Q2 2021 Danaos Corp Earnings Call

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Good day and welcome to the <unk>.

Corporation Conference call to discuss the financial results for the first 3 months ended June 32021, as a reminder, today's call is being recorded just from the call. Today is Dr. John <unk>, Chief Executive Officer of Finance Corporation and.

Mr Vangala Heartsease, Chief financial Officer and of.

Corporation.

Dr <unk> and Dr. <unk> will be making some introductory comments and we'll open the call to question and answer session.

And at this event is being recorded.

At this time I would now like to turn the conference over.

To Mr. Heartsease. Please proceed.

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 remarks. This morning may contain certain forward looking statements and.

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.

That was the price effect.

Future results are discussed in our filings with the SEC and we encourage you to review these deep day safe harbored and least impactful disclosures.

He was also low, but where we feel appropriate we will continue to refer to non-GAAP financial measures such as EBITDA.

Adjusted EBITDA and adjusted net income and value.

Our business <unk>.

Conciliation sales non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.

With that let me now.

The call over to Dr caused us pull and provides the broke overview of the quarter.

John.

Good morning. Thank you all for joining today's call to discuss our results for second quarter 2021.

The containership market has maintained its positive momentum, which is reflected in increasing range for both containers and vessels chartered.

And now it's continuing to secure charters for each vessels from periods between 3 and 5 years.

It is noteworthy that.

Some of these charters do not begin until the middle of 2020.2.

The market appears to be in short supply and at least from end of next year and we have strong leverage to this dynamic.

And then it just continuing to cogent efficiencies and investigation team and.

There is no, albeit from the creation of a convenient conditions will normalize and the near term.

Travel bans and restrictions are contributing to peak hour coach to mobilize crew training and.

Despite considerable difficulty enjoining and repatriation.

Our vessel schedules have not been affected.

Our liquidity was enhanced and the second quarter by a total of a hacker and $62 million from the redemption of the hidden in the atrium and Bulks.

And the disposition of 2 million share from zoom stock.

Aggregate, our cash balance at the end of the quarter was $294 per million.

Financially <unk>.

Losses from a very strong position with cash and marketable securities totaling over 600 million and.

And $1.75 billion backlog of charters.

Handed out over and other leagues.

4 years, and a very manageable debt repayment schedule.

And while also generating significant free cash flow and at the back of a particularly strong market condition.

This gives us the capacity and the confidence to grow our core business when opportunities appear.

Cause that and.

We exercised our option to purchase 51% of jet and night.

Joint venture.

All of our ship of the entity and the class it's.

This added approximately 260 million of contracted revenue and approximately $117 million $17 million of contracted EBITDA backlog. While these vessels are expected to contribute 31 billion of EBITDA over the next 12 months.

The effective date of the transaction was July 1 and 2.1 move and we will not be accretive in the third quarter.

Part of our resource and opportunity to buy ships more than and eco designed 5462 vessels built in 2014 and 2015 a day.

Significant discount to their charter free values.

These vessels are tied to the low market, though still profit double chocolate.

Firing from mid 'twenty, 2 to blueprints and poor.

We are upstream and not specifically and can you building designs opex growth and we expect to charter them at levels significantly higher than their existing charters.

We were able to fund these growth opportunities using cash and our balance sheet and we will evaluate whether we will increase our leverage with respect because these acquisitions moving forward.

Once again the market dynamics are now stable and we will continue to deliver the best and judge possible for our shareholders.

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

Thank you John and good morning, again to everyone and thank you for joining US today I will briefly review the results for the quarter.

And then give the call participants the opportunity to ask questions.

We are reporting adjusted EPS for the second quarter of 2021 of $3.34 per share.

Adjusted net income of $68.9 million.

Which is compared to adjusted EPS of $1.71 per share or 42, and a half million dollars for the second quarter of 2020.

This increase between the 2 quarters. These are mainly the result of a $29.6 million increase in operating revenues.

And people engage million improvement and finance costs.

And north point, and 5 million and improvement in the operating portfolio vessel Jeremy line, partially offset by higher total operating expenses, mainly due to the increase and the average size of our fleet by 3 vessels between the 2 quarters.

More specifically.

Operating revenues increased by $29.6 million other than 4 to 6.4 million in the current quarter compared to $116.8 million and the second quarter of 2020.

This increase is attributed to $23.6 million increase in revenues as a result of higher charter rates and improved fleet utilization.

And 6 million incremental revenues as a result of the vessel additions to our fleet between the 2 quarters.

Vessel operating expenses increased by $4.3 million to $32.9 million and the current quarter.

Compared to $28.6 billion and the second quarter of 'twenty, mainly as a result of the increase and the average number of vessels in our fleet, while the average daily vessel operating and cost increase.

From 6002 other than $41 per day for the current quarter from 5000 and $787 per day in the cyclical strength in 'twenty.

Mainly due to COVID-19 related increase in crude and generation and still remains as 1 of the most competitive daily Opex figures.

And the industry.

G&A expenses increased by $1.1 billion to $7.1 million and the current quarter compared to <unk> 6 billion and the second quarter was trying to 'twenty.

And it uses the increased management fees due to the increased size of our fleet and other corporate admin expenses.

Interest expense, excluding $5 Cogs cost amortization and accruals increased by 4 and a half million to $14.3 million and the current quarter compared to 9.8 million and the second quarter of 'twenty.

The increase in interest expense as a combined result of.

A $2.2 million improvement and interest expense because of a decrease and our average indebtedness between the 2 quarters by approximately $7 million.

Together with a decrease and our average debt service cost by approximately <unk>, 36%.

This was partially offset by reduced positively.

Used positive recognition through our income statement of accumulated by accrued interest of $6.7 million that had been accrued in 2018 in relation to 2 of our credit facilities that were refinanced.

In April of 2021, as a result of this refinancing medical condition of such accumulated interest.

Has decreased.

Adjusted EBITDA increased by $29.5 per cent.

Or $23.6 million, how does and $3.7 maybe a in the current quarter from $80.1 million in the second quarter of 2020.

For the reasons outlined earlier on this call.

We also encourage you to review our updated investor presentation.

That has already been posted on our website.

And a few of the highlights.

Within that presentation are.

Asset values have improved.

Significantly with the charter attached value of our fleet today at $3.7 billion.

On the basis of.

And Q2.2021 charter free valuation is provided.

By independent brokers and calculation of charter premium where applicable and in accordance with our pilot agreements.

And on this basis, we current recalculate, our net asset value at $2.97 billion or other than $44 per share.

On the operating side over the past few months, we have forward fixed several vessels was up higher than the current charter.

Charter rates.

And our Investor presentation has analytical disclosure on contract on our contracted charter book.

And it's and the step ups in and charter rates.

As a result of these improved fixtures and.

And including the Gemini vessels that from July 1st onwards will be fully consolidated.

Our contract backlog stands at $1.75 billion.

In total and our contracted revenue for 2021 alone currently stands at 600 and a $5 million.

Already 143 million or 31% higher and total operating revenues.

For 2020, which were $462 million.

Our revenue weighted charter coverage stands at 99% for 2021.

And 81% for 2022.

With contracted for 2022 revenue currently standing at $596 million.

With that I would like to thank you for listening to this first part of our call.

Operator, we are now ready to open up the call and Q&A.

Yeah.

And I'll begin the question and answer session to ask a question you May Press Star then 1 on your telephone keypad.

And we're using a speakerphone please pick up your handset before pressing the keys to charter. Your question. Please press star and 2 at this time and a partner and Ontario later and some of our roster.

And our first question comes from Amar and knockdown of Clarksons Securities. Please proceed.

Hi, there, thank you John and evangelists and good afternoon.

Hi, Omar.

Hi, Yeah, and just wanted to ask about the you know the recent deal for those 6 eco design ships, you acquired obviously $260 million and good price.

And then probably looks at least $100 million below what they would be worth it became charter free.

So nice way to invest.

<unk> and our fleet expanding it without really.

Putting yourself out capital Wise I guess my first question just on that transaction. How repeatable is that you think other other opportunities like that and do you have an interest and doing another 1 of similar nature.

Yes.

Well you know it's interesting opportunities.

And we are definitely there to look at them.

And what is really important is that we are much more geared exactly towards modern vessels.

And rather than.

And let's say.

And just investing in.

Older units.

Which they may have of course.

Let's see a higher short term.

Benefit but.

They don't address and really the kind of the future development of the company and.

And what is interesting about the ships are practically.

If we were going to day to the yards to build that size and vessel.

We would get more or less and the same specs.

Yes, so good definitely good ships and they are and that sweet spot if I recall a couple of our earnings.

Earnings calls ago, you mentioned that 4 to 6000 Teu size range is something that is attractive to the announced.

Is that still the that's still the case, where you wanna be deploying capital within this range.

Yeah.

And well.

And we always are.

And in general we like to be larger.

But.

And and as I think that because these vessels at 5 and a half 4000 Teu they are actually.

The that's the best kind of let's say sweet spot.

And for future opportunities.

Yeah got it and and just on those future opportunities just a follow up then on the on the on these vessels.

And that you acquired it looks like a couple of them come up tour.

And charter.

Redeployment looks like ones and March of 'twenty, 2 the other ones and July give.

And charterers are now fixing forward by several months and quarters.

When do you think you'll start to have discussions on redeploying these ships and at least through the first 2 that come open next year.

Yeah.

And to be honest, we've already and we.

We're already approached.

By the charter these.

And these vessels about possible extension.

You know we are going.

Going to start taking delivery of these vessels from mid August until September.

And so definitely you know, we'll wait first for this process to let's say to start rolling over and probes.

Probably within September we will have.

Much more simple.

Discussions about that.

Okay, that's fair enough, but John Thanks for that and congrats again on a on a very strong developments here.

Thank you thank you Omar.

And our next question comes from Randy given from Jefferies. Please proceed.

Uh Huh, John and Evangelists How's it going.

Hi, Randy how are you.

Good good.

Couple of questions here, you know obviously the average containership rates have increased for I don't know 60 consecutive weeks now and what do you think will maybe cause that to and and when will that happen and then and in the meantime will you continue to just force fix tonnage that comes available and 2022.

You kind of open are waiting until X free to book, some maybe short term charters at even higher rates.

Well you know our business model is has always been true.

And to look for the longer term charters to secure our cash flows and.

And.

We believe that.

And the market like this are definitely locking and charter rates.

The current level this has definitely been official.

So yeah we.

We are looking mostly.

Charters between 3 to 5 years for the ships that are opening up.

And.

Definitely charters out there to look at them pretty healthy rates.

We are not a speculator and.

And it was pretty thorough.

Accordance with our business model too.

And sure.

Term earnings from the company.

Yes, no I think that's prudent and fair.

And then you mentioned some acquisition opportunities you've already got a couple here and the last month with the JV and then and the 650.500, or so teu vessels, but I guess and and other kind of uses of cash.

Repurchases dividend, possibly diversifying into other shipping subsectors any comments on those 3 it just seems with DAC shares trading at I don't know, 50% of your estimated NAV and that maybe 4 times EBITDA. It seems like that's a that's a pretty sweet deal on and much better use of cash.

And maybe buying ships at NAV. So what are your thoughts on that.

Yeah.

On the other hand, you know.

We have come a very long ago weighted to first of all.

To enhance the liquidity of the stock.

And.

Of course, so we did the let's.

And let's say.

And the significant to stock repurchases at the levels at around $7.

Which was very beneficial overall.

To the company.

Hum price them, yes definitely.

There is considerable upside from there.

The other hand.

The price of the stock the stock is not just a question of him and he has to do it and be accretive and so we may well go out and buy stock, but then liquidity goes down and that lack of liquidity.

And also.

Also will not create a net.

Let's say long term value from the company and our ability and the future to access.

And the stock market.

It will require.

In terms of the dividends and.

And we said, yes definitely and in.

Kris and dividends.

It will happen.

However, you know, we just started our dividend each quarter.

So this is the second quarter, we're giving dividends.

We will be seriously of course, considering the.

And the dividend and crews from next year.

Perfect.

Alright, that's fair Yeah, certainly a lot of liquidity now, but I I understand what you're saying on the minimal share that trade I guess last quick question. The extended lockup for your Zim shares expires and I think exactly a month now any updated thoughts on the timing of future shares around him.

And well.

Nothing at the present and we have already I think that the strategy that we heard about some share so as to sell.

Just to Lee and share solid because of the 10.2 that we have.

And that was really to help also liquidity and some chairs and it's exactly true this process.

That we expect current liquidity to be.

Able to absorb.

And it may be a share of sales.

Might be a might be done.

Yep.

Alright, okay. Thanks, so much for the time keep up the good work great.

Thank you. Thank you.

Our next question and answers.

Minder, please if you've ever questions per stores and 1.

Our next question comes from George Berman of CLO Securities. Please proceed.

Good morning, gentlemen, Calumet IRA and thank you very much for taking my call.

Yes.

Good morning to you.

Okay concerning the liquidity I agree with you that the share count is pretty minimal would you consider.

Issuing the remaining zim chairs as a dividend to your existing channel those rather than selling them in the market.

Well I think I'm not sure. We've had this question before the previous quarter I'm not sure. If it was from you or someone else.

And we said that.

The actual zinc shares are part, let's say of the company.

Our portfolio and they will be sold and we see fit.

And gradually trickle through the regular dividends that we are going to.

Yeah.

And we're going to distribute.

There is no at present and plan for.

Any such distribution.

Okay, but it could be considered and on your part which would probably.

Probably help the existing download shield as you could the 8 million shares you have left you you could do several of distributions of our 10 chance from every 100 or so over time.

So this is this is not part of the strategy.

We said before that.

Our zim equity stake.

It is clearly a nonoperating assets.

No it doesn't fit into our business model.

We are not the holding company holding stocks of our customers.

So this will come and the plan is that these will convert into cash.

Gradually.

We will of course seek to maximize value.

As we divest.

And then.

We win.

And use these capital.

To the best interest of the company.

Growing the fleet and of course, we will also consider other capital all of the pilot of the capital allocation decisions.

We will grow the dividend, but we will not if there is no doubt and pension at present.

And.

Distribute this talk to shareholders.

Okay.

Did the whole refinancing off all your debt what is the current blended interest rate for your debt at the moment.

The majority of the deck Robbins.

Liable class 250.

And we also have some.

Lease agreements.

But ron at fixed rates, which.

Or are a bit higher than that so.

And the blended cost of diluted and regional 5 per cent.

Okay.

Lastly, I just wanted to applaud you for not going in there.

All guns blazing and buying additional ships at this apparent a high level in the market market place I think it's a very good strategy to kind of wait and pick your opportunities as and if they arise.

Thank you.

Thank you.

And as a final reminder, if you have a question. Please press Star then 1.

Our next question comes from Chip Moore.

Working capital. Please proceed.

I'm Ashwin.

Sorry can you hear me.

Yes, yes sure.

Good morning, congratulations on a very good corner.

Couple of quick questions. So first is on the.

And the 6 vessels.

And you acquired so if he if you want to re contract and my current rates.

I guess, what type of uptick and EBITDA could we potentially see from kind of where those contracts are right now and.

And then the second question is.

Regarding liquidity, so you got to 90.

Cash right, so between Gemini and and 6 vessels I think is around $3.50 cash outlay.

So passengers.

And there was a 60 million and I guess, you know GAAP funding GAAP, there I guess.

Operating cash flow sounds like about 100 million per quarter, but depending on timing from how are you approaching that funding gap.

Sally Moore share some sim.

Okay and.

Yeah, it's a.

Really we are generating significant.

Amounts of.

Our free cash flow and.

And.

And there will be and able really to fund all that through our own cash until the year and.

Yeah.

There was a <unk>.

Greenland with the Gemini 2.

Let's say for the payment to be down.

At the company's option until yearend.

And so there is a plenty of.

Let's say leeway.

2 either.

Yes.

Use our own cash generation.

Or maybe we will see if we're going to put any leverage from the new vessels.

Yeah, so okay and then.

Yes.

On the new acquisitions.

Of course, largely depends on what will be chartering and assumptions you make.

But we believe that in the near term with the first couple of ships.

Opening up next year as it was mentioned earlier.

Our EBITDA and EBITDA coming from these assets could be north of 40.

And $40 million.

Annualized.

And as.

As ships open up.

Moving further down the road and 2023.

And so as I said before.

It is.

2 or 3 years out of course.

And that's provided.

And make sure that conservatively chocolate and essentials EBITDA could be as high as 51 billion.

Okay.

Okay, great and just to kind of thank you.

Congrats.

Okay.

It appears we have no further questions at this time I would now sometimes.

Alright.

Okay. Thank you all for Journal This conference call and from were talking with interest and our story look forward to hosting you and our next earnings call have a nice day.

Thank you. This concludes today's teleconference, we would book.

Right right.

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