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spk01: Welcome to the Atlas Corp. Third Quarter 2021 Earnings Conference Call. I would like to remind everyone that this conference call is being recorded today, November 9th, 2021. I would now like to turn the call over to Robert Weiner, Head of Investor Relations at Atlas Corp. Please go ahead, sir.
spk11: Thank you, Boina. Good morning, everyone. Thank you for joining us today to discuss Atlas Corp's Third Quarter 2021 Earnings. We issued our earnings release yesterday evening after market closed. We will refer to our quarterly earnings release, company earnings presentation, and earnings supplemental workbook today in this conference, which all can be found on the Investors tab on our website, atlascorporation.com. I would like to remind you that our discussion today contains forward-looking statements, and I draw your attention to the disclaimer on slide number two of the company earnings presentation. Please note that we 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 may refer to in our call discussion and can also be found 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 is C-SPAN's Chief Commercial Officer, Peter Curtis, and C-SPAN's Chief Operational Officer, Torsten Pedersen. We are also pleased that David Sokol will join us on the Q&A session as well, our Chairman of the Board. Following our prepared remarks, we will open up the forum to a question and answer session. I am now pleased to turn the call over to Atlas Corp CEO, Bing Chen.
spk04: Thank you, Rob, and good morning, everyone. Thank you for joining our call. Today, I will focus on the differentiation of our business model, market dynamics, and recent achievements of C-SPAN and APR Energy. Then I'll hand over to Grant Talbot to present our Q3 2021 results and financial update. Please turn to slide four. Now let's turn to Atlas third quarter performance highlights. I'm very pleased to report continued strong performance in the third quarter of 2021. We continue to benefit from a robust container shipping market and a deployed APR assets in new contracts and regions. In Q3, Atlas delivered robust revenue growth of 17%, adjusted EBITDA growth of 29%, and adjusted earnings per share growth of 107.4% compared to the same quarter last year. All of C-SPAN's vessels were chartered for the full quarter, achieving a utilization rate of 99%. As up to 15% of our fleet is exposed to floating index rates, we were able to benefit from the current market high. This, together with our continued strong cost control, drove our strong Q3 performance. APR executed two grid stabilization projects and achieved a Q3 utilization of 92%. It is also in progress of building a pipeline of quality long-term growth opportunities. During the quarter, we continued to deliver quality growth through our customer partnerships. Driven by our customers' demand, C-SPAN strategically added 25 new builds to its fleet in Q3. We have now invested in total of 70 new build vessels in the past year, backed by 11.5 years of average charter term and generating 11.3 billion U.S. dollars of gross contracted cash flows. We also continued creating consistent value for stakeholders across all aspects of our business. We paid our 65th consecutive dividend, advanced our ESG goals by issuing our inaugural sustainability report, executed ongoing improvements to our capital structure, and continue to add new talent to our team, including board member Katie Waite and APR CEO Benjamin Church. I would now like to talk about some of the operational drivers of our third quarter performance. Please turn to slide five. As one of our key competencies and differentiators, Consistent operational excellence continues to drive our organization's performance. C-SPAN achieved an asset utilization rate of 99% in both Q3 and since its IPO in 2005. This is evidence of consistently delivered industry-leading excellence, especially as it has been maintained throughout the unprecedented global pandemic. Despite the difficult operating environment, C-SPAN also successfully managed the fleet of 132 vessels with best-in-class operating safety with a historically low average monthly LTIF of 0.37 over the last 12 months and over 5,800, I repeat, 5,800 crew changes made year-to-date despite all logistic restrictions. Our excellence in vessel operation and chartering is indeed a competitive differentiator. We partner with our customers to understand their needs and overcome their challenges through creative win-win solutions. For example, we analyze their vessel size needs, fuel adoption plans, and supply demand forecasts to craft our solutions and foster deeper partnerships. Another example of this partnership is C-SPAN's forward fixing of 60 charters year-to-date with our customers. This has resulted in zero charter roll-off in 2021 with just six in 2022 and 19 in 2023. I'm proud of our team's execution on our new build program and power project deployment. We recently took delivery of the MSC Carol, the first of five 12,200 TU new builds, about two months ahead of the schedule. This marks C-SPAN's successful delivery of a total of 110 new builds in its 20-year history. We anticipate the remaining four sister vessels to follow the same ahead of the scheduled delivery. with two vessels, the MSC Elena and MSC Rashimi, expected to be delivered in November. Our team's fierce execution and decades of expertise ensure the long-term consistent delivery of best-in-class vessels. APR successfully completed two mobile turbine deployments in Q3, including APR's third consecutive annual project in Mexicali. Please turn to slide six. The container shipping market continues to experience favorable conditions thanks to a strong recovery in the trade volumes combined with ongoing supply chain disruption, which has absolutely no impact to our business. Global trade has rebounded and surpassed pre-COVID level across all trade lanes, attributed to stronger than expected improvements in global economics, pent-up purchasing demand, economic stimulus, and changes in consumer spending patterns. The charter market is also thriving. The charter rates are at historical highs due to a lack of tonnage across all vessel classes. Port congestions around the world, particularly in the U.S. and China, which is a large contributor to the historically low of 0.7 idle fleet. Land freight is also experiencing its own challenges with logistics difficulties limiting container distribution from the ports. C-SPAN continues to take advantage of this market upswing, working with our customers to develop long-term solutions through strategically these new builds which all backed by long-term charters and forward fixing of charters at improved rates for long duration. Please turn to slide seven. Market consensus does not expect these conditions to persist. As supply chain issues are resolved and new build order book is delivered over the next four years, rates are expected to normalize to a more balanced equilibrium. While many of our peers take advantage of the current high rates through the short-term chartering at the expenses for long-term cash flow certainty, C-SPAN continues to focus on building long-term customer partnership with the focus on creating sustainable value and quality growth. We prioritize predictability over the short-term gain through long-term charters with quality counterparties. which is why our business model is resilient in all market conditions, such as the trade war and current pandemic. Our 70-vessel new build program is a perfect example, contributing $11.3 billion of gross contracted cash flow over a weighted average charter duration of 11.5 years. The Atlas business model is showcased by a set of industry-leading metrics, such as our $17.9 billion of gross contracted cash flow, nearly 2 million TEU fleet, average charter duration of 7.5 years, and average age of fleet of 4.7 years. These are unique. in the market and insulates us from market volatility and provides long-term predictable performance. Please turn to slide eight. Our competitive differentiation in the market is clearly demonstrated when analyzing C-SPAN's history of being a trusted partner to the world's leading liners. C-SPAN has partnered with its customer for over 20 years defining the industry's future pathway. We've built a reputation based on our operating excellence and new build expertise, supported by our track record of developing the most fuel-efficient designs and new vessel classes. We continue leveraging our expertise in the third quarter with the addition of 25 new builds of 7,000 TU vessels. They are all backed by a weighted average charter duration of 11.2 years, producing over $4 billion of gross contracted cash flow. We've seen strong demand in the 7,000 TU segment as they are well positioned to replace and redefine the aging 4,000 to 9,000 TU segments. This segment currently makes up approximately 40% of the existing global capacity, but represents less than 8% of the new-built order book. Please turn to slide nine. We continue to focus on optimizing our best-in-class fleet composition and portfolio of top customers. Year-to-date, while we continue to develop our fleet in the high-demand 10,000 TEU and larger segments, More recently, we strategically expanded our presence in the 7,000 TU segments. We also continue to deepen and diversify our customer base amongst the top 10 liner companies. We partnered with Zim through numerous new builds and deepened our relationships with our existing customers. C-SPAN is pleased to partner with industry-leading customers who have proven their credit quality through record earnings and ample liquidity, with several also recently receiving rating upgrades. While the industry has financially strengthened, we have reduced concentration of our top three customers by 19% over the past three years. This results in further increasing our credit quality profile. Please turn to slide 10. I would like to summarize with this slide, which illustrates the progress and transformation Atlas has achieved under the leadership of this management and their dedicated teams. Recapping on our year-to-date progress through Q3 2021, growth contracted cash flow increased by $12.8 billion These are long-term, predictable cash flows secured by quality customers. Fully delivered fleet grew by 58%, adding 70 new built and four second-hand vessels. Increased the TEU capacity by 83% to nearly 2 million TEUs on a fully delivered fleet basis. This is approximately 4.5 times larger than the industry average. Decreased our fleet average age by 2.9 years to 4.7 years, less than half the average age of our competitors. And increased our fleet's remaining charter duration to 7.5 years, more than double the average duration of our competitors. These metrics are truly unique and substantially exceed our nearest competitors. No other company has delivered performance with the consistency and transparency as Atlas has. These results are continuous evidence of Atlas' unique and highly differentiated business model within our markets. We are confident to extend our leading position and return increasing value to all stakeholders. I will now turn it over the call to our CFO, Grant Talbot.
spk09: Thank you, Bing, and good morning, everyone. If you could please turn to slide number 11. Our Q3 results were strong and continued to reflect the high performance of our team. During Q3, Atlas achieved performance relative to Q3 2020 of revenue growth of 17% to $451.9 million, adjusted EBITDA growth of 29% to $322.2 million, FFO growth of 42.9% to $248 million, and FFO per share growth of 36.8% to 93 cents per share. Adjusted earnings per share diluted was 56 cents, an increase of 107.4%. And our closing liquidity was up by 123.8% to $957.1 million. We're pleased to report APR's strong asset utilization of 91.9% for the third quarter, driven by previously announced grid stabilization projects in Mexicali and California. Both of these projects have now concluded and we're actively working on redeployment of the turbines. We continue to demonstrate the resilience of our business model by delivering strong performance through all market conditions. While the industry is impacted by operational challenges presented by the pandemic and ongoing supply chain disruption, our revenues remain unaffected as we focus on supporting our customers in the efficient execution of their business. Both businesses remain well positioned for the future, giving our team the confidence to reaffirm our 2021 financial guidance, which we increased following our strong performance in the first half of 2021. Please turn to slide 12. We continue to show these metrics as their improvement showcases the substantial progress this organization has achieved over the past four years. Atlas has had a relentless focus on continuous improvement, operational excellence, creative customer partnerships, and quality growth, which abound by disciplined capital allocation and driven by our financial strength. Our improvements in the quality of our fleet and operations enhances our service to our customers, provides predictable performance, and extends our industry-leading position in the market. This quality growth has been delivered alongside considerable increases in our unencumbered asset base and available liquidity through continuous improvements in our capital structure. We have managed our growth effectively from a credit perspective as we continue to pursue an investment grade credit rating and lower our cost of capital. Please turn to slide 13. During the third quarter, we continued our focus on strengthening and optimizing our balance sheet. Specifically, we completed the upsized $750 million 5.5% blue transition notes offering in the US high yield market, which was well oversubscribed by top global institutional investors and priced to reflect our substantial credit improvements. This was our inaugural issuance in this market, something we've worked tirelessly towards and is a key element of the evolution of our capital structure. During the quarter, we redeemed the remaining $300 million of Fairfax notes This completes the restructuring of their debt position with Atlas. Similar to when we exchanged $300 million of Fairfax notes for 7% preference shares last quarter, this quarter's completed redemption comes with a debt discount extinguishment of $71 million. So I'd like to reiterate, this is a non-cash charge and represents the accelerated amortization of the debt discount, which would have previously been recognized as interest over the tenor of the notes. Full redemption of $600 million of Fairfax notes highlights their continued support by removing debt with preferential terms, which enables us to simplify and create additional flexibility in our capital structure. Fairfax continues to be a key and supportive investor in the Atlas Group. Furthering our progress towards achieving the investment-grade rating, we were upgraded recently by Kroll Bond Rating Agency to BB+, along with the BB range of ratings from Fitch and Standard and Poor's. These agencies commonly referred reference C-SPAN's improvement in business risk management, our increasingly diversified customer base, and funding sources as key drivers for their ratings. They also highlighted that our increasing unencumbered asset base and proportion of unsecured debt were supporting factors. We continue to assess opportunities to strengthen and simplify our balance sheet as we progress towards an investment grade credit rating. Please turn to slide 14. This slide contains details of the progress of funding for our 70 new builds. We received considerable interest from the financing community to participate in these transactions and have leveraged our extensive banking relationships to tailor these financings to our requirements. We're happy to report that we've secured $5.3 billion of financing on attractive terms, and an additional $1.6 billion of financing is in advanced stages and on target to close before year end. This diverse and attractive portfolio of 10 financings is evidence of our industry-leading agility, creativity, and overarching operational excellence. Our financing team has been meticulous in delivering competitive costs, tenors, and flexibility across these facilities to meet our capital structure objectives. This has been delivered well ahead of our planned timelines, and securing financing of this quality and magnitude in such a short timeframe is a testament to Atlas's dominant position in the capital markets, our access to capital, and world-class execution from the C-SPAN team. This is a key element underpinning our growth strategy, and I'm pleased we've secured these competitive financings ahead of schedule. Please turn to slide 15. In our Q2 results, we presented a slide similar to this one. This has now been updated to include all 70 new build vessels announced to date, which resulted in an additional 839,000 TEU and $11.3 billion of gross contracted cash flow. Now that the delivery process is underway, we have updated the table to include details of vessel delivery status, and we plan to provide ongoing updates on the program's progression quarterly. To date, we've received the first of our 70 new builds. This 12,200 TEU vessel was delivered approximately two months ahead of schedule, And we forecast that the other four sister vessels will also be delivered ahead of schedule. Please turn to slide 16. This slide illustrates the superior returns delivered by this leadership team, who along with our teams around the globe, have achieved dramatic growth and financial performance over the past four years. This has been achieved through a diverse set of market conditions, which is further evidence of our resilient business model that delivers value through all market cycles. I'd like to highlight that adjustments made to performance metrics are one-off by nature and are excluded to assist the market in understanding the underlying performance of our business. Our organization continues to focus on delivering consistently strong performance And we look forward to demonstrating this through our updated 2022 guidance, which we will present during our fourth quarter earnings call. Now please turn to slide 17 and I'll provide my summary comments before opening the line for questions. I'd like to leave you with four key takeaways. First, Atlas continued delivering quality growth driving a $17.9 billion long-term gross contracted cash flow balance with industry-leading counterparties. We do this by deepening our relationships and developing win-win solutions to meet customer needs, whether that be through new builds, second-hand acquisitions, forward fixtures, general rechartering, or daily operational excellence. Second, the delivery of our new build vessels and associated financings are ahead of schedule. We've secured $5.3 billion of funding ahead of our planned schedule and only $1.6 billion of financing remains outstanding, which were well advanced and expect to close before year end. We also took delivery of our first 12,200 TEU vessel ahead of schedule and expect that to be the case for the other four sister vessels. Third, we're making significant progress on our journey to achieving the investment grade credit rating. Our team continues to strategically optimize our balance sheet, and we're now achieving double B range corporate ratings from three accredited rating agencies, one of which was an upgrade to double B plus in the third quarter. And thirdly, and finally, our financial performance is on track to achieve the updated 2021 guidance that we shared with the markets. at the end of Q2. Given our continued quality growth in the third quarter and multiple new-build vessels expected to be delivered ahead of schedule, we're confident in surpassing our previously stated long-term guidance. Not only is our team confident in our future, but we have also recently had a strong indication of confidence from the Washington family and affiliates, who recently purchased 2.5 million shares of Atlas at an average price of $15.34 in September. This is a great signal and vote of confidence from a smart and capable investor, and we continue to appreciate their support as the original founding shareholder. Thank you for your interest today, operator. We'd now like to open the line to questions. Thank you.
spk01: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw a question, press the pan key. And please stand by while we compile the Q&A roster. Your first question is from Chris Weatherby of Citi. Your line is open.
spk02: Hey, guys. Good morning. James on for Chris. Just wanted to get sort of your view on the broader new appetite for new builds. There is, like, I guess the best way to think about it is there's a lack of supply chain fluidity and it's definitely deteriorated more recently and rates have taken a leg higher. Do you think that's a headwind necessarily, the new building ordering in the near term? And once that clears, do you think there's an appetite for significant fleet growth? Just trying to understand your outlook in terms of sort of the new buildings longer term. Thanks.
spk04: Good morning, James. That's a good question. In terms of the new building, I believe that we talked about during the last quarter and in general what we say back then is demand and supply in general are balanced. Over the past quarter, I believe that the new build, although continued, but the pace is slowing down. We, however, added additional 25 new builds with the demand from our customers, from two leading global liner customers. All these new builds are backed by long-term contracted cash flow. Specifically, I think they add about $4 billion U.S. dollars gross contract cash flow and with an average of 11.4 years of duration. But from the overall industry perspective, I think the new build actually still is in control, meaning that there's very almost to none speculative orders. So that means that any new build that has been put in over the past quarter, they are all coming from the real demand. And going forward, I do see that the market continues to be under control, meaning that I think there are still some specific interests in new build, but they're in different segments. They're in a different time frame in terms of delivery, but I see that overall the new build demand are very cautious and I think very much under control. In terms of the supply chain congestion, I think this really depends on two things. One is the global coordination and control of the pandemic. Currently, the supply chain congestion is largely caused by the uncoordinated standards amongst different countries. That's the one thing. And the other condition depends on actually how the COVID is going to be under control, meaning that with the vaccine, with the different ways to protect the people, and I think that that's going to have impact in terms of how quickly we will be able to return to some kind of normality In terms of headwinds, as I said it earlier, that, you know, overall, I think the market consensus still believe that the current, you know, strong market will last at least until, I would say, the first quarter to second quarter of 2022. Some optimistic views it's going to be last until the end of 2022. But eventually, I believe that, you know, the market will go back to some kind of normality. And I think, you know, at that time, actually, C-SPAN's business model, it will come to really differentiate in the marketplace in a way that, as we mentioned earlier, you know, we actually have, you know, very little, you know, charter wrote off for the next three, four years. Specifically, for example, we have zero for 2021. We have six vessels for 2022, 19 vessels for 2023, and 31 vessels for 2024. This is assumed that we do not do any forward fixing between September 30th to the next four years. But in reality, we actually have already forward fixing some of the vessels in between. And, you know, as I mentioned earlier also, you know, regardless of the headwinds, it's very important to highlight that, you know, with our existing fleet, we have already forward fixing 60 of them, and that's why we have very little, you know, roll-off in the next years. But at the same time, you know, our new build, all these new builds, as I said before, 70, out of that, one is already delivered. ahead of the schedule. Two is to be delivered this month. Again, it's going to be ahead of the schedule. And also the remaining two is also expected to be delivered ahead of schedule in Q1, Q2, 2022. But all, all of our new build vessels are backed by long-term contracted cash flow, meaning that none of them are speculative. And all these, you know, the new build has backed by long-term charger. So from a headwind perspective, I think C-SPAN is actually best positioned if and when the market happens, and I think that that is really the highlights of our business, and we are very pleased with what we have achieved.
spk02: Got it. Just sort of to clarify, given the congestion and sort of the lack of sort of longer-term visibility, do you think that's been a headwind to C-SPAN? additional new build orderings and sort of C-SPAN fleet growth and sort of attached to that, once it clears, do you expect another round of sort of orders to come through?
spk04: Well, I think it really depends on how quickly the demand from the liner side that they would like to replace or increase the capacity of the fleet. As I mentioned earlier, today, The fundamental change in the container shipping industry is the landscape of the market in a way that liner company are very much consolidated. They're in general very disciplined. With that discipline in place, I would anticipate even with the returning to the normality, I believe that the growth of the new build, it will be primarily driven. If that's going to happen, I will be thinking that it will be driven by those, you know, continued new build vessels that with the better, you know, design and with different fuel intakes, that type of vessels. In other words, primarily it's going to be driven by those, you know, carbon emissions reduction initiatives and environmentally improved newly designed vessels. But I think that will still be under control. It will not be in a speculative manner because the industry is very much transparent and the demand has to come from the liner companies.
spk02: And then just real quickly, just wanted to touch on capital structure and your asset base. You've mentioned unencumbered assets and unsecured debt. How should we think about sort of the mix of those in terms of target percentages, absolute amounts? Just kind of wanted to understand how you're thinking about that, and that's all for me. Thanks.
spk09: Yeah, I think on the unencumbered assets, there isn't an absolute target there. It's a matter of just continuing to grow that base obviously, is providing unsecured assets in the business to which we can use unsecured credit lines. On the unsecured mix, there's a number of targets out there. We're progressively sort of working up to 35-plus percent. Obviously, it's a matter of balancing it out over time. And, you know, as we've discussed before, Chris, you know, the journey to investment grade... is not an imperative that we have to do tomorrow. And we've got to balance out a number of different things here, which is also continuing to fund our growth, continuing to return capital to our shareholders and maintaining all of our debt covenants. So it's a finely tuned balance. And we're confident about our ability to manage those attributes as we move towards an investment grade rating over the next few years. Thank you.
spk01: Thanks for your question. Your next question is from Randy Gibbons of Jefferies. Your line is open.
spk10: Hi, Randy. Howdy. Bing and Graham, how's it going? Very well, thank you. Good. Thank you, Randy. Good. All right. I guess looking at the new building program, you know, you have 69 new buildings to be delivered. Are all of these going to be new vessels or will some be maybe a replacement for older vessels? I guess put another way, any updates on potential vessel sales to raise liquidity given the strong secondhand market?
spk04: Randy, to answer your question, all the 69 new build vessels are brand new vessels. They're really new vessels. In terms of, you know, are we looking to sell any vessels? As I said before, we are optimistically looking at opportunities. The challenge of selling the vessels at the current market is that as all our vessels are under long-term contract. So we need to take into consideration of our customer relationship, the needs, and also at the same time, and I think that with the long-term contracts that's already in place, that we have to be very selective in looking at the right counterparty with the right opportunities, then we would also consider selling of those vessels to those selective counterparties. But that will be very much opportunistic.
spk09: And maybe if I just add to that, Brandy, as we've discussed before, this is just a matter of economic evaluation. The market is high in terms of vessel valuations, so it is tempting to recycle certain vessels in the fleet. But at the same time, we've got customers that have got very high demand at the moment for tonnage. Therefore, when you run the economics, it's often difficult to justify a sale when you can actually put them back on contract for a term. So then it comes down to customer relationships and making sure that we look after our customers and take the right economic decision.
spk10: Okay, that's fair. And then you have $5.3 billion in debt financing secured for the new building program. Another, I think you said $1.6 billion in the advanced stages. So you'll have $6.9 billion against the $7.6 billion in assets. So that's, I guess, 90% financing on the new buildings, not overall. Are there certain kind of leverage ratios required for an investment grade rating? And with that investment grade rating, or I know the pursuit of that, any dividend constraints? during this time? It seems like the dividend might be kind of capped here for the next few years during the delivery period. Is that fair?
spk09: Yeah, so there aren't specific covenants, Randy, from the ratings agencies in relation to this. But there's a number of different ways to view our business, whether you're viewing it as far as a shipping business or a leasing business, which gives rise to certain views and perspectives from the rating agencies. As you correctly point out, on our new build financing, we're looking at an average LTV of around 90%. So that's an average. There's some 10 different packages involved with 70 vessels. And that's a fairly complex package of 20 or so different counterparties that we've worked with. And there's some very exciting elements in there, but we're just working with the counterparties to organize press releases around those, which we will do in due course. So obviously, part of our journey to investment grade is actually raising more unsecured capital and then using that to pay down secured capital. So over time, we will be progressively looking to access the market again to raise relatively cheap capital through the high yield market, for example, and then use that to recycle out of secured capital. But the package that we've put together here is very, very competitive and has some very unique elements to it. And I'm hopeful in the next few weeks that we'll be able to communicate more details around the uniqueness of these finances. Randy, are you still there? Operator?
spk01: Your next question is from Benjamin Nolan of Stiefel. Your line is open.
spk05: Hello, everybody. My name is Michaela Rogers from Stiefel, asking a question on behalf of Ben Nolan. Thank you all for the update. And our question revolves around APR. Is there any update on how you are thinking about the long-term strategic positioning of APR Pre-COVID, the plan was to grow the gas fleet and focus more on long-term contracts. Is that still the idea, and is the market getting back to the point at which that is possible? Thank you.
spk09: Thanks, Michaela. That's a great question. Big, over to you. I was just going to say, Michaela, that... Our strategy hasn't changed there. As you're aware, we had a very successful quarter last quarter with the turbine deployments. So our top priority is still to make sure that the current asset fleet is fully utilized or maximized as much as possible. But as we've stated previously, our ambition is to pivot the business to include more longer term fixed price contracting for power generation and supply. through both gas turbine business, but also through renewable energy. And as you are aware, we've now got some new management in place and we're currently working on building out that pipeline of opportunities. And I would say that, yes, the market has shifted and there's certainly a lot more opportunities in the market we're seeing today than we had previously. and we're building a fairly robust portfolio of opportunities, which we're working on maturing at the moment.
spk05: Thank you very much. It's very helpful.
spk09: Thanks, Impala.
spk01: Your next question is from Omar Nocta of Clarkson Securities. Your line is open.
spk12: Thank you. Hey, guys. Good morning. I just wanted to... I just wanted to follow up on Bing's comments, and obviously one of the biggest topics in the industry today is the disruption and delays and all the port logistical issues. And I wanted to ask, you know, in terms of as operators of the ships, is there anything that the liners have asked you to do recently to help alleviate some of the logistical log jams? Is there anything that could possibly be done from your side? Just looking for any color you can give on that.
spk04: Morning, Omar. I think the one thing that has been constantly, I think we see increasingly from the liner companies that the demand for the ship owner and operator is the quality of service, the reliability. Given the current challenge of the logistics and the I think, you know, as we mentioned earlier, we actually have been able to achieve a very high utilization rate of our vessels. In this quarter, it's 99%. As I mentioned, a year today, we actually changed our crew in the number of 5,800, and that is very, very significant in a way to alleviate or provide the kind of a reliable service to our liner customers while they're dealing with a lot of port and logistical congestions. As you also know, there are several incidences that's been happening over the past months, and many of these incidences is due to the quality of the ship management and operators that cause a lot of additional, I would say, difficulty or challenges for the liner customers. So that's what the one areas I see that has been consistently demanding from our customers, from our line of customers, and also increasingly in the period during this, you know, the logistical challenge time. I don't know, Peter, if you have anything else to add.
spk07: Thanks, Bing. Omar, I think that essentially the unwinding of the disruption would take some time more, and that the impact really, as we've said several times before, is that it doesn't impact us in regards to our employment. The real essence that we can provide to our customers is, as Bing says, is the operational excellence. What we see in probably the past six months is an increase of speed of vessels, which, of course, demands reliability. So that's essentially the primary area that we can support.
spk04: Yeah, and the other aspect is also something that we've always been very proud of, is the loadability. I think our vessel actually last month achieved the maximum loadability of, I think, 10,000 TEUs, meaning a vessel of 10,000 TEU actually load up 10,000 boxes, 10,000 TEU boxes. So in a very, I would say, high-demand environment that The loadability difference will provide additional capacity to our customer, so in a way to help them to alleviate the demand shortage. And that is also something that differentiates the owners in the marketplace like ourselves. where we have reliable quality of service at the same time with these type of loadability, I think it also helped alleviate their demand.
spk12: Thank you. That's very helpful. Good color. And follow-up question, and you also talked about this in your opening remarks and also in the Q&A, just about the charger appetite for new buildings. And I just want to understand from your perspective, given you were very involved and at the forefront, really, of a lot of the new buildings, you've been very active and you've got deliveries coming in 23 and 24. As it is today, do you get the sense that liners are taking kind of a wait-and-see approach for the, you know, 25 and 26 deliveries? Or is there still a good amount of demand there, just all in the planning phases? What do you think about that?
spk04: As I said earlier, I think we do work regularly with Liner customers. In general, I think Liner customers are looking into the new build opportunities from the size, from the fuel proportion systems, and from the design. This is something that is constantly in dialogue, and this is where we provide a lot of our own insight, views, as well as being able to work with all the stakeholders, whether it's a shipyard, whether it's a class society, or the liner customers. Generally, I believe that liner customers are very cautious about the new build because right now, if you're looking at the slots, mostly the slots will be only available in 2025 and beyond. So therefore, realistically, if you put in any order, most of the orders have to come for delivery in 2025. That is about four years down the road. At the same time, I think there's a certain uncertainty about how the demand is going to look like. and what are the potential other fuel sources could be used for the new build. Overall, I would say it's cautious and wait and see, but there are some liners that are still looking at potentially some new builds as they are pretty certain about certain directions with the design and also the fuel they're going to adopt.
spk12: Great. Thanks, Bing, for that. I'll pass it on now.
spk04: Thank you.
spk01: Your next question is from Ken Hoekstra of Bank of America. Your line is open.
spk06: Hey, Bing, Grant, and team. Congrats on being well-positioned to take advantage of the market. You noted some accelerating. You accelerate your targets back in 2Q, and rates have risen kind of exponentially since then, yet you didn't really tweak this year's targets even at this point. You mentioned maybe you'll look at 22 next quarter. Maybe give your updated thoughts on this year as we close out the year, and then thoughts on that three-year outlook, given the market exposure.
spk04: Sure. Thank you, Ken. You're right. We are not raising our guidance for 2021, but we strongly reaffirm our increased 2021 four-year guidance, which is published in Q2 earnings. However, the increased guidance is very certain as we have all revenue have, you know, secured, as I said, for 2021. According to our policy, you know, as Graham mentioned earlier, we will provide a, you know, revised guidance for 2022 at our Q4 and also at our investor date, we will provide a revised long-term projection for 2022 all the way to 2024 and beyond. The reason is that we are not adjusting because, you know, our policy is to only adjust twice a year. But, you know, as we mentioned earlier that, you know, Our significant growth over the quarter is really driven by a variety of factors. One is that we have three ahead of the scheduled new-built deliveries. We have 15% of the index-based TC rates. We have 99% of the fleet utilization. We have 60 forward fixings. And also, while our crew changes, obviously, logistic-wise, the costs have increased. But that cost has been offsetted by our continued operational excellence in driving down the processes in automations. So net-net, our OPEX only marginally increased, immaterial increase over the quarter. And looking forward, obviously, I'm not providing the long-term information, projections here, but the one thing that I highlighted earlier, our business is very well positioned or is best positioned in the coming years if you believe there are headwinds in those years, simply because, as I said, we have very little charter that's going to be rolling off. As I said, again, I repeat, we have nothing for 21. We only have six for 2022, and we have 19 vessels for 2023. We have 31 for 2024. That is as of September 30th. This is assuming we don't do any forward fixing. At the same time, for all those new built, that is 70 new built, all of them are backed by long-term charter. So in terms of our business, both in the current year, next year, and the year after, it's the most certain business because the way our business model, because the way our contract is structured, is exactly counter those economic and industry cycles. And that's why we are very certain about our future performance in the years to come, despite the fact of the market volatility or some general economic cycles.
spk09: Great, thanks. I was just going to add, as Bing mentioned and we've discussed previously, we do have a small portion of our fleet which we have on shorter-term contracts. And for us, shorter-term is actually still three to five years, so it's not like spot-on. And those contracts, some of them are on context and some of them on broker rates. And they reset on three and six month sort of rests. So I know we've discussed previously about the uptick in the market and when do we see it on that portion of our fleet. And you're definitely seeing that in Q3 of this year. So there's been a significant uptick in the rates for that portion of the fleet. And the details of all of that's included in the supplemental data that's loaded up on the website for Q3.
spk06: Great. Thanks. Thanks, guys. If I can do a follow-up on APR, you had some projects that ended, Graham, you threw out there, you know, in the quarter, they were more short-term. So can you talk to us about utilization expectations as you move to the fourth quarter? And then maybe you mentioned David Sokol's on the line. So David, since you acquired APR within the C-SPAN family and now Atlas Corp., every move has been to add more container ships, which obviously great timing and great for the company. But what is the point now of having the conglomerate? Why not spin out APR to allow the refined focus? It sounds like management has turned over a couple of times there to allow a refined focus given really the truly disparate entities there. and C-SPAN now kind of establishing its self-funding?
spk08: Yeah, yeah, Ken, no, great question. Well, let me start with the fact that the focus of our board and our management team is to build an organization that lasts. Historically, the small kind of owner-operator support mechanisms in the shipping sector, if you look back five and ten years, you know, was very – short-term oriented, trying to take advantage of price spikes and trying to avoid, when possible, the trough that occurs. That's not a game that we want to play. And so the team, led by Bang and Graham and Torch and Operations, et cetera, have recognized that our liner companies need long-term support. And we want to be a company that is sustainable over the you know, decades in the future, not just, you know, a year or two. And that transition has really taken place, and it started in mid-17, 2017, mid-2017, and has really unfolded with clarity the last year and a half as these new builds have come along. I emphasize that before getting to your question with APR, because if you look at C-SPAN today, and we are intending to do something similar But if you look at C-SPAN today, you know, it's long-term contracts, nearly $18 billion of long-term contracts. No one in this industry has ever even approached numbers like that. And these charter lengths run as long as 18 years with financings that match those long-term charter rates. Torsen and Peter and the team have moved operational excellence to literally unheard of levels in the past. Long-term injury rates down below 0.4, when for many in the industry, numbers like 2 to 5 are not uncommon. On-time delivery for our customers have gotten to extraordinary numbers. Again, the business is built around taking risks that we can manage and not taking risks we can't. So the port congestions, for instance, that you're seeing on the West Coast, That's not a problem we can manage. It's ultimately a political subdivision problem, if you will. And so we don't take those risks. So the fact that there is a lot of congestion is affecting a lot of shippers, and that's unfortunate. People trying to move products, getting them ready for Christmas, et cetera. But our economics don't change because we get paid whether the ships are waiting in line to get to the port or whether they're being unloaded and reloaded in the port. Again, emphasizing the fact that driving the company to be built to last, to get our credit where it needs to be on a long-term basis, which dramatic improvements have taken place. So APR on the energy side is something that we want to do the same with. Unfortunately, from what's happened through COVID-19, you know, a month after we closed on APR, globally COVID largely shut down emerging markets, largely shut down developed markets. So it has taken us longer, although I will say that the team that's in place now is highly focused, doing an excellent job of both keeping the short-term utilization rate high and moving to longer-term contracts. They've got a significant backlog of opportunities that are now being progressed. They've got significant opportunities that we're analyzing in some of the renewable fields around the world. But it's going to take time. Just as it took time to get C-SPAN to where it's clearly a differentiated organization in the shipping industry, it's going to take us time for APR to get where it needs to be. Having said that, they've substantially outperformed our own expectations for 2020. and we expect continued performance in the future. But to get APR to the level of C-SPAN is going to take time. We haven't been shy about that. We've urged investors to look at APR on a flat basis going forward because we don't want to over-promise and under-deliver. But the same kind of dynamics are going to take place on the energy side when you see such dramatic transitions in energy policy taking place globally, and some very inconsistent energy policies that also provide opportunity. So getting rid of APR, frankly, wouldn't make sense from our perspective. We still look to long-term have multiple platforms where we can run high-quality businesses in the infrastructure world and continue to grow them and make them very sustainable and very built to last rather than just short-term oriented. So long answer to your question, Ken, but really from our board's perspective, notwithstanding the fact that we view the stock as substantially undervalued, we've all been around enough to know that when you perform at this level consistently long enough, people pay attention and we certainly have two large shareholders that believe in the future of the business and a management board that does as well.
spk06: Great. Thanks, David. Thanks, Bing and Brent. Appreciate the time.
spk08: Yeah.
spk06: Thank you.
spk01: Your next question is from Michael Goldie of BMO Capital Markets. Your line is open.
spk03: Hi, Marty. Hi, guys. And good morning. Hi, guys. So we've been touching on this a little bit, but looking at longer term and the shift towards carbon free container shipping, do you expect this to eventually drive another wave of new building? And when might that be kind of 2030 timeframe further out? Any thoughts there?
spk04: Hey, good morning, Michael. I will answer that question, and Peter, feel free, and Peter Thorsten, feel free to jump in. The answer to that is I don't think so, because, you know, if we're looking at the carbon-free initiatives, it is true that the vessels has to, you know, improve from two aspects. One is from the vessel design to improve the efficiency. The other one is looking at the fuel selections. The way we're looking at this is that ultimately it's not going to be one solution. It will be multiple solutions in the two categories. One will be in the areas of light gas. The other one will be in the liquid. So if you're looking at the new build that we have done out of the 70, we actually have these two categories. One is LNG, the other one is the conventional one, which is using the liquid fuel. And these vessels potentially could also be modified to take the future green fuel, whatever those fuels are. So, you know, as the industry today is still trying to look for the final solution, still, I believe that even though, you know, there's no exact solution yet, but I think in terms of the path, it's probably there. And in terms of the new-built assets, I would say steel would be in these two categories. And also, I think, you know, if that is the case, I would think there are some more potential retrofits of those vessels that could be used for future fuel, whether it's hydrogen, methanol, ammonia, or any other potential fuels. And the other part is looking at the carbon neutral is to looking at potentially the CO2 capture on the vessels. So there's many different ways, you know, I would think that similar to what we're looking at initially, looking at the high sulfur in putting on the, you know, the scrubber or burning the, you know, low sulfur fuel. So in general, I would think that there will be the new builds and those new builds will take whatever the new, I would say, the fuel possibilities going forward, but I do not anticipate a massive wave of a new build of vessels adopting whatever the new solution, which today we still do not have.
spk07: Bing, I'll add on to that. Michael, I think that's a good question. I think building on what Bing has mentioned about the future in terms of fuel choices, which I think will precipitate some degree of new build into the future, bearing in mind that the liners today are very disciplined. They work within the alliances, which are very disciplined. So we don't see any reason for some of the more sort of volatile actions, you know, a number of years ago. So on top of that, we also believe that the growth of the fleet is still sustainable in regards to global GDP growth. When you have a look at the curves of global GDP, they're not really volatile. Of course, we've had a few shocks and 2008, 2009, and more recently, but generally there's a consistent growth. And containerization as the means for globalization will follow suit. So the fundamentals, we believe, will require replacement of vessels in addition to the fleet capacity. And then last but not least is When you look at global trades, it's not just what many of us tend to think of the main East-West trades like Asia-Europe or the Trans-Pacific. Those two combined are barely 25% of global moves. There are other trades that have grown significantly, intra-Asia, for example. Intra-regional trades are well over 35% of global trade. And as these different trade lanes grow and the ports associated with those trade lanes improve their facilities, so there's demand for additional vessels and vessels of different types and sizes to note 7,000 TEU recently, 25 units. So I hope that provides some color to you.
spk08: That's helpful. Yeah, I think it's helpful. If I could just add another comment to Peter's comment, I think something that's important to think about when you think about container shipping from a CO2 standpoint is start with the fact that there is no more efficient way to move goods around the world from a CO2 perspective than shipping today already. Now, there's definitely going to be changes in fuel types and significant efforts that both we're making and others are to become more CO2 efficient and to find solutions in the future. But I think the industry's now gone through a couple of years of thinking about this problem along with governments that are represented in this discussion. And it's becoming clear that there's some uncertainty as to what the right fuel is for say 2050 to get to full carbon neutral. But that makes sense in the sense that it's already an industry that's highly efficient. There is no way to move products around the globe anywhere near as efficiently as container shipping does, which speaks to its rapid growth over the years. But this transition to what the ultimate solutions will be, whether they're methanol, they're hydrogen, or others, is going to take time. In the meantime, as Bing said, enormous efficiency improvements are being made, shifts to lower carbon fuels are being made. But that ultimate transition is going to take time for the technology to exist, both to produce the fuel, store it, and use it efficiently. So there will come a time, obviously, when there will be a lot of either retrofits or new builds that use those fuels, but they're certainly not two or three years out.
spk03: Okay, that's helpful. And also kind of on that same topic, as we over time move towards better CO2 efficiency, is there further opportunity for consolidation in the lessor space as maybe some of the smaller players who are less sophisticated can't offer the same solutions?
spk04: That's absolutely right, because as the further requirements on the CO2 emissions, that will put a lot of pressure on the less source to be able to have one, the team, the human resources, the expertise to work with the industry participants, the customers to develop the solution. The other part is it's also a need to make the investments. both the human capital and financial capital and also the business platform required for those who are able to meet these challenging requirements. So for those owners who just provide the vessels, and I think they would have a difficult time to be able to provide that kind of solutions to the customer, whether it's from a human capital expertise perspective as well as from a capital perspective.
spk12: Perfect. Thank you.
spk01: And no further questions? I would like to turn the call over to the presenters for further remarks.
spk04: Yeah. So thank you, everyone, for taking the call, and thank you for the questions. You know, we're now closing the Q3 earnings call, and if you have any further questions, please feel free to reach out to Graham, myself, in addition to Rob. So we look forward to meeting you all in the next quarter. Thank you all.
spk01: Thanks, everyone. And this concludes today's conference call. Thank you for participating. You may now disconnect.
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