Q1 2022 Danaos Corp Earnings Call
Good day and welcome to the Townhouse Corporation conference call to discuss the financial results for the three months ended March 31st 2022.
As a reminder, today's call is being recorded.
Hosting the call today is Dr. John <unk>, Chief Executive Officer, Dennis Corporation, and Mr. Ivanka Loose Heartsease, Chief Financial Officer, Dennis Corporation. Dr. Christensen. Mr passes we will be making some introductory comments and then we will open the call to question and answer session.
Yeah.
Thank you operator, and good morning to everyone and thank you for joining US. This morning before we begin I quickly want to remind everyone that management's remarks. This morning may contain certain forward looking statements.
Actual results could differ materially from those projected today.
These forward looking statements are made as of today and we undertake no obligation to update them.
Factors that might affect future results are discussed in our filings with the SEC and we encourage you to review these detailed safe harbor and risk factor disclosures.
Please also note that where we feel appropriate we will continue to refer to non-GAAP financial measures such as EBITDA adjusted EBITDA and adjusted net income to evaluate our business reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying my PD.
Yes.
With that let me now turn the call over to Dr. <unk>, who will provide the broke overview of the quarter.
Thank you you think Dallas with morning again, Thank you all for joining today's call to discuss our results for the fourth quarter of 2022.
The first quarter of 2022 was another exceptional one for Dan Ouch.
Having already exceeded the future with $2 7 billion of contracted revenue.
While operating from a position of strength and confidence.
This allowed us to invest in the future by ordering six vessels in the seven to 8000 Teu range.
To be delivered between March and September 2024.
Ready to be converted to run on Green Massimo when such fuel is widely available.
Opposition engine continues to generate solid returns, including $810 million net dividend declared in the first quarter.
The boiler market has been affected by geopolitical events high energy prices inflation and interest rate outlook and China's zero carbon policy.
Although box freight rates and charter rates have not been significantly affected.
Sentiment has changed and most of the participants have adopted a more conservative short term attitude.
On the other hand.
Slide trading efficiencies continue unabated.
Literally like likelihood that conditions improve this year.
This has led to record profits for the liner companies and most importantly higher contract levels.
Also feel like prices are reaching levels not seen for more than a decade at the same time as supply chain disruptions have resulted in an increase in average sailing speed.
Over time, the global container network will normalize as new vessels are delivered and sailing speeds are used to enable the industry to comply with decarbonization timelines.
In the midst of an uncertain backdrop. The analysis is well positioned to continue to execute our strategy.
We are asking you started asleep pursuing fleet growth returning value to shareholders and further enhancing our balance sheet.
Most recently, we have accelerated deleveraging to minimize the impact of rising interest rates.
During the second quarter of 2022.
We have already repaid early three.
364 million in debt and Lisa obligations, while another $73 million for which we have issued early prepayment notices that.
All should be repaid early through the end of the second quarter.
As a result, the visa little leverage reduction of 437 million.
Seen vessels in our fleet will become unencumbered.
Liquidity also sounds very strong.
At the end of the first quarter, we had $708 million in cash and marketable securities.
While during the second quarter, we received 239 million of charges are higher prepayment.
They did two charter contracts for 15 of our vessels.
Genting it partial prepayment of childhood higher payables during the period from May 22 to January 27.
As a result of our actions the analogy with the strongest balance sheets in the industry, which will enable us to continue to pursue attractive opportunities when they arise for the benefit of our shareholders.
With that I'll hand over the call back to you if I can get live who will take you through the financials for the quarter.
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 Q&A.
This quarter, we are reporting adjusted EPS.
$11.36 per share.
Or adjusted net income of $235 3 million compared to adjusted EPS of $2.83 per share or 58 million.
For the first quarter of 2021.
This increase of 177 billion.
Net income between the two quarters is the result of a nine to 748.8 million increase in operating revenues.
And the other than $10 million of net dividend booked in relation to ours in equity holding.
Partially offset by higher total operating expenses of $22 9 million.
Mainly due to the increase in the average size of our fleet by 11 vessels between the two quarters.
$5 8 million increase in net finance expenses.
At 1.8 million decrease in income from Jenny night that was fully consolidated in the third quarter of last year.
More specifically operating revenues increased.
97, 8 million to two other than $29 9 million in the current quarter compared with $32 1 million in the first quarter of 2021.
This increase is attributed to a $48 9 million increase in revenues.
The result of higher charter rates.
And the further 3.8 million.
Revenues as a result of the vessel additions to our fleet between the two quarters.
Revenues also increased by 11 4 million.
Due to straight line revenue recognition accounting and the further 16 7 million being the amortization of her shoe chocolate liabilities.
It came with a recent vessel acquisitions.
Vessel operating expenses increased by $8 1 million.
The $39 2 million in the current quarter.
From $31 1 billion in the first quarter of 2021.
As a result of the increase in the average number of vessels in our fleet.
While the average daily vessel operating cost increased to $6300 per day for the current quarter.
From $5904 per day for the first quarter of last year, mainly due to COVID-19 related increases include immunization and increased insurance expenses due to the higher insured values of the vessels.
Our fleet.
However, our daily operating cost remains as one of the most competitive in the industry.
G&A expenses decreased by $3 5 billion.
Seven 4 million in the current quarter compared to $10 9 million in the first quarter of 2021.
Mainly due to decreased non cash stock based compensation of $4 8 million between the two quarters.
And that was partially offset by increased management fees that are included in G&A.
You think due to the increased size of our fleet.
Our interest expense, excluding finance costs amortization and accruals increased by three and a half million.
$13 7 million in the current quarter compared to $10 2 million.
In the first quarter of 2021.
This increase in interest expense.
As a combined result of a $2 1 million decrease.
In debt service cost.
Because of the decrease in our average indebtedness between the two quarters by approximately $206 million.
Partially offset by an increase in overall cost.
Oh, that's serviced by 20 basis points.
We also have reduced positive recognition for our income statement or accumulated accrued interest of $5 6 million that had been accrued.
In 2018 in relation to certain credit facility gets up to where we find them last year.
And I think there's absolutely a refinancing political condition of such accumulated interest.
Has fallen.
Adjusted EBITDA increased by almost 180%.
Or how does that $73 2 million to $269 5 million in the current quarter from $96 2 million in the first quarter of 2021.
For the reasons outlined earlier on this call.
We also encourage you to review our updated investor presentation posted on our website as.
As well as a subsequent event.
Closures.
A few of the highlights are.
During the second quarter as it was mentioned earlier we are.
Substantially reduced leverage.
By early debt and lease repayments of $437 million.
Which combined with normal course scheduled debt repayment that included a new credit facility.
I haven't been 30 million that we expect to have in place within the second quarter.
We are expected to reduce the corporate net debt to EBITDA ratio below one.
As a result of these repayments, we will have a pool of 13 unencumbered vessels at the end of the second quarter, which will increase to 15 vessels.
After scheduled lease repayments.
Suddenly happened during Q3.
As of the end of the first quarter, our contracted revenue backlog stood at $2 7 billion.
With a 3.8 year average remaining charter duration.
While contract coverage is almost 100% for this year, 78% for 2023, while even for 2020 before we are already at 57%.
Our investor presentation has analytical disclosures on our contracted charter book.
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 for Q&A.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Okay.
Our first question will come from Chris Wetherbee with Citigroup you May now go ahead.
Yeah, Hey, thanks for taking the question guys I appreciate it.
Maybe we could start with I think you made a comment that the market that has a more conservative short term attitude to it I want to get a sense of sort of what exactly you mean by that what are you seeing in terms of your ability to sort of for new or sign new charters as it stands right. Now is there something that you know is has the potential to drag along a little bit longer I guess Jim.
It really speaking, what's your sense from talking to your customers.
It was Chris.
Is it just that today I mean for us.
For example.
The earliest shifts that we're going to have.
Let's say fully chart, Italy, it's somewhere.
The 23.
And.
You know.
And to try to figure out with what is happening all around the world.
They aren't.
It really would be a reluctant at this moment to start two discussions.
That far ahead, which may be at the beginning of the year Oh you know.
Earlier in the last Ah lumpy.
Last December .
They might be there to discuss but we haven't seen any.
Let's say significant reduction in charter rates.
Actually before because you know there are no big ships to be fixed some of the smaller ones.
They are still getting a.
Very good charter rates.
Maybe and what we're talking about ships you know are 2000, Teu and below where we have seen a let's say some kind of.
Let's say, we can even not so much as the wage Bill for example of the periods. When you could get let's say a 40000 a day rate for three years now you may get it for only four two.
So that's the type of.
Let's say that we our ascension.
Okay. Okay. That's helpful and I guess when you think about your backlog into 2023. When do you think charterers would be willing to engage do you think it's at the end of the year do you do you have the ability to sort of start tying up some of that capacity a little bit earlier, just want to get a sense of when you.
You'll be able to begin to move on that open capacity.
Yeah, I mean, there is no kind of urgency at this moment from any one.
Yeah, I believe that Ah I mean, now we're going into the summer.
Everybody is waiting to see.
And also how China is going really to develop with the COVID-19 situation I think that.
Something that is probably more important than the war situation in Ukraine.
In terms of let's say the trading patterns.
And.
Yeah. So we took kind of a wait and see but I believe that practically.
Let's say you should start discussing these positions are.
I mean.
From Oh.
Already from the next quarter, we're already you know we need to.
Some discussions.
With various charterers, but you know when you're looking about let's say one year ahead.
In general ER.
Everyone feels pretty relaxed both from the charterer aside and don't show from the old site.
Okay, Okay that makes sense.
Let's talk a little bit about leverage.
You've done a great job, bringing the leverage down your sub two times now what's the right leverage level for you guys going forward.
Well.
The right leverage.
It is not something changed fabric.
And because leverage is a.
It has to be seen.
In the context of the Cypress.
It all depends on what kind of assumptions are you going to do.
Yeah on the.
On companies, let's say you'd be done.
At.
At the bottom of the cycle.
At it has also to do quite a lot.
With the.
The age of the fleet.
So.
Yeah.
I mean, typically a company what we had also let's say committed to.
To the rating agencies.
I wish to have.
At.
Let's say the bottom of the cycle.
Something between three and four.
And that is what we really are maintained.
Yeah and.
Of course, looking at where we are today.
And where we are heading.
At leather edges, which going to be.
Those two one or even below.
And that seems to of course, a considerably low.
But oh, we have to take into account that the company.
We will need significant investments for the future.
In terms of our let's say our eco friendly tonnage.
And that tonnage that is getting really to be required for the industry. This decarbonization.
And that's why we want to make sure that we will be able to participate in that cycle.
Because anyone who does not really.
And enter into this new area.
Going to be the same thing like what happened with the shale bulge when are the steam engine came along.
Yeah.
Yeah.
That's a great analogy I appreciate that okay. So it does sound like.
Where EBITDA might go in more of a down cycle.
Leverage is getting close to the right level for you in that context, but maybe there's more work to be done there that that's helpful. Maybe last question just quick detail one on on dry docking can you just give us a sense of what to expect you know to Q3 Q4 Q.
For the remainder of the year. We we did not have I think we have three or four ships to dry dock this year.
But I can give you more specific guidance offline.
Uh huh, yeah, but it's not.
Nothing too significant.
We only topics.
In terms of.
Capex we have.
Progress payments for the new buildings would have.
Placed an order.
We've already paid for.
So I think around $18 million in Q2.
And we're gonna pay.
Another.
Ah 90, or 95 million through the end of the year.
So that's for the next that's Q2 and Q3.
Right.
So we will have we will close the year with a total of around $180 million.
In progress payments for the new buildings, so that's much more.
Cause heightened up deal to drive bookings.
Yeah.
Okay. That's helpful. Thanks, so much for the time I really appreciate it.
Thanks, Chris Thank you Chris.
Our next question will come from Chris Robertson with Jefferies. You May now go ahead.
Yeah.
Okay.
Hi, Chris.
Pardon me, Chris Robertson your line may be muted.
Okay.
It appears that huh.
There's no audio coming from his line so for that we will be moving on to the next question. Mr. Robertson, if you're still on the line. Please join the queue again. Our next question will be Jamie Mince Meyer with valued Investor edge. Please go ahead.
Hey, good morning, gentlemen, congrats on a fantastic operational quarter.
Thank you J J.
Yeah. So it's exciting to see that free cash flow is shooting up I wanted to start on a very positive note I noticed the extension on the CMA CGM ship the AD market with the most it was 152000 a day I've also noticed you had a couple more coming up in the next few months.
Indiana any indication on where those sort of rates are at right now what sort of benchmark should investors look at.
Well you know as that rate as you understand is for a kind of a short term.
Let's say extension that was a six to 12 months charter.
In general.
Uh huh.
Especially the liner companies when they can they try to avoid let's say such a high short charters and they prefer to take the vessel on a longer period at the lower rates.
So that's let's say it was a bit of a of an exception.
And ER.
We have.
And the other three ships, which are under the same let's say arrangement are.
With the CMA would change that.
They are paying us for six months.
Whatever we use the charter rate.
Is that the brokers are.
Or the market whatever the market rate for the six month period.
And.
We believe that the.
You know, it's going to be more or less the same for.
We are going to enter these discussions which tend to be around the fall.
Yeah.
Yeah, that's I mean, that's fantastic, even even though it's just for six months those rates are unbelievable. So you mentioned of course, the deleveraging and you mentioned that future growth I wanted to ask about the Newbuild strategy right now you have the set of shifts.
Is there a target leverage that you are looking to employ on those vessels and whats the timeframe, where youre looking to get a charter attached because my understanding is those are all charter for you at this point.
Okay.
You know our basic strategy.
Is too yeah, exactly because of our very strong balance sheet, which means that actually.
We could take delivery.
These vessels without debt if we wanted to.
Are.
We prefer really to be.
More let's say opportunistic.
Which means to wait.
And fix the vessels.
You know as closer to delivery as possible.
The liner companies that have not.
Uh huh.
Let's say made any commitments in the specific size and.
And they would like really to employ such vessels and yeah. There are a number of them.
Who have not.
Invested in let's say the segment and we know that they will need the ships.
And we prefer.
Let's say to wait.
To fix them when it is approach Nathan.
The strategy of our let's say.
Yeah.
Signing let's say an L know I for the yard.
And then.
Growing shopping around to the liner companies to see which one is going to give you a charter to confirm the M y.
Yes infrastructure GE of course shows that.
No one can do but.
Then returns are considerably lower because.
Liner companies know that you need their charter in order to order ships.
That's why our returns are considerably lower.
And on the other hand.
For these projects than to make sense.
Need a considerably higher leverage which of course, you can obtain on the basis of our let's say the longer term duration of the charter that you are getting.
But in the end you end up with.
Yes.
The same or even less equity returns, but at a much higher leverage level.
Yeah, certainly makes sense, there's a lot to think about wishing you. The best of luck with fixing those and hopefully the deleverage will be as high as you can possibly make it at least on a newbuild I had a question on your repurchase I'd be remiss not to bring this up I'm sure you were equally unhappy with.
With the share price performance over the past year. Your shares are extremely undervalued by any metric you want to use.
But I didn't see a repurchase authorization I was just curious on the thought process behind that I know you want to Delever, but is it possible that you can kind of all of the above.
Yeah.
Well as you said, our probably you already.
<unk> has been to secure the delevering.
And then the other hand also to secure some of our growth with the new ships that we have ordered.
As I said the question of share buyback.
As is always let's say on our radar screen.
But the board has decided that the priority at this moment.
Is exactly.
On.
The front, we just told you.
It's always the issue.
As you know we have increased our dividend recently by 50%.
And which means that we.
We are mindful about our returns to our.
Shareholders.
And.
I think yes.
Yeah.
The environment the overall as it is today.
Uh huh.
We prefer to be let's say conservative.
Syed.
Rather than just a let's say a spending the cash I mean, we want that now has to be associated let's say.
Is it kind of a triple a risk.
Although there.
There is no AAA in shipping that.
But I'm pretty sure that with all our actions and our results.
We are going to be upgraded by.
The rating agencies and that this will give us.
Even more tools for more shortly.
Growth.
And.
You know when you were talking about also the credit markets, which are very important for the growth of the company.
The number one.
[laughter] theme is consistency.
And.
We have been consistently doing what we have said there have been no surprises and the company will not make kind of surprises.
So that everybody is fully aware of the story.
And our commitments.
Yeah, certainly it's been very pleased with the operational results.
Australia and to see you deliver multibillion dollars in backlog considerable deleveraging a nice growth and to see the sharp I mean, if you strip out to them you're Zim holdings from your share price. Your shares are actually down about 20% year over year, which is which are stocking, but I know you're doing your best operationally and that's you know one of the main things you can ask for final question.
Really appreciate your time, what's the remaining strategy for those Zim shares you still have about $5 million of that and what's the what's the strategy with us.
And as I said, we don't really have a.
Any.
As we said we've already said before this is not the kind of a long term holding.
But we.
We do not have also any intention to do.
Get out.
Oh, the gene you know for the time being we believe that the zim in line with all the other liner companies.
He's going to made fantastic Louisa.
The results for our 2022.
And it's.
It's going to.
Deliver a significant dividend like are the ones that we've received this year.
So for the time being we are in a kind of a.
Hold position.
Yes, it certainly makes sense right. Thank you John Thank you of envelope keep up the great work.
Thank you. Thank you Jay Thank you Jay.
Okay.
Again, if you have a question. Please press Star then one.
It appears there are no further questions at this time I would like to turn call back over to Dr. Cousteau's for any further comments or closing remarks.
Yeah. Thank you all for joining this conference call and your continued interest in our story look forward to talking to you on our next earnings call have a nice day.
Yeah.
Thank you. This concludes today's teleconference, we would like to thank everybody everyone for their participation have a wonderful afternoon.