Atlas Corp. Common Shares

Welcome to the Atlas Corp second quarter 2021 earnings conference call. I would like to remind everyone this conference call is being recorded today, August 10th, 2021. I would now like to turn the call over to Robert Wiener, head of investor relations at Atlas Corp. You may begin.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today to discuss Atlas Corp's second quarter 2021 earnings. We issued our earnings release last evening after market closed. We refer to our quarterly earnings release, accompanying earnings presentation, and earnings supplemental workbook today in this conference, which all can be found on the investor relations tab on our website, atlascorporations.com. I would like to remind you that our discussion today contains forward-looking statements, and I draw your attention to the disclaimer on page two in the accompanying earnings presentation. With this quarterly report, you will note that we continue to report non-GAAP measures which we believe provide investors a clearer understanding of the performance of our businesses. The earnings release contains supplemental financial tables and information pertaining to our quarterly earnings report and includes definitions of non-GAAP financial measures and reconciliations of such non-GAAP measures to the most closely comparable U.S. GAAP measures. These definitions may also be found in the appendices at the back of the earnings presentation, which we will refer to in our call discussion and can also be found on our website. In addition, we have provided historical financial information through 2018, which are available in the earnings supplemental workbook on our website. Please turn to slide number three. On the call with me today are Bing Chen, President and Chief Executive Officer of Atlas Corp, and Graham Talbot, Chief Financial Officer of Atlas Corp. Joining us on the call during the Q&A session are C-SPAN's Chief Commercial Officer, Peter Curtis, and C-SPAN's Chief Operational Officer, Torsten Petersen. Following our prepared remarks, we will open up the forum to a question and answer session. Please turn to slide number four. I am pleased to now turn the call over to Atlas Corp CEO, Ving Chen.

Thank you, Rob, and good morning, everyone. Thank you for joining our call today. I will present our Q2 2021 results and share the key characteristics regarding our business model and quality growth, which are central to our value proposition. First, let's look at our Q2 results. Please turn to slide five. I'm pleased to report a strong Q2 financial performance, which was at the high end of our expected range. We are rising our 2021 financial guidance due to our strong first half performance and our exciting momentum for the rest of the year. Today, 100% of our forecasted gross contract cash flows are secured for 2021, together with our relentless focus on operational excellence We are confident in delivering our targets. During Q2, Atlas achieved revenue growth of 8.3% to 393.9 million, adjusted EBITDA growth of 14.1% to 272.5 million, FFO growth of 20% to 193.5 million, and FFO per share growth of 14.1% to 73 cents per share. and we paid our 64th consecutive quarterly dividend. We have also completed several major projects and achieved significant milestones within a very short time. We continue delivering quality growth through Q2 with 18 additional new builds, 45 forward fixing chargers, and deliveries of three secondhand vessels. We secured additional funding for our new builds restructured our Fairfax notes, raised unsecured capital, secured favorable credit ratings, and simplified our balance sheet while lowering our cost of capital. At APR, we successfully deployed 13 turbines across two key projects. We are excited to serve peaking power and grid stabilization to our customers. I'm proud of our team's continued high performance and resiliency. We are well positioned to finish 2021 strong and already executing our growth in 2022. Now I would like to explain how we create and deliver value through our differentiated and resilient business model. Our business model firmly sets us apart from our peers through our unique combination of attributes. and it is important that this is well understood by the investment community. Please turn to slide six. We are a global multi-platform investment franchise, and we consistently generate value through our business model and quality growth. Our resilient and differentiated business model sets us apart significantly from our peers. While Liner's focus on flexibility and generally keep short-term charters with our peers, we have been consistently winning our Liner customers' long-term commitments and growing our long-term cash flow through operational excellence and creative customer solutions. These solutions are delivered through our scalable, flexible, and reliable integrated platforms. Through industry and economic cycles, we generate predictable long-term growth contract cash flows with industry-leading customers. Currently, we have $16.2 billion in growth contract cash flow and an average charter duration of 7.2 years. We do not focus on short-term zero-sum game relationships. Rather, we focus on long-term win-win partnership through our integrated platform and solutions we create. Our revenues do not fluctuate with short-term market movements but provide stable returns throughout the industry and economic cycles. All of our new builds are fixed in costs and backed by long-term fixed charter with industry leaders. We do not speculate and we are not exposed to inflation risk on new boats. Our business model differentiates us from our peers through our solutions, platform, and ability to execute, which cannot be easily replicated. I would like to explain what quality growth means and why it is important to our stakeholders. Over the past eight months, we have dramatically enhanced our fleet composition and achieved greater customer diversification. through 55 new builds and four second-hand acquisitions, all with high single-digit unlevered returns, and all are backed by long-term fixed charter with leading liner customers. No one else in the industry, nor in the container less source history, has achieved this before. This is a testament of our world-class execution and deep partnerships with shipyard and liners No peers can match our business scale, operational excellence, customer flexibility, fleet versatility, financial strength, and creative solutions. We have forward fixing 45 operating vessels in Q2 and 58 year-to-date to meet our customers' demand and growing our long-term cash flows. We build partnerships that are sustainable, meaning when times are good for liners, they do not take advantage of us and vice versa. Our liner customers treat us as a long-term preferred and trusted partner. Now let's look at our fully integrated platform and how it makes Atlas' differentiation possible. Slide seven depicts the portfolio of integrated services we provide for our customers. Investors often ask, how does C-SPAN consistently deliver quarterly growth and continue its leadership in the market? The answer is that we always provide turnkey solutions to our customers by leveraging our integrated platform, which we have been investing in our people, process, and systems over the past 20 years. Our full lifecycle expertise, from initial design, construction, through operations, commercial management, environmental technology, all the way to the demolition, enables us to develop creative solutions. We facilitate Linus Growth by delivering our solutions, which in turn facilitates greater scalability, reliability, and flexibility for our platforms. resulting in win-win outcomes for our customers through all market cycles. Our integrated platform is underpinned by this management team and our people. Our five core competencies determines how we create value and gain our customers' trust and commitment. We have an industry-leading safety record of 0.4 LTIF and 98.5% of utilization in Q2, which is a result of our committed team. C-SPAN's long-term fleet utilization since our IPO in 2005 averaged above 98%. This is what we mean by operational excellence. The focus on operational excellence extended through the entire organization. Our business model integrated platform teams focus on five core competencies and the value-added services positions us for sustainable growth and shareholder value creation through all market cycles. Please turn to slide eight. While the container shipping market remains highly competitive for liner companies and owner-operators, C-SPAN has been a leader in transforming our sector through consistent advancing in our market, creating quality growth, and delivering sustainable shareholder value. We are acquiring and building strategic assets, focusing on fleet optimization with the larger and more efficient vessels. Our 10,000 TEU and greater segment comprises 78% of our total TEU. We are focused on cleaner fuel and applying industry-leading technical solutions in designing, building, and modifying our fleet. The additions of 7,000, 12,000, and the larger TEU vessels to our fleet positions C-SPAN competitively and strategically for the future global fleet evolution. We have also diversified our customer base of the top line of companies with a 22% decrease in concentration of C-SPAN's top three customers. Despite the market challenges over the last few years, we have been continuously optimizing our assets and customer portfolio while delivering creative solutions. Please turn to slide nine. C-SPAN has been a market leader in vessel efficiency, with our hallmark of SAVER program, which has produced 40 innovative new-built vessels since the program's inception 10 years ago. We make these investments based on customer-driven demand and leading the industry size category expansion through increased TEU efficiencies. Today, LNG is the only commercially viable alternative to traditional bunker fuel with no definitive single path forward to the next generation of fuels. We actively participate in industry forums working on viable energy transition pathways for the future and ensure that we do not develop stranded assets. Our orders for the 20 dual-fuel LNG new builds place us at the leading edge of innovation, building upon C-SPAN's history of adopting greater efficiencies. We have taken a prudent approach towards the type of fuel we're using for new builds with some dual-fuel based and some conventional. This approach positions C-SPAN well for the future evolution of the fuels, as both vessel types can be retrofitted to adapt to the new technologies. We see the decarbonization of the shipping as an opportunity for C-SPAN to support our customers' decarbonization journey and to provide the leadership through this energy transition. We'll continuously focus on new build design improvements and environmental enhancement, as well as evaluating and modifying C-SPAN and APR operating fleet to see greater efficiencies. As an example of creative solutions, we recently partnered with ZIM to install innovative fuel tanks to accept conversions to ammonia-based fuel for five of the new-built LNG vessels on order. Slide 10 illustrates our commercial agility as well as our trusted and creative customer solutions. We secured 58 forward-fixing charters year-to-date. Forward-fixing is entering into new charter agreements with customers well in advance of the current charter agreement expiry. The new charters of forward-fixing agreements extend the terms which begin after the current charter terms expires. We now have no re-deliveries in 2021, six in 2022 or 4.8% of our delivered fleet, and 19 in 2023 or 13.4% of our delivered fleet as measured by the number of vessels. Our ability of forward fixing 58 vessels is a testament to the trust that we have built with our customers while we continuously focus on creative solutions to facilitate their success. Not only does this provide our customer with reliability and certainty, it also strengthens our resilient business model by growing our contracted cash flow and average charter durations. C-SPAN and APR now both have 100 percent anticipated gross contract cash flow secured for 2021. Please turn to slide 11. As we have mentioned previously, we do not grow for the sake of growing. We are only interested in quality growth driven by our customers. We have a comprehensive set of quantitative and qualitative criteria which we implement to allocate capital. This is embedded in our operating model, and as a result, we do screening out many opportunities that do not meet our criteria. This management team has been consistently executing quality growth in our strategic and daily business decisions. Please turn to slide 12. Shareholders should be pleased that our strategies and execution have led to consistent quality growth through market cycles and has solidified C-SPAN as the leader in the container ship owner-operator market. We have strategically grown our business through a thoughtful and innovative approach. New build vessels has been the predominant focus throughout the C-SPAN's history. In C-SPAN's 20 years history, we have built 109 vessels, and now we've added 55 new builds for a total of 164 new builds, which is nearly 90% of our fully delivered fleet. By TEU and by number of vessels, our fleet is nearly three times the size of our nearest competitor on a fully delivered basis. and we have consistently maintained 98% fleet utilization since our IPO in 2005, while at the same time improving our safety records. Over the past three years, the industry has gone through challenging times with the trade war and global pandemic, and we have still managed to consistently deliver quality growth and operational excellence through these market cycles. Our expertise, execution, and solutions have attracted customers to C-SPAN as their preferred long-term partner. Slide 13 never gets old for me as these sets of metrics are self-explanatory. It is the payoff for all of our stakeholders. A quick review of our year-to-day progress as of Q2. Growth contract cash flow increased by 218% to $16.2 billion. These are long-term, high visible cash flow secured by high credit-worthy counterparties. Fully delivered fleet grew by 46%, adding 59 new builds and secondhand vessels. We increased TEU capacity by 73% to nearly 1.9 million TEU in total for the fully delivered fleet. Average fleet age decreased by 2.8 years to 4.8 years, and the remaining lease term increased to 7.2 years from 3.8 years. By all measures, these are the impressive results and viewed by many as industry record-setting achievements. This significant progress did not happen by accident. It is our team's thoughtful execution and unwavering discipline and determination. They are a direct reflection of our team's high performance execution and Alice's integrated platform and a resilient business model. Please turn to slide 14. I will conclude my formal remarks by summarizing my points today centered around our business model and quality growth. First, our business model is resilient and differentiated from peers in our industry. We are proud of our broad and deep partnership with strategic customers, which are underpinned by long-term contract cash flow. The strength of our business model, the breadth of our integrated platform, the excellence of our operation results, and the long-term commitment by our customers. Second, our creative customer partnership drives our quarterly growth through all market cycles. For C-SPAN, we delivered the right solution at the right time. No one can match our capabilities. We have 55 new builds under construction, which contributes $9.1 billion of gross contract cash flow, and we have the financial and operational capacity to continue our growth. The strength of our service offering and operational excellence is demonstrated by our customers' forward-fixing charter for 58 vessels, well ahead of the current charter expirations. We took the same approach with APR customers as the current Mexicali project is our third consecutive annual contract, while we are working to develop opportunities in new markets. Our partnership has resulted in total gross contracted cash flow rising to $16.2 billion, along with consistent and increasing high single-digit unlevered returns. And this is the quality growth. Atlas' long-term financial guidance is based on our confidence in the team's ability to continue high-performance execution. Year-to-date, we have continued our drive record achievement for Atlas, and particularly at C-SPAN. It has been a great first half for 2021. We're confident to raise our 2021 financial guidance and provide long-term financial guidance that reflects the achievement that this team has accomplished to date. In summary, Atlas is a dynamic, market-leading, and quality growth-oriented company determined to consistently create value for our shareholders. Please turn to slide 15, and I will now turn the call over to our CFO, Brian Tobo.