Q4 2022 Danaos Corp Earnings Call
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Good day and welcome to the adopt the Dallas Corporation Conference call to discuss the financial results for the three months ended December 31st 2022. As a reminder, today's call is being recorded hosting the call. Today is Dr. John <unk>, Chief Executive Officer of <unk> Corporation, and Mr. <unk> Tacky, Chief financial officer of the <unk>.
Dr <unk> and Mr. Hockey's, we'll be making some introductory comments and then we will open the call up for a question and answer session.
Do you have the floor.
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'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 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 feed appropriate we would continue to refer to non-GAAP financial measures such as EBITDA adjusted EBITDA and adjusted net income to evaluate our business reconciliations.
Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
With that let me now turn the call over to Doctor of course, that's what would provide a brief overview of the quarter.
Thank you Mike Good morning, and thank you all for joining today's call to discuss our results for the fourth quarter of 2022.
This past year, Mark the peak of the container market and the exceptionally strong market conditions. We saw over the last two years are behind us.
The decline in box rates to pre pandemic levels across all sailing which.
Full shadows difficult times ahead.
The liner companies are projecting 2023 earnings materially lower when compared to 2022.
And we're still waiting to see the full effect of the looming recession.
Charter rates have fallen significantly, but remains higher than pre pandemic levels. However, charter durations are rarely exceeds 12 months.
Fortunately.
Warnings related from current market conditions is 93% of our available days are already contracted for 2023, providing us with excellent visibility for the year ahead.
Given our limited near term downside risk and minimal debt obligations, we have ample firepower to opportunistically take advantage of the forthcoming downturn.
We're closely following the developments in the liner space and the dismantling of the two M Alliance will definitely be positive for the amendment pervading oleds as it will be less.
Less efficient change the networks at.
Additionally, the effects of the carbonization have not been factored into the forecast for effective fleet supply reductions through the anticipated reduction in charity speech.
Liner companies are just now beginning to study the carbon intensity indicator or see eye to eye or their owned and chartered vessels and due to widespread criticism of the current structure of the index and the expectations that will most likely be multi fight no concrete action is being taken to rig.
Design networks with a view to conform to the index.
The analysis actively investigating various decarbonization strategies for our existing fleet and is actively involved in the optimization of the six environmentally friendly new buildings that are being delivered to watch next year what are you.
<unk> committed to our strategy of accretive growth and delivering superior results for our shareholders with that I'll hand over the call back to the Wranglers, who will take you through the financials for the quarter.
Thank you John and good morning to everyone and thanks again for joining US today I will briefly review the results for the quarter.
And then open the call to Q&A.
We are reporting adjusted EPS for the current quarter of $6.99 per share.
Our adjusted net income of 441 6 million compared to adjusted EPS of $6 10 per share.
Other than $25 8 million for the fourth quarter of 2021.
This increase of $15 8 million in adjusted net income between the two periods.
Oh for 57, and a half million increase in operating revenues.
Five and a half million dollar improvement in net finance expenses, partially offset by a decrease of $16 million in dividends, whose shares we have now sold.
And then $11 million increase in total operating expenses.
More specifically operating revenues increased.
As I said by 37, and a half million to 252.5, maybe even in the current quarter compared to 215 million in the fourth quarter of 2021.
This increase is attributed to a $72 9 million increase in revenues as a result of higher charter rates.
Partially offset by $1 6 million lower revenues due to the sale of two vessels during the fourth quarter of 2022.
And the $7 9 million decrease in recognition of her shoe chocolate liabilities.
The amortization of recent vessel acquisitions.
Finally, we also had the $25 9 million decrease in revenues due to lower noncash revenue recognition in accordance with GAAP.
Vessel operating expenses increased by $2 8 million to $40 million in the current quarter.
From $37 2 million in the fourth quarter of 2021.
Mainly as a result of the increasing the average daily operating cost.
<unk> increased to 6004 habitant $17 per day for this quarter.
Up from 5008 tablet and $60 per day.
In the fourth quarter of 2021, mainly due to COVID-19 related increase include immunization.
An increase in travel expenses as well as increased insurance premiums in general inflationary pressures. However.
Our daily running costs remains I was one of the most competitive in the industry.
G&A expenses decreased by $3 7 million to $14 9 million in the current quarter compared to $18 6 million in the fourth quarter of 2021, mainly as a result of lower stock based compensation.
Between the two periods.
Interest expense, excluding finance cost amortization.
<unk> decreased by $3 2 million to.
To $10 9 million in the current quarter compared to $14 1 million in the fourth quarter of 2021.
And this was a combined result of a $1 7 million decrease in interest expense.
Because of a decrease in our average indebtedness by approximately 519 million between the two periods.
Partially offset by an increase in cost of debt service.
By a 238 basis points as an example, right.
Rising floating interest rates.
We also had a <unk> 3 million decrease in interest expense due to capitalization of interest.
For the vessels, we have under construction.
And all of that was partially offset by reduced supposedly better cognition.
Through our income statement for accumulated that accrued interest of $1 5 million.
That had been accrued for credit because he believes that have now been fully repaid.
Our adjusted EBITDA increased by 10, 8% or $17 2 million.
Rather than $76 4 million in the current quarter put on my husband and $59 2 million in the fourth 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 well as subsequent events disclosures I'd just make a quick note of sugar and highlights.
At the end of the year, our contracted revenue backlog stood at $2 1 billion.
With a 3.4 years average charter duration.
While the contract coverage is at 93% for 2023.
And six 3% for 2024 hour Investor presentation has analytical disclosure on our contracted charter book.
Finally as reported in our earnings release.
The company's net debt to adjusted EBITDA ratio stood at four.
Three times.
As of year end.
142 out of our 68 vessels are currently unencumbered and debt free.
Laugh to also note that as of year end, our total liquidity, including Undrawn available commitments was approximately $650 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 the call to Q&A.
Yes, Sir we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys and to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Okay.
And the first question will come from Omar <unk> with Jefferies. Please go ahead.
Thank you and Hi, John Hi, It's Angela good afternoon.
I am Mark just hi, Yeah, just wanted to just ask a bit about the balance sheet. Obviously 2022 was a transformational year and youre positioned quite well, we'd say going into this market downturn. We've got a strong balance sheet, you've got the 2 billion plus backlog and evangelists that you just mentioned you've got the cash and liquidity of $650 million.
Brent.
You brought down your debt levels aggressively over the past year, how do you think about your financial position today kind of going into this uncertain outlook and at some point. It seems that you may be getting into a net cash position. How soon do you think that's realistic.
Okay.
Well.
You know on the basis of a goodwill.
That's pretty soon you know be at a net zero debt.
Of course this is not something that are you know we intend to keep on the other hand.
Ah you know shipping is a kind of a cyclical business.
The container market has just entered the downturn.
And.
We will be following.
Exactly what is happening to sheep at which moment.
We think that.
You know each to the time is right.
In order to make a some.
Acquisitions.
It's very difficult to give you a specific kind of time line.
Although there is a lot of uncertainty in the world.
And one thing that we need really to realize is that.
We are moving after many many years into a significant leap higher interest rate environment.
Which makes let's say break even calculation for assets quite different than what they were let's say in the previous decade.
So.
People are are not sure yet what will be the peak interest rate and how long it's going to last.
So we will be monitoring.
All of these factors and exactly because of our very strong position.
We are not in a hurry to make sure that we make a call right.
Okay.
Thanks, Thanks, John Yeah, It definitely feels say as opposed to just about 15 years ago going into the last major downturn.
Yeah.
The industry overall is in a much stronger position as we were just saying you've got strong liquidity and it seems that being debt free is very quickly on the horizon.
Does it given the uncertain outlook and how it's still playing out we're in the beginnings of this downturn, who knows how long it lasts could be short could be longer.
And then you've got the interest rate situation.
If you were to develop into a net cash position I know you. Just said you don't know how long of a timetable you'd be there.
If we were to think about just the use of cash here over the next maybe few quarters is it pay down debt that remains.
Build up the cash position and then just wait.
Until maybe deploying capital later in the year does it shifted the 'twenty four and any kind of color you can give on that.
Yes.
Well you know it's not that we are let's say standing still to the extent that we are expecting six vessels next year.
So ER.
We already.
Have a let's say a growth commitment.
Further than that as I said, we'll need to see how the market develops.
I I don't really expect a.
That we will have let's say visibility until later in the second half of this year.
Yes.
Makes sense and it seems to be kind of similar discussion from some of the liners as well Doug waiting until the second half to have a better sense.
And then maybe just one final one you mentioned that the six new buildings have come on next year.
What are you thinking right now about those vessels clearly those are.
In terms of quality of the best out there when they deliver them.
You mentioned in the release that the time charter interest is still there, but it rarely goes beyond 12 months, how do you think about the employment or what kind of discussions we're having now with charterers on those new buildings in terms of stay duration.
Hello.
12 months was talking about ships in the water when we're talking about a new buildings.
We're easily talking three to five years, even now.
As I said, we are not in a hurry because we don't really need a charter in order to be able to secure finance for the ships. We are funding these vessels from our own resources.
So.
We are fortunate that we are able really to wait and to see exactly.
Ah you know what's going to be the best employment for these ships.
Okay, Alright, well thank you John .
I'll turn it over.
Again, if you have a question. Please press Star then one.
[laughter].
Okay.
It appears we have no further questions at this time I would like to turn the call back over to a doctor who's dates for any closing remarks. Please go ahead Sir.
Yes.
Thank you all for joining this conference call and your continued interest in our story look forward of course to you on our next earning calls thank you.
Okay.
Thank you. This concludes today's teleconference, we would like to thank everyone for their participation have a wonderful afternoon.
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