Danaos Corp (DAC) 2023 Q1 法說會逐字稿

Good day, and welcome to the Danaos Corporation conference call to discuss the financial results for 3 months ended March 31, 2023. As a reminder, today's call is being recorded.

Hosting the call today is Dr. John Coustas, Chief Executive Officer of Danaos Corporation; and Mr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation. Dr. Coustas and Mr. Chatzis will be making some introductory comments, and then we will open the call to a question-and-answer session.

Thank you, operator, and good morning to everyone, and thank you for joining us today. Before we begin, I quickly want to remind everyone that management's remarks this morning may contain certain forward-looking statements and that actual results could differ materially from those projected today. These forward-looking statements are made as of today, and we undertake no obligation to update them.

Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review these detailed safe harbor and risk factor disclosures. Please also note that, where we feel appropriate, we will continue to refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted net income to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.

With that, let me now turn the call over to Dr. Coustas, who will provide the broad overview of the quarter.

Thank you, Evangelos. Good morning, and thank all of you for joining today's call to discuss results for first quarter of 2023.

Danaos reports yet another solid quarter despite the continuing geopolitical uncertainty and the turmoil in the financial markets. Box rates strengthened after the Chinese New Year due to the blank sailings and discipline on the part of liner companies. In addition, the charter market improved due to the very limited supply of charter-free vessels as well as the impact of speed reduction as charterers seek to comply with CII regulations.

Danaos has continued its successful chartering and asset management strategy, driving steady and predictable performance and laying the groundwork for continued growth, while also pursuing environmentally sound policies. Our chartering strategy delivered another strong quarter, and we have operating days charter coverage of 97% for 2023 and 73% for 2024. Our strong chartering capabilities and our business strategy continued to drive solid performance.

In the first quarter, we successfully secured more than $380 million of contracted revenues through multiyear charters, including $262 million for all 6 new buildings that will be delivered to us in 2024. In addition, we have placed an order for 2 additional 6,000 TEU vessels of the latest eco design to be delivered in the fourth quarter of 2024 and second quarter of 2025. Our modernization efforts are key to the future of the company and highlight our commitment to maintaining a high-quality fleet while supporting the ongoing decarbonization of the industry.

We are very well positioned to navigate the operating environment with the new regulatory requirements that are becoming very demanding and complex. Our very strong operating platform provides us significant competitive advantage in complying with upcoming regulations, while strengthening our value proposition and ties with our customers as the industry focuses on achieving environmental goals and closer cooperation between owners and charterers becomes increasingly important. We appreciate the ongoing support of our customers and employees, and will continue to work diligently for the benefit of our shareholders.

With that, I'll hand the call back over to Evangelos, who will take you through the financials for the quarter.

Thank you, John. Good morning again to everyone, and thanks again for joining us today. I will briefly review the results for the quarter and then open the call to Q&A. We are reporting adjusted EPS for this quarter of $7.14 per share or $145.3 million of adjusted net income compared to adjusted EPS of $11.36 per share or $235.3 million for the first quarter of 2022.

This $90 million decrease in adjusted net income between the 2 quarters is primarily the result of the $110 million in dividend that had been recognized in the first quarter of 2022 and is no longer applicable as we have now disposed of all of our ZIM shares. Otherwise, our adjusted net income improved by more than $20 million, mainly as a result of $13.7 million improvement in operating revenues and a $10 million decrease in net finance expenses.

More specifically, operating revenues increased by $13.7 million to $243.6 million in the current quarter compared to $229.9 million in the first quarter of 2022. This increase is attributed to a $30.4 million increase in revenues as a result of higher charter rates. And that was partially offset by $3.3 million of lower revenues due to the sale of 3 vessels over the past 6 months, and a $10.1 million decrease in recognition of assumed charter liabilities amortization related to prior vessel acquisitions.

Finally, we also had the $3.3 million decrease in revenues due to lower noncash revenue recognition in accordance with U.S. GAAP. Vessel operating expenses increased by $1.4 million to $40.6 million in the current quarter compared to $39.2 million in the first quarter of 2022, mainly as a result of the increase in the average daily OpEx costs that increased to $6,800 per day in the current quarter from $6,300 per day in the first quarter of 2022.

And this increase is mainly due to COVID-19 related increase in crew remuneration, increased travel expenses, insurance premiums and general inflationary pressures that have prevailed between the 2 periods. However, our daily OpEx figure still remains as one of the most competitive in the industry. G&A expenses decreased by $0.6 million to $6.8 million in the current quarter compared to $7.4 million in the first quarter of 2022, mainly as a result of the lower number of vessels in our fleet and lower stock-based compensation recognition between the 2 periods.

Interest expense, excluding amortization of finance costs, decreased by $7.7 million to $6 million in the current quarter compared to $13.7 million in the first quarter of 2022. The decrease in interest expense is a combined result of a $5.7 million decrease in interest expense because of a reduction in our average indebtedness by almost $850 million between the 2 periods as a result of the rapid deleveraging of the company. And that was, of course, partially offset by an increase in cost of debt service by approximately 3% as a result of rising interest rates.

We also had a $3.4 million decrease in interest expense due to capitalized interest on vessels under construction. And at the same time, we should note that interest income came in at $2.7 million this quarter, effectively covering almost half of interest expense. Adjusted EBITDA decreased by 33.6% or $90.5 million to $179 million in the current quarter from $269.5 million in the first quarter of 2022. And this is again primarily driven by the $110 million ZIM dividend that had been recognized in the first quarter of last year, and it's no longer applicable as we have sold all the ZIM shares. The other positive EBITDA drivers have already been outlined earlier on this call.

Now we also encourage you to review our updated investor presentation that's posted on our website, as well as subsequent events disclosures. A few highlights are as follows. Over the past 3 months, we have secured $380 million of contracted revenue, significantly improving our charter backlog, including $262 million of contracted revenue for 6 of our new buildings that are to be delivered in 2024. And these are all 3-year charters.

As of the date of this release, the contracted cash revenue backlog stood at $2.3 billion, with an average charter duration of 3.2 years. While contract coverage is 97 -- is up 97% for this year and 73% for next year. Analytical disclosure on charter arrangements can be found in our investor presentation. We have prepaid early, on May 12, the remaining lease obligations for 2 vessels that at the end of the first quarter had $16.3 million of lease outstanding. And at this point, we no longer have any lease obligations on our balance sheet.

As of March 31, 2023, our net debt was $138 million, and we expect to be net debt free within a matter of 2 or 3 months. In the current interest environment, this position seem just obviously from high interest costs. As of the end of the first quarter, again, cash was at $360 million. While total liquidity, including availability under our revolving credit facility, stood at $731 million, giving us ample flexibility to pursue accretive capital deployment opportunities. The company's net debt-to-adjusted-EBITDA ratio stood at 0.2x as of the end of the first quarter and 44 out of our 68 vessel fleet in the water are currently unencumbered and debt-free.

With that, I would like to thank you all for listening to this first part of our call. Operator, we are now ready to open the call to Q&A.

(Operator Instructions) Our first question will come from Omar Nokta with Jefferies.

First off, I guess, congratulations on such a strong shift and overall turnaround in the company. I would say when we look at and hearing what, Evangelos, you were just saying about getting into a net cash position here in the next couple of months, clearly, you positioned the company into basically its best financial condition ever, or at least since it came public. So clearly, you've been building up your cash position and you've been looking at fine-tuning your fleet. You've done these new buildings, and you've added to it here recently.

I wanted to ask about the opportunity to acquire vessels in the market today. And I remember, maybe a couple of years back, you were able to find a transaction where you were able to get 6 ships that were eco design, modern, that came with below-market contracts that you got them on the cheap. Those types of transactions, are they available today given the sort of the market shake up that we have seen? Are there more S&P deals becoming available with that type of contract exposure? Any color you can give on that would be helpful.

Well, there are very limited, let's say, availabilities of vessels, modern vessels. There are, of course, plenty of older ships out in the market with charter that one could get. But again, I think that paying high dollar, top dollar, for ships that are not of the latest technology doesn't really make sense, at least for the vision that we have for our company. We are in a situation that there is very little visibility as to how exactly the environmental issues are going to play. And so we want all our new investments to be, let's say, environmentally safe.

We have a lot of all your vessels. And if, of course, these vessels, the longer, of course, we can keep them, the better. But we already have a big bet on this type of tonnage. So we want to, let's say, increase our bet towards the more modern, eco-friendly ships. And this is the reason actually that we also ordered 2 more ships. Our, let's say, bet when we ordered 6 ships last year, about a year ago, more than a year ago, without any charter commitment has paid off because these ships found pretty good employment. And actually, we did not really seek any very long-term employment because we believe that for the eco ships there's going to be upside.

Got it. That's helpful. And maybe just on the -- your 5 biggest ships, the 13,000 TEU vessels, those have been on long-term contracts since delivery back in 2012. They're starting to come up open for renewal here at the beginning of '24. I see in the chart that there's a 3-year extension. I wanted to just ask, one, how do those option extensions work? If they were to be exercised, is it for the full 3 years? Or is it a year at a time? And then two, when would we expect the option to be exercised or when is the strike concludes?

Well, the declaration of the option is going to be sometime in the -- if I remember well, in the fourth quarter of this year. It's approximately 120 days before the earliest expiry. Well, in any case, we are not really concerned because there are very few, if any, ships of that size available in 2024. And we are already, let's say, in contact with a number of liner companies about the employment of these ships. So we are working towards something and definitely we will have something, let's say, fixed as soon as there is more clarity whether the existing charterer is going to exercise the option.

Okay. And then maybe, John, just finally on those 2 new buildings you just ordered. Those are late '24, first half of '25 deliveries, which seem a bit sooner than we've generally been expecting to see. Were those options that you had that you've exercised in a slot auction? Or are these fresh orders and you've just been able to capture pretty good delivery period.

No, no. No, these were kind of fresh orders. I mean the yard had these slots kind of available as part of a series of other vessels that we are building. And yes, we moved very, very quickly. I mean, the whole deal probably closed within almost a week. And that is the reason that we've managed to do it because we booked the ships without worrying about finance, worrying about charter or anything like that. So this is what I've always been saying that the strength of our balance sheet is giving us extreme flexibility to grasp opportunities as soon as they come.

(Operator Instructions) Our next question will come from Climent Molins with Value Investor's Edge.

I wanted to ask on capital allocation, You've been clear you want to be in a position to be able to invest in modern tonnage when the time is right, and the orders announced yesterday were set in that direction. But considering you'll be net debt-free pretty soon, how should we think about additional share repurchases or potential dividend increases?

Well, I think we've been very clear about that. We have in place a share repurchase program, which we are executing when we believe that conditions are right. 40% of it is already executed, almost $40 million. We have another $60 million. So that part is there. In terms of, let's say, dividends, we are maintaining, let's say, the dividend despite, let's say, the uncertainties around the market. And on the other hand, we are investing cautiously for the future as we've done with all our newbuildings.

All right. That's helpful. And regarding the 2 new newbuild orders, how should we think about pricing? Is it in line with the orders you placed a couple -- like last year?

I'm sorry, you broke up. Can you please repeat the question?

Yes, I'm asking about the pricing on the new newbuild orders.

Yes, it's something which cannot be disclosed at this stage. Probably, we will be in a position to disclose it in the next quarter earnings. These were freshly executed. There are certain formalities that we need to conclude. And at this point, unfortunately, we're not at liberty to disclose the price.

(Operator Instructions) And at this time, I am showing -- one moment, please. Showing no further questions. This will conclude the question-and-answer session. I'd like to turn the conference back over to management for closing remarks.

Thank you all for joining this conference call and your continued interest in our story. Look forward to hosting you in our next earnings call. Have a nice day.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect.