Q2 2022 Danaos Corp Earnings Call
Good day.
Welcome to the <unk>.
<unk> Corporation conference call to discuss the financial results for the three months ended June 30, 2022.
As a reminder, today's call is being recorded.
Hosting the call today is Dr. John Cousteau's.
<unk> Executive Officer of Denounce Corporation and Mr. Evangelist Hot six Chief Financial Officer of denotes Corporation Doctor accused us and Mr. Heartbeat.
We'll be making some introductory comments and then we'll open the call to a question and answer session I would now like to turn the conference over to Mr. He populous heartsease Chief Financial Officer. Please go ahead.
Thank you operator, and good morning, everyone and thank you for joining us today.
Before we begin I quickly want to remind everyone that management's remarks. This morning may contain certain forward looking statements and that 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 the.
Factors that might affect future results are described in our filings with the SEC and we encourage you to review these detailed safe.
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 our company.
My theory is.
With that let me now turn the call over to Dr. John Who's Festival will provide the broad overview of the quarter.
Thank you everybody loves good morning, and thank you all for joining today's call to discuss our results for second quarter 2022.
The announced business model continued to generate strong results in the second quarter.
More than doubling our adjusted net income compared with a year ago.
Given our fixed charge coverage over the next 12 months, we expect these metrics to improve.
At the same time closely followed.
On the conditions and the potential impact while industry.
A confluence of factors, including high energy prices inflation.
Texas Award in Ukraine will likely resolve the sluggish economic growth.
Maybe I can really impact trade volume.
Have you ever had.
Inefficiencies on the store side, and the supply chain and cold beverages in China are keeping vessel utilization high.
We used to wait in pine sheet Court.
Additionally, the increase in fuel cost.
Likely from liner companies to reduce vessel shavings sweet as soon as well.
However, we do not expect that to happen until the.
Second quarter.
Oh.
Environmental regulations.
C III compliance leading liner companies do we can John .
Knowledge each to ensure there's not breached requirements.
Also shortly our cash the market we are actively C O two emissions.
These mitigating factors point to a weekend rather than a collapse of the market.
We expect the majority rates much higher than pre pandemic levels.
Charter rates are holding firm, it's available call him he's very stocks.
The company is very well positioned with a strong liquidity position and balance sheet that can sustain.
Real deterioration of economic conditions.
This is reflected upgrades by both S&P and Moody's the highest level among public shipping companies validating efforts to create a very narrow sector.
We are all changed made it from rising interest rates as we have reduced our floating rate debt.
Well, while our cash and marketable securities you will continue to use our balance sheet Opportunistically with a continued focus on state of the argues buildings with environmental profile.
There are lighter faster.
Which also gives us great confidence about the future of our core already ordered six maximum rate between the buildings.
Also continuing to return value to our shareholders through our dividend and our share buyback program would be.
A number of outstanding shares by approximately 2% in the course of.
About one month.
With that I will hand, the call I'll go back to the vascular who will take you through.
For the quarter.
Thank you John and good morning, again to everyone and thanks again for joining US. This morning, I will briefly review the results for the quarter and then give call participants the opportunity to ask questions.
We are reporting adjusted EPS for the second quarter of 2022 or $7 59 per share or adjusted net income of $157 1 million compared to adjusted EPS of $3 34 per share or $68 9 million for the second quarter of 'twenty two.
'twenty one.
The increase of 80 to $88 2 million in adjusted net income between the two quarters is the result of.
An increase in operating revenues look like other than $4 5 million.
And a $13 9 million net dividend booked in relation to ours in equity holding.
Partially offset by higher total operating expenses of 20 to 22 million mainly.
Mainly due to the increase in the average size of our fleet by 11 vessels between the two quarters.
7.8 million increase in net finance expenses.
And at $2 2 million decrease in income from Jeremy Night that was fully consolidated in the third quarter of 2021.
More specifically operating revenues increased by $4 5 million to $250 9 million in the current quarter compared to $846 4 million in the second quarter of 'twenty one.
This increase is attributed to a $62 million increase in revenue as it is out of higher charter rates.
And $23 9 million incremental revenues as a result of the vessel additions to our fleet between the two quarters.
Revenue also increased by $2 9 million, mainly due to straight line revenue recognition accounting and further increased by another $15 7 million.
The amortization of assumed charter liabilities recent vessel acquisitions.
Operating expenses increased by seven 7 million to $40 6 million in the current quarter compared to $32 9 million in the second quarter of 2021.
Mainly as a result of the increase in the average number of vessels in our fleet.
While the average daily operating cost increased to $6463 per day for the current quarter compared to $6241 per day in the second quarter of 2021.
And that was due mainly to COVID-19 related increase in crew them.
In addition.
And increased insurance premiums due to the tightening of the insurance market.
Between the two periods, our daily Opex cost still remains one of the most competitive.
In the industry.
<unk> expenses.
We remained steady at $7 1 million in both the current quarter and the second quarter of 'twenty one.
Our interest expense, excluding the amortization of finance costs.
Decreased by one 4 million.
$12 9 million in the current quarter compared to.
$14.3 million in the second quarter of 2021.
Vicki was a combined result of a 2.2 million decrease in interest expense.
Also a reduction in our average indebtedness by approximately 311 million between the two periods.
Partially offset by an increase in debt service cost by approximately 44 basis points, mainly as a result of rising interest rates.
We also have.
And North point 7 million decrease in interest expense due to capitalization of interest.
On vessels under construction.
We also have that he views positive initial through our income statement of accumulated exactly the interesting one and a half million.
Have been accrued.
2018.
In relation to the five Madison, Wisconsin method.
And as a result of Oh.
Financing that anchors, we put in place in April of 2021.
The recognition of such a cumulated interest has been decreased.
Adjusted EBITDA increased by 85, 2%.
Or a P $8 4 million.
Under the $92 1 million in the current quarter from $103 7 million in the second quarter of 2021.
For the reasons outlined earlier on this call.
We also encourage you to review our updated Investor presentation, which is posted on our website.
As one subsequent event disclosures.
A few of the highlights followed during the second quarter, we substantially reduced leverage by early debt and lease repayments of $434 million.
And realized a gain of $22 9 million in relation to this debt extinguishment.
These early prepayment combined with scheduled debt repayments and including a new credit facility feels like rather than 30 million.
That was put in place in the current quarter.
Overall have led to the reduction of the corporate net debt.
Our last 12 months' adjusted EBITDA ratio to below one and more specifically to 0.9 times.
Currently 15 of the company's vessels are debt free.
And these early debt repayments, we don't need huge debt and lease amortization to approximately 25 million run rate per quarter.
Going forward.
So at the end of July we have repurchased 409200 shares of common stock in the open market.
For $25 1 million executing under a 100 million share repurchase program.
I was at the end of the second quarter, our contracted cash revenue backlog stood at $2 3 billion with a three with a three six year average charter duration.
While contract coverage is at 99% for 2022.
80% for 2023 why leave in 'twenty 'twenty four is already contracted at 55%.
Our investor presentation has analytical disclosure on our contracted charter book.
And all the other models that have been discussed with that I would like to thank you for listening to this first part of the what I call. Operator, we are now ready to open the call to Q&A.
Thank you we will now begin the question and answer session.
I ask a question you May press Star then one on your telephone keypad.
If youre 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.
Our first question comes from Omar <unk> with Jefferies. Please go ahead.
Thank you Hey, guys. Good afternoon, John and its Angeles, well congrats again on a very strong quarter and really nice to see you guys taking advantage.
The situation really paying down debt and further strengthening our balance sheet I wanted to ask about the the 15 shifts that are unencumbered debt. As you said there were charter free 1.6 billion. If I recall you have agreed to sell two of them previously how should we think about the remaining 13 are those sales candidates or.
Those.
Asked et cetera, you're holding onto it with added flexibility, but how do you just generally view those those ships in the in the NAS framework going forward.
And well first of all Amara well come back.
If you know you do.
Do you have your calories, yes.
It's being you know really one of the first tenant leaves the cowboy since 2006.
So I think you've got probably the most extensive knowledge of the company.
Good morning, and unleash a calorie yes.
Yeah well.
These 15 ships are not held for sale.
Of course.
Showed the ships if we get at a very interesting.
Let's see purchase proposal.
We can never Tonight, but for the time being no.
These ships are yeah.
Yeah, just she does in the company.
And Oh actually.
We provide that.
You know electric with security to our to be unsecured.
It makes it that torch.
Because it won't hold virtually all company, which makes.
The bomb.
Work shortly.
Got it alright, thanks, John and thanks for your words towards me, it's been a pleasure following denounced for for so long and it's come such a long way here, especially the past two years.
And you know wanted to maybe next question asked.
In terms of as you highlighted your methanol new buildings.
As you prepare for stricter regulations upcoming.
If you think about strategically deploying capital today.
And in anticipation of that do you see more incremental capital going towards the new buildings or do you try to find secondhand ships that are younger eco similar to the one those chips you acquired last summer.
Well each of you know we are open to all the shape.
Shay possibilities that makes sense.
For the time being.
You know secondhand ships are pretty expensive.
And.
No we do not want really to have a very high capital Bergen.
Oh and the older vessels.
<unk>.
If we make an investment.
Well definitely.
It needs to be on a green technology.
Because at some stage.
Really the whole fleet.
Illegal.
To see how are you both developed in terms of their commitment because for the time being it's a little over 50%.
<unk> P M eastern.
With what's happened in the world today.
Carbonization.
Pressure to amend.
That net zero by 2015.
Which means that we need a much more aggressive investing.
Investment strategy to green buildings.
And we are following that very closely.
So we've got you know we are really a couple.
The game.
Yeah.
Definitely.
John One one final question just more market related.
Obviously, we've seen you guys have been at the forefront of chartering your ships on longer and longer term contracts.
How would you characterize the market today, you know usually this backdrop of easing freight rates and uncertainty ahead, how would you characterize it.
Liners appetite today for for fixing ships that come open say in an twenty-three how does that look today versus say, maybe six months ago.
Well Theres no doubt that our people are.
Generally more conservative.
Yeah.
There are a lot of requirements around so the issue here is not that.
Liner companies do not have to be quiet.
Judge that.
Because we're talking about 2023.
Nobody feels like J D edge too.
To pay top of the market at this moment and home led by waiting.
It might be able to get the ship.
Let's say cheaper.
So it's not so much that there is no requirement.
The people are hold loved in the hope that they will be able to commit the ships.
Lower level.
On the other hand, exactly because the old yes.
Not mood stress.
Yeah, not prepared really to let's say to put their pants down.
As we did with changes in the past.
The just to get in right.
So you know we'll have to see.
How the world situation develops.
So that yeah.
It's about <unk>.
<unk> will be made.
Rather than for example, yeah.
As before actually the requirement.
Does it change the pays out six months ago.
Maybe they will definitely need to do it.
Six months or eight months before them quite well.
Would you still.
Longer.
Kind of a two to three months.
Peeling that.
Once the change pre pandemic.
Got it.
Thanks, John very helpful. I appreciate it and congrats again I'll turn it over.
Thank you Omar thank you.
Okay now if you'd like to ask a question. Please press Star then one at this time. Our next question comes from Chris Wetherbee with Citigroup. Please go ahead.
Yeah, Hi, Thanks for taking my call.
You talked about.
Sort of a normalization in the market.
I think at higher levels than what we've seen in the past I know this is a difficult question to answer but I'm curious what do you think it means so where do we think that sort of the you know maybe 'twenty 'twenty three 'twenty 'twenty four normalization in the market what does that look like in terms of the level of rates.
No. There are continued to be constrained and obviously supply chain challenges, but can any sort of thoughts you have just the magnitude and potential normalization would be very helpful.
Yeah.
Chris.
Yeah.
And in general.
Uh Huh mcshea long term rates in the market.
Hey, Jude.
By a combination of Ah.
The actual new building costs.
And.
Our financing costs.
Just two.
We very much are the high sites to do.
Which means that there is no.
Mccain and incentive pool.
Someone.
<unk> lead to ship.
For a longer period to commit.
He needs to really pay on the basis of these two package okay.
Quickly in terms of the older cars.
Let's say.
Of course, another factor, but the.
One is the price of the kit.
Our finance and of course, I mean, we still think that show up out there.
That's right.
No one could go with <unk>.
Sure.
Today.
And then if they are not.
And on the other hand this is a key thing.
Yeah.
And I'm, calling the checklist have market.
Because the alternative uses some want to have a long term a new ship is Takeda has made even short term.
Well I'm going to be appealing to a charter of an existing ship.
Until the situation becomes clear.
Clear.
Okay. Okay. That's helpful. I appreciate that perspective.
And then maybe just thinking about sort of the balance sheet and what do we think.
The right level of debt is obviously from an EBITDA perspective, we're running at a pretty pretty robust level here or maybe there's a normalization coming so I don't know how much work you you kind of think you need to do from here in terms of paying down debt and how you balance that with share buybacks and obviously incremental investments.
Our fleet.
Okay.
Well.
Yeah.
And as you know.
No exactly because shipping.
Uh huh.
A cyclical industry.
It's what you really need to see is how you get to eat that moves through the cycles.
Of course, now with a very strong market.
Had a debt to EBITDA.
Zero quality coal.
Nine.
And absolutely.
If we take into account also some of our other marketable securities.
Even lower than that.
But this is really now that we are.
All the color.
The cycle.
N.
At a moment that we have not done any would you kind of expansion.
We believe that that let's say through the weekend.
Of the market and our.
Mcqueen expansion.
This.
Could go.
Ah you know somewhere.
As a maximum up to about two <unk>.
And that's it.
It will be the level that we want to keep.
Because we.
We are very much.
And where was that.
Right Yep.
Yes.
Directly influenced by.
These ratios.
And we consider it a very high ranking as a key to our future by be able really to bull rope at cheaper than our competitor.
Companion.
Okay. Okay. That's great. That's helpful. I appreciate the time today. Thanks, so much.
Okay. Thank you. Thank you krish.
Our next question comes from Tal <unk>.
I go with the best Docs. Please go ahead.
Hello, everyone I am I would like to first congrats you saw the recent a quieter the financial statement looks amazing and definitely you did a great job there.
I would like to ask a question I had issue at the beginning of the call. So maybe I missed it.
You mentioned it before but regarding the buyback program you mentioned, a two D C C a M.
The program will be around the $100 million the recent financial statement.
Mentioned that 25% of it I wonder if there is going to be a continuous off the oh, the program or any change a bit.
In case, you're going to extend it or.
Complete the plan is declared at the beginning thank you very much.
Yeah, No no the plan remains in place.
Oh, we have executed that.
Share buyback.
I can answer that.
We want to be accretive for shareholders.
And additionally.
This was done in a period.
It's a pretty slow.
Mark as you know during the summer to ensure.
So we have BK out share buyback.
Which means that we could not to really buy many more shares in that period of time because.
Liquidity was not there.
Yeah, I I can really get it so D. The programming remains the same and yeah, you will complete at two where 100 million and eventually.
Well, if I may I mean, the program by nature of these opportunistic.
Right Yeah. It is.
Yeah.
It's there's no expiration date.
And you talked with the board to decide.
If they want to discontinue it so it's an open a program, which we wouldn't.
Seek to execute in the best possible way for our shareholders and the board.
We've used these matters periodically so I cannot give you.
A perfect answer, but that's how it is.
I see thank you very much good luck.
Thank you.
Yeah.
Our next question comes from Quinn Bolton with value Investor's edge. Please go ahead.
Good morning, gentlemen, thank you for taking my questions. Following up on the repurchase authorization you will really use a word but you continue to trade at a very significant discount to NAV.
So all the repurchase at a very attractive what's occurring.
Your current view on the tradeoffs between increasing the dividend and additional repurchases.
Yeah, well first of all as far as the as we said before the repurchase.
Robin maybe you can.
Page.
As I said, we are going to use it to the best interests.
We should seek for all shareholders.
Regarding the dividend.
Yeah for the time being.
Alright.
It remains steady and.
Yeah.
It's.
Going to end.
The action of the dividend its going to be.
Definitely not earlier than.
12 months from the previews grades.
Alright, that's helpful.
And your balance sheet is now very strong and will continue to strengthen going forward.
Do you still believe scoring new building prices started attractive or do you prefer to take a wait and see approach going forward.
Yeah.
You know that.
For the time being we do not see.
Ah you know any attractive opportunities.
But as I said this is a major shipping it's cyclical.
We are best positioned that anyone else too.
Jump into any interesting opportunity that we're going to encounter.
Indeed indeed.
That's all from me. Thank you very much for taking my questions and congratulations on this quarter.
Thank you.
It appears we have no further questions at this time I would like to turn the call back up in a doctor accused us for any further comments or closing remarks.
Thank you all for joining this conference call and for your continued interest in Nashville looks.
Look forward to hosting you on our next earnings call have a nice day.
Thank you. This concludes today's teleconference, we would like to thank everyone for their participation have a wonderful afternoon.
Yeah.