New Fortress Energy Inc.

Q3 2021 Earnings Conference Call


spk_0: good day and thank you for standing by welcome to the new fortress energy third quarter twenty twenty one earnings conference call at this time operatives pinto analysts knowing mode after the speakers presentation it will be a question and answer session please be advised the to these conferences be accorded to ask a question during recess recession you will need to press dar one on your telephone if you require any further assistance please press star and fiero i would now like to him the conference over here speak with today just came with investor relations clue
spk_1: yeah go ahead
spk_2: thank you are like to welcome you to the new fortress energy third quarter twenty twenty one or install joining the your today are weapons or ceo and chairman of the board chris gender or chief financial officer in and the managing director leading our brazil efforts protocol today we're going to reference be earning supplement that was posted to the new fortress energy website if you've not already done so i'd suggest you download it now in addition will be discussing some non gaap financial measures during the call today the reconciliations of those measures to the most directly comparable gap measures can be found in the earning supplement before it's turned the call over to wes i would like to point out that certain statements me today will be forward looking statements including regarding future earnings the and butter nature or in certain in may differ materially from actual results we proceed or review the disclaimers our press release an investor presentation regarding non gap financial measures and forward looking statements and review the risk factors contained in our quarterly report filed with the fcc now are like to turn call it was great that sasha know up another one
spk_3: as as usual please refer to the at the earning second we're he said that the it as or in a walker here and just the next few minutes so with with atlases turn the beginnings of page for an excellent excellent quarter you know not only do we had the at the margins that we had laid out for you are just a month ago that we've increase those those our forecasts by roughly fifty percent was the beginning of the air arm we did this not by being long or the market debate but by making some directional that the rather we do we did this by utilizing our portfolio of as as and terminals around the world combined of their supply to put ourselves in a great position to take advantage of get a market opportunities
spk_4: by the numbers
spk_3: for the quarter two hundred and ten million dollars in margin ah in july when we gave an updated as what we expectations should be for the rest the year you're at a hundred and seventy one nine dollars it's obviously a significant be to that i am or the fourth quarter as to now is three hundred and seventy five nine so right on top or we thought we were a few weeks ago or ninety percent of the revenues are book for the course as i was his something she feels pretty well baked at this point that was a hundred eighty four million the summer so in total and up was left in earnings from little the earth is like after the are estimates that to have two hundred ninety nine dollars father and a five nine dollars in total operating margin of the second half of the year annual as obviously well over a billion dollars for this on a geiger good track to achieve our goals for next year and the years after so one point one billion dollars two thousand twenty two and one point five billion dollars in two thousand twenty three so very good by the numbers next page you know the the three drivers of the business or really the terminals are business the vast on zero energy transition and the terminals saturday business you the focus for us now is very much on finishing our existing pipeline adding new terminals were selectively around the world and then really generate significant or met organic growth or without the interaction of a lot more capital so this overtime as will reduce the cap expand across the portfolio maternal side substantially and access to these high margin high volume markets like brazil ireland sri lanka ah gives us a tremendous amount of capacity to distribute our products with a gas or power both and doing so in america capital efficient way our that dungy and there's a lot to talk about their and obviously with what's happened the marketplace or should be we think there is a lot of focus on it bomb near the decision to go f id on the first of the local far as back earlier in hindsight looks like i'm a very good one arm we have the only uncommitted liquefy a scale model of be completed next year so marketplace that is short and i'll walk through of our
spk_5: views of the likeliest a short for some time a we are the only people that can actually supply that are with one and possibly with to arms the opportunity to add to that whether it's for a customer and providing totally revenues for us or wins with as for on portfolio on the merchant side or by possibly both which isn't very good place
spk_3: flatly with respect energy transition ah we have had a lot of file a lot of a long productive work done on that behalf we are near death id and our first facility which we believe to be as soon as the next couple of weeks on we're talking a lot blue or hydrogen with car with the carbon cap your which we think is the yeah i definitely that the path of transition fuels are generally are very viable economically at roughly a dollar kilograms are very much the yeah the the sweet spot in terms of that their opposition to benefit from are probably legislative the actions which we think will promote incentivize hydrogen production so on
spk_6: they're very good quarter for us
spk_5: across the board
spk_3: ah question of course that a lot of people have this is what what in the world's happened to the markets as like a pages the seven eight nine i'll give you your thoughts about it on the chart in the left hand side
spk_2: tells a very compelling story your the systemic under investment in the oil and gas industry has resulted in a decrease in terms of the availability of hydrocarbons and leaders very vulnerable to shocks at a different level so from two thousand and fourteen to two thousand and twenty one you gone from roughly eight hundred billion
spk_3: dollars and capital invested in the eye in the production of on gas to four hundred billion dollars today the char the right hand side you can see that you've gone from ninety five percent of the capital been allocated to conventional gas and oil exploration to roughly fifty fifty today so remarkable changes in a gerber short period of time and one the we are are very much on board with in terms of are focusing on a greener cleaner a carbon free future the problem is he still need hydrocarbons today and we look at page eight he can see what happened so basically ah this systemic under investment has led us to the as a yacht there's a market very vulnerable to shocks and yell lack of rainfall in brazil we are causing a a decline in the hydro that the hydroelectric power generation too much rain in china because him to not be able to mine of call lack of wind in europe law russian supply faster economic recovery all these things going to happening in the same time had a profound impact of the market on this hundred year of answer your seen in terms of the pricing of this it's is one that i think we could llc on an annual basis because you just really we read on is lower the amount of surplus the you have is or any of these shots or any combination of the shocks together vg very vulnerable to much higher prices double rampage and were nine what does that mean for our markets we believe that the other demand for out lng is expected to materially are on outpace the other supplies there's a significant amount of lng production which comes on the second half of this decade but there's a whole host of different uses for it i i park or handful of them on the right hand side they could really a great the outpace even supply so called the gas conversions oil the gascon versions increases number of electric vehicles crypto currency right the actual bitcoin production that the on this is using a significant amount of energy hydrogen production ship bunkering there's a list of you know literally dozens of different uses of the product and there are only a handful of different sources of itself we think this was in a in a position where you could see we are market shots on the system well as we're seeing right now and on top of that fundamental shocks as he had just absolute needs for energy production alex vastly before so
spk_2: with on the other terminals turn over to enter a be a
spk_3: as the two pages on brazil here
spk_7: everyone do is provide a quick macro update on the energy shortage in brazil and then talk about how that went into new didn't opportunities renovate so he had page eleven a wounded provided continued update on what we've been tracking in terms of energy shortage so on the left side and as we've been showing with low hydra resource and
spk_5: though reservoir levels in brazil to court leading to load generation numbers for the hydra capacity so brazil has about am sixty five percent installed capacity as hydro and the last month than those hide your to be rotting only about twenty percent of the actual power supply so since august twenty twenty brazil's actually experiencing the worst hydrological period
spk_2: last hundred years or saying that play out the actual generation data here on the left side on the right we're we're showing is that the compensation mechanism for this is almost entirely new lng supply of brazil gary historically has imported about three to four million down today
spk_7: between eighteen twenty nineteen numbers are but in the last few months
spk_2: yeah brazil's been importing nineteen million gallons a day in september and eighteen i encountered late october
spk_5: it on track rather see a record year in terms of of lng supply and in terms of that thermal power generation
spk_2: where are these we financing about the graph on the right which is why is that we break down the historical supply balance also for domestic gas and for bolivian gas imports which you can hear last five years or both either been static or declining and so not only is a kind a new thermal power the the avenue of growth round you demand in brazil but you don't have growth in other sort of energy sources and natural gas sources and so while we're seeing that increase of in thermal generation driven by lng we expect also see your other energy shortage of be answered by lng and brazil as well in the didier you're supporting that if we put the cage well we see how this current current shortage a really the new business opportunities for our terminals sort of thing here and the said together gathering a terminal which is in a map on the left or into in that september brazil announced a new emergency power auction which was run on october twenty fifth and they
spk_5: ward it pp a to one point two gigawatts of new power which will come on line starting in may have twenty twenty two to pretty quick turnaround we're very happy to be working with the developers and we expect over nine hundred thousand gallons a day of new supply to support of four hundred new megawatts the average car park declared was like fifteen cents per kilowatt hour and a demand for of ah for these plants is almost one hundred percent from over the forty four months or so made
spk_7: twenty twenty two to end of twenty twenty five
spk_2: the delegate outcome of the crisis that we've seen at the auction responded as by being focused on the south and southeast region of the country which have been hardest hit by by two things really the shortage and hydro a resource and the lowest reservoir levels as well i've had a new carpet formation of last few years in brazil which has been concentrated kind of on renewables and new thermal generation in the northeast and go on the deduction is really a direct response to these their the situation we've been saying at npr or terminals very well situated to outside of some very limited domestic gas the or lng terminal is really the main source of supply of for fuel to these new power plants and joe marie think i'd have a direct outcome of that the themes hour west of and imo globally focused on the specific
spk_3: issues in brazil and alec ford updating i run more as we make progress for pc purpose right them about lng and start with my favorite cartoon pays forties or just as a reminder for people to what is that lng it's it's just basically using existing a marine infrastructure to place liquid occasion or liquefaction the materials onto an and why do this because it's a faster and be cheaper so ah map as much time as much capital and would miss as a we went up id on a twenty one and of along with adams on of his russian right now and the punchline is on time and on budget i expected to be mechanic a complete ah in the middle of next year and and allowing for three or four months for commissioning we think we're ready to deploy that at the end of the year on if you look at that all the business opportunities and paste thirteen at the for the one of two different camps on basically we can take this year and we can deploy it for others and charge and rent for so that's essentially what we had with the other healy which we and fifty percent us as a tolling a relationship or we build own and operate ah we collect rent from you know high quality tell us produce a stable and a long term cash flows
spk_2: great utilization of the ip a significant ip the we have here from the technical side to this create this with on behalf of others
spk_3: the second path is to basically do it for ourselves so again we build on operate we own the volumes are less predictable cash flows but the risk is a greatly mitigated by the terminals in the downstream operations and we have a general as a potential to generate significant i when false said he just have to outpace under sixteen like all inside we have a a use case in the form of the healy begins the very good example for what what the economics of this looks like so as the shit the costs one point two billion dollars to build as two point four million times for trans forty months' total construction time economics basically are ah run around three hours and twenty five cents and an mbt you and then they get paid another five cents every one dollar are the brand is higher than sixty dollars of a barrel so ah simply i know in in today's market though generate about two hundred and fifty to three hundred nine dollars and capacity payments for l this this installation art that rg equivalent is obviously a cost is lower were one point two nine times versus two point four nine times texas eighteen months to build it and because the demand for lng is so high right now we look at the market today and a market for over the next several years the next several years are very very valuable years as a result people are willing to pay more and rent to get access to that so even though he don't have market exposure on the tolling side because people can benefit from having higher volumes in these and these elevated that markets they're willing to pay more for rent as the simple economic their profile of it so in this case again the at you two hundred and seventy five the three hundred nine dollars and as to came to using similar illustrative the rent a charges even see that are was not merchant lions it's a very attractive proposition just simply be providing for others but the page number seventeen so the merchant our potential obviously is extraordinary and what we did simply is i just took a two million time example rented it out by month in two thousand and twenty two thousand twenty one and compared what the a cost of lng of four hours and fifty cents which is rough justice for all we think the all and cost of the are the product as and and look at the different indices and just than trying and your eyes show you what the impact would be if you had those ones the sound of the marketplace of those points in time so we look at the at the yellow box of the bottom you can see two thousand twenty one in all these are these are monthly number so hundred and seventy nine dollars to said if remind our six hundred one nine dollars to obviously saget again you flip in two thousand and and later and and that two thousand and twenty one and two thousand twenty two and a numbers obviously go off the hot so and and the the key to this the on the the phrase of the day is asymmetrical exposure on in a market environment this is the holy grail you try to do is get asymmetrical exposure to a commodity and smooth which means in simple terms you have very limited downside and you have extraordinary upside are very limited downside exists because we have this very large and very robust onset of terminals nasa's around the world so we can access those markets and sell our products are and are directly to customers in those markets and thus reduce our exposure to markets while still maintaining kind of the market exposure the extent of things do better when you look at these numbers on it ranges from a good outcome to an extraordinary can which could generate for just as two million town example two or three million dollars in marginal a bid on an annual basis as an extraordinary market and this is this is that i was dirt page eighteen you look at this collection of the absence of we got on for the said before we've invested in a roughly eight billion dollars and seven years or rise building these assets around the world will continue to add are selectively to them but we are already having very very robust fleet of it so this is this is literally the seven year overnight sensation of been able to actually create this demand downstream and access
spk_8: said and does this combination of tolling revenues which is really infrastructure returns for i have a special returns but better properly sell cross merchant returns with because a very very powerful combination
spk_3: so with as a stopgap ripley that energy transition alternate or to a crisp at the page twenty the the pie chart a left hand side is what we looked at we've focused on activities so seventy five percent of all greenhouse emissions come from three sectors so industry power transport in particular for decarbonization of these will not happen overnight and electrification alone cannot support a decarbonise economy that the large consumers a feel for heat and power need a low carbon alternative we believe i believe that blue hydrogen or on it's it's cousin blue ammonia is the affordable low carbon solution we had asked all the time to the that are blue hydrogen vs green hydrogen three hundred and obviously made from renewable power blue hydrogen is made by simply taking natural gas and splitting it out into the that the hydrogen and then the c o two has been sequestered said becomes effectively queen through the sequestrating process obviously everybody's ready for ugly a green hydrogen alternative but it's just simply a matter of cross at this point we believe that we can generate blue hydrogen at roughly a dollar a kilogram are to convert that into natural gas terms just multiply that seven an hour so one dollar time seven point five is obviously seven hours and fifty cents that's very very competitive as a fuel the lot of industrial uses his wall transportation ah the green hydrogen alternatives at this point or three four five six times as expensive and route yeah some people can afford to pay that most people cannot so it's a luxury good as opposed to a staple that people have yeah what we have been done eyes we've made some never get process with our partners at that time and the infrastructure fond we are nearing by the and our first blue million up of production facility arms of is already that as the three principal food groups the you need says got access to natural gas and apple terms it's got a c o two pipeline which is next total arousing to inject into this got water for transports you can then take it away from the i'm one of the other ah ah aspects of the site that we're looking at is is also within a port and terminal situation where we can access potentially are low cost taxes and financing and so when the we finally get id will obviously get back on the phone with you on walk into the economics of that we think there can be a guy very attractive financial of profile this as well given the access to financing expect to be permanent and have easy contractor having a baby and of and as out completed by the end of que en two thousand twenty two and then to be online and operational twenty to twenty four months after it your page twenty two twenty or two obviously there's a lot of a discussion about a congressional efforts on the dog back better act we are on i was a falling as closely when you look at that act and you focus on what it means for hydrogen production the answer is fifteen billion dollars that is awarded for hydrogen production carbon capture emission reductions the projects there's than a whole host of different aspects of it that we think are all relevant and and and action well within our portfolio so this would make is the right move that a government i said before the us government can play a major major role in the transition or energy economy and we are very well positioned to be a beneficiary geysers as out of the efforts we've taken and away or only enhanced by ah these couple laps
spk_9: so the plan for they're very simple on pace to three dog on this for the concept two hundred and plans
spk_2: i utilize our existing downstream infrastructure will transport distribution and then helped to transition addy polluter industries shipping so that and steal a probably the the three most likely focuses for us in the near term
spk_10: boss get a swiss good morning everybody thank you for your time i wanted to start today with a comment on the amazing work that in if these employees are accomplishing in partnership with our customers and it is now over eight hundred employees strong and they work everyday to lower energy costs and decarbonise communities in which we operate it's a privilege to work alongside these individuals who make our fight against energy poverty a possible and it's as a result of these employees the grab on by twenty five shows or hyperbolic growth over the last several quarters in a little over five years and if he has gone from a small development company to a world leader energy infrastructure business in fact if you go back to the initial operations and online date of our liquefy or in miami to get eighteen
spk_2: quarters to get the pot operating margin yet in the last year we transition over one billion in annual as in allies margin further details at the time of idea and early twenty nineteen we are negative margin in a fraction of our current employees are infrastructure for plant print is no less impressive between eighteen we had only eleven customers across three assets in two countries today we have well over fifty customers across twenty assets and twelve different geography is occurring all sides of that sides of the globe our earnings profile is large extremely diverse and continues to expand everyday to become increasingly stable predictable and heavily growth oriented on this page we highlight the financial performance for to aged twenty twenty one which will be nearly one point two billion of annualized operating margin and is where said earlier we are forecasting three hundred and seventy five million dollars for que for of which ninety eight percent of those cash was come from contracts are a executed and nominations received from her
spk_7: now turning it into the side twenty six in the financial results for que three we sold an average of just under one point eight million gallons per day for the quarter and aren't revenue of three hundred five million dollars but terminals and infrastructure segment operating margin was a hundred and sixteen million for quarter three which is over double any previous quarter in our history
spk_2: the twenty million are increase in our ship segment operating margin to ninety five million as a result of the full quarters results being included but was also the beneficiary of elevated spot market charter it's for the celsius and the penguin
spk_10: one thing we wanted to highlight here is the consistent and expected cost of lng during a quarter that saw spot lng prices range from ten to thirty dollars for mm each year and a be sourced lng and an average versus purchase price or seven dollars and ten cents another important thing i wanted to remind everyone else is the fact that all of our customer contract online and que three and over eighty percent of our contract at run rate the underlying commodity is a pure pass through so we buy it and bring up last and we sell it henry helpless which provide the foundation of our high margin that spread business
spk_2: as a for que three for the court nine hundred business was a broccoli twenty million dollars excluding costs incurred to develop new project and other recruit nonrecurring noncash items
spk_9: a quick comment about the balance sheet as we included on the page and at the has over three hundred and thirty million dollars cash on hand at september thirty and nearly seven hundred million hours of availability on a revolver or ship facility energy malka of financing
spk_2: finally please turn to page twenty seven he can see the punchline which is the end if he has roper is a robust cashflow machine we are committed to our goal of becoming an investment great company and we're well on our way to achieving investment grade metrics with dramatically increase the scale the business going from three to eleven terminals across twelve different geography is way
spk_10: they've diversified or cash flows which included by metric gas and electricity revenues capacity payments shipping cargo sales etc and have expanded earnings over one billion an operating margin we are honored on target for three times debt leverage coverage ratios and lastly we have the risk the business model i can
spk_3: trolling around shipping costs as a result of the gm lp and high go mergers and will further vertically integrated by producing our own lng as we continue our credit enhancement initiative and get upgraded we can free up over two hundred million dollars of annual cash flow through simplifying and refinancing our capital structure we expect we can refinance or two point seven by
spk_11: billion dollars higher notes and rates of broccoli three hundred basis points lower than current borrowing and reduce interest expense by roughly eighty million dollars a year furthermore over time we can refinance one billion of as a little that was removed over one hundred and twenty million dollars of annual amortization unlocking these additional cash worth it the next key step
spk_3: in maximizing or casual available for investment or for dividends without offering a lack of the last year just before that a questions that need for back in the appendix on pages twenty nine three thirty two for you credit letters on the phone is pages or for you i mean basically it's just a continuation of what the is laid out we we ah did our first corporate bond issuance which was in july two thousand twenty so on the our fifteen or sixteen months ago seems like that you're sixteen years ago has been a lot has happened that period but that time we will use we spend time of the agencies and i mean our case for what we thought the credit worthiness was of our business on the obviously agree to an extent which is why we got the high single be writing they said basically the three pillars that we needed to address to justify a better rating were the ones that we show on page twenty nine and they are simply warnings are more diversity him operational history and and sharper your time we made a remarkable amount of progress in all three about so i'm at the time and initial rating or operating margin was two hundred nine dollars operating margin for the second half of this year five hundred eighty five nine hours on point one billion dollars or this year so obviously have had tremendous growth and in earnings of a diversification standpoint of the time of the right we had three terminals thirty seven customers to geography is day we have a loving terminals are one hundred customers eleven different geography is so massive massive change and that in the diversified footprint of our business operationally at the time of the we we did we did our initial upon a transaction we had known ships and we had three hundred employees and limited operational experience today we have over a hundred employees ah i'm a very robust ship portfolio much your portfolio that is not only wrong to providing us the ability to service our customers are terminals but also then to access emerging as we've done your last few months so this is a new ones but without that ship expertise and of is that the at the operational capability to that group not have the same successfully passed over the last couple of months so really across this scorecard accountable our massive vaccine is one of them and a these are the next couple pages than details that so the the run reruns we talked about before impish thirty six thirty one at the diverted from diversification is extraordinary but by geography is number customers revenues from the ship portfolio hundred and fifty know ship a shift transfers vs six hundred and the here on the and abigail ago and as the capital of or six hundred seventy five nine dollars over seven dying are today so i was a huge change in terms of the the diversification other than the operating history on which is very very hard sell the is already we had done
spk_0: six thousand i should container our loadings with roughly double that of a discrete time six hundred fifty ship operations is now eight hundred and forty most should be shipped operations you believe any company in the hemisphere arbitrator and overnight eight hundred and liability of ninety percent one nine percent with a we deserve high marks on the credit card as well as our and help without the federal law that relate to your law barring costs and hard for the raises prices before so that there was open up the question
spk_12: reminder to ask a question might need to press dar one on your telephone to withdraw your question press the pound key to stand by while we compiled a killing a roster
spk_13: our first question comes from spiro doing this at credit suisse please go ahead why with any professor compete with that that you parter on on that lng are you from point the shroud yearns for shipping be you're a correctional agreement their separate them street where did you know down a counterparty and a location understand that has points curious a close you are the second part of the question for make your understand i think about that downs you now
spk_14: has it become more a natural hedge on a business person a direct the part of the terminals and so
spk_15: right environment by the terminals in the matter of fact canario he saw that i'd better and effectively subsidize the new office elsewhere
spk_3: and the mechanics ah great while the the as the first question is we are having a very robust discussions to with the several counterparties ah that have a significant gas reserves are looking to monetize so on their profile both of them are similar they're very high credit quality very large oil and gas companies ah obviously they have ah a and understanding in the markets and what the done market dynamics are and the availability of our local are in the near term is one that is very attractive the mean it's not an overstatement to say that we are no possibly we will likely to be the only people a planet earth and aspect adopt a local fire that's a risk that we have taken on i think that's how much on father was was like the pay off your hands with we now have an asset that fits their profile so are we are not done on this year we'd be we'd be talking about that but i think there's there's a good job prospects on a number in france on it's own side we think that's a natural extension the business is really very much along the lines of the the healy so that serve and a good education for us and the told market given mark dynamics has improved his all because the in the by the pot of you're free to use the bible so therefore it's it's it's just better on on emergence out of it and he gets it is is very very clear what about what is that he and if you can create merchant volumes a absolute prize and you know the have the backstop of accessing these high volume market so that to the that the the market opportunity as a modest one you can all the noises you as your terminals and provide you know gas into the market said at at competitive prices you have very very limited downside and to the extent that there are spikes and prices as we've experienced now you have massive asymmetrical watch that not that's basically the business i think that the and more new office with as well sparrows that having access to our gas only enhances our don't service or customers better and better better with the end of the day we know that that the the the best use for all our products is to serve as customers' needs for both gasp our and having our gas allows us to be much more flexible in order to do so and he added that last point i think about market commentary i think that the world are generally was very all sizes too complacent about the the very gas in any market and what happened obviously is that people under committed on their volumes thinking that they could always go to the marketplace and replace will be seen as with many of our around customers and obviously we provide potter percent of what we are contractually obligated to deal with them when the market price changes dramatically you know their access to gas or their their access to gas it and inexpensive levels is very very constrained and so now you see individual customers get outside but we saw whole country's ya sided that's where we are right now and we'll get this conference around so you know climate change related languages again less rain and breezy well too much rain in china not enough wind in europe and any throw in other things like just simply higher economic growth and perhaps less gas coming to russia is a very very very you know explosive combination that a i guess prices go from young two years ago lowers your dollar eighty five do you know you transactions in the recently amount of yeah thirty thirty five forty dollars so it's an extraordinary environment and so we think being positioned to be the to have very limited outside and have a symmetrical outside his die is a massive you know as i say this in this business that the three most important
spk_13: i almost died when he visits are sustainable competitive advantage we got a seventy billion dollar downstream a portfolio we soon will add to that merchant capabilities and the fo and you thought and a customer business you think that that is a massive sustainable competitive advantage to give us both stable cash flows in the and the normal market and asymmetrical okay
spk_10: i was in the in the very volatile wants
spk_13: got several color second question switching gears diploma that one point zero parks are supposed to be
spk_16: i'm scared to be an update on were that's actually is and we think about funding
spk_3: ammonia where i guess which entity shoulder that russia about that the have to be a modest not casual with a exists at the money that that we haven't made of punishment asian for how exactly we will capitalize it but i think in simple terms the other side with the so they were looking at initially is roughly four hundred million dollars would do that in partnership with the with the tigers the can nicholson as in the room with us now new can you have a look at a color on this but i think ah we expect to be a finance the of the line sure that capital with taxes on financing so that's one of the secret weapons of years of these ports finances channel things is that we've gotten getting pretty good examples ah but that's that's how we think about it in terms of that company existing either inside of that at the or spawn other something obviously that you the board
spk_2: and i and and and from the suspend some serious i'm on i do think that over time the opportunities in the hydrogen and transition energy space or so vast that having a separate identity for make sounds but i don't think it's ultimately a question of if it should have his own separate identity early one more of when it should do so with kenya supposed to a spear on the on of financing point is what we had that a lot of success at half time with tax and financing she's a pretty high leverage very very low rates it's it's been a politically strong market with tom
spk_17: you know the new the new tax and spending you know policies that are coming out of the federal government says come on a demand for tax some securities which advocates jump at our jefferson thomas f tie over the summer you know average rate their unrated were two percent ah
spk_0: declare project your most of the expenses and construction costs are eligible for taxes and financing so you know for a four hundred million dollar facility we should be get or three three hundred and three hundred fifty miles of definitely against it
spk_18: at that up
spk_19: like that
spk_20: thank you
spk_18: or next question comes to family my goal and of love research please go ahead when and by economy
spk_5: thanks for the detail on now on brazil and and the auction pretty robust price realization their can eat
spk_7: please talk little bit about maybe the business
spk_21: model in not in santa catarina against that power backdrop is it going to be sort of a fix the
spk_3: from a business or do you envision yourself taking some you know variable cost economics their against the against the power capacity
spk_7: yeah thanks to the question i really think it's a great i'll come on the on the corruption and really the right thing for the region and and harsher just so i think of it as will look a lot like other terminals
spk_5: your will have it's and to get rid of all sources of downstream to ends so power industrial and even consumer residential and then i will we think in the a very and a robust of great or small scale as a container business as well
spk_19: some we don't think about it as as a enter a different model i think you're mentioning almost got a taxi mahler thing but we expect this guy gas or customers director will just like with everywhere else and i'm a diameter the region are access to the pipeline and kind of your robin a macro backdrop makes and to get in a really interesting part of for us
spk_7: thanks for that and then just the followup i think this is for chris
spk_10: had an inflection here and operating margin and up in i think the next phase of the evolution is sort of converting operating margin to cash and so you're recognizing as lot of volatility in the underlying commodity and three key there's there's going to be working capital variants but damn katie how to think about maybe and twenty twenty two as some as some of these recent terminal scale how he should think about operating margin sort of flowing to cashflow i think you kind of set on a high level or above cashflow business but maybe some of the mechanics there on a horrible yeah i mean that's also holding a side you know factors like living in work moving weren't capital which happens now things are turning on and you have more lng had seen purchased them being sold for very and points in time in a way they got margin is reduced the by es una ah
spk_19: reduce it by your interest expense and release of a attacks expense and truthfully we think that if you take you know a billion to growing over a billion five and up marge and by the end of next year reduced that by you a hundred million dollars hopefully that's going down on the cost the gotta run the core business
spk_17: ah reduce it by current interests expands which is about and i call interest but amortization sam three or four hundred million dollars ah we obviously want to reduce or eliminate am more through refinancing that i mentioned and but but the goal would be to take you know by the next year a billion five and run rate down by as dna
spk_0: down by interest expense and amortization leaving you close the billion dollars available for a reinvestment they'll be taxed and taxed at varying rates across the diverse than happy to work with the offline on tax through the model but
spk_2: yeah i think he can doubt that they see your way to cluster billion dollars of cash and about balance annual
spk_3: okay thanks so much prettier thank you
spk_7: i next question consumption morgan of esquire please go ahead i guess they stick my the questions so just going back to the the brazil power option so trying to understand the mechanics of of that those contracts will that that forty cents per call out of college how that translates i guess on a revenue and a gross margin perspective for him and be to you the kind of the
spk_3: i guess serve it with existing guide to have to look for the models yes i don't think we're ready to disclose that and of those details yet but i'll give you a little bit on how the iraq and works so i'm new power producers and did vote for a energy prices are like a cents per call hour price and they'll to get a fix capacity payment on and so we're we're kind of right and message here is that given the kind of need for return on capital over the the forty four month period of the ppl is ah
spk_22: and to the brazil strong incentive to incentivize new power generation and the price is cleared at high levels on the parasite and adding that the kind of the point of our message here and we can show some of that breakdown and as we are in get into that business with veil to show kind of more or granulated and how we fit into it but i think gum for now our message we just try
spk_2: a show that it is that at auction that clears at a very high price which is yo recognizing the guy high need for new power in the region the i mean and in several times the cost of electricity and responses emerges he actually was roughly double what the long term costs was previously so that's a very direct by
spk_5: what happened to consumers what happened market they need an hour then there's a lack of idolatry power and so they were an option and competitively army cleared a roughly two that's what it was before so i obviously we're working hard to support
spk_3: in those people that want to provide the our and by doing so will do so with with our lives out there are margins the obviously you're hardly what a ban on the album previous to that the market move sell weed out of his address and we'd already break out margins by asset or terminal or and little transactional think to better does it for
spk_2: dr tab okay but artsy just evolved on on the structure of that is it going to look like sir gp worried that dispatch backup power for hydro or will be baseload power now we're doing inconsistent consistent does amanda bynes every quarter after that facilities come online
spk_3: yeah in that picture question good that actually mostly public information the auction it's it's baseload power the most of the declared are one hundred percent a load a couple are a little bit less than that guide on a totally different three gb okay and then just really quickly on the
spk_17: fl and geez
spk_0: we'll we'll those facilities be either or merchant or tolling like i bring a new project will be either tolling or merchant or it what could they be mixed use that apology or projects
spk_23: that they that like a the next year's i think that right now we are down a path where we're talking people that are at home and arrangement where they just use you know the the infrastructure to access were on you know gas ass off ah i'm rather than looking at situations where we can buy gas and and generous also
spk_24: right now they really are in one of the two camps but it's entirely conceivable that we would do the l am and some kind of transaction where we would both be that the tolling our provider and also then take some of the other lines but right now they are there in one camper the other but there's no reason why they can be combined
spk_23: great thanks i was andrew
spk_3: thank you or next question comes from great lilith of beatty i t please go ahead hi yeah i played and the morning everybody hum yeah i guess i i was hoping we could kind of parcel pero on the sequential margin crease i'm young people gurney way to take a bow you know if you pre and growth vs q do in terms of how much you that was was driven by shipping and maybe how much you that was you know driven by whether you wanna call of merchant our of or other well the the ah at the end of the day the volumes that that we sell our customers wear their customers that are buying vocals cause were customers that are buying your long term for us and so the when we don't really break out and differentiate between us we gave a pretty clear guy
spk_23: adams on what we expect our margins to the and the ordinary course and so when you look at two thousand twenty two estimates of one point one billion dollars those are very much and the ordinary course and are not really looking at kind of asymmetrical market changes ah as we get access to volumes and nuts for the apology is so important those numbers could change dramatically the what were what i would say is that on ah and i mentioned this right the beginning i think that the remarkable aspect of the results are we have ah is that we did this in a market environment where he went into it actually modestly short term short term supply is a we didn't take so
spk_3: some you know market directional that that actually paid off right that that sounds great but it's very hard to outperform market first that extended period of time we had a very market neutral position to one was modest short in the short term and that resulted in us actually generating substantial in over returns because the the
spk_2: flexibility there's a for divider infrastructure we have is remarkably viable and the numbers are are the numbers but i think the dog on a good we don't we don't break out margin by individual customer terminal we all the data as a productive way of doing it at all on but the results speak for themselves or when into market where we didn't have
spk_3: have a a market directional that on and are going to make five hundred eight or nine dollars and second after the air right so and and and of getting really clear you know i'm ill guidance as to why we expect to happen year you next year the year after in that are absent any kind of asymmetrical really return
spk_23: okay okay and then as i think about the merchant our opportunity and clearly what your london brazil low water linear probably needs more low water is there any yard when i guess she gave you for guidance is there any way to kind of think about the lead times for the merchant an hour opportunity
spk_0: these are you ah yeah she would be thinking that you know it's we think about made you a few one could look like will just be continually getting updates because the leap pads on those are a couple months is a that kind of the way to think about like it's at surging thing and elsewhere
spk_3: yeah i think it's kind of two types of of opportunity there right so i think it's something like for gp on where you can have exposure to the power market you ever capitalize on things they happen in a and a dated a power market and then we have opportunities i think you're gonna look more like the emergency power and were talking about today we've got
spk_25: on a little bit longer term procurement cycle but out you know in this case actually pretty fast and from going to gotta zero to build on a new power plants and so i think we'll see the the sort of regulatory mechanism work in both ways
spk_3: and and the point rather than it's just being situated to capitalize on this opportunity that they happen and rolled up jail outside of power that we're going to see coming and you know as as were a game is shortages of can energy broadly and we got our our terminals they're obviously well positioned to geographically and in markets and with customers to i think about this i've done a lot to thank you for time thank you are next question comes from crab sale of holy breathers please go ahead warning thanks for letting me i'm on on the two and three p a r example for for merchant of for the arm up to questions is the one point you mtp a ah you know project kind of build a cookie cutter and are we thinking that maybe by the end of next year we could have no three total projects either young operating or yeah well past of id the the observers first question of yes i've actually the the the dimensions of the out of the infrastructure is actually one point four million times we got around to down isolate the actual production is in part of function out on the weather conditions and and obviously is it's warmer your little bit less efficient in transit that the one point two is related to the one point four there's one point for the actual technical specifications the year in one point is guess on it that the to nine times we did just simply rounded i cried we think on it out all these numbers assume you know one or two deployments and we think that there may be ill many many more than that and really what we are working guy
spk_25: are to create is a factory like environment for the production of our up a structure that allows them to serve as both castroneves went along side and a merchant needs of our portfolio and i think that you know again the that the dimensions of the business or one we have you know a billion going to dine and a half or more
spk_4: our on on the business and the ordinary course and the potential there to an extraordinary returns on if these hundred year flood could use to crop up on annual basis as is what we think america is my last feel your thought on it would be when when i look at the dilation of the company i think we are very very undervalued as a that
spk_3: i used stock right so we're trading it you know a single digit number based on actual earnings which is of a stock metrics and for infrastructure businesses typically trades it you know two or three times that it seems like ever gerber and or guy from guy from a by your stock and were company we have had massive massive growth the actual number of companies on planet earth the started a business as a public companies seventeen in a quarters ago there that are in generative nine dollars in cash was a pretty limited number and that is just the any of it's i feel like they were shall we got a long ways to go we got asymmetrical exposure to probably the most significant know you and energy related market and the world and the energy transition which we had then you know we are an early adopter others been a focus was from day one and we they were at the you know at the the one yard line in terms of having your investable product to our to to to take advantage of that so on it i do think that overtime
spk_0: the a lot on his own level and will get by appropriately but i do think it is a massive point of in flushing for the company and help with that i wish is first reflect that
spk_3: looks worse than the quick follow up with you opine on the ability of loaders vs just chalk gods from utterly expand the potential opportunities that here
spk_0: ah there's a lot of ships that are available for that so the on at weddings a let us to the solution was that there's an abundance of

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