Q4 2021 Danaos Corp Earnings Call
Good day and welcome to the Dallas Corporation Conference call to discuss the financial results for the three months ended December 31 2021.
As a reminder, today's call's being recorded hosting the call today is Dr. John <unk>, Chief Executive Officer, <unk> Corporation, and Mr. Evangelist Heartsease, Chief Financial Officer of the analysis Corporation.
The acoustics and Mr. Heartsease, we'll be making some introductory comments and then we will open the call to a question answer session. Please go ahead.
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.
Actual results could differ materially from those projected to date. 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 harbored and risk factor disclosures.
He's also knows about what do we feel appropriate we will continue to refer to non-GAAP .
I'm sure the measures such as EBITDA, adjusted EBITDA and adjusted net income.
Valuate, our business reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
With that now let me turn the call over to desktop, whose first who will provide an overview of the coker.
Thank you if I can get lost.
Good morning, and thank you all for joining today's call to discuss our results for the fourth quarter of 2021.
The amount of media and analyst Caballero to about the positive dynamics in the container market peaks.
Speak for themselves and Echo our market view.
We foresaw the ongoing disruption in the supply chain.
The tightening of the container market through 2020, too many quarters ago.
Our outlook directed at growth and chartering strategy.
Both of which have maximize our returns.
On the other hand.
Basketball being fast.
All the expectations and led to the announced posting in excess of $1 billion from reported net income for 2021.
As a result of these factors our share price quite dropping in 2021.
Bringing the company's market capitalization close to 2 billion U S dollars.
What is equally important is that our chartering policy will generate even better cash flows in 2022, and overall are 2.8 billion U S. Dollar contracted revenue with average charter duration of four years provide certainty about the future.
As a result of our significant earnings visibility.
Have decided to increase our quarterly dividend by 50% to 75 cents per share.
The company has significant cash flow support the increased dividend and also provide us flexibility to pursue accretive growth opportunities continue to reduce leverage and also begin to consider a share buyback.
There have also been significant environmental initiatives up advanced in 'twenty, 'twenty, one and already the path to the future of decarbonization of the industry is becoming clear.
There is growing concern.
Sensors that significant investments need to be made to reduce the carbon footprint of existing vessels.
These investments will accompany a reductions in speed, which will further support the ongoing market strength.
Green fuels have a long way of becoming widely available.
Which means that the industry will have to adapt to continue using for childcare.
Further the EU Commission rightly proposed to the latest you feed for 55 flying that initiative.
The burden of absorbing carbon cost and virtual operators was responsible for fuel procurement and speed determination rather than on the vessel owners.
To conclude 2021 was phenomenal for the entire container industry and even more so than us.
The element of counterparty risk the dominate the previous decade as completely disappear.
A long term charter are also becoming the norm.
Fortunately liner companies are targeting their expansion in the inland air transportation and logistics shrunk.
Just because you can integrate their offering.
Juncture with uncertainty about future vessel propulsion standards.
This is the lead on new building ordering which I hope can be maintained.
Also the German kg market.
He was responsible for 70% of the ordering during the last few building boom does not exist today.
The future is bright.
And the analysis is well positioned to benefit from it and continue to reward shareholders.
With that I'll hand over the call back to Evangelists, who will take you through the financials for the quarter.
Got it.
Thank you John and good morning, again to everyone.
Thank you for joining us this morning.
Briefly review the results for the quarter.
The open the call for Q&A.
For the full year 2021 we are reporting a record breaking in net income in excess of $1 billion.
Or $51.15 per share.
While adjusted net income more than doubling in 2021 versus 2020 and is being reported a pretty other than $62 3 million for this year or $17.60 per share versus that havent been $70 9 million or $7 18 per share.
In 2020.
For the fourth quarter of 2021, we are reporting adjusted EPS of $6 $1 per share.
Which corresponds to adjusted net income of 25.8 million compares to adjusted EPS of $2.29 per share or 47 $8 million for the fourth quarter of 2020.
The increase of 78 million in adjusted net income between the two quarters.
Result of 95.4 million increase in operating revenues.
Combined with a $16 2 million dividend, which was collected.
From Zim.
These being partially offset by higher total operating expenses of $23 9 million, mainly due to the increase in the average size of our fleet by 13 vessels between the two quarters.
We also had an $8 1 million increase in net finance expenses.
And the $1 6 million decrease in income from Jamie night that was fully consolidated in the third quarter of 2021.
Why it was.
And equity investments in the fourth quarter was 2020.
Now more specifically the $95 4 million increase in operating revenues.
Which corresponds to 215 million operating revenues in the current quarter compared to.
$219 6 million for the fourth quarter of 2020 is mainly attributed to a 38 38 3 million increase.
As a result of higher charter rates.
And $23 6 million incremental revenues as a result of the vessel additions.
While our fleet that were mentioned earlier.
The revenue has also increased by a further $15 2 million, mainly due to straight line revenue recognition.
Accounting.
Oh and by a further increase by another $18 3 million.
Being the amortization of assume the chocolate liabilities.
Oh recent vessel acquisitions.
Vessel operating expenses increased by eight and a half million with.
$37 2 million in the current quarter from.
From $28 7 million in the fourth quarter of 'twenty 'twenty.
Mainly as a result of the increase in the average number of vessels in our fleet.
The average daily vessel operating cost increased to 5000 and they'd rather than $61 per day.
For Q4 of 2021.
Vs $5571 per day.
For Q4 of 2020.
Mainly due to COVID-19 related increase in crude immunization.
And still remains as one of the most competitive daily Opex figures in the industry.
G&A expenses increased by $12 1 million.
The opinion of half a million dollars in the current quarter compared to $6 4 million in the fourth quarter of 2020.
Mainly due to noncash stock based compensation of $8 6 billion recorded this quarter together with increased management fees.
For the additional 13 vessels that have joined our fleet.
Interest expense, excluding find US a course amortization and accruals increased by 7 million to $14 1 million in the current quarter compared to $7 1 million in the fourth quarter of 2020.
The increase in interest expense as a combined result of.
1.1 million increase in interest expense.
Because of an increase in debt service cost by approximately 50 basis points.
Partially offset by a decrease in our average indebtedness by approximately 85 million between the two periods.
And what did you use the positive recognition through our income statement of our accumulated the accrued interest of $6 million.
That had been accrued in 'twenty a opinion relation.
So two of our credit facilities that are hot that that point being refinanced.
And they they have seen has been refinanced in 2021, and that's a result of the refinancing that recognition of sounds like accumulated interest.
Has been decreased.
Our adjusted EBITDA increased by 91, 8% or.
Or 7% to $6 2 million.
How does the $59 2 million in the current quarter from 83 million.
In the fourth 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.
A few highlights are that on the operating side.
Over the past few months, we have forward fixed several vessels have a higher considerably higher than our current charter rates.
Our our investor presentation for the analytical disclosure on contracted charter book.
And are there step ups in the charter rates that I mentioned.
As it is out of these improve the fixtures are contracted revenue backlog now stands at $2 8 billion.
With a full year average charter duration, while contract coverage is at 95% for 2022.
77% for 2023, while even 'twenty 'twenty four is already at 57%.
With that I would like to thank you for listening to this first part of our call.
Operator, we are now ready to open the call to Q&A.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
A speakerphone please pick up your handset before pressing the keys.
The majority of your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question today comes from Randy Gibbons with Jefferies. Please go ahead.
Howdy, John an evangelist how's it going.
Hi, Randy.
All right.
I would I would expect more than five but that's fair Ah Congrats on yeah seriously a great year, obviously, you wisely used to capitalize some timely acquisitions, you clearly have a very strong balance sheet cash balance substantial cash flow visibility now so with all that how is the new dividend amount.
Sided on almost a 50% increase which is meaningful and then going forward. How do you plan on balancing further dividend increases with share buybacks, especially at these levels.
Yeah.
Yeah.
Well you know each one thing at a time I mean first of all.
We were are committed for a dividend increase we believe that the 50% dividend increase is a pretty significant.
And that is giving us really the ability to be able to further grow our dividend I mean, this is not the kind of a special one off dividend.
We wanted to be pretty proactive in setting a dividend that can not only be maintained but also.
Is able to grow through time, because I mean, it's our challenge we are long term investors in the company.
You know we wanted to same type of mindset for our investors to know that our strategy.
He is really on maintaining and increasing rather than just pumping you know a number at.
Which you know in a couple of years down the road might needs to be.
We adjusted.
We believe that for the type of business model that we had them distracted view of the company. This is the right way ahead now.
Now in terms of the share repurchases.
As you can see.
We closed the year with.
Around let's say $130 million in our cash.
So it's not that we are sitting into half a billion.
And of course this amount.
We.
Or what is going on is growing.
Rapidly within our 'twenty to 'twenty, two and that is why.
Yeah.
We would like really to <unk>.
The share buyback at the moment.
That we have the money in a in the bank.
Maybe some people when they look and on our the amount of cash and marketable securities, which is I don't know in excess of half a billion.
It's not that we are sitting on half a billion of cash I mean.
The vast majority of that.
Is let's say zinc shares.
And to be honest, we believe that there is substantial upside in our zoom share holding so there is no point in a kind of swapping the zim share holding with their now sure. So at this moment.
Yeah.
Got it no that makes sense to start and.
And then looking at your fleet you know you saw those two vessels recently for a very nice profit on your vessels coming available and let's call. It early 2023, how will you balance additional vessel sales with maybe for fixing for new long term contracts.
Yeah.
You know it's a we are here to combine our let's say asset play we saw operating profit. So if we have an opportunity mainly to sell older vessels, we might look at it.
You know in our mindset is always that we need to also to grow the company with newer vessels and we are exploring opportunities lie.
Like for example, the last one of the six vessels that we bought.
Last year.
Yeah, and we could prove to be a tremendous success because practically re chartering only of the two of the vessels.
Is covering close to half.
The amount that we expect.
Yeah.
Got it.
Okay. No. That's fair Okay. That's it for me really been great to see the the vast improvement in the company and then I'll share some of the last 18 months, so keep up the great work.
Thank you very much thank you Randy.
Yeah.
Our next question comes from Omar Doctor with Clarksons. Please go ahead.
Thank you.
Hey, John and Evangelists, Yeah, Congrats on another strong quarter and clearly more to come I do have a couple of questions and maybe just touching on maybe randy's last that last point I'm, an evangelist you've discussed it a little bit in your opening remarks I wanted to ask about the law of the five large ships that you have or the largest ships you have the 13000 teus.
You know those have been on long term contract with H M. M going back 10 years since their delivery and you know a key dynamic I guess for the market over the past year really has been the forward fixing it feels like were four six and farther and farther ahead of time.
Or what well ahead of deployment.
With those five vessels starting to come open here in 'twenty 'twenty four I know, it's still you know call. It two years away, but it's starting to approach them well what are you thinking in terms of redeploying those vessels anything you can give in terms of the type of duration, we can expect for those ships.
Well.
I think that there you know for childhood arrears once they have the vessels until that time.
And also options, which they may exercise for another couple of years.
At three three years, sorry for another three years.
Which are of course very profitable our levels for the company.
I don't really expect.
To have.
Anything from them I mean, if I was a charter are.
Fine I would are they can be clear that option a breakfast six months prior.
Jay the expiry date, so by mid 2023.
You know we will know.
What are are there are intentions, but it's very very early and also even the ships that we are fixing forward now.
Sure.
Maximum until let's say the first half opening in first half of 2023.
Some of the larger ones, but not.
The really the 2024 states.
Okay. So just to I didn't okay. So there there are some extension options that could be two to three years for those the five biggest one.
Yeah.
Okay.
Alright, and then you know maybe then wanted to ask about the you know the overall the way the market has been developing here. It seems like you know definitely last year. There was a lot of focus on long term contracts, primarily on the biggest shifts or at least the panamax and above while the theaters, where we're kind of more.
More short term in nature, how how are you seeing that market here over the past.
How is that market developed for feeders over the past four to six weeks compared to say maybe call. It in October I know you only have 11 ships in that segment. So it's a small piece of your business, but generally you know could you give us some sense of how what what's the line of appetite now for the theater market as compared to say three months ago.
And I think that there is a pretty strong interest.
In that kind of feeder market, yeah and.
Exactly because.
The ships in general are a shorter and shorter and shorter duration.
Oh of employment.
Usually.
There is more kind of turnover in the fixing of these vessels I mean, the large vessels there.
They are chartered for years et cetera, I mean these vessels.
You know we use they used to be at a let's say six months Max.
Maximum 12 month charters I mean now there.
Some owners, who are just holding out to get a huge let's say a three month charter or whatever $800000 a day.
But definitely the appetite is still there and I dare to say it's increasing.
Okay would you say, there's liquidity to fix the feeder ships out three years or five years at a time.
Yeah definitely three years gain from what I've seen is really a.
Kind of the minimum and depending on.
Let's see you want to kind of.
Yeah.
Lower rates, you can definitely take figure shape up to five.
Got it. Thank you and then one final one for me I just wanted.
Some color on the two vessel sales that you announced a few weeks ago.
$430 million and as Randy highlighted it's a it'll be a big profit.
Hum.
One thing I did I did notice is that the deliberate isn't until November of this year and so I just wanted to ask.
About that is that Oh, maybe one that what drove him to sell those chips I understand that that's one years old.
And then are they being sold to the liner is that kind of what I'm, what's behind this Phil.
And as we said there are confidentiality agreements and we cannot disclose.
The actual.
By year.
Yeah.
Okay got it thanks for the color John .
Yeah.
Okay.
Our next question will come from Chris Wetherbee with Citigroup. Please go ahead.
Hey, Thanks for taking the question.
Yes, maybe first starting kind of big picture on the industry curious your take on the state of congestion.
In the container market and I guess any thoughts around how you would see that playing out. So obviously, you're asking you to kind of take a look into the crystal ball here, a little bit and give us a sense of maybe how you see some of the congestion dynamics playing out over the rest of this year just spill into 2023, what's your view.
Yeah well.
To be honest, we have seen.
A kind of a debbie.
Debbie situations at ports, there is no worsening, but it's not getting better either.
Stabilize let's say to a certain situation waiting time.
<unk>.
And especially in our Asia.
With all the coffee the restrictions, which are much more stringent, especially in China.
Through the rest of the world.
You know productivity.
The room is lower.
And.
We need really and if we don't see.
Any.
Mkay normalization.
The opening of all of these countries I think that Oh no disruption.
We will continue and I think that.
I mean 2022.
On one hand, it may see.
Yeah, let's say some kind of better.
Utilization of the vessels.
On the other hand.
What we see in the whole world.
Is that in.
In order for our companies to be able to withstand the supply chain disruptions.
They have changed their policy and to increasing their inventory substantially.
Because they cannot just rely on just in time.
And this creates an additional kind of pressure.
There are no more ships.
Tommy I mean 2022, we will have less ships were delivered in 2021.
It's let's say the AR the bottom of delivery.
Of course, the leverage will start ramping up from 2023.
But then from 'twenty to 'twenty three we.
We have to see the effect of the environmental agency.
<unk> can be effective we're going to have.
On the speed.
So.
I'm pretty sure that 2022 is going to be a kind of a strong here for the liner industry.
And.
You know in 2023.
We believe it's.
We will continue to be a good year.
For the liner industry overall.
Because.
Uh huh.
Liner companies.
Themselves will be.
Even healthier.
Through the.
The ability to sign a long term contract.
At least double.
The historical rates.
Okay. Okay. That's very helpful. I appreciate that.
And then I guess, maybe just a specific follow up.
You mentioned the stock based comp and we're looking at G&A for.
For the quarter were fairly elevated I guess, when we think about 2022 can you give us a sense of maybe what the normalized level will be there you. Obviously, a larger fleet that you have but I want to get a sense maybe of how you're thinking about G&A for 2022.
Yeah.
It's going to be about.
Region 6 million a quarter.
Six which is going to happen to be doing a quarter, that's the run rate.
Perfect.
Thanks, very much for the time appreciate it.
Okay.
Again, if you'd like to ask a question. This star then one.
Our next question will come from Jay meant smile with value Investor's edge. Please go ahead.
Hi, good morning, gentlemen, congrats on a excellent quarter.
Thank you Jay.
So I wanted to I wanted to start off by first of all congratulating you on the two vessel sales are very very firm pricing and afford delivery just pretty impressive I was curious if there's any other ships in your fleet that would be that you would be interested in selling maybe some other ships that are older. You have two others are 6000 Teu ships that are 20 years.
Old one comes up off charter in about a year you got a couple of theaters that are 24 years old are any of those ships up for sale as well.
Uh huh.
As I said you know.
Uh huh.
If there are any interesting opportunities for asset play.
We will of course look at them as far as let's say these other six and a half thousand I think these ships they are.
Are on charter.
Longer term and they have also some options.
Which take them further forward so.
You know if these ships were let's say four actual delivery in 'twenty to 'twenty two.
Would be much more interesting edge.
S&P candidates.
And the same stands for our.
Moller vessels, which.
All of them they are chartered until before three years until almost 2025.
Yeah.
So.
We have secured excellent revenue from those.
And yes.
Yeah.
Yeah. It certainly makes sense just a very very impressive ship sale. So just I was just curious if there's any more candidates on the block I wanted to circle back a little bit I know rack Randy asked about the share repurchase program you had some clear language in your report, saying that if you're at the point, where you would consider it I was curious what the.
Catalyst would be is there an upcoming board meeting and you're waiting for or are you waiting for that dividend.
Be that catalyst to push it forward into a share repurchase program.
Well you know that.
Not the least is has to be will have as I said, we will have to build that.
Let's say the cash.
It's not that they're as I said, it's not that we are shipping into half a billion.
Our liquidity and we are just doing nothing about it.
Of course cash will start, let's say building up in AR.
<unk> 22.
And.
We need actually the amount of cash which is coming one part of it of course, we're giving it to dividends.
We will need.
Let's say one part.
We're using it for deleveraging.
And of course, there is another part, but we need to use for our growth.
Because everything is fine you know, but oh the assets.
Getting older.
And we need to be very mindful of the long term are let's say strategy of the company.
We want to be there you know 10 years down the road not just let's say five or six that we were just a.
Kind of squeeze.
Everything all of our fleet and then we will be housed with.
You know it was an aberration.
Fleet.
So all of these as a balancing exercise.
And.
For anyone who has a let's say any doubt about what we're doing.
First of all look at our track record of what we've done.
In the last let's say two three years.
And additionally.
The fact that we are by far.
The largest shareholders.
And.
What we're doing.
Really whatever decision, we take it's primarily hertz or benefits ourselves.
So that's the best really assurance that we are on the same boat as.
As long term shareholders.
Short term shareholders of course, it's a different story because that.
If someone wants to buy your stock now.
Opiates and make.
Money you know three months down the road and go out of course. This is also part of the game, but as far as we're concerned.
We want really.
Consistent long term returns for our long term shareholders.
Yes, that's certainly that's certainly a logical response I think the only other point on the repurchases that you know if you're looking at an extreme discount to NAV or discounts you or cash flows right it might be more accretive to repurchase shares and to acquire to grow but anyway last question for you last time.
We talked with your CFO , a few weeks ago, and we had brought up the topic of a share split now obviously the share split doesn't change the fundamentals of the company, but it could improve the trading liquidity it could improve the bid ask spread it could make it more attractive there's a lot of retail investors that look at share prices before they buy things have you considered a share split something like a four to one.
Or a five to one share split and if so when could that happen.
And Jay Yes, Youre definitely right, it's something that we are considering but we would like to do that in conjunction with the announcement of the share buyback.
I don't know.
If it makes sense just to do the share split without announcing a share buyback.
But definitely you know these things are going to go hand in hand.
Yeah.
So it's gonna be a very exciting press release looking forward to it. Thanks again for your time this morning.
Great. Thank you Jay.
Okay.
Ladies and gentlemen, it appears we have no further questions at this time I would like to turn the call back over to talk to a crew stuffs for any closing remarks.
Sure.
Yeah.
Well, yeah, I would like to thank everyone for listening to.
This call.
We believe that.
We are doing the right thing for our shareholders and looking forward to present, you with even better results for 2022.
Thank you goodbye.
Yeah.
Thank you all for joining this conference call and for your continued interest in our story, we look forward to hosting you on our next earnings call.
May now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.