidated gene a savings of 10 million or 11%.
We have also significantly improved our profitability as we recorded consolidated adjusted net income of 72 million or 71 cents per share.
Compared to an adjusted net loss 40 million or 39 cents per share and appeared in the prior period.
Our LTM Q2, 20 adjusted earnings per share of 71 cents translate to a p. rates of only 3.9 times based on Teekays closing share price of yesterday.
Looking ahead as usual we have provided some guidance on next quarter's results in the appendix to this presentation.
Compared to the strong results in the second quarter, we expect a third quarter's results to be lower as a result of seasonally lower spot tanker rates, but also due to some temporary factors such as the decommissioning costs on the Banff FPSO and a much heavier than normal level of scheduled drydockings in Q3.
The latter of which was strategically timed with the expected seasonally weaker Q3 spot tanker rates.
However, we would expect our earnings and cash flows to become more normalized in the fourth quarter with significantly lower decommissioning costs on the Banff FPSO.
Much lighter drydocking schedule and the potential for some tanker rates spikes to occur in the winter months.
With that I will now turn the call back over to Kenneth for his closing comments.
Thanks Vince.
In closing the full effects of the cobot pandemic on the global economy remain unknown. However over the last year Teekay colt Teekay LNG and Teekay tankers have each strengthen their financial positions and made significant progress insulating each of the businesses from possible Maga.
Volatility and positioning the Teekay group to create long term shareholder value that over <unk>. We are now available to take questions.
Thank you.
This time, if he would like to ask your question. Please signal by pressing star one on your telephone keypad.
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Our first question will come from Jamie it's minor with value investors change.
Hi, Good morning, gentlemen, thanks for taking my calls and congrats on strong daughter company performance.
Good morning to extract things.
You know its teekay Corp. continues its transition done the GP IDR buy out it's basically just holding company with daughter shares and too.
Yes, it was on their way out right. We saw some slides on that in the presentation.
Along those notes, we asked last quarter, but just to check up again.
The she anyway, that's not reimbursed like what is the core parents again, a and how can we consider that on an annual basis I realize it fluctuates quarter to quarter, but what is sort of only the parent company overhead that we still have to deal with.
Hi, Jay This is Vince Oh, yeah, the second quarter GE in a at the parent was higher than normal because of.
Some test some onetime factors, we had some fees related to.
The IDR transaction that was completed in May.
And we also had stock base grants that were issued in June so.
So if you look at the first half DNA for the parent.
On a more normalized basis, excluding those those items.
We're looking at about a.
Probably around a $5 million.
But we also had other income that offset that a total of about five and a house million for the first half. So looking at the first half our net gionee was actually pretty much zero.
Now the other income and in the first half was probably higher than normal.
So if I normalize that on a full year basis I would expect our net DNA for the full year would be about $6 million to $7 million on a net basis, that's sort of the run rate.
Okay. Thanks, Matt that's very helpful to 67 million annualized and is that.
That reasonable to say that would be going forward for 20 wanted and beyond or is that a little bit elevated because of the dsos.
No the DNA related to their care, so as a separate and in the FPSO line items. So to six to 7 million is good in terms of corporate level.
Okay. Thanks, Vince turning to discuss those Taco Cabana has a 44 million dollar asset retirement obligation that's been disclosed for a while I realize you kind of what are you kind of flattened income statement.
First part of that is how does that impact your cash balance is how much of that is already kind of reserved separate accounts and how much of that would pull directly from teekay parent's cash balance and then the second part of that is of course, you noted there might be some additional opex and recycling fees associated what do you anticipate that net cost.
Since the for the third recycling I understand green recycling is a little more expensive. In addition to that 44, so how much above that 44, we gotta go.
Yeah, we have a first of all we have a fairly strong liquidity position at the parent and it's about 170 million as of June Thirtyth.
And when we complete the a the refinancing of the existing revolver that should go up to close to 200 million.
So we have a good a good strong liquidity position at the parent.
As you mentioned the the net pay our ROE or asset retirement obligation at June Thirtyth was about 44 million.
We expect roughly half of that to be incurred and in this year and then the second and then the rest of it to in the summer of 2021.
In terms of other operating expenses and we're estimating that to be roughly about 20 million on top of that a in the third quarter.
And that's mainly related to the decommissioning of of the FPSO and the episode unit.
We might and then a it looking at the fourth quarter in terms of recycling costs.
We don't have a good number yet on that we're still getting some the estimates and scoping out what's required for that.
That's likely to be incurred in the fourth quarter I would expect it to be probably in in this sort of human $2 million or so.
Okay, we'll have to check it next quarter and see where that goes along those lines you have very sufficient liquidity balances you mentioned the revolver old on you have a very high cost of debt.
Maybe on the company outside of that evolved right you have to 9.25%.
Cured bonds that you also have a convertible bond that's only 5%, but it trades on the open market at about 13% yield to maturity. I mean this is at a time, where the majority of even your shipping peers you can the higher risk fears are borrowing from bank said four to 5% to 6% on so definitely some outliers here.
Are there any sort of avenues, you can take 2022, maybe refinanced with its debt or start to chip away at it or is that something we need to wait until next year to address.
Yeah as you know in the past few years, we didnt, we have been chipping away at that and reduced our.
Our expensive debt has considerably over the past few years and that's that continues to be our goal.
We recognize that we need to reduce our cost of capital over the long term.
And and so that is our goal we have the maturity on these securities I'm starting to mature in late 2022 in early 2023. So we have some time to to address that and in the meantime, we're continue to two to increase our free cash flows to build asset coverage.
With the daughter equities.
And and and as part of that to we want to improve the cost of capital and credit profile the parent along with a daughter companies.
All right. Thanks for taking my questions and check in next quarter with you.
Thanks.
Thank you. Our next question will come from Sandy Burns with Stifel.
Hi, good morning, everyone.
Maybe just a follow up on the previous question about <unk> debt obligations at the parent.
Can you talk Big picture is your goal for the tannery to be a like a debt free type density or.
You know by by monetizing some of the assay value, having the company or do you see yourself still having some debt obligations up there, which would more come about through a refinancing of the bonds and convert at some point down the road.
It's it's its kind of a it's it's obviously a a stated target for us to to reduce I'll update upstairs I don't think we have a stated target per se offers using it to zero and I think what we are.
As far as we touched on and on the previous questions. What we're focused on right now is that with the significant and growing asset coverage that we have how do we make sure that we we bring down at both the the overall that but also very importantly, the overall can't cost so I think a at.
Company, we're definitely looking forward to have that flexibility, where we are we have more investment flexibility and that's what we've been very focused on over the past for years to recreate it at the at Teekay. So that doesn't mean that we we don't carry any any data at all but it it means that we basically have the.
Fixed ability to so also allocate capital and some great long term value and the and then of course and from time to time with would mean that carries on that.
Okay, and just one last one for me.
The revolver.
Good news that you able to extend that for two years.
When the time comes for the potential refinancing of debt at the at the parent are you allow to borrow under the revolver and use those proceeds to refinance. The current then obligations or is that only for general corporate purposes, like the decommissioning costs and other expenses that arise.
There were allowed to use a those funds are weak. So we can draw on the on the revolver for a for refinancing purposes as well.
As you know right now that that entire revolver as undrawn and we're sitting on of the 70 million of cash.
And so we don't really need to drawn the revolver in the near term.
But it is a available for for other reasons.
Okay, great. Thank you and good luck with everything.
Thank you.
Thank you that concludes today's question answer session. At this time I will turn the conference back over to the company for any additional are closing remarks.
Well, thanks for joining us today at the again is a join us for our calls and Teekay tankers and Teekay LNG, we look forward to reporting back to makes portal.
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This concludes today's call. Thank you for your participation you may now disconnect.
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