Atlas Corp (ATCO) Q3 2020 Earnings Call Transcript

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Atlas Corp (NYSE:ATCO)
Q3 2020 Earnings Call
Nov 10, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Atlas Corp. Third Quarter 2020 Earnings Conference Call. I would like to remind everyone that this conference call is being recorded today, November 10th, 2020. I would now like to turn the call over to Robert Weiner, Head of Investor Relations of Atlas Corp.

Robert WeinerHead of Investor Relations

Thank you and good morning everyone. Thank you for joining us today to discuss Atlas Corp’s third quarter 2020 earnings. I am new to these calls as I joined Atlas in early September. I look forward to working with all our stakeholders to ensure the Company’s performance is well understood and appreciated by members of the investment community.

We have a terrific Company which is performing very well as noted in our earnings release. Please note, we released our earnings at a new time this quarter, after the close of trading yesterday. Please refer to the Investor Relations page on the Company’s website to reference the third quarter release or any other investor materials.

On the call with me today is Bing Chen, President, Chief Executive Officer and Interim Chief Financial Officer of Atlas Corp. Joining Bing on the call, during the Q&A session are Atlas Corp.’s Chairman, David Sokol; Seaspan’s Chief Commercial Officer, Peter Curtis; and Seaspan’s Chief Operating Officer, Torsten Pedersen.

I would now like to remind you that our discussion today contains forward-looking statements, which are noted on Slide 2 in the accompanying earnings presentation. Actual results may differ materially from those stated or implied due to risks and uncertainties associated with our business. Our known risk factors are discussed in our Form 20-F and our reports on Form 6-K filed from time-to-time and in connection with our quarterly financial results, which are available on our website as well.

With this quarterly report, you will note that we continue to report non-GAAP measures, which we believe provide investors a clear understanding of performance of our businesses. These third quarter earnings release — this third quarter earnings release contains supplemental financial tables and information pertaining to our third quarter earnings report and includes definitions of non-GAAP financial measures and reconciliations of such non-GAAP measures to the most closely comparable U.S. GAAP measures.

These definitions may also be found in the appendices at the back of the earnings presentation, which we will refer to in our call discussion and can be found on our website. In addition, we have also provided historical reconciliations through 2018, which are available on our website. During today’s call, Bing will discuss, please turn to Slide 3, Atlas’ key investment attributes, highlights of our third quarter operating performance and business developments. This will be followed by an industry update and what we expect to see in the fourth quarter. We will conclude prepared remarks with a review of our financial results and update on our balance sheet liquidity, a summary of Q3 and comments on our guidance.

Separately, I would like to note that our team will be conducting virtual investor meetings in November, on the 12th, 18th and 30th and in December on the 7th and 14th. Please contact Investor Relations to inquire about the meetings.

I am now pleased to turn the call over to Atlas Corp.’s President, CEO and Interim CFO, Bing Chen.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you, Rob and good morning everyone. I want to welcome Rob to the Atlas team as our new Head of IR and he will be working closely with all our investors and analysts. Please turn to Slide 4. Let me begin by saying I am thankful that during these difficult times the Atlas team are doing well and staying safe. I am also proud that our team is driving solid performance, while many industries and companies continue to face challenges.

Atlas is uniquely positioned as the long-term investment opportunities with three key attributes. First, our resilient business model with $4.4 billion of long-term contracted revenue and a scalable platform delivering fully integrated customer-centric solutions. Second, our core competencies is of consistent operational excellence, creative customer partnerships, solid financial strength, quality growth and disciplined capital allocation. This is what drives our execution and the results and it differentiates us from our peers.

Third, we have been delivering quality growth, enhancing fleet composition and creating greater diversification of our customers through the addition of quality assets with long-term charters. Our third quarter performance clearly depicts a divergence of Atlas performance as compared to our peers. Our customers are the strongest in the industry, our cash flows are of much higher quality with long-term charters, our fleet is younger, larger and more fuel efficient.

We have seen increased demand for our scalable, reliable and flexible services that are unique and unmatched. This greatly reduced our risk, especially when you compare our profile with our peers who have shorter duration contracts, smaller vessels, older feet, less balance sheet strength and liquidity.

Overall, the uniqueness of our strategies and the results from our consistent execution makes us the solution provider of choice. However, as our competitive advantage seems to be overlooked by the investment community, we view our Q3 as clear evidence of a value creation for both customers and shareholders through our platform, strategy and execution, which were adopted by this management team about three years ago.

Now, let’s look at our results. Please turn to Slide 6. Our third quarter results demonstrate the resiliency of our business model and delivery of consistent operational excellence. We continue to strengthen creative customer partnerships, prudently manage our liquidity, continue to return value to shareholders through payments of the 61st consecutive dividend. We delivered quality growth with the acquisition of four more large vessels, all on long-term charter growing our fleet to 127 vessels.

And most gratifying is our team’s commitment to consistent execution achieved through our ownership culture. Our team’s performance was excellent and impressive despite the persistent pandemic challenges. Now, let’s look at our third quarter financial results. We have a very stable revenue profile with $4.4 billion of long-term contracted revenue, including $4.1 billion at Seaspan and $324.4 million at APR.

In the third quarter, Atlas delivered total revenue of $386.2 million with Seaspan contributing revenue of $305.9 million and APR contributing revenue of $80.3 million. This represents total revenue growth of 36.6% compared to Q3 of 2019. Adjusted EBITDA was $249.8 million in the third quarter and funds from operations, FFO was $173.5 million or $0.68 per share.

FFO increased by 96% and FFO per share increased by 70% compared to Q3 2019, which represents industry leading growth and significant value creation. We announced our 61st consecutive dividend payment. Atlas is reaffirming financial guidance for the full year 2020 and tightening our ranges to reflect increased confidence as we progress through this final quarter with a great finish to the year. Again, these results depict a much different stories when compared to the peers in our industry. This is an important distinction and differentiator.

Please turn to Slide 7. Now, let’s look at growth. Quality growth enables us to invest in customer solutions, technological innovation, scale, flexibility and our people. More importantly, it creates sustainable value for our shareholders. By quality, we mean successful growth and win-win outcomes for our customers and us. That is quality growth. Growth financed with favorable terms for top quality assets at discounted fair market value and with strong cash flow, while maintaining a disciplined capital allocation and strong liquidity. That is quality growth. These are just two examples.

We have added two 13,000 TEU and two 12,000 TEU vessels which expanded our fleet to 127 total from 112 vessels since the end of November 2019, representing an additional $1.1 billion of long-term contracted revenue, over 13% growth in a number of vessels and 18% growth on a TEU basis. We have expanded the fleet through long-term charters, adding newer and larger vessels while diversifying our customer base and with much of the growth coming during a global pandemic. This is quality growth.

Part of our distinguished attributes is our financial strength and the access to the capital markets during the challenging environment. This year, we have continued to make significant strides in improving our balance sheet. I am proud of our team for aligning our commitment to the environment and sustainability with our capital structure. We completed our sustainability linked financing, which is the industry’s first. This financing added $200 million to our capital structure and is another innovative milestone. We relentlessly focused on improving our credit rating and cost of borrowing. We have also received a BBB- facility rating from Kroll ratings.

Now, I will comment on operations. Utilization remains very strong at 98.6% at Seaspan and increased to 80% at APR in the third quarter. Utilization is an important measure for Seaspan. However, let’s go for APR as the equipment is offering transitioning to fulfill new contracts. For Seaspan, we continue to develop stronger, creative customer partnership to achieve win-win outcomes.

APR is facing some headwinds primarily as a result of the global effects on energy consumption due to the pandemic. Yet, during this period, we continue working with customers and focusing on aligning APR for long-term growth. Now, let’s look at the industry. Please turn to Slide 9. The container shipping industry continues to operate in a challenging environment, yet we have seen a resurgence in charter rate since late February and March. Since then, we have seen a steady improvement in charter rates, with a pronounced uptick in Q3.

In past periods of uncertainty, you didn’t see this type of a rapid recovery. We attribute this to greater sophistication in market combined with four positive drivers: First, today’s balance of supply and demand; second, an increasing global demand profile; third, the increasing credit health and operating performance of the liners; and fourth, the ongoing maturity of the market.

With Seaspan contributing about 85% of total business, Atlas is fairly insulated from short-term market fluctuations. Our entire 127 vessels fleet has secured charters in place and we have performed consistently well through 2020 despite a global idle fleet that peaked at 12% in May and has now contracted to less than 2%.

With some tailwinds in the market, the credit quality and operating performance of our customer base is improving. Major rating agencies switched their views from a negative to positive outlook on the industry and upgraded the credit ratings of many major liners. You can see on Slide 9, the projection of global recovery in 2021 is fairly strong, with forecasted growth in the range of approximately 6% to 9% which should support a continuing strong performance for Seaspan.

We are now seeing many analysts become more positive about the industry’s rising demand and rates, limited supply of large vessels, lower order book, expanding charter tenders and with some analysts calling for higher equity multiples supported by a general favorable outlook over the medium term. As the industry leader with key differentiators and consistent performance, Atlas should be a leading manufacturer over the long-term on all the tailwinds I just mentioned.

Now, I would like to review our financial performance for the third quarter. Please turn to Slide 11. We delivered again this quarter. Atlas reported consistent solid performance driven by execution, the addition of APR and the significant growth of our fleet compared to Q3 2019. These are the Company’s key performance metrics. FFO of $173.5 million, an increase of 96% compared to the third quarter of 2019.

FFO per share was $0.68 per common share. FFO represents Atlas performance after interest and tax. Adjusted EBITDA was $249.8 million, with an increase of 38.8% compared to the third quarter of 2019. These are unparalleled results.

Please turn to Slide 12. We are very pleased with our performance and continued progress. We executed very well on our initiatives and have stayed focused on leveraging our five key competencies to deliver sustainable value to our customers and shareholders. Revenue increased by 36.6% to $386.2 million for the third quarter when compared to the same period in 2019, 77.6% of the increase in revenue was due to the contribution from APR while Seaspan’s revenue increased 8.2% to $305.9 million due to the expansion of our fleet.

The 38.8% year-over-year increase of adjusted EBITDA was driven by revenue increase, as I just described and also benefited from lower than expected G&A. The 96% year-over-year increase of FFO also reflects the revenue contributions and the lower interest expense. Seaspan’s vessel utilization remained strong at 98.6%, APR’s utilization was 80% reflecting the Mexicali project for the full quarter. Seaspan’s fleet capacity as measured by TEU increased by 18% compared to the third quarter of 2019. We continued to see opportunities to execute quality growth of our fleet.

A very important point in this table, our long-term contracted revenue at the end of the third quarter was $4.1 billion for Seaspan and $324.4 million for APR for the total contracted revenue of $4.4 billion, with Seaspan having an average remaining lease period of approximately four years. These are key points that investors should take note of as we do not see others in our space equally positioned with such resiliency.

Please turn to Slide 13. Our focus is on disciplined capital allocation. Our balance sheet is strong, with capacity and flexibility to ensure quality growth. We made significant strides by improving our balance sheet and capital structure.

Specifically, the sustainability linked loan consisted of $200 million of term loan with a tenor of six years. The expanded portfolio financing program is now comprised of $300 million revolving credit facility and approximately $1.5 billion of term loan commitments, with standard maturity between 2024 and 2026. We have strong liquidity of over $427.6 million, including undrawn credit facilities.

You will see on this slide that we have made meaningful financial improvement since the new Board and management team were installed at Seaspan and now continuing in Atlas. We have improved two key balance sheet measures, which is debt to assets and net debt to adjusted EBITDA. It is important to know that our performance, which has been very consistent and resilient was not matched with similar result in the industry. We believe this is a very important milestone illustrating our outstanding results, which were clearly evident by this quarter.

Please turn to Slide 14. With our continued solid performance in Q3, we are reaffirming our financial guidance for 2020. Please recall that we had revised our guidance upwards during our Q2 earnings. Today, we have reaffirmed our guidance and tightened our ranges for expected revenue and adjusted EBITDA. For Seaspan, not only 99% of the midpoint of 2020 guidance are contracted revenue as of today, highlighting our minimal spot exposure, but also about 85% of the revenue for 2021 is also contracted.

This is different than others who may rely on continued rising rates, longer tenors and favorable renewals. Our guidance for the full year 2020 is the revenue in the range of $1.21 billion to $1.22 billion for Seaspan and $195 million to $215 million for APR, adjusted EBITDA in the range of $770 million to $795 million for Seaspan, and $115 million to $135 million for APR.

Please turn to Slide 15. Our last topic today is the one we hope our listeners will note and come to appreciate, especially those of you who maybe joining our call for the first or second time. We believe Atlas represents an excellent investment opportunity across all market cycles. Our business model is resilient, stable and consistent with $4.4 billion of long-term contracted revenue, with Seaspan having an average remaining lease period of approximately four years.

We have developed and consistently executed our core competencies, which uniquely positioned Atlas within its industries. These competencies combined with our deep customer partnership, where we worked hand in hand to solve their needs and grow together. Our strong financial position with a solid balance sheet and full access for capital, enables us to partner with our customers for quality growth opportunities.

Quality growth, as I spoke about, enables us to invest in customer solutions, technological innovation, scale, flexibility and our people. More importantly, execute on the right opportunities to create sustainable shareholder value.

I will close my remarks by saying that I am very proud of our teams, excited by our collaborative ownership culture and look forward to reporting on our continued quality growth and creation of the value for all our stakeholders. Our team is now available to take your questions. Operator, we would now like to open the line to questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from the line of Chris Wetherbee from Citi. Your line is now open.

Chris WetherbeeCiti — Analyst

Yes. Hey, thanks and good morning, guys. I guess I wanted to start a little bit on the bigger picture about the containership fleet and sort of where you see that going. So we have talked a little bit about this in the past, but I wanted to get a sense. You are growing it close to a 10% clip at least in 2020, as you think out to 2021, 2022, with a constrained order book supply demand, arguably in a very reasonably good balance or maybe as good as it’s been in quite some time, can you talk about sort of how aggressively you think you can grow the fleet and how you might pursue that? Is there a target that we should be thinking about in terms of maybe 10%? Is it customer dependent? Can you just talk a little bit more in detail about that?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you, Chris. Good morning. Yes, in terms of Seaspan, as we have demonstrated over the past 12 months that we will be able to grow in our fleet by 18% in terms of TEU. In looking at the market, we see that we will be able to continue to grow in a similar even more in the sense that we today are very well positioned for that growth.

First of all, today, we have a platform. The platform is very scalable. As of today, with the acquisition of 15 vessels, we actually had a net of one headcount reduction from the operational standpoint, so that you can see the scalability of our platform. And secondly, in looking at the type of growth opportunities, it is really driven by our customers. It’s a customer-driven growth, because all of these acquisitions are driven by the demand of our customers, none of them are on a speculated basis.

And thirdly, if you are looking at the — that our owner operator space today, Seaspan as the world’s largest owner operator, we only still account for less than 9% of the market, with the increasing demand from the line of customers looking for scale, flexibility and quality as well as in looking at the increase in regulations from whether IMO or from ESG perspective, I think it really requires a lot of investment in terms of people, system, processes. And this is where I think our industry that really requires to have the scale, and Seaspan today has that scale.

So, with that being said, I think that today we are very well positioned. In looking at the pipelines for opportunities, I think whether it’s from our peers looking at from liners, looking at from the financial institutions, I think today they all — I think are looking for Seaspan as the market leader and also the consolidator to continue to provide the scale, flexibility, quality to our customers.

And in terms of the specific numbers, we don’t really setup by a number, rather, we are very disciplined in looking at the quality growth. What I mean by quality growth is first of all, looking at the asset quality, if you are looking at what we have done over the past 12 months, those are the top quality assets. And effectively we are looking at is the value that you paid for. We, in general, I think we are paying at a discount to the fair market value.

Thirdly, we are looking at is the attached quality cash flow, all of those vessels are attached with the quality long-term contract. And fourthly, if we are looking at the — these assets has actually a very high residual value, because that is very important. As an asset operator, you need to have a strong cash flow and also you need to have a strong residual value.

And from those perspective, I think today, we are going to continue to enhance our investment criteria and continue to looking at the opportunities that presented to ourselves. Overall, we are very, I would say, encouraged by what is out there.

Chris WetherbeeCiti — Analyst

Okay. Okay, that’s helpful. And then when you think about the Seaspan fleet, is there an ability to in the current market is there ability to potentially increase duration on the average charter remaining? I guess in other words, what is the charter market look like right now just given the relative tightness that we are seeing and sort of where demand is? Are you starting to see decent depth return to the time charter market for maybe vessels that are coming off of contract?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah. We — in the current market, obviously, when the market becomes tighter, there is more tendency to enter into the long-term contract. But if you are looking at what we have done over the past 12 months in the height of the COVID, we were able to actually assign all those 15 vessels on a long-term contract with about half of those vessels is between the ten years to 18 years and the other half is between five to eight years. So, that is in the most difficult time we were able to actually sign these — sign these vessels with a long-term contract. When the market environment improves, as we see right now, yes, there will be even, I would say, have a higher tendency, I think we will be able to enter into longer term contract.

Chris WetherbeeCiti — Analyst

Okay. And then last question for you just kind of dovetails into the first question, which is, how do you think about sort of the capital available for potential acquisitions? And I guess I am thinking both in containers, but maybe outside of containers, I don’t know if there is interesting opportunities outside of the container shipping market that you see today. But sort of how much capital roughly speaking do you think you have to put to work and would it most likely end up staying in container or going elsewhere?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah, I think that’s a very good question. For Atlas today, we have about over $650 million of cash from the operations. And then if we are looking at FFO, the numbers is even higher. If we are looking at what we have done over the past three years, I am very proud to say that we were able to actually strike a very fine balance between return the capital to the shareholder, deleveraging, at the same time we are growing our business.

So, if we are looking at the past as a reference in the future, in terms of the continued strong cash flow that is generating by the business, I think today, we have ample capital that is required to grow the business. At the same time, today, I think, as we continue to grow our business, we’re also taking advantage of the favorable financing terms that today Seaspan is receiving from the marketing general. As you can see we recently just closed $200 million of sustainability linked loan.

And also, in general, our financing the secured financing cost, it’s very competitive at — with the low LIBOR plus the spread is very, very competitive. So, it is a very favorable financing environment for us, and plus that we have a strong cash flow from our existing business. So, we see that, we have a strong liquidity and also a very diversified access and capital to the market. So, therefore, I think in terms of the growth that for sure that we have the ample liquidity and the capital to grow.

Now, in terms of the — the silos whether we are looking at other verticals, I think today with Atlas in place, we have two very, scalable platform, one is the container shipping, which is in maritime. The other one is, the energy, the power platform. These are the two platforms that we have, each of them is in a market leader position.

So, if we are looking at today’s Seaspan, as I said it earlier, there is lot of opportunity for us to continue to consolidate in the market and have those quality growth. It’s the same thing with APR. APR today is the leader in the fast power. But I think that as you continue to grow the business, there is — APR will have more opportunity to broaden its offering in the marketplace. So with these two platform today, we have ample capital allocation opportunity for the quality growth.

But if we have other verticals that opportunities come up, and I believe that those opportunities has to be the right opportunity, in the right time, with the right return. But in general, when we are looking at the capital allocation, we do — we do hold ourselves in a very strict criteria with a very strict discipline. So any investment that we make, we don’t make the investment or make the growth for the sake of growth. We were looking at them from a strictly — I think the quality and return perspective.

Chris WetherbeeCiti — Analyst

Okay. Okay, that’s helpful. I appreciate the time this morning. Thank you.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you, Chris.

Operator

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

Chris RobertsonJefferies — Analyst

Hi Bing, gentlemen, this is Chris Robertson on for Randy. Thanks for taking our call.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Hey, good morning, Chris.

Robert WeinerHead of Investor Relations

Good morning, Chris.

Chris RobertsonJefferies — Analyst

Just wanted to follow-up on Chris’s question regarding fleet growth. So you talked about the opportunities in the platform for growth, but kind of on the flipside of that, when you are thinking about fleet renewal and the average fuel efficiency across the fleet in kind of a pre IMO 2030 world? Do you have any plans to divest some of the older vessels that are maybe approaching 15 years or older, and will be ending their time charters in the next year or two? What is the strategy with regards to that aspect of the fleet?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Sure. Thanks, Chris. As we highlighted in our previous earnings call, Seaspan is very proud of being the best in class operator. We are the best operating — operating the assets under any, market cycles, as you can see, over the past, three years through the different economic, political cycles, and also now with the pandemic.

So the answer to that is that we intend to continue to operate all vessels in a best way that differentiates ourselves in a marketplace. And this is also evidenced today by our customers, the liner customers today really consider Seaspan as the top premier operator. So, in terms of those vessels, not only we have the best operations, but also we actually actively improve those assets — these vessels through the modifications of these vessels. For example, we do the bulk [Phonetic] spot optimization, we do the propeller redesign, we equipped them with the APMs, we installed the ballast water treatment. So, overall with these vessels while they are aging, but we also continue to improve to modify the vessels through our technology expertise to be able to ensure that these vessels, although, their age wise might be older, but they will remain in the top operational condition.

And this is what we do for living and this is what we are good at it. So therefore, that is why today with the 127 vessel fleet, all of these vessels are managed by Seaspan and ourselves. So, we are very confident and able to managing these vessels in the most competitive, efficient way.

Chris RobertsonJefferies — Analyst

Got it. Thanks, Bing. On the APR Energy side of things, so roughly half of the assets are on a longer term charter, it looks like the three projects ending in the Mexicali region in September. So, can you talk to your expectations for utilization in coming quarters and how we should think about that?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Sure, absolutely. I think this is a good question. And I am sure that many of you wants to have a better understanding of APR, because this is new to the Atlas family. So maybe it would be best for me to give an overview as to who is APR now and what APR wants to be and how do we get to the — to where we want to be.

So, APR today provides the turnkey aeroderivative gas turbine rental solutions to principally suited for emergency and peaking power requirements. APR primarily serves as a gas turbine rental company in addition to providing operations and maintenance services, which effectively is a power bank for utilities and industrial companies.

APR also develops and operates quasi-IPP projects, which is the currently projects that we have under long-term contract in Argentina and Bangladesh with a contracted revenue of $325 million. So this is where we are right now. As you correctly point out, half of the business is under long-term contract, half of it is on the spot.

But going forward, we really want to expand our offering and to become the leading provider of the bridge to long-term power solutions that’s what we want to be. Then the question is how do we get there? First of all, today, as we can see the APR has a platform. So we are going to leverage the existing structure so that we will continue to be the best, the market leader in delivering the fast power. And at the same time, we expand our scope of our offerings to provide these bridge to long-term power solutions.

So specifically, in the short-term, I think we are going to continue to working on existing assignment of contracts by extension and also we continue to both reactively and also proactively looking for those power demands that is asking for high capacity, asking for reliable quality and also the fast power, but also with a very high emission standards, because let’s remember, we have the technology that’s far advanced compared to our peers.

So then, at the same time, we are going to also to build, strengthen our commercial organization, because to develop the long-term power project, we would need to have the strength and the complementary skill sets for our business development team. And also, we are going to be looking at other ways of expanding the corporations, partnership, joint ventures with the other industry players to leverage their — I would say their skills and resources, including Seaspan itself. Because, as you know, Seaspan is the leader in maritime, and I think we are also potentially can looking at exploring those type of maritime power solutions to the customer.

And over the longer term, that we will be also exploring long term projects that will be — using the renewable solutions, which will ultimately transition APR to a fossil free energy company with a long term project. So, in general, looking at the utilization for specifically, next year, I would think that, at least, half of those contract, half of those capacities are already under the long term contract. And, in looking at the overall energy demand, let’s assume that will be the same as what we have this year.

And I think that we should be able to have the similar if not higher utilization rate, and in terms of the specific guidance that we are going to be providing them during our Q4 earnings release.

Chris RobertsonJefferies — Analyst

Okay, thanks for that Bing. Alright. And one final question on APR for me, it’s a little bit of a detailed question, but can you speak to the tax consideration differences between APR energy and Seaspan?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah, that is a good question. In Seaspan, because it’s a maritime in general, as you know that there is such tax advantage so that we do not pay taxes that — this is legal [Phonetic]. That just that the tax rules is setup up in such a way. In APR of course because the operation is in the different jurisdiction, each different jurisdictions have different sets of a different type of import/export VAT and also income taxes.

So therefore, APR tax is fully subject to the local jurisdiction, taxation as well as, APR’s own corporate tax that is subject to whatever the jurisdiction it is in. So that is the difference between APR and Seaspan.

Chris RobertsonJefferies — Analyst

Got it. Thank you. Appreciate it. Thanks for taking our questions.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thanks, Chris.

Operator

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

Frank GalantiStifel Financial Corp — Analyst

Yeah, hi, this is Frank Galanti on for Ben. I wanted to follow-up on APR specifically digging to the unit economics of the mobile gas turbines. I understand that you guys are trying to do some longer term power projects that are more permanent, on a more permanent basis, but specifically the mobile gas turbines, what is the turbine cost and what range of utilization do you expect over the life of the asset and what are those returns that you expect?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah. Thank you, Frank. In terms of the gas turbines, the utilization because of the nature of mobilization and demobilization, so the utilization is largely depends on the term duration of the contract, if — this is similar to the vessels. If you have the vessels on a short term charter, you will have these kind of, position or repositioning, same thing with the gas turbine that if we have a — a shorter term assignment of contract, then you have a mobilization and demobilization.

So from an industry standpoint today, if we are looking at, some other participants in the industry, they might use a different technology that is different from gas turbine. And I think the utilization rate is somewhere between 50% to 80%, that will be the average range. And I think today, APR, it is right in that range. In terms of the — in terms of our — you are asking the question of the range, right, that the range of the power generating, I think that the range of these turbines can generate somewhere between 25 megawatts to 35 megawatts per turbine.

And today, we have — we have a total of 30 of them and of which about 16 is on long-term contract, and 14 is on the short term contract basis.

Frank GalantiStifel Financial Corp — Analyst

Okay. And so to that end, if you guys have 30 how big do you expect to grow that business? I mean, I guess, more importantly, how big is that market? Because you get to a 100 turbines is that feasible? APR has only 15% of ATCO at the moment, are there aspirations of growing that, 30% 40% or, I guess it is kind of a bigger question on where do you allocate between APR and Seaspan?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah. In terms of a capital allocation, as we said it before, we are really looking at each every investment opportunities, whether it’s within the industry of, for example, Seaspan, or across the different business between APR and Seaspan, we’re always looking at what is the best way to allocate the capital that generates the maximum return for our shareholder. Specifically on the gas turbine, your question is, are we going to grow the turbine to 100, or we are going to grow into some other technology? The answer to that is really, as we said it before, we are going to try to broaden our product offering.

So while we continue to focusing on the gas turbine, which is what we are doing the best in the market, at the same time for us to be able to broaden our offering so that we can diversify and provide a broader offering to our customers. You know, similar to the way as we’re looking at our Seaspan fleet, if I only have 10,000 TEU vessels without [Phonetic] have 14,000 — 12,000, 14,000 or 8,000, so my offering is pretty limited.

So if you apply that to APR, we will be looking at, you have a different type of maybe technologies with the different type of fuel solutions. It all depends on what our customer ultimately wants, and what the investment return that will bring to us. And that is what the basis, we are going to look at growing the business.

But ultimately, as we said, our goal is to broaden our offering so that we can get a — I would say a longer term solutions power solutions to our customer. And that is our goal. And of course, any of these kind of investments is subject to the same return requirement.

Frank GalantiStifel Financial Corp — Analyst

Okay, great. Thank you very much.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Ken Hoexter from BofA. Your line is now open.

Ken HoexterBank of America Merrill Lynch — Analyst

Okay, great. Good morning. Bing, can you talk a little bit about just picking on APR for a second, if we look at your revenue forecasts, and the kind of decline you are expecting into the fourth quarter, maybe talk about what’s built into that and the exposure you have got on APR? Thanks.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you, Ken. As I mentioned earlier, the fourth quarter will be slightly different from the third quarter because we just finished the Mexicali project, which it was a full quarter utilization for eight turbines during the third quarter. As we are in the process of demobilizing those turbines, so the utilization for the fourth quarter will be lower than what we have in the third quarter. That is why you see the revenue numbers will be lower than the third quarter.

Ken HoexterBank of America Merrill Lynch — Analyst

Perfect. And when you think about the moving the turbines or future utilization, are there geographic regions you are focused on for APR? Is there a large emerging market exposure? Any thoughts of diversifying the end markets?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah. We don’t specifically focusing on a particular geographic location rather, we do look at each every opportunities with the same criteria. The criteria is looking at economic return, risk adjusted return, looking at — what the specific counterparty risk. We have to look at the timing they require, looking at the compliance, environmental, and looking at the safety of our people. So those are the things that we really take into consideration. And one thing that is very different from before is that with the APR being part of the Atlas family, we definitely much more focusing on risk and risk adjusted return of any opportunities.

David SokolChairman

Ken, it’s David. If I might make a comment and point out to the investor world as well. One of the things that Board is particularly impressed with this year and exemplified in the third quarter is that the Company Atlas has actually outperformed original guidance and increased the guidance and has in fact even tightened it now going forward in the year of COVID. And I think what — Bing has always said, his team had maintained the belief that it’s the Company’s obligation to find a way when we make a commitment, we will find a way to get there.

And the reason I emphasize that is they’ve had to absorb on the order of $40 million to $50 million of COVID costs. And yet, they are still performing, when I watch a lot of companies in the market, who have basically just slashed their earnings, blamed it on COVID and I get that in certain cases, they couldn’t overcome it. But it’s pretty impressive given the downturn that the shipping industry had in the first half of the year, all of the complexities came with COVID, crew changes, things of that nature, dry docking issues. And Bing, I think your team is to be really credited with the fact that you actually kind of exceeded earnings this year notwithstanding absorbing that amount of cost.

So it’s — I know, you wouldn’t say it Bing, but from a Board perspective, I think it needs to be pointed out.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you, David.

Ken HoexterBank of America Merrill Lynch — Analyst

Thanks, David. I appreciate the improving outlook as well. And just obviously, as Bing mentioned at the start kind of a newer line of business for the historical Seaspan followers. Bing, maybe just switching over to the Seaspan side, can you talk a bit about utilization really ramped up obviously given the tightness now, over 99%. What do you view as kind of healthy operating normalized level? Your thoughts on how you can capitalize on those higher spot freight rates if at all? And then maybe, I think you kind of touched on a bit of this earlier, but not really all the way, but your thoughts on acquisitions are — as you see others struggle, do you look to acquire large scale fleets that might be — is that something you think might be in the offing in terms of as opposed to kind of a couple of vessels you have been doing maybe, are there others that are struggling where you can really consolidate a little bit more faster in the industry, is that a thought at all?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Sure, sure. In terms of the utilization, as and [Phonetic] actually have a very long-standing track record of the high utilization. I believe that if we are looking at utilization today, we have about 98.6% of the utilization. And this has actually been on average for the past, I would say, ten years or 15 years, it has always been between 90% — 97%, to 99%. So, given the improving market environment, we anticipate that our utilization will continue to improve.

And I think last year at one point, we had about close to 99.5% of the utilization. One specific I think a characteristics of our fleet as we highlighted before is that we have majority of our vessels on long-term contract. And if we are looking at, as I said it earlier, if we’re looking at 2021, we have already about 85% of our revenues under long-term contract. So therefore, as the market continued to improve for sure, that we will be able to continue to also improve the utilization and improve more than I think the — our peers because that we have a longer term contract basis, higher longer term contract basis.

In terms of the spot rate, the rate right now is very high, and I think that is the good news for the industry as a whole. But at the same time, again, we also have a reasonable amount of spot that is for next year, as I said it’s about 15% of our fleets on a spot charter. And I think as the rate goes up, we will be able to take the benefit of those increased rate as well.

On the acquisition side, today, as I said that the Seaspan really have a very scalable platform, the way realistically for us to grow, our fleet is most likely to looking at acquiring a fleet instead of a business, and then depends on the opportunities whether we are going to buy a fleet or few vessels, really for us not much of a difference, because we do have a very standardized process that allows us to be able to — to be able to execute on these type of acquisition in a very effective way.

Once again, this year, we actually acquired 15 vessels some of them is in the fleet, some of them is on a one or two vessel basis. But all these vessels are actually being executed while we are managing our business. As I said it earlier, we actually have a net one headcount reduction. So today, our platform is very well positioned to consolidate and continue to grow our fleet.

And as I said it earlier, that we really see a lot of opportunities in the coming month and year.

Ken HoexterBank of America Merrill Lynch — Analyst

Great. Thanks Bing. Thanks David.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes on the line of Michael Goldie from Bank of Montreal. Your line is now open.

Michael GoldieBMO Capital Markets — Analyst

Hi, guys. Thank you for taking my questions this morning. I was wondering if there were any kind of updates for us on CFO search?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Sure. Good morning, Michael. Yes, we started this global search of a CFO at the end of September. We actually received a very strong interest from the marketplace. The quality and interest of the candidates is very encouraging. We are right on schedule in making the decisions in due course, and we will inform you and the market once that decision has been made.

Michael GoldieBMO Capital Markets — Analyst

Okay. And then just returning to APR for one second, obviously, utilization is going to come down in the fourth quarter, but can we also expect kind of revenue per megawatt or revenue per turbine to come down as well given that the Mexicali project, I think were quite profitable contracts?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

No. On the revenue per megawatts basis that whatever those are actually in operation, those in terms of the revenue, it stays the same. Only because those turbines that is currently on a demobilization mode, those are the ones that is out of — out of deployment. But once they come in back, again, any of those deployment, we will have a certain requirement in terms of the revenue per megawatt similar to the way we are looking at the charter rates. So, to answer your question is that we do not expect that to change.

Michael GoldieBMO Capital Markets — Analyst

Okay, perfect. Thank you very much.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Luc Plouvier from Capital Management. Your line is now open.

Luc PlouvierKempen Capital Management — Analyst

Hi, good morning to you. So this is Luc Plouvier from Kempen Capital Management. I guess I had two questions on sort of deploying capital, you talked about that you were very disciplined in terms of the returns that you are looking for, I was wondering whether you could elaborate a bit on the level of marginal return you are targeting, or whether there is a certain minimum level of return that you’re targeting there?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Sure. Good morning, Luc. In terms of return, we don’t, I think that if you are looking at what we have acquired the vessels over the last 11 months, I think that you can see the purchase price that we paid, the charter rate we have been able to achieve. And if you are looking at the vessel type, that you will be able to get an idea as to what kind of return.

But in general, if you are looking at the last four vessels we acquired in the third quarter, I think the amount of the charter revenue, that is provided through the long-term charter, the amount of revenue actually is equal to the — roughly equal to the purchase price. So therefore, if we are looking at the — if you look at from a return of the invested capital perspective, those capital is already being returned, then anything above that is a return is the additional marginal return on those investments.

So, in general, the other reference you can see is that, as I mentioned earlier, if we have not made the quality investments, we will not be able to have the growth, meanwhile de-leverage at the same time still return our capital to the shareholder. So overall, we do hold a very relatively for sure far above the industry average in terms of what the return on a levered and un-levered basis.

Luc PlouvierKempen Capital Management — Analyst

And maybe one follow-up question. Actually, I was wondering what is keeping you actually from growing faster than you are currently doing? Like you mentioned yourself, you are actually de-levering while growing at the same time. So, what is keeping you from being more aggressive on the growth side? Is it the lack of opportunities or is it lack of attractive opportunities?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

It’s the discipline. It’s the discipline. Because we — because we hold a very high standards, so therefore, for those opportunities, it doesn’t come very often and to the country or most of or all, these opportunities is actually created by ourselves. It’s not — we don’t go to the market and taking an auction and saying that OK there is a plenty of assets for sale, but those are not our targets. We are looking for those type of opportunities, where there really, as I have mentioned earlier, from asset perspective, it has to be good assets, specifically it’s the large asset, young assets and has a good value, which we are going to buy them at a discounted fair market value.

And also, we have to look at these assets have a strong demand from our customers. That’s why we are going to be able to get a long-term contract attached to it. And that’s why from risk adjusted return basis, this is what the criteria we are holding to. And so therefore, because we are very disciplined, we only are making those investments when those opportunity arises.

Luc PlouvierKempen Capital Management — Analyst

And maybe one last question in terms of market share, so I believe you mentioned that for the Seaspan business, you currently have a market share of around 8%. So, I was wondering whether — are the chartering companies structurally gaining market share compared to the shippers over the long run? And could you give any sort of idea on where you see that market share going to in five years time?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Luc, you mean the market share of Seaspan?

Luc PlouvierKempen Capital Management — Analyst

Yeah, so I mean, both the market share of Seaspan, but I was also wondering whether as the leasing companies actually are gaining market share compared to the shippers in terms of owning assets or they actually see that — because that’s what you are seeing in the container leasing industry, for example, that the leasing companies are structurally gaining market share. But I was wondering what that is on the vessel, the container vessel of chartering industry?

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Okay. Yeah, thank you. Thank you for clarifying that. I think that today, if you are looking at the overall container shipping market, I think the total capacity is still around 22 million, 23 million TEUs and the split is still roughly about 50-50 between the liners owned versus the third-party, whether it’s a leasing company or owner operator like ourselves or some of the legacy KG structures. I think it looks like the leasing company has increased in this market share. But at the same time and I think that because of some sale leasebacks from whether from the liners themselves or from some other owners for example. So, on a net basis, I think that because the new build was relatively low, so a lot of the changes shifting between the owners and also the liners in terms of the sale leasebacks.

On the Seaspan side, in terms of our market share today, we are slightly below 9%. Going forward, I believe that we will continue to — as we said continue to grow. As we grow, we would expect that our market share will grow accordingly. And I think that’s what we see as a future.

Luc PlouvierKempen Capital Management — Analyst

Okay, thanks.

Operator

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Bing Chen, CEO for closing remarks.

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

Yeah. Thank you, everyone for your time and we appreciate your time and questions. So, on behalf of the Board and management team, I hope you all stay safe and energetic. Have a great weekend — week ahead of you. And I look forward to speaking to you again in the next quarter. Thank you.

Operator

[Operator Closing Remarks].

Duration: 66 minutes

Call participants:

Robert WeinerHead of Investor Relations

Bing ChenPresident and Chief Executive Officer and Interim Chief Financial Officer

David SokolChairman

Chris WetherbeeCiti — Analyst

Chris RobertsonJefferies — Analyst

Frank GalantiStifel Financial Corp — Analyst

Ken HoexterBank of America Merrill Lynch — Analyst

Michael GoldieBMO Capital Markets — Analyst

Luc PlouvierKempen Capital Management — Analyst

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