Atlas Corp. (ATCO) Q4 2021 Earnings Call Transcript

Welcome to the Atlas Corp. Fourth Quarter, 2021 Earnings Conference Call. I would like to remind everyone that this conference call is being recorded today, February 17, 2022. I would now like to turn the call over to Robert Weiner, Head of Investor Relations at Atlas Corp.

Thank you, Chris. Good morning, everyone and thank you for joining us today to discuss Atlas Corp.'s fourth quarter 2021 earnings report. We issued our earnings release yesterday evening after market close. We will refer to our quarterly earnings release, our 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 #2 and the Company earnings presentation. Please note that we report non-GAAP financial 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 #3. Now let me turn to a personal update. This will be my last conference call as I will be leaving Atlas at the end of the month. I want to thank the Atlas team and Atlas' investors and analysts, all of whom it has been my pleasure to work with and get to know. I believe Atlas is very well positioned to continue its growth and creation of value for shareholders. Taking over as the leader of investor relations is Will Kostlivy, who will be based in Vancouver, Canada. On the call with me 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 Seaspan's Chief Commercial Officer, Peter Curtis, and Seaspan's Chief Operational Officer, Torsten Pedersen. Following our prepared remarks, we will open up the floor to a question-and-answer session. With that, I am pleased to turn the call over to Atlas Corp.'s CEO, Mr. Bing Chen.

Thank you, Rob, and good morning, everyone. Thank you for joining our call. I would like to begin by thanking Rob for his contribution to Atlas' success and we wish him the best in his future endeavors. Today, my comments will focus on Q4 and 2021 highlights, key developments at Seaspan and APR and our through-cycle performance since 2018. Then I will hand over to Graham Talbot to present our Q4 2021 results and financial update. Please turn to Slide 4. I'm pleased to report that we beat our upgraded 2021 guidance, delivering record financial performance despite the global supply chain disruptions and the pandemic. We continue to benefit from a robust container shipping market and the long-term strategic partnerships with our liner customers, along with the deployment of APR's assets in new contracts and regions, resulting in a year-over-year adjusted EBITDA growth of 20.8%. We have locked in significant and high quality growth through our $7.6 billion investment in 70 newbuild vessels. They are all backed by long-term quality charters in addition to $6.9 billion of committed financings. This has resulted in a total gross growth contracted cash flow balance of $18 billion as of yearend. In 2021, we strengthened our balance sheet, improved our financing flexibility, and continued optimizing our cost of capital as we progress towards an investment grade credit rating. I'm also very pleased to report a solid fourth quarter performance that capped a record year. Atlas delivered robust double-digit growth across revenue, adjusted EBITDA and adjusted earnings per share compared to the same quarter last year. We are very pleased with this performance, and we are well positioned to continue delivering material value to our shareholders in 2022. Please turn to Slide 5. Let's review selected key developments at Seaspan. The newbuild vessel program is a testament of Seaspan's integrated platform which we have consistently invested in over the past 20 years. In response to the customer demand, we have leveraged our integrated platform through our people, process and systems to execute on our 70 vessel newbuild program, which is unprecedented in industry. This newbuild program further differentiates Seaspan's competitive dominance, delivering $11.4 billion of gross contracted cash flows over 11.5 years average charter duration. Three vessels on 18-year charters have been delivered ahead of the schedule so far, with 67 vessels to be delivered over the next three years, reinforcing our successful track record of building over 110 vessels since Seaspan's inception, which does not include our 70 vessels newbuild program. During the fourth quarter, our vessel utilization rate was 98.5%, which is consistent with our vessel utilization since IPO. This performance was underpinned by successfully executing over 8,200 crew changes despite the operational challenges presented by the pandemic. We continue to benefit from the strong market, as up to 15% of our fleet is exposed to floating index rates and we forward fixed 10 vessels during the Q4 and 68 vessels total in 2021, leading to only 5 charter roll-offs in 2022, 13 in 2023, and 27 in 2024, as of 2021 yearend. In addition, we achieved historical record low lost time injury frequency of 0.4 as we continue to focus on safety of our people. These successes, together with our disciplined cost control, drove our strong Q4 and 2021 performances and demonstrates our consistent operational excellence. Please turn to Slide 6. Now let's review select the key developments at APR. After two years of the global pandemic, mobile power market demand is beginning to improve globally, with projects resuming after postponements and disruptions. Two of have APR's contracts totaling 400 megawatts rolled-off in the fourth quarter, the first right at the start of the quarter, and the second is 15 days into the quarter. This reduced our quarterly utilization rate to the low 60% range and this is consistent with last year's and reflects the seasonality of power demand and subsequent demobilization periods of these projects. We have recently entered into three new deployments, which includes a renewal of APR's IID contract in California for 90 megawatts, a new market contract in Brazil for 228 megawatts, and the dry leasing of five turbines to a Texas-based counterparty for 120 megawatts. Similar to Seaspan, APR achieved a strong LTIF rate of 0.23. APR is strengthening its platform by focusing on increasing the utilization of the turbines, while developing long-term power projects in a disciplined manner, which in turn generating predictable long-term contracted cash flow. Please turn to Slide 7. I would like to wrap up my comments by reflecting on our past successes and what is installed as we building on our continued momentum. 2017 was a turning point in our company's history. Following David Sokol's appointment as the Chairman of the Board, we began the transformation of our governance and business model. I then joined in 2018 and began strengthening our management team and building and embedding our five core competencies, which is consistent operational excellence, creative customer partnerships, solid financial strength, quality growth, and disciplined capital allocation. Since that time, we have built a consistent track record of strong performance through a diverse set of market conditions, which is further evidence of our resilient business model that delivers value through-cycles. We have enhanced the business model and management team, focused on delivering creative customer solutions by leveraging our fully integrated platform, actively managed our balance sheet, improved our financial strength, and have significantly grown our franchise with $18 billion of quality long-term contracted cash flow, which provides predictable financial performance and significant value for our shareholders. These themes, coupled with our consistently strong performance drive our upgraded 2022 guidance, which Graham will share later in the call. Thank you for your time today. I look forward to seeing you all at our Investor Day and discussing the future of Atlas in more detail. So I will now turn the call over to our CFO. Graham, please.

Thank you, Bing and good morning, everyone. Thanks very much for joining us today and let's jump straight into it and turn to Slide #8 please. So we've delivered a strong Q4 and full year performance in 2021, which as being mentioned exceeded our raised financial guidance, which was issued during our Q2 2021 earnings call last August. During Q4 2021, Atlas achieved the following performance relative to Q4 2020. Revenue Growth of 18.1% to $428 million, adjusted EBITDA growth of 18.8% to $294 million, FFO growth of 17% to $190 million FFO per share growth of 14.3% to $0.72, and adjusted EPS growth of 44.8% to $0.42. We're very proud of our team's consistent high performance during a period of considerable global uncertainty and operational challenges caused by the pandemic. These results demonstrate the resilience of our fully integrated platform, which provides consistent delivery in all market conditions. We've navigated the ongoing supply chain disruptions with minimal impact due to the diligent efforts of our operations team and seafarers. We have continued to deliver a high level of operational efficiency and service to our customers with asset utilization of 98.5% in the quarter. Please turn to Slide #9. Throughout 2021, we continued our focus on strengthening and optimizing our balance sheet. This slide captures select issuances, redemptions, restructurings, and initiatives demonstrating our continued commitment to active balance sheet management. 2021 was a busy year for the financing team, and Atlas as a whole. We have executed an aggressive portfolio of transactions, which has positively impacted our capital structure and financial capacity. We broadened our access to global and unsecured capital markets, improved our financing flexibility, incorporated sustainability linked financings, and optimized our cost of capital. Our ability to execute on these initiatives continues to build our competitive positioning and the critical elements on our journey to achieve an investment grade credit rating. We've been working close with the rating agencies on our past achievements and future goals, and we're pleased to see that our strong credit profile continues to develop. While I'm proud of our team's accomplishments and we are fully funded for the delivery of our newbuild program, we continue to place a high importance on quality growth and strengthening our financial profiles. We will therefore continue to actively manage our balance sheet as a critical component of our business model. Next, I'd like to highlight the impacts of these actions on our business in 2021. Please, turn to Slide 10. These metrics capture our significant financial evolution in 2021. We've managed our growth effectively from a credit perspective and we've carefully planned and executed all aspects of our investment and financing decisions. We delivered quality growth alongside considerable increases in our unencumbered asset base, proportion of unsecured debt, and improved leverage profile. These are all key metrics that rating agencies used in the assessment of our credit rating. We will continue to optimize our balance sheet throughout 2022 and look forward to sharing these developments with you in due course. Now let's look at the future and the impact of our newbuild program. Please turn to Slide 11. As previously noted, we have derisked our newbuild program far ahead of delivery through the completion of associated financings, long-term contracted charters and cash flows, and deployment of our experienced newbuild site teams. This slide details how our 70-vessel newbuild program contributes to our financial performance through $11.4 billion of incremental gross contracted cash flows. That's approximately $1 billion annually when all newbuilds are delivered. With an average charter duration of 11.5 years, and with some charters 18 years long, the program will contribute cash flows until 2042. Now turn to a recap of our 2021 full year performance comparing our guidance to actual results, if you can turn to Slide 12, please. As a reminder, we issued our initial 2021 guidance during our Q4 2020 earnings call and we updated this during our Q2 2021 earnings call in August. As communicated earlier, we outperformed our raised 2021 guidance across all key metrics, which has been a common theme since the 2017 inflection point been spoke about earlier. Our ability to do this on a sustained basis demonstrates the resilience of our business model and delivery of consistent quality growth. Now look at our initial 2022 financial guidance, if you'll just turn to Slide 13, please. The midpoint of Atlas' full year 2022 guidance is as follows. Revenues are expected to be $1.718 billion and adjusted EBITDA is expected to grow to $1.138 billion. You'll find the segmented guidance for Seaspan and APR in the appendix of the presentation. As previously communicated, we've been taking advantage of the current market environment to recycle capital through divestment of nonstrategic assets. This guidance includes the impact of the divestment of two vessels, which have been fully executed. We have another five vessel sales underway but not concluded at the time of this forecast. Details of the financial impact of these transactions are included in the end notes of this presentation. We will provide a more comprehensive update on our capital recycling program and long-term financial guidance at our upcoming Investor Day. Please turn to Slide 14. I'd like to summarize our great 2021 performance by leaving you with five key takeaways. Firstly, Atlas consistently delivered in 2021, building upon our past success and driving quality growth, generating $18 billion of long-term predictable gross contracted cash flows. Secondly, our 2021 financial results for both Seaspan and Atlas and APR exceeded our raised 2021 guidance provided in August. Thirdly, our newbuild program is fully financed through innovative structures with favorable terms. Fourth, we continue to improve our capital structure and credit rating, increase our financial flexibility, incorporating sustainability linked financing, and optimizing our cost of capital. And last but not least, we plan to hold Atlas' 2022 Investor Day on Wednesday, March the 30th and we hope that you'll join us to discuss the future direction and focus of Atlas together with our unique value proposition. We look forward to your participation at the event. So thank you for your interest today. And operator, we'd now like to open the line to questions. Thank you.

Thank you, sir. Our first question comes from Chris Wetherbee of Citigroup. Your line is open.

Hey guys, Jim is on for Chris, thanks for taking the question. Just when you look out across the delivery schedule, what's the likelihood or possibility that you can have some of the delivery accelerated in that maybe there's upside to the guidance that you actually have put out today?

Hey, good morning, James, this is Bing. With regarding to your question for the past year 2021 we actually had three deliveries which was ahead of the schedule. For 2022 we scheduled to have eight vessels scheduled to be delivered throughout the year and we anticipate these -- first of all, all these vessels will be delivered on schedule and some of them might have some early deliveries, but we do not anticipate material early advanced delivery for this year. And for the coming years of delivery, which we have -- we have 24 vessels for delivery in 2023 and 35 vessels for delivery in 2024. All those vessels so far are on schedule, and this is where we stand and I think we will update the market as we continue to executing on our newbuild program, which so far, I think everything's all on schedule with some of them right now ahead of schedule.

Got it. And the followup on that, is there any opportunity to reprice them or charter out or change the terms or whatnot within the existing book of business, which might create upside to it? So just trying to understand sort of the brackets around how to think of rather in the guidance that you gave and sort of the sensitivity and ranges if you will?

Yes, thank you. For these newbuild contract, those terms are hell high water, meaning that they are fixed for those terms that we have disclosed to you. However, in the event that if the customers and owners like ourselves mutually get into any kind of modifications to those agreements, that could potentially change the terms, but this is not something we are expecting. To answer your question, your question probably is more towards this and where is the potential variation or upside of the revenue for the 2022? I think that is more upon the existing fleet as what a part of our fleet as we said is about 15% of our fleet is exposed to the spot market, because they are index linked. So as the market continued to going up, then we will potentially have the opportunity to benefit the upside. Or the other possibility is as you know, for example, we have right now this year, we have five vessels rolled off for re-chartering, those are the ones that would also have terms that are to be negotiated with the customers. But other than that, I believe that whatever we have given out the guidance are those numbers that reflects the expectation based on the information available. And actually, this is the one of the key differential -- differentiating factor for Seaspan is that our business is very predictable. We have quality contracts, and we have predictable contracts and that's why is the -- this is the cornerstone of our business model, which is long-term predictable, quality, cash flow.

And Bing, if I could just add to that, James the other element to this is obviously that we're proactively forward fixing on our contracts. So when we do have roll-offs that aren't due yet, but are up and coming, we're actively working with our customers to extend those going forward. So as being pointed out, the short end of the market is not where we place our focus, and we're really into the long-term contracted cash flows with stable results. However, we do have some exposure in the short term, but that's not our key area of focus.

Thank you. And then I just want to touch on the M&A and sort of understand the capacity or appetite that you have at the moment and sort of what those are, what looks attractive, sort of just trying to basically get a good sense of sort of the capital priorities in the near term, and then potentially maybe upside through something a bit more inorganic? Thank you.

Yes, on M&A side right now for shipping, as you know, the market right now is very tight on the supply side. We are very disciplined in terms of allocating capital, whether for the newbuild or second hand vessels for obvious reasons. That being said, we are leveraging our, I would say the value added services, for example, on the fuel development side, I think that that will be the opportunity where we can combine the allocation of capital in terms of other newbuild vessels with the value added on the, for example, the advice on the fuel and the design side of it. So, the answer to you on the shipping -- on the container shipping side, I think the opportunity is there, but we'll be, we are very disciplined and also we are very selective in deploying the capital, and we're only deploying the capital when we see the right opportunity with the right return. On the energy side, we are applying the same capital allocation discipline. We are evaluating opportunities in renewable energy or gas to power, FSRU to power, those type of opportunities around the world. However, I think at this point, we have to be very disciplined in the sense that we need to find the right opportunity where we have the right angle and also have the right, I will say, the synergy with the APR business that we are currently, is in the process of transforming. So, we are in general, I think we have so far, over the past year, as we said, we deployed $7.6 billion of capital, which is quite a significant amount of capital allocation. And this year going forward, we will continue to evaluate the opportunities in both segments, but we will be very disciplined.

Thank you.

Thank you. Our next question comes from Randy Giveans of Jefferies. Your line is open.

Good morning, gentlemen. This is Chris Robertson on for Randy. How are you?

Hi, Chris. Good, thank you.

Great. So you guys are known obviously for your strategic partnerships with your customers. So I just wanted to ask about how are your conversations now as compared to maybe three or even six months ago as it pertains to appetite for further new buildings? And could you talk about your customers needs in terms of efficiency upgrades, or ESG-related initiatives as it relates to upcoming regulations and just the ESG environment?

Hi, Chris. It's Peter Curtis here. Yes it's a very topical question indeed. You know, I come back to what we've said many times over the past, at least a year, in that there is going to be a demand to manage for the ESG purposes, as well as a large portion of the fleet is aging. As I mentioned, before, somewhere around 40% of the fleet is below 9,500 TEU and nothing has been built in the past 10 to 12 years. So this will be coming up for replacement. Exactly when each customer will make their own decisions is up to them. But we're in continuous discussion with many of our customers around new designs, novel fuels, et cetera. This leads actually to our 70-ship order book. In regards to ESG, and the existing fleet, these are indeed in discussions that we have. There's quite a bit that is -- it doesn't appear immediately obvious in regards to the technologies required to do the convergence . And these are aspects that we discussed with our providers of equipments such as main engine manufacturers and the like. So this will be indeed a journey, probably over the next decade or so, one that will provide opportunities for sure.

Okay, great. Switching over to the APR assets, you've spoken previously about wanting to target longer term projects compared to the current business model. How far along is this process and what further steps you need to take with APR to transform it into that type of longer term business model?

Yes, this is Bing again. Yes, you are right that for APR our goal is to transform the business into a business model that is similar to our Seaspan's model that is long-term contracted cash flow oriented business. To do that, of course, the nature of the business would be different from today we are primarily focusing on these short term, fast power services. To do that, as you know that, you know, there are many opportunities out there, you know, when you're looking at those gas powered projects or the renewable projects. However, I think that we have to look at is considering the risk, the return and priority of allocating the capital in the sense that, today as I stated earlier, for us to make that kind of investment into the long-term projects that has to be in a way that the project itself has to have an angle for us in the way from the return, from the business rationale, and also from the risk profile. So, those are the things that we need to take into consideration when we make those investments. As you know, right now the market is at still in evolution. The energy market itself is in evolution. So, we want to make sure that as the market is in development, that we need to find the right opportunity, plus right now with the COVID obviously slowed down a lot of developments. And thirdly, as I mentioned earlier, that in terms that allocating the capital, over the past 12 months that we have made significant capital allocation in the Seaspan side. And then maybe we take a step back, when we built or transformed the Seaspan into the Atlas at the holding company, the idea was that we have two investment platforms, one being the Container Shipping, the other one being the Energy Power segment. The reason we’re choosing the power is because we think this is an infrastructure platform that has shared similar characteristics as we have on the shipping side, and also with the APR as a starting point, which is a platform that at the time when we acquired, we understand that work needs to be done. Now today in looking back is that the speed, if the outcome has been to the level that we expected, I think we are behind it. But the reason we are behind it, as I said, because there are some uncontrollable external factors and also because that we still are in the process of finding those right investment opportunities. So, it will take some time that for us to find the right investment, so that we are not making that investment for the sake of making the investment into those long-term contracts. At the same time, actually there's a lot of work has been done. Now even though today we are still in the short-term power market, but in terms of the risk profile, in terms of the regions, the locations, the quality of the contract, these are the areas that we as the new owner, as part of our strengthening the platform, these are the things that we are working on behind the scenes to improve the quality of the business, and this is a basis for us to prepare ourselves to get into that type of a long-term contracted projects and this is something that we’ll continue to work on. And again, this we will have to find the right opportunity instead of working against a specific timeline.

Bing, if I could just add that also there's quite a bit of effort in terms of building our internal infrastructure on this, so building out our business development resources in Asia, Africa and Central America have all taken place. And we're building a much more consistent pipeline of opportunities. But as Bing says, it’s one thing to sort of, as you say, stand in the traffic and be part of the deal flow, but then we just have to find the right opportunities that meet our investment criteria. We’re not going to rush that.

A followup question to that, it's kind of a two part. One is, on your revenue guidance, what do you expect the contribution is from APR this year? And I guess related to Bing’s comments, just then, are you looking at any tangentially related businesses in shipping, such as floating LNG or floating storage regasification units or something that can help supplement the gas power generation but on the shipping front?

Yes look, I think, obviously the question earlier around M&A and growth opportunities, this is probably more of a subject for our Investor Day coming up at the end of March, but what I can say is, yes, we consistently screen obviously adjacencies across both platforms. There’s the core part that we're in and then there's a lot of things developing around the periphery which have a lot of logical consequences. But once again, it's one thing to scream as opportunities and then the next thing is to actually find ones that will meet all of the thresholds and criteria that we're looking for. So we are active and looking at all those opportunities. So, we just have to be cautious and I think patient, to make sure that we find the right ones. I will pick up on that more in the Investor Day.

All right, gentlemen. Thank you for your time.

Thank you.

Thank you. Our next question comes from Ben Nolan of Stifel. Your line is open.

Yes, thanks.

Hi, Ben.

I just have a few, hey good morning or evening whatever time it is in Hong Kong. If I could just followup on the APR, I see your broken out guidance in the presentation and I appreciate that. It is a bit lower than what we saw in 2021. Two parts to this, maybe a little, just a little bit more clarity as to why that is, but then also how should we think about the cadence of it in terms of how you're thinking about it in your own guidance there?

So, thanks Ben. Good question and you're right there's a breakout of APR that we’ve included in the presentation for the guidance. So, the first thing I’ll start with is that we've got quite a significant beat on our guidance in APR for ’21, and that's quite material. So, we’ve got a sort of coming off a high going into ’22. The main issue in 2022 relates to Argentina. So, Argentina has been a long-term contract that's been in place and that rolls off during 2022, with 4 turbines completing contracts in January and they're currently being demobbed. And then in May we’ve got the conclusion of another 10 turbines, which are then also rolling off and a number of those will then be migrated across to Brazil. So, that transition, which is actually the main impact on our guidance for this year, so we do have, as you say, it has softened down from previous year. We’re up to, our guidance was originally $195 million to $200 million in revenue for 2021 and we're looking at $170 million as midpoint for 2022, the primary driver being repositioning of the units out of Argentina.

Okay. Got you. So the first half of the year should be a little lower and then see some pickup in the back half of the year, and then if we think about it from a long-term perspective, this is probably lower than normal years is that a fair way to think about it?

That's correct, yes, given the historical average that's correct. And the other thing that we have also mentioned is to make sure that people are clear on how the Methaio revenue reporting works. So I think as you are aware, Methaio contractors under an injunction at the moment, but it's indemnified throughout contract with the vendor. So, we get proceeds for that, but it is reported in a different line item. So, that’s isolated in the earnings release. So I just want to make it clear that people need to take that into consideration when they’re forecasting.

Certainly, I appreciate that colour. If I could switch over to the Seaspan side of the business for a moment, you've sold or are selling 7 ships, I think Bing, you said there are 5 that they're coming off contract. Should we think about those as potential sales candidates as well? Maybe just looking to monetize the elevated prices here or are you thinking more just signing new contracts on those, any thoughts there?

So, I wouldn't cross link those 5 with the divestment Ben.

Okay.

So, the divestment focus is specifically around our order end of the fleet, predominantly around the Panamaxes which are early 2000 vintage. And we've got an excellent opportunity in the market to monetize those from two aspects, one is obviously to generate some cash we can use to manage our balance sheet, but secondly these are the vessels that could potentially be more challenged in the future as there's a lot of new build activity, obviously going to be coming in 2024, 2025. And these are the ones that are less efficient and potentially noncompliant with future requirements, so it's a good opportunity for us to exit those. The five that are coming off, in terms of roll-off may not necessarily be those vessels. So all I'm saying is, you can't link those five.

Understood. And then lastly from me if I could, you guys have done a good, excellent job of procuring financing, some fixed, not all fixed. As we look forward, and especially as some of that debt begins to hit the balance sheet, how should we think about the component of debt that has fixed interest rates versus debt that is floating, but or hedged, right on your interest rates? How do we think about your hedged position over the next few years, if you could elaborate on that a bit Graham?

That's a good question and that's something also that I wouldn't mind picking up at the Investor Day, but we do actively manage this and we have recently actually just taken out a $500 million hedge to switch from floating to fixed on some of our debt. We're running at about 65% to 70% hedged against our long-term contracted business, because obviously, we focus on our chartered contracts which are fixed, and therefore matching the ratio of fixed debt to the fixed revenues. So it's something we monitor every month and take positions on. So given the inflationary environment that we're moving into, we've been hedging more recently, in terms of locking that in, in these material longer term hedges and then we adjusted every quarter. When we review it, to see how we're positioned, we have another look at the forward curves and make an assessment if we're in the right spot. So it's a fairly proactively managed part of the business and I'm happy to share more details on that at the Investor Day.

All right, great. And well I look forward to hearing more about that. Thank you, guys.

Thanks a lot, Ben. Thank you. Up next, we have Michael Goldie of BMO Capital Markets. Your line is open.

Hi guys. Thank you very much for taking my question. On the APR, when we look at the guidance for this year, you addressed this a little bit just a moment ago, but how can we -- should we think about those summer months as again being very high utilization with peaking power contracts or with these kind of newly announced one year contracts will be a bit smoother for the back half of the year, including Q4?

Yes, it's a good question, Michael, given the discussion we've had around the end of last year. The forecast for this year should be more stable in that we've got the deployment of the Brazil contract, which commences in May and that runs straight through until past the end of the year, so 12 months deployment with potential options to extend. So those deployments and that link with the other one with the 5 units that we've put with the Texas based company, both of those will run through both Q3 and Q4. So that should provide more stability at the back end of the year. We will still be obviously looking for participation in the Mexicali round, which we've been in for a few years now and you know, we would expect that we participate in that. But that once again, that is a very much a peaking power arrangement and really sort of hits in Q3. But apart from that, I would say that the forecast for this year should be more stable in the second half of the year because of those two new deployments we've got.

And the Mexicali, that is not included in APR guidance, correct?

No. Michael, this is Bing. Actually maybe the other way to look at this is that APR right now has total -- in total 30 turbine, three zero. Out of the 30 turbines Graham just said that out of that 16 has already been contracted for the rest of the year, which is for the Mexicali, which is for the EEP in Brazil and also for Texas counterparty and also for IID. So we have 14 turbines that is in Argentina. Four of them is just started to be demobilized, which is going to take some time once to demobilize and then export the equipment out of the country, and the other 10 of the turbines is scheduled to complete its contracted services in Argentina by end of May, and following then we will start the demobilization again. So that will be taking months for those equipment to be repositioned to the next deployment. So in this year, that you will -- you can take into consideration of 14 turbines is in transition, that they're in the mobilization and demobilization mode and that's just the nature of that business. So therefore as we provided the guidance right now, is taking full consideration of what I said just now, meaning 16 have been deployed is in operations, the other 14, they are in the process of finishing up and starting the period of demobilization and mobilization.

Okay, thank you. And then on APR taxes, it was obviously very high this quarter. Is this something based on the nature of the business that we can kind of expect seasonally each year or was this more of a one time of some of the demobilizations that are about to happen?

Yes, that was a one-off tax expense item that was related to the exit from Argentina. So in October, when we sort of declared that we'd be exiting Argentina at the conclusion of our contracts, we were carrying a deferred tax asset in the country. Given our exit, we won't be utilizing that tax asset. So there's a non-cash adjustment of approximately $15 million, which hit the tax expense line as a one off non-cash adjustment for that exit.

Okay. And then final question from me. Obviously, you're doing a good job derisking that outlook with the sale of these vessels. Is this something we could potentially see more of with other older ships? And then, in addition to the forward fixing and the vessel sales, are there any other kind of tools to continue to position yourself for that 2024, 2025 time frame?

Yes, we do have more vessels at that, sorry you go ahead Bing.

You go ahead please.

Now I was just going to say, we do have more vessels that in that older part of the fleet and they are being actively marketed where appropriate, so it's not just a blanket that we're going to exit all of those vessels. It depends on a number of other factors in terms of how they're contracted, but we are actively working on selling some more of them. So we'll be able to give a more fulsome view of that at the Investor Day. And also, as you would have noted from the earnings release, a number of these vessels are being sold direct to third parties, but some of them are also being sold into our joint venture with ZE JV. And we'll explain the mechanism of how that works as well, at the Investor Day.

Perfect, thank you very much.

Thanks, Michael.

Thank you. Our next question comes from Ken Hoexter of Bank of America. Your line is open.

Good morning, Ken.

One moment, please. Let me, Ken Hoexter your line is...

Hi, good afternoon and Good morning. Hello? Can you hear again?

Yes I can hear you, yes.

So, yes I don't know what happened, I got dropped before, but thanks for getting me back in. So just to followup on that, it's the first time I think I've ever seen Seaspan that I can recall selling vessels, so just to followup on that last answer. So, maybe Graham, just talk about the market versus rechartering versus running it to the end of the life versus selling in this high demand market, what made you take those moves, the benefit you see versus given the strong rates in the market continuing to charter that? And then you mentioned the sale to the joint venture, maybe walk through why that was done versus what the advantages are there?

Sure, Ken. So, yes Ken maybe I can try to answer your question with regarding to the sale of the vessels, you're absolutely right. Maybe this is surprising, the first time you see that we're selling the vessel is really because from our perspective, actually managing the residual risk is the core, I will say competencies of Seaspan, and this is what we do in terms of managing the whole lifecycle of the assets. The reason that you have not seen us selling the assets up to this point is because, the follow -- two reasons; One is because our vessels typically are always under the long-term charter, so, therefore, that -- we always have the demand from the customer. A second reason is, is that our fleet in general, are young. On a fully delivered basis our fleet is about six and a half years younger than the industry average. You know, when it comes to the asset divestment, whether you sail or you work them till the end of the life, it really depends on how, really depends on how you're going to be able to utilize the assets. Whoever buys the assets, they're going to see how much the asset is going to be able to generate the projected future cash flow, and then they discount them back to get the value. As you know, that typically, when you see the vessel sells, as they say, there's a charter attached, or charter free. So in our case, we always have the charter attached and a lot of times when somebody wants to buy the assets, typically, their value is lower than ours, because our charter attached is always higher, because we have a better customer demand of the vessels. Actually flipping side of it is that if you're looking at 2019 to 2020, we actually bought 19 second hand vessels for exactly reasons is because we can buy these vessels, because we can buy those vessels at charter free or we can buy those vessels as very little charter attached, and then we turn around, we will be able to have a much longer and good quality charter attached to it. That's why we will be able to create value. In the current market, obviously, we're still doing active management of the assets as part of our fleet optimization. One is talking about fleet age, the other one is talking about fleet sizes. The size before we have this 25 7000 newbuild order, our fleet size has been around 80%, about 10,000 TEU. And then with this 25 7000 newbuild, now we are about 75% of the fleet that is it's about 10,000 TEU. So we continue to manage in the fleet composition in terms of the size, the efficiency, the design, and also now the fuel. So with these vessels currently has been sold, or in the process of potentially being sold, our position has always been that looking at what is the best way either we're going to use them or charter them till the end of their life, or if there's an opportunity where the market will be able to offer the better than the -- our work until the end of the life scenario, in other words between the sale or keep, that's where we will be selectively making those sales. Also, we need to take into consideration of our customers' needs, so that we always take into multiple considerations in making those sales decisions. But overall, again, I think I want to make sure is that in terms of residual risk management, this is the core of what we are trying to focusing on. And this is something that we will continue and in the current market obviously you see these type of opportunities coming up and we opportunistically capture those opportunities.

Yes, Bing, if I could, this is Dave, Sokol and maybe echo a little bit of what Bing has said, because I can tell you the Board is extremely pleased with what the management team has done in the last four years and we recognize that our business model is more risk adverse and more customer centric than many others, but I think it's really important, some of the points being made is, as I look back and joined the company in 2017, on the Board, this company was frankly near default on its debt and had no long term plan after managing what was then 1/3 of the fleet we have today. And when you look at that and look at a near default credit rating in 2017, not only have they grown funds from operation from $250 million to almost $800 million over that period. It's also today one notch under investment grade. So not only three times the cash flow, but have a much, much higher quality of cash flow. And the other element is that they're recycling out of the older ships, and only procuring along with our customers, high quality, environmentally sensitive ships going forward, in order to meet the demands that are going to be coming. Today, I mean, one could argue that we should have been not contracted long-term and just taking advantages of the spot market prices, of course that was, we said openly back in 2017, and 2018, that was not the business model. The business model is to lock in long-term partnerships with customers, fair to them, fair to us, but avoid the supply-demand imbalances that inevitably occur. And that allows the company to then reinvest in high quality ships that meet the future demands. And when you look at all that over the last four years, the fact that torsions group, you know, has done an incredible job of the lowest injury frequency rate in the industry, even though they have the largest fleet of ships, 98% plus utilization of three times the number of ships we had in 2017. But also importantly, the difference that Peter Curtis's team has made in all of the environmental advancements so, so while the model was not to take advantage of the peaks, and to avoid it, and to also avoid that the trough of earnings. If you notice, very few of Seaspan competitors have announced any large building programs. And there's two reasons for that, number one, the customers need high quality performance in a long term basis. And if you're going to build partnerships, you've got to have the credit quality and the equity base to finance them. And the fact that this team has put seven and a half billion dollars of long-term financing to back up those charters, again, just for the Board's perspective, really want to want to be clear that we couldn't be prouder of the management team and the steps they're taking. And we think they've built significant value every year along the way and want them to continue to do that. But don't want them swinging for fences for projects or opportunities that don't have adequate cash flow returns and adequate credit quality, so being anyway to the team, extremely good work.

Dave, actually I would love to followup with you on a question on APR, but I don't know, Bing if you wanted to just wrap up on the sale to the joint venture, what the purpose was there or if that's really, is that truly an independent sale or is that staying in the company, maybe just give us a perspective quickly? I know Graham said well, maybe more at the Investor Day, but I don’t know if there's a quick thought that you want to throw up there?.

Sure, just very quickly, joint venture is a 50-50 between us Atlas and ZE, which is a preventional energy power company in China, so that is a joint venture. The transaction between Seaspan and a joint venture is at arm's length in terms of value. So it is really based on the fair market value. The arrangement of that transaction that Seaspan will continue to provide ship management and commercial management, and then the joint venture will take the ownership of the assets. And that's no different than selling to any other third party, except that it is a related party, but it's an unplanned spaces and we provide a ship management services.

The vessel is sold into that venture, it's then refinanced within that venture. So we extract the full cash proceeds from the sale and the joint venture is non-consolidated for us with no recourse on the debt. So that's why I said, I'd like to cover it in a bit more detail at Investor Day, because it actually is quite a unique structure that we've got there, so it works very well for all parties.

Sounds great. So they've just, if we can just revisit the APR, obviously it's taken a lot of time on the call and Bing noted earlier that he likes a very predictable market and I think that's what -- the whole concept of Seaspan and the long-term contracts, yet APR since you acquired has seemed to be anything, but in terms of the consistency, we've had rolling contracts, change of management, maybe can you set the stage here in terms of deployment of capital to the segment, maybe you mentioned potential M&A, but the shifts in the contracts, how do you see the business blending or expanding within the organization?

Yes, I think, first of all, you have to step back and recognize two things. One, I mean, we knew what APR was, what their business model was when we acquired it. But we also knew that they had a lot of issues and had to be worked through and the former owners appropriately indemnified us to be able to work through a lot of those issues. And so, so yes, there's a lumpiness there. The ultimate goal for us is not to just be in the short term energy business, as we said all along, it is to utilize that platform to get into the segments of the energy transition that's taking place globally over time. And so, we think that the short term expertise that they've had, the good work they've done, frankly, one of the only, only companies that is actually providing significant megawatts in the U.S. today to help offset some of the limitations from renewable power that's been overbuilt for some regions. You know, they've done a good job, but that's not a business model, that long-term fits with what we think of Atlas' business models, but the short term power market will continue to be a player, but our goal is for that platform to be much more involved in the energy transitions going forward. To be completely fair enough, I think we've said this each year, you know, COVID, has certainly slowed us down, because the ability to deal with markets around the world when you can't travel to them, or when they can't meet with you is obviously then been significant. I think you're going to see significant change in that reality happening this year and in the future, although many countries are still much more locked down than the North Americas. But that's where we want to be. We want to have long-term relationships. They don't necessarily or to different industry in the energy side, then shipping in the sense that much broader a much larger market. Contracts can be both, straight contractual relationships or they can be regulatory relationships. And so there's a there's a lot of opportunity there, but I think our expertise, which is more global through APR we're seeing a lot of potential, but I think if you followed my past and Bing's past, we're not going to jump at things that don't have a appropriate risk adjusted return. So it's going to be getting APR to where we wanted to be is going to take time, but we're not going to allocate a lot of capital there unless we have opportunities that have the right risk and outcome potential. So, we're frankly excited to have that sector as part of the business, but it's early days. But Ken, I'd also suggest that you want to look at the transition that took place at Seaspan over the last five years and that's been greatly extraordinary and well done by the team there. But you know, APR at some point, will have similar opportunities, and you just have to, you have to see through. You know, my experience in the last 40 years in the investing business, and particularly when you're looking for levelized business models, is that things happen about every five to seven years in different industries, and they provide enormous opportunity. I'll never ever forget, you know, when Enron filed for bankruptcy. I had followed up 18 months of the best investment opportunities in the energy in the energy industry. And those things, you know, they happen in each industry and they happen over time, you just can't quite predict them. But we're just not going to jump into things on the come. We will involved where we know we can we can develop long-term sustainable cash flows and continue to build the shareholder value for us.

Wonderful, I appreciate the time Bing. Thank you for

Sorry Bing.

Thank you. There are no further questions in the queue. This will then conclude today's conference call. Thank you all for participating. You may now disconnect and have a good day.

Thanks, everyone. Thank you. I look forward to seeing you all on our Investor Day which is on March 30. So thank you all and see you soon.