Danaos Corp (DAC) 2024 Q1 法說會逐字稿

Good day, and welcome to the Danaos Corporation conference call to discuss the financial results for the three months ended March 31, 2024. 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'll 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, adjusted net income, time charter equivalent revenues, and time charter equivalent dollars per day 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. John Coustas, who will provide a broad overview of the quarter. John?

Thank you, Evangelos. Good morning, and thank you for joining today's call to discuss our results for first quarter of 2024. The container market continued to strengthen in the first quarter of 2024, a trend that has continued into the second quarter. Both charter and books rates are gaining momentum, and we have completed all necessary rechartering activity in excess of our internal forecast. The renewed optimism in the market extends to the longer term view of the charterers who are making charter commitments and newbuilding vessels with deliveries scheduled from [2 25] through end of 2027.

Following the recent placement of an order for an additional two 8,250 TEU vessels for 2027 delivery, our newbuilding order book currently consists of 14 vessels totaling 108,000 TEU, two of which have already been delivered to us.

More importantly, we have now secured multiyear chartering agreements for all our vessels on order, while we have also extended charters of certain existing vessels. As a result of this chartering activity, over the past three months, we have added $423 million to our contracted revenue backlog that today stands at $2.5 billion with an average charter duration of 2.9 years.

All the vessels in our newbuilding order book are methanol ready, future-proofing a portion of our fleet on green fuel usage. We have also arranged very conservative financing for the first eight newbuildings at competitive rates to ensure that we are able to maintain a strong liquidity profile to support continued opportunistic fleet expansion.

In our dry bulk vessels segment, we've added an additional Capesize to our fleet, increasing our fleet to 10 vessels in total. We are continuing to explore ways to increase our exposure to this market. The drybulk market has performed above expectations and we are confident that an eventual Chinese recovery will drive the market higher. Our entry point into the drybulk market is relatively low and our breakeven is therefore easily achievable.

Despite geopolitical uncertainties, most of the economies around the world are performing relatively well and are displaying no signs of recession. The biggest risk to our market outlook comes from trade hurdles that various countries are putting in place in the form of tariffs and trade restrictions on energy as well as manufactured goods. Despite the positive short-term impact of these practices, we believe that will ultimately result in trade contraction in the longer term.

In the meantime, our strategy has continued to result in consistent solid results. We will continue to explore growth opportunities while ensuring the longevity of our investments for the benefit of our shareholders.

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

Thank you, John, and again, good morning, to everyone. I will briefly review the results for the quarter and then open the call to Q&A.

This quarter, we are reporting adjusted EPS of $7.15 per share or adjusted net income of $140 million compared to adjusted EPS of $7.14 per share or $145.3 million for the first quarter of 2023. This $5.3 million decrease in adjusted net income between the two quarters is the result of a $22.2 million increase in total operating costs, mainly due to the recognition during the current quarter of voyage costs related to voyage charters of our dry bulk Capesize fleet, partially offset by a $9.8 million increase in operating revenues, and $3.7 million improvement in net finance costs, mainly driven by the significant deleveraging of the balance sheet, and the $3.4 million net improvement on investments.

Vessel operating costs increased by $2.5 million to $43.1 million in the current quarter from $40.6 million in the first quarter of 2023 as a result of the increase in the average number of vessels in our fleet, while our daily fee operating costs decreased to $6,493 per day for the current quarter from $6,807 per day in the corresponding first quarter of 2023. Our operating costs continue to remain among the most competitive in the industry.

G&A expenses increased by $3.4 million to $10.2 million in the current quarter compared to $6.8 million in the first quarter of 2023, mainly due to an increase in stock-based non-cash costs. Interest expense, excluding finance costs, amortization, decreased by $3.4 million to $2.6 million in the current quarter compared to $6 million in the first quarter of 2023. The decrease in interest expense is the combined result of a $1 million decrease because of lower average indebtedness by approximately $100 million between the two periods, partially offset by an increase in the cost of debt service by approximately 60 basis points as a result of rising interest rates.

We also had a $2.4 million decrease in interest expense due to capitalization of interest on our vessels under construction. At the same time, interest income came in at $2.9 million, which is higher than the $2.6 million interest expense for the current quarter, excluding amortization of finance costs. Adjusted EBITDA decreased by 1%, or $1.8 million, to $177.2 million in the current quarter from $179 million in the first quarter of 2023 for reasons of have already been outlined earlier on this call.

We also encourage you to review our updated investor presentation that has been posted on our website as well as subsequent events disclosures.

Let me summarize a few of the highlights. Following recent chartering activity, our contracted cash revenue backlog remains strong and actually has increased to $2.5 billion with a 2.9 year average charter duration, while contract coverage is at 99% for 2024 and 69% for 2025. That is coverage in terms of operating days.

Our investor presentation has analytical disclosures on our contracted charter book. As of March 31, our net debt is now down to $134.3 million. And obviously, because of the interest rate environment, this positions shields us from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio came in at 0.19 times, while 50 out of our 76 vessels are currently unencumbered and debt-free.

Finally, as of the end of Q1, the cash was at $324 million, while total liquidity, including availability under our revolving credit facility and valuation of marketable securities stood at $748 million, giving us ample flexibility to pursue accretive capital deployment opportunities.

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

Omar Nokta, Jefferies.

Thank you. Hi, John and Evangelos.

Good afternoon.

Hi, Omar. How are you?

Hi. No. Good. Looks like the business is coming along quite nicely here and quite a bit of a turnaround over the past couple of months. You've obviously had the backlog and now it's gotten bigger. I think now that you've secured all 14 newbuildings, including the latest orders from February, March, the markets clearly gotten much stronger. You're now pretty much contracted for all of '24, you've got some open capacity in '25. How would you characterize your liners interest today in securing those shifts that open up in '25?

Obviously, there's some forward fixing happening, especially as you've been able to fix the '27 delivery newbuildings. But what about on the water ships? What's the appetite look like from your lens for ships that open up in '25?

While the appetite is pretty strong, we are already and let's say, negotiating '25 deliveries, I mean ships that we have opened in '25. It's -- there is no doubt that part of the strength of the market has to do with the Suez Canal situation. This is not something that will last forever, but at least the way things look like, it will continue for a, let's say, at least 2024. And overall the whole -- the combination of slowing speeds on some of the ships and the continued relative strength of trade and economies, they have led really to a situation of pretty solid demand.

Yeah Thank you. And I guess with that backdrop and what you mentioned, definitely for '24, what's the interest from your side on additional newbuildings, given that you've been able to order ships and shortly thereafter, get them contracted? And so what's your appetite for newbuild? And then also, maybe just kind of a perhaps qualitative question on those new buildings. Do you think it's more of the -- with the methanol-ready component that drove the charter interest in securing those well ahead of time or simply just a desire for liners to have ships that deep out?

No, it's the methanol component is really relevant once there is no green methanol around. So -- and doesn't look like it's going to be available before 2030, which is more or less the time horizon of our charters. On the other hand, what is definitely important is that all these new vessels, which are Tier 3 and are much more economical than existing vessels is the main driving factor that will help charterers to meet environmental regulations and on the other hand, reduce their costs through the lower fuel consumption.

Yeah. Thank you. And maybe -- thanks, John -- just a final one, just on the dry bulk business. That investment's been very decent, I would say. You brought the 10 capes quite well. And just looking at sale and purchase values, you're up quite a bit nicely on that. What do you think is next for this business? You've got the 10 ships, is that -- do you want to operate harvest the cash flow, build it further, or do you think monetizing it makes sense? Any sort of sense of how you think about that business?

We definitely are here to stay in dry bulk. We would like to have another leg in the company. The only thing with dry bulk is that it's a sector which is highly sensitive to cost. And if you go and commit today into very expensive newbuildings, I'm not sure exactly how you're going to pay back. And I'm saying that because it's the fuel consumption on the Capesize today -- the way that they are kind of slow steaming is in the region of, let's say, around 30 tonnes per day, which is, of course, it's important, but it's nothing like the 70 or 80 tons that a medium-size containership is consuming.

So this gives, of course, the container ship a much greater sensitivity to the cost of fuel and carbon eventually. In the bulk market, things are a bit more subdued, which of course, is going to make a difference. But on the other hand, with high interest rates and high capital costs, it's hard to make -- to justify that.

Yeah. Thank you, John, and thanks, Evangelos. I'll turn it over.

This concludes the question and answer session. I would like to turn the call back over to Dr. Coustas for any further comments or closing remarks.

Great. Thank you all for joining this conference call and your continued interest in our story. We look forward to hosting you on our next earnings call.

Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.