Q4 2020 Danaos Corp Earnings Call
Good day and welcome to the <unk> Corporation conference call to discuss the financial results for the three months ended December 31st 'twenty and 'twenty.
Should you need assistance during todays call. Please signal a conference specialist by pressing the Starkey followed by zero as a reminder, today's call is being recorded.
Hosting the call today is Dr. John Cousteau's, Chief Executive Officer of Officer of <unk> Corporation and Mr. Vongole was heartsease, Chief Financial Officer of down House Corporation Dr.
Dr <unk> and Mr. Hotz East will be making some introductory comments and then we will open the call to a question answer session to ask a question you May Press Star then one on your Touchtone phone to withdraw the question. Please press Star and then two I.
I would now like to turn the conference over to Mr. Heartsease. Please go ahead.
Thank you operator, and good morning to everyone and thank you for joining us to debate.
Before we begin I quickly want to remind everyone understands remarks. This morning may contain certain forward looking statements and that actual.
Actual results could differ materially from those projected good day.
These forward looking statements are made as of today and we undertake no obligation to update.
Factors that might affect future results are discussed in our filings with the FCC and we encourage you to review the safe Harbor and risk factor disclosures.
Please also note that where we feel appropriate we will compete and it would be sure to non-GAAP financial measures such as EBITDA adjusted EBITDA and <unk>.
Lastly, net income and evaluate our business and he can.
Conciliation of several non-GAAP financial measures to GAAP financial measures.
And included in GAAP earnings release and accompanying materials.
Let me now turn the call over to book two steps will provide the broad overview of the corporate dawn.
And do you like.
Yeah.
Uh huh.
Good morning, everyone.
And the fourth quarter of 'twenty and 'twenty, we witnessed the most outstanding turnaround and the container industry.
And as long as I can remember.
Market participants were caught by surprise and the chronic under investment and capacity.
And we can stop and a resurgence and share gains and demand.
Despite the drug container box rates to all time highs.
This led to a massive inquiries and I'll pass the most profitability and significantly diminished counterparty risk and reward.
So prevalent and the first four book of 2020.
The charter market and can rapidly strengthen resulting indicate high charter rates across almost all vessel types.
Now everyone is focused and whether the current market strength and sustainable and for how long.
Fortunately incremental vessel supply will remain low for the time and date.
Although there has been new orders placed.
Current order book eat at historically low levels and she's.
The Liza two year lead time for new orders to keep the water supply growth should be moderate for the next couple of years.
What will happen next.
Thanks, a lot on the environmental initiatives regulations and of course the net.
As far as Dan and I was just concerned we experienced a strong quarter completed delivery of all contracted vessels realized significant gains.
And exceptional with charter and for four months and enter into agreements for very importantly, finance it.
This quarter, we saw an improvement and adjusted EBITDA and adjusted net income compared to same quarter in the prior year.
This improvement should be even more pronounced in the coming quarters, and new contracted charters at significantly higher rates start to contribute to our top line.
We have concluded 20 separately chartered and over the past three months for a period of 12 to 24 months.
Trade between two and three times the rate and the expiry charges.
Doing show with practically.
91 per cent of our 2021 operating days.
Significant portion of our 'twenty and 'twenty two operating days.
And currently expect Gregg and in 'twenty 'twenty one.
And you see 'twenty and 'twenty revenue by at least $100 million.
And the reason for four months for both G and H M and has resulted.
And a $23 8 million increase reported value of our bond holdings and these two companies, which increase the value to approximately $63 million as of the end of 2020.
And he might be or if it's also provided and mark to market value.
And our pinpoint 2 million chats, and Jim, which he and the value now exceeding 200 million bathed and Jim's closing share price of $20 12 per share in February 12, 2021.
These shares were valued at $75000.
And the books and as of the end of 'twenty and 'twenty.
We've also recently completed 300 million bond offering which was over three times your book Oversubscribed and extraordinary accomplishment for a first time issuer.
These funds together with another 950 million bank and lease financing.
Will be used to refinance most of our existing credit facilities and formed the basis of value strategy and we will not have any maturities until sometime in 'twenty and 'twenty and fight.
We're happy with the market tends acknowledged our accomplishments, leading pretty dramatic outperformance of our share price as compared to our peers.
We're well positioned and committed to continuing to take actions to create value for our shareholders.
And now I will turn the call and I'll go back to a vascular to guide you pushed out and with financial advisors.
Thank you John and good morning, again to everyone I will briefly review the results for the fourth quarter and then we will open the call to you and Nate we are reporting our adjusted EPS for the fourth quarter of $2.29 per share or adjusted net income of 40 <unk>.
Seven 8 million compared to adjusted EPS of $2 and the one cents per.
Fair share.
Or could be $8 million.
For the fourth quarter of 2019.
And it's almost 10 million and done that increase between the two quarters.
Mainly as a result of a $9 4 million inquiries and operating.
Revenue and perhaps a median improvement and the operating performance of our equity investments and 79.
Widely six neither and improvement in finance costs was offset by higher operating expenses, mainly due to the increase in average size of our free by four vessels between the two quarters are good examples of recent acquisitions.
More specifically.
And whereas in years and increased by nine 4 million.
And $19 six maybe even in the current quarter compared to where it has.
And $10 2 billion and the fourth quarter and a 2019.
This increase is attributed to a $13 seven and maybe an increase in revenues.
Are you a chocolate AIDS and.
And the addition of photographs and store fleet.
And two points, one media and increase in revenue and you have to higher fleet utilization.
Partially offset by a $6 4 million decrease in revenue due to lower non cash revenue recognition under U S GAAP accounting.
Vessel operating expenses increased by $4 2 million to $28 7 million and the current quarter from 24, and a half million and risk.
Fourth quarter of 2019 as a result of the increased average number of vessels and a creep.
While the average daily vessel operating cost.
Creased, two 5005 Congress and it sounds like $1 per day for the current quarter from $5215 per day in the fourth quarter of 2019 and still remains as one of the most competitive and the industry.
G&A expenses decreased by 0.6 million, six 4 million and the current quarter compared to 7 million in the fourth quarter of strength.
And mainly due to decreased noncash recognition of stock based compensation.
Interest expense, excluding finance costs, and amortization and a growth decreased.
Decreased by $6 million.
Seven 1 million.
And quarter compared to $13 1 million.
Fourth quarter strength in 19.
This improvement is attributed to a nine to $2 6 million decrease in our average indebtedness over the two quarters and the reduction of our debt service cost by 2%.
Between the two periods.
Adjusted EBITDA increased by six three per cent or $4 9 million weighted median and the current quarter from $78 1 million in the fourth quarter of 2019.
For the reasons outlined earlier on this call.
We would like to note that the results for the fourth quarter and full year 2020 and reported today.
Although improved across the board versus 2019, do not fully capture the significant improvement and the market fundamentals.
Outlined by Alan and CEO earlier on this call.
And he is all analytically lays out and the Investor presentation that has already been bolstered board and our website and.
We encourage you to review a few of the highlights of what is ahead of us are.
Asset values have improved with the charter attached value of our fleet today and $2 2 billion.
On the basis over here and 2020, the charter free valuation.
Abided by independent brokers and calculation of chocolate premium whatever happened to Kobe in accordance with all the time and second events.
We also now have visibility I think it was mentioned before and the value of our shareholding and Jim.
And Zim shares are traded on the New York stock exchange and instead of holding today value is.
And I leave that 205 million.
While at the same time devaluation of theirs and beige them and bonds has also improved.
On the back of stronger asset values and the net asset value of Germany. Nine currently stands at $85 9 million, which translates to a value of our 49% participation of $42 1 billion.
On the basis of all the above the current recalculate, our net asset value.
$1.050 billion or $51.60 per share.
On the operating side over the past three months, we have fixed 37 vessels and significantly higher rates.
Previously.
And with email at Investor Day presentation, we analytically layout.
We improved the chocolate arrangements for each one of them.
As it is also a reason through fixtures our contract backlog today stands at $1 2 billion and.
And our contracted revenue for 2021, and low currently Starbucks five rather than and $43 million.
She's already 81 million higher and total revenues.
2020, we.
And we still have 9% of our operating days open for 'twenty 'twenty, one and we expect overall.
Overall improvement in revenues to exceed the 100 million.
And third to 'twenty, one versus 2020.
Needless to say free.
No marginal cost associated with these increases and our topline such improvement is expected to also trickling down.
And he's done.
With that I would like to thank you for listening to resource by the wire com and <unk>.
And April we have already to open the call to Q&A.
We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys.
And anytime Youre question has been addressed and you would like to withdraw your question. Please press Star and then two at this time, we will pause momentarily to assemble our roster.
Yeah.
And the first question comes from Chris Wetherbee with Citigroup. Please go ahead.
Hey, good morning, guys. She is on for Chris.
And to get your view on the rate environment post Chinese new year.
Vacations are you seeing and chartering market and any indication and then it'll soften and also if you could provide a little more color on what youre seeing and the Panamax market I think that would also would be helpful. Thanks.
For the time being the market is.
In strike and the only thing I can tell you that even today.
Every new fixtures that we are doing is at the higher levels than the previous one.
Uh huh.
Practically the whole.
Industry and you just kind of show value.
And there is net but there are no vessels to much.
I cannot really tell you.
It happened.
Let's say and a year's time, but.
Definitely pull of each day, our eclipse that the market is going to continue to be strong.
And because now we are entering all choice.
And what's supposed to be ultra and a strong period and the strength onwards.
And.
You know I'm personally very optimistic.
Got it and you know given that interest.
We're getting good.
Given that and essentially where vessel values are do you still think that it's an attractive opportunity to be active and the S&P market and 2021 or is that something where you might essentially think of a different use of capital.
Sure.
Well to be honest, we don't like chasing the market up.
And 60 and pretty hard now to go into the market and pay almost double the price for the ships and that we book you know the last year or so.
Ah So we'll keep on looking.
Cost for and new and interesting.
Interesting off market opportunities.
But to be honest.
I think you know.
This is more of a period of time too.
And you're right.
Our cash reserves and.
And to be ready.
For the next move.
Got it I also wanted to touch on.
Capital structure, and the issuances of $300 million and unsecured just wanted to understand how you are thinking about balancing bonds with bank debt and how youre thinking about sort of the capital structure moving forward and if you're going to move more towards one and away from Neil and I, just kind of wanted to get your thoughts on the long term capital structure and that issuance.
Yeah in the long I mean, what do we have seen is that.
Yeah.
Bank capital.
And we get harder and harder to find.
And not only that but also.
Uh huh.
The actual amounts that each bank is pretty simple.
Simple clients and are.
And I was going down because the banks are getting more and more conservative.
Shipping.
And if one wants really to head.
Reliable share.
Sure.
And then.
Bond market is really they want to Newcastle.
Yeah, it's a we could help them and you know.
All existing facilities.
Yeah.
Do you until.
And then 'twenty and 'twenty, three because we've had and lot of leeway.
But we've decided to make this move.
Lager to be well positioned.
I think that we'd call out for four months and the bond markets, we will be able to lower liquor companies.
Our borrowing cost going forward.
And this will give us really the strength and the competitive advantage.
To do.
Yeah.
And the large deals and marked too.
And on the banking market and which of course will always be the language for pod.
And with our capital structure.
But I don't think it really.
And do the only one.
Got it so are you, saying that you should expect unsecured bonds and essentially to be a greater portion of your capital structure and you'll expect sort of.
And a fairly routine amount of maturities to be issued and sort of less strength more bonds, where this is sort of a smoother and maturity schedule and that kind of the way to think about where you're sort of targeting and I'm moving over time.
And we do yeah.
Yeah.
We will do whatever we have to do to walk through my eyes.
Cost of capital right and how.
As we were first time issuers and this was a very successful bond issuance.
And as time goes by and we'd become sort of a seasoned issuer and the market starts moving is better and we expect.
The cost to start moving down.
We expect with outperformance, which most of it as I said before is contracted.
You know, we will be upgraded and leased and sort of gradually get us to a better place.
And there will always be a mix between secured and unsecured because secured debt and he's very competitively priced.
But again all these decisions will be made on the basis of optimizing.
Cost and profile a bit.
How are you doing that these profiles and is also important.
And because it relates to free cash flow you have available.
To deploy and pursue growth opportunities.
Got it and so.
And given that there is a sort of a gradual improvement.
And that's on the cost the cash cost of debt side. Just wanted to also understand how youre thinking about the dividend given that and how you are balancing buybacks versus the dividend and then that'll be all for me.
Yes.
Well, it's harder and giving them is concerned.
And this is the first thing is that the board will discuss share.
And as soon as we have ball consume 82 degrees and financing transaction, which we like.
And April so.
Ah.
A decision about the dividend would be probably the board and our next.
And.
And cold.
Well, we would have completed.
And our refinancing and we will head and.
And then clear path ahead.
Got it thank you.
Okay. Thank you Chris.
The next question comes from Randy Julians with Jefferies. Please go ahead.
Oh, the gentlemen, how's it going.
IRA and how you hire.
And it goes well.
And they'll snowed in here in Houston, but are doing all right.
So yeah, you know obviously your turnaround has been quite remarkable here. Since this time last year, a lot of that being market driven but also a lot doing too pretty prudent management decisions and smart chartering the share repurchases, obviously, you're overhauling the balance sheet. So congrats first on a pretty stellar year, they're now kind of looking ahead.
Questions.
With a stronger balance sheet and a comprehensive refinancing package and obviously you know the substantial cash flow I think you mentioned over $100 million and revenue more in 'twenty, one and 'twenty, So where do you kind of grow from here, obviously want competitors focusing on much older smaller tonnage where another is focusing on kind of.
Much larger new LNG powered new buildings right. So what's the analysis looking at either of those transactions and why or why not.
Yeah.
Well you know we have looked at.
Both of these transactions.
And transactions from the very large ships.
Could use are extremely small.
Equity returns.
Uh huh.
We have participated also.
The major liner companies tender.
A and B and the liner company decided to do it.
Themselves because they felt it was even more competitive and.
Although we had drilling Zeus.
And the razor thin margins.
And the other strategy.
And let's say all the vessels.
Practically.
To have.
Practically to start.
Mcshea.
Gambling and vessels, whether they are going to be 25 years old.
It's.
You know after let's say the whatever the options are going to be it's.
It's a big.
Yeah.
You know.
Yeah, it's a bit too much.
We're preparing for what a gamble like that to do it with.
And the younger vessels as we have done and because the vessels and we have bought for that were between let's say 10 12.
Maximum 14 years old and was bachman.
Yep.
And like you said you know shipping is a cyclical industry.
It doesn't make sense to continue investing more market and where the cycle is.
What.
You know at this moment, we are concentrating ease to beef up our balance sheet.
And as you know apart from the free.
Free cash flow that we're going to generate with the new facilities.
And at the same time.
And with all.
All the.
Oh shakes.
And what we have in our books like Phillips and.
Bunge.
Uh huh.
Very well and a B C D E.
Yeah.
And let's say kind of.
Liquid assets in excess of 400 million by yearend.
So.
Yeah.
You know, we prefer to sit back and.
And see what is happening.
We are doing and lot of work and research on the environmental.
Issues, and where we're going to head.
So.
Yeah for sure and whatnot.
Just going to keep.
People and.
Yes.
And the vessels.
Through the market cycle.
Got it.
Okay and kind of next question kind of alluding to what you were selling there and your short term and kind of available liquidity and another kind of assets. You have now how are you viewing the H M. M notes to Zim notes and the Zimmer shares here right. When will you collect cash on the notes and.
And what are your plans on extracting some value out of the Zim chairs.
Yes.
Yeah.
As I said first of all this value out of the bumps are concerned.
Ah I think zoom and with a b.
And the massive liquidity that they have a presence.
And they really most probably.
Tie of the damage.
We didn't this year.
Yeah.
And then.
We have the bunch and we wanted to be very small discounted would also show these Bronx equaled one current and liquidity.
That's why the share how concerned we will consider our options and after the lockup period.
We are not natural holders.
Liner companies.
Yes.
I mean, the feds were given to us doing presumably structural and in 2014.
And so you know we will.
Think about it at the time.
If we needed it shape, we have and projects and we need to.
Yeah.
To realize.
Doctors.
Cash and cash right.
And there are no decisions taken well.
Wait for that until the lockup period, and so and then we will reevaluate our options.
Sure.
That makes sense Alright, and then I guess last question, you mentioned kind of dividend timing likely following <unk> results, maybe some announcement on the <unk> call and in May.
Is there an amount you are targeting either in terms of dollars return or kind of percent yield.
At that time, how should we think about that.
And would it be like fixed or floating depending on what would you.
Yes.
But in general we've.
We are going to have the fixed.
The dividends that has been definitely is going to be the strategy about the levels. This is something that the board will meet to decide.
And the other hand.
Ah as you have seen we.
We are not didn't really play.
We are a growth play and how we have and approve them.
And that.
Whatever we have done.
And ER.
Thanks.
Of course the dividend.
And we'll of course and reward our shareholders to a certain extent, but will also.
And please be really bullish for our a possible share holders because I remember looking institutions that do more cold.
With each day.
And not pay dividends.
Right.
So.
Yeah.
And about the level.
I think the board will decide.
And what it's going to be.
Got it.
And yeah I know.
And some are some nitpicky questions. There the stock has gone from three to 37, and so whatever you're doing keep up the good work.
Thank you very much thank you.
As a reminder, if you have a question. Please press star and then one.
The next question comes from Omar and Doctor with Clarksons Securities.
Please go ahead.
Got it thank you.
I also echo Randy's comments, congratulations on such a real turnarounds and and moving the company and the right direction you guys buy that your time quite patiently and it's nice to see things work out.
And <unk>.
And you know I did want to ask you.
You sort of and you talked about the and your opening comments the refinancings that you've just recently done and forms the basis for it and analysis new strategy.
And you've touched on that and you're in the Q&A can you expand on that just a bit more you mentioned, obviously beefing up the balance sheet collecting the free cash and and also youre evaluating the dividend come April.
Is there a way you're leaning at the moment and do you see yourselves, maybe going back to your roots of of quote unquote routes I'd say of having new buildings are contracted long term and do you see that being a direction that accompany going into I know you mentioned that.
Equity returns being too low at the moment is.
Are there opportunities potentially coming in that direction or do you prefer to stay a bit more nimble and and and and.
Sticking with the say the S&P market whenever there's opportunity.
Oh.
Well Omar.
And as I said.
Good day.
We are and the situations that liner companies.
And pretty strong balance sheets, and they're making a hell of a lot of money.
And.
If they want.
And the new buildings.
And they could very well and go and build them themselves.
Sure each day.
And tried to go.
To.
Tonnage provider.
And then exactly because they are benchmarking that cause it to their own.
And it's a cost of capital.
And I know that in general.
Are pretty low.
Oh and the other hand to be able to do let's say these deals, sometimes and let's say with a reasonable return.
You need to go to the extreme amounts of leverage.
90% and even more.
Uh huh.
You know, it's a completely different strategy.
Going back to me.
Yeah.
And Omar if I may add.
And not just the new buildings and of course.
There's going to be at some point.
And we hope it's not that it's shown but people will start ordering right.
And so you know the order book is very low and there will be orders growth going forward, but even if it's small for new buildings and liners may may one and some cash towards where the big ships and checks.
Usually book.
What they consider to be core assets.
On the higher end of the size spectrum can be built and then he said.
And.
And there may be opportunities are for sale and leaseback will very likely be done got fixed so that they can unlock cash on their balance sheets.
So we do expect transactions.
To present themselves. It's just that you know we will enter into projects provided we look.
Our return thresholds and we're not going to grow for the sake of growing I guess is the message.
We are mindful, both returns and equally mindful of managing residual value risk, we're not going to acquire.
Should that offers good short term cash on cash returns and.
And then get stuck with a high value.
And it was a chocolate.
Which would even per day.
Equity.
So.
That's how we view I think growth yeah.
And also Oh my.
Yeah.
We are in a very.
Transition and I would face that.
And we have new regulations coming up.
And and.
The other hand.
We have a creaky old mid size fleet.
And the flow into these mid size fleet has been up to now purely.
Well the larger vessels.
Cascading.
But on the other hand.
Depending on how all of these regulatory environment with book.
And that might not be enough.
And the future.
So.
It's very important to see.
And who is going to build.
We require mid size fleet.
Good day.
That's.
Would it be and Nevada mentally trendy.
And we're trying to work or not so much willing to invest.
Because they prefer to direct their investment and the larger vessels.
Thanks for that so that it sounds like potentially if there were to be some opportunities where you may be jumping is in that mid size call. It with three to 8000 Teu Yep.
Good good alright and.
And then and a follow up also just looking on your on your slides you know what the 27 vessels that have been re chartered over the past three months.
And I had a good amount of those new charters that really just get us into the fourth quarter early 2022.
Which is where things are now looks very appetizing.
And when you think about that.
What's the charter appetite at the moment for fixing those vessels forward.
At the moment are they approaching you and.
And also you mentioned also the liners are preferring to own their ships outright.
Is there interest on them just simply buying the vessels from you.
Okay.
And that means we have demands.
The selling vessels.
And in general for Us doesn't make any sense to share.
So a vessel when for.
And so a jumping towards the price themselves.
Equivalents to the PV of the trial for should we can fix two day classes and scrap value.
Oh, we have to.
Same position.
And we have and option when the market is the Mazda was hired to make even more money.
Of course that will be deferred and put someone who just needed.
So the cash now.
And because it's such a different proposition, but where we are.
And our cash generation.
Yeah.
We can fix the chips day falls, but for a number.
Ah yes.
Yes, and we can that will bring the ship practically down to scrap.
Yeah, and and and then just final question on that.
Could you give us a sense of if you were to put a vessel today on say a one year charter.
And that same ship if it were offered a three year charter is there what would be the difference or the discount to go longer term.
I think that.
And the bench of course on the ship price if we were talking.
About let's say larger vessels, a day and a half thousand T D.
I think that the nuclear to have a.
Save for one year charter.
At least let's say, 70%, if not 40% more than what you could get for them.
Three year charter.
Got it.
Okay. Thank you I appreciate that and congratulations again and I'll turn it over.
Thank you.
This concludes our question and answer session I would now like to turn the call back over to Dr. <unk> for any comments or closing remarks.
[laughter].
Thank you everyone for.
Okay.
<unk>.
Yeah, and thank you for your continued interest and our company and will continue our best.
Sure.
All shareholders. Thank.
Thank you.
This concludes today's teleconference, we would like to thank everyone for their participation have a wonderful afternoon.
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Yeah.
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