Q3 2020 Danaos Corp Earnings Call
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Good day and welcome to the Denials Corporation conference call to discuss our financial results for the three months ended September Thirtyth 2020.
As a reminder, today's call is being recorded.
Hosting the call today is Dr., John could assist Chief Executive Officer of Denials Corporation, Mr. Evangelos Hatzius, Chief Financial Officer, if adopted sales Corporation.
Touch accused us of Mr. Atsis with making some introductory comments and then we'll open the call to a question and answer session.
Thank you hope at acre good morning, everyone and thank you for joining us today.
Before we begin I want to remind everyone that management's remarks. This morning may contain certain forward looking statements actual results could differ materially from those projected they need.
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 FCC and we encourage you to review these big Big Safe Harbor in brief macro disclosures.
Please also note that where we feel appropriate we compete we refer to non-GAAP financial measures such as EBITDA adjusted EBITDA and adjusted net income to evaluate our business.
I don't see the Asians are non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
Now, let me turn the call over to Dr., Coustas, who will provide the broad overview all the quarter.
Thank you Frank good.
Good morning, and thank you all for joining today's call, we'll discuss our results for fourth quarter Twentytwenty.
We're pleased to report improved performance and the company's profitability during this quarter.
Container trade has staged a backup and recovery since the end of May when 11, and a half extend of the vessels and the global fleet Stewed idle time charter rates have increased caution all vessel sizes and the time charter market is at or close to multi year highs for all vessel sizes.
The ability of the liner companies consistently managed capacity addressed the SREC drop in volumes at the ownership of the pending which alleviate pressure on our customers cash flows and stop the life freight rates.
All our customer activity quality strong profitability, which significantly mitigates.
Our counterparty risk.
Volumes get consistently improved.
Taking that in Trans Pacific East bound intra Asia, and North South trade lanes.
As volumes get recover faster than expected.
Multimillion increasing rate has been most pronounced in smaller vessel types.
Ill now ask has the greatest amount of leverage through the segment of the market as our larger vessels are contracted on multi year time charters.
That perspective, the short term chartering market has been quite dynamic.
Although significant market uncertainty remains.
I'll take it out to get as many countries sheet, increasing spread of code nine Kincaid.
Global GDP has rebounded 15, and I met with recently revised its 2020 GDP estimates upwards for.
Well. Thank you. Thank you won the IMF forecast global GDP growth of 5.2%, which effectively equals growth of 5.6% compared to 2019, all pre pandemic levels.
The recovery has thus far been primarily concentrated in groups rather than services, which has been negative containerized trade.
We continue to execute our strategy and we are well insulated from near term volatility due to our high charter coverage of 87% intentionally operating revenue and 64% in terms of operating days over the next 12 months.
This provides significant visibility into our cash flows. During this period. We also have some leverage to the presently star market through our smaller vessels.
We're also cautiously optimistic about the medium term market outlook.
The order book is currently in single digits as a percentage of the World fleet for the first time in 20 years.
Combined with an anticipated reduction in speeds due to the various environmental initiatives the supply side outlook is healthy.
Tighter supply will help to maintain momentum in the container market or help to bring about districts for Calgary if conditions deteriorate.
Consistent with our growth strategy, we've agreed to purchase two 9000 can you vessels built in 2009, we.
We are both contracted in two year charter with a major liner companies.
These actions are expected to be delivered twice between December 2020, and January trended into one and it will be funded with a combination of cash and Ukraine facility.
With these new deliveries our fleet for the first time will exceed the 400000 to you Mark.
In the meantime, we're generating strong cash flows from our 1.1 billion charter backlog and had a healthy liquidity position.
This enables us to opportunistically repurchase.
For video 339000 shares.
Or 17.5% of the company's outstanding shares for an aggregate price of $31.1 million in privately negotiated transactions practically tripling, our 10 million original buyback program.
Given the holding nature of the prior owners of these shares these repurchases increased our per share results and valuation metrics without impacting trading liquidity.
Utilizing the continued uncertainty about the duration of the current of Irish pandemic and the ensuing economic recovery, we remain focused on maintaining a conservative financial profile, and making thoughtful capital allocation decisions, but alignment with our strategy and market expectations to deliver value to our shareholders without.
Hand, the call over back to Evangelists, who will take you through the financials for the quarter evangelists.
Thank you and good morning, again to everyone and thank you for joining US today I will briefly review the results for the quarter and then open the call to remain.
Adjusted net income of $47.3 million for the current quarter was higher by 9.4 million when compared to adjusted net income of 37.9 million for the third quarter printing 19, we have adjusted our net income this quarter for deferred finance fees amortization of four and a half.
William.
The increase between the two quarters is the result of a 7.1 million increase in operating revenues.
A 6.8 million decrease in less finance expenses.
And then not point 9 million increase in the operating performance of our equity investment in Derby nine partially offset by a 5.4 million included in both our operating expenses more specifically operating.
Increased by 7.1 million to a 118.9 million during the current quarter compared to $111.8 million in the third quarter apparent demand indeed, reaching.
This increase is attributed to a $17 million increase in revenues as a result of contractual step ups in charter rates. Following the installation of scrubbers and the addition of three vessels through our fleet part.
Partially offset by a 4.2 million decrease in revenues attributed to lower rechartering of certain investors, let's conclude with long term charters over the past 12 months and a non cash 5.6 million decrease in revenues.
Due to the lower.
Revenue recognition.
Under us GAAP accounting.
Vessel operating expenses increased by 2.8 billion to 27.7 million in the current quarter.
From 24.9 million in the first quarter of printing 19, as an example of the increase in the average number of vessels in our fleet wide average daily operating cost increased to $5467 per day for the current quarter from 5298.
<unk> dollars per day in the third quarter of 2019, and still remains as one of the most competitive in the industry.
DNA expenses decreased by 0.4 million to $6 million in the current quarter compared.
The $6.4 million in the third quarter print to 19.
Mainly due to decreased non cash recognition of stock based compensation.
Interest expense, excluding financing cost amortization than the gross decreased by 6.8 million who.
Through seven and a half million in the current quarter compared to $14.3 million in the third quarter of 39, Steve.
This improvement is attributed to an 84.6 million decrease in our average indebtedness.
And a reduction of our debt service cost by.
By approximately 2.3% between the two periods.
Adjusted EBITDA increased by 5% or $4 million to 83.3 million in the current quarter from 79.3 million in the third quarter of 2019 for the reasons outlined earlier on this call.
We would also like to note that our current outstanding share count.
Has been reduced to 20.4 to 5 million shares.
Following.
We previously announced 31.1 million share.
Share buyback.
That was consummated on October 920 Quentin.
Pro forma for the share buyback, we adjusted earnings per share of $1.91 cents as reported for this quarter would be increased by 4% to two point $31.
Per share on a pro forma basis.
With that I would like to thank you for listening to these first five of our call.
Operator, we are now ready to open the call to remain.
Yes. Thank you we will now.
Begin the question and answer session.
I will ask a question you May press Star then one on or is that still on phone.
If you are using a speakerphone, please pick up perhaps before pressing the keys to try your question. Please press Star then too.
At this time, we will pass momentarily to assemble the roster.
[noise] and the first question comes from Randy given with Jefferies.
[noise] gentlemen has gone.
Hi, Randy how are you.
Well there are no yeah. So obviously first and foremost congrats on the 31 million share repurchase.
That's the way we like it.
So clearly this is larger than any token dividend would be for multiple years.
That said you know what are your thoughts on a an eventual dividend and maybe timing of that and then on the other side what about further share repurchases from either cerveris or is it eight HSH or stinks.
Well exactly as you said, they're having.
I mean, we have that kind of share purchase we have delivered a lot of value to our shareholders.
And.
For maybe a number of years as far as dividend is concerned as I said, it's not really I think that for the time being.
The way that we've created value through share repurchases.
There is no specific.
Let's say fourth at this moment it's.
It's always of course in the back of our minds about reinstating the dividend however.
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As has been always our strategy, we're going to be kind of conservative.
And.
The important thing is to deliver value through growth to our shareholders.
And.
We believe that we.
We are doing.
That pretty well at least from.
[noise] fair is there a remaining share repurchase authorization or is that down to zero.
No.
I may not present.
We are.
Not contemplating any further.
Purchases.
I think we did the third trophy assets.
Pretty good.
At price levels.
Since that.
The share price is almost 30% up.
From there we did the share buyback.
And despite the fact that we are still way.
Out from.
In that case, the MTV, which were calculating.
For the time being we have temporize any.
Further share buyback.
Got it and then its fair you give us an engine we asked from we asked for a mile but the 31 million it's pretty meaningful.
Go ahead of annual EPS smart.
Just to add to that.
We're now investing in the business right I mean, we are now.
The acquisition of two 9000, Teu Containerships, which is with a significant event.
Yes, and I was going to ask that next if you're going to add some more color around that you know announcement why were these vessels kind of the once you went with four made them. So attractive and then following the delivery in January.
How do you view your free from there you know or sales or an option or are you going to keep looking to acquire more a combination of both.
Yes, well you know if there are any.
Any further opportunity as you know we might be out in the market.
However.
We believe that we bought these vessels.
Currently there are that the prior year or should prices kind of picking up.
And already now first of all there are more ships available for sale.
Because.
Really the cash flow that.
Our generated by the ships they are pretty substantial.
And.
Hi.
There are very few ships.
Available.
As you show all change the news one of the major liner and machinery.
Good how are you.
And.
Both.
And she will our ships from the ones that we bought in the eight and a half thousand TD 9000 T U class.
Which confirms really.
Our belief is that.
This.
Hi, good size and tonnage.
She has also longer.
Strategic value for all these line. This is the kind of in between the a big.
At post Panamaxes.
And.
Yes.
The intermediates sector.
Got it all right and then I guess one more question for me you know just looking at the market right. Obviously very strong. So how has that record setting container rates impacted containership time charter rates have you been able to secure some higher rates for extended periods of time.
Or is this strength only seen and maybe three to six month time charter rates.
I see you have 64% of Operatings fixed days, you know over the operating days fixed over the next 12 months. So will this increase materially in the into year end.
Well definitely the the charter rates.
Today that we are getting from reporting in the market are phenomenal and these are rates that we have not seen since two.
2000 and.
11.
So.
This is pretty optimistic in terms of duration.
We see really.
Liners called meeting for.
Meaning 12 months. So most of the charges that we are doing our for 12 months.
And some for 18 months.
Which means that practically we're going.
Two.
All these new try to fish, we Charlie discussed now.
We're going to lock in or at most of the Twentytwenty one at very healthy levels.
Got it.
And a lot of those fixtures you know I know you have some expertise near term and even into early 21 do you expect to fix a lot of those here in the next few weeks and months prior right prior to expiration or how much in advance do you should normally fix one of these vessels.
Well.
Exactly because we are today kind of a rising market.
Uh huh.
No.
Fixtures that we had done.
I mean.
Yeah, let's say much in advance.
We're really not as good.
If we had waited that's why I mean now.
We are kind of waiting more closer to delivery of the ships in order to charter them.
And ER.
I think that the strategy is working pretty well.
Charters are keeping the vessels.
Until the maximum.
Window, which is allowed under their charter parties because.
They were fixed at.
Lower rates.
Which means that.
[music].
We are going to have I mean, some of the vessels that headwind earlier mature repeat in Q4 are going to go.
The apt to.
Q1 of <unk>.
Twentytwenty sales.
So we're going to have a lot of activity until then.
We have already attractive.
About.
Seven ships.
Paul.
Yeah were more.
And.
Yeah, and rounding is important to note here.
These are ships that are coming off charters, let's call it in that Angel.
Eight to $10000 a day and.
And that being chartered in the range between 16, and 20 plus thousand dollars a day, depending on size and all these things so I'm talking about material improvement in return on things.
Got it.
Good deal well it looks like the best is yet to come so thanks, so much.
Okay. Thank you.
Thank you and the next question comes from Chris Wetherbee with Citigroup.
Hey, guys James on for Chris Good morning, Hi.
Well I definitely see.
Hey, I wanted to follow up on the.
The acquisition.
The two non dozen key vessels you. Just you had mentioned previously just kind of wanted to dive a little bit deeper into your comment about.
Vessel versus sort of understood like understanding that the market's tightening do you see any opportunities for more deals or is this really is a market reached the point, where sort of additional transactions wouldn't necessarily be attractive just kind of wanted to get your outlook for additional transactions and sort of like where the market is per se.
Well the thing is that exactly because as I said rates.
Our goal continues to be up.
The expectation sales price expectations has grown considerably up and not only going up but.
I think people have crude vessels from the market.
So ER.
You know, it's we see prices going up easily by something like 2025, 30%.
And.
No we are not prepared really to follow to chase.
Upwards.
We have already.
Substantially all three.
We want to be conservative in the way forward and Oh, we will just concentrate made some money from the rechartering sort of our existing vessels.
All right got it makes sense and then also wanted to touch on another point those brought up wouldn't you.
You think about sort of the coming.
Free chartering peers and balancing sort of rate was 10 or we got to the point where charters are.
All right sounds like we haven't gotten to the point, where charters are open to multiyear charters, but when do you think that will occur and like as you go through to June.
Upcoming re chartering Recharterings is are you going to be focusing on pushing for term or rate.
Well first of all at this moment.
Okay. All what is happening was quite unexpected.
And that.
No one really knows.
Hi, Matt.
How all this.
NAND is going to keep up.
In this respect.
Shoppers of course.
These one too.
To keep the business we want to.
Maintain their clients and offer them.
Space.
Because you know if we are unable to service clients, who even if we go somewhere else.
So.
That's why they are trying to secure as many vessels in the market Thats why they are paying.
To acquire vessels.
At some stage.
Of course.
If rate people getting up it means that there is a genuine and long term shortage of tonnage.
Hi, Matt.
Yes, exactly at that moment.
That charters will.
The site.
I mean I either go when needed.
Which is of course, it's a major kind of the season ended absorbs a lot of money.
Or.
They will try.
To offer multi.
Multi year charters.
At.
No we are rage charter rates in the spot market.
So that they can justify.
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The t. running the services and that's kind of how the balance is going to work out.
All right makes sense and then a real quick one just understanding the disruptions that happened last quarter was there any amount of opex in the third quarter that was sort of catch up or sort of what we should expect to reoccur in the fourth quarter.
There wasn't really anything of course, we have a.
Significant problems in moving the cruiser around.
And that is generating some increase in cost because for example.
We have kind of provided incentive Uh huh.
Hi, Larry.
Increase of 10% for the people that exceed their terms and were unable due to cause it to move them from.
From the ships that lease is not really any things that will make a significant difference otherwise.
Things are working normally.
All right that's it for me thank you.
Thank you.
Thank you and the next question comes from Maryland.
You investor's edge.
Good morning, just given more wins I, hopefully swim and I. Thank you for taking my questions. Congratulations for these very solid quarter on the share repurchases.
My first question is a follow up on the vessel acquisitions, what kind of financing do you expect to get for those could you provide some commentary regarding the loan to value you you're looking at or do you expect to get.
So these ships.
In General Finance.
Uh huh.
At 50% to 55%.
Overall purchase price.
Typically.
Alright, great. Thank you.
And my second question any asset values for for me say containers are currently very low.
And I was wondering is.
Those were to arise you'd be willing to sell a couple of assets.
Uh huh.
I think that's fair.
[music].
We can make more money by running the vessels and a high market.
And ER.
Although of course.
Yeah, let's say prices are.
Hi, good reason.
It's yes.
They think easy.
We will not be able to replace.
All these assets and.
On the other hand.
The container industry.
That is not so much for them opportunistic.
Business like for example, Bulkers et cetera here, we have our position and we are able to get at premium from the charters and also secure multi year charters.
Yep.
Because we service our customers liner companies so.
Container shipping has never been an asset play.
All right all right. Thank you that's all for me.
Thank you.
Thank you.
That does conclude the question and answer session I would like to turn the call back over to Dr. Coustas for any further comments or closing remarks.
Well. Thank you all for joining this conference call and your continued interest in our story.
Forward to hosting you on our next earnings call have a nice day.
Thank you. This concludes todays teleconference, we would like to thank everyone for their participation have a wonderful afternoon.