Danaos Corporation Q1 2023 Earnings Call

Today's call is being recorded.

Posting the call today is Dr. John Poustas, chief executive officer of Dano's Corporation and Mr. Evangelos Hatsys.

Chief Financial Officer of Daniel's Corporation. Dr. Kustos and Mr. Tatsis will be making some introductory comments and then we will open the call to a question in an answer session.

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 that archer 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 EDDA, adjusted EDDA and adjusted net income to evaluate our business.

Reconciliation 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 Dr. Kimstas, who will provide the broad overview of the quarter. Thank you, Evangelos.

Good morning and thank all of you for joining today's call to discuss results for first quarter of 2023.

The NOS reports yet another solid quarter despite the continuing geopolitical uncertainty in the turmoil in the financial markets.

Box rage strengthen after the Chinese New Year due to the blank sailing and decibly of liners companies.

In addition, the charter market improved.

due to the very limited supply of charter-free investments, as well as the impact of speed reduction, as charterers seek to comply with CIA regulations.

The analysis continues its successful chartering and asset management strategy, driving steady and predictable performance and laying the groundwork for continued growth.

while also pursuing environmentally sound policies.

Our chartering strategy delivered another strong quarter and we have a parading day's charge of coverage of 97% for 2023 and 73% for 2024.

Our strong chartering capabilities and our business strategy continue to drive solid performance.

In the first quarter, we successfully secured more than 318 million of contracted revenues through multi-year charters.

including 262 million for all six new buildings that will be the Lilleur class in 2024.

In addition, we have placed an order for two additional 6,000 DU vessels of the latest eco-design to be delivered in the 4 quarter of 2024 and 2nd quarter of 2025.

Armored in ourization efforts are key to the future of the company and highlight our commitment to maintain a wide quality fleet while supporting the ongoing decolonization of the industry.

We are very well positioned to navigate the operating environment with the new regulatory requirements that are becoming very demanding and complex.

Our very strong operating platform provides a significant competitive advantage in complying with upcoming relations.

While strengthening our value proposition and ties with our customer, as the industry focuses on achieving environmental goals and closure cooperation between owners and charters becomes increasingly important. We appreciate the ongoing support of our customers and employees.

and will continue to work diligently for the benefit of our shareholders.

With that, I'll hang the call back all those revangulars who will take you through the financial for the quarter. Thank you, John . Good morning again 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 this quarter of $7.14 per share.

or $145.3 million of adjusted net income, compared to adjusted EPS of $11.36 per share, or $235.3 million for the first quarter of 2022.

This 90 million decrease in adjusted net income between the two quarters is primarily the result of the $110 million ZIM dividend that had been recognized in the first quarter of 2022 and is no longer applicable as we have now disposed of all of our ZIM shares.

Otherwise, our Judgmenting have improved.

by more than 20 million, mainly as a result of a 13.7 million improvement in operating revenues and a 10 million dollar decreasing net finance expenses.

More specifically, the operating revenues increased by 13.7 million to 243.6 million in the current quarter compared to 229.9 million in the first quarter of 2022. This increase is attributed to a 30.4 million increase in revenues as a result of higher chart rates.

And that was partially upset by 3.3 million of lower revenues due to the sale of three vessels over the past six months.

and at 10.1 million decrease in the recognition of assumed chartered liability disemortization related to prior vested acquisitions.

Finally, we also have a 3.5 million decrease in revenues due to lower non-cast revenue recognition in accordance with US gap.

VESOL operating expenses increased by 1.4 million.

to 40.6 million in the current quarter compared to 39.2 million in the first quarter of 2022. Many as a result of the increase in the average daily up-ex cost that increased to $6,800 per day in the current quarter.

from $6,300 per day in the first quarter of 2022.

And this increase is mainly due to COVID-19 related increase in crew remuneration, increased travel expenses, insurance premiums, and general inflationary pressures that have prevailed between the two periods. However, our daily OPEX figure...

still remains as one of the most competitive in the industry. GNA expenses decreased by 0.6 million to 6.8 million in the current quarter compared to 7.4 million in the first quarter of 2022. Mainly as a result of the lower number of vessels in our fleet.

and lower stock-based compensation recognition between the two periods.

interest expense excluding amortization of finance course.

decreased by 7.7 million to 6 million in the current quarter compared to 13.7 million in the first quarter of 2022.

decreased by 7.7 million to 6 million in the current quarter compared to 13.7 million in the first quarter of 2022. The decrease in interest extends.

is a combined result of a 5.7 million decrease in interest expense.

because of over reduction in average indebtedness by almost 850 million.

between the two periods as a result of the rapid deleveraging of the company. And that was of course partially upset by an increase in cost of debt service.

by approximately 3%.

as a result of rising interest rates. We also have a 3.4 million decrease in interest expense due to capitalized interest on vessels under construction.

and at the same time we should note that in test income...

came in at 2.7 million this quarter effectively covering almost half of interest expense.

Adjusted EDD are decreased by 33.6% or 90.5 million.

to 179 million in the current quarter from 269.5 million in the first quarter of 2022. This is again primarily driven by the $110 million Zim dividend that have been recognized.

in the first quarter of last year.

and it's no longer applicable as we have solved all the same shares. The other positive EBITDA drivers have already been outlined earlier on this call.

and it's no longer applicable as we have sold all the same shares. The other positive EBITDA drivers have already been outlined earlier on this call.

Now we also encourage you to review our updated investor presentation that's posted on our website as well as subsequent events disclosures. A few highlights are as follows. Over the past three months we have secured $380 million of contracted revenue.

significantly improving our charted back load.

And these are all three year chapters.

As of the date of this release, the contracted Casual Value backlogs to to that 2.3 billion.

with an average of the duration of 3.2 years.

While contract coverage is 97% for this year and 73% for next year. Analytical disclosure on charter arrangements.

can be found in our investor presentation.

We have prepaid early on May 12th the remaining lease obligations for two vessels that at the end of the first quarter had $16.3 million of lease outstanding. We have prepaid out the.'"

And at this point we no longer have any leads obligations on our balance sheet.

As of March 31, 2023, our net debt

was 138 million and we expect to be net debt free.

within a matter of two or three months. In the current interest environment, this position is on still just obviously from high interest costs.

As of the end of the first quarter again, cash was at $360 million while total liquidity including availability under our revolving credit facilities stood at $731 million giving us ample flexibility to pursue accretive capital deployment opportunities. The company's net debt was adjusted EDI ratios to that 0.2 times as of the end of the first quarter and 44 out of our 68 vessel fleets in the water are currently unencumbered and debt free.

With that, I would like to thank you all 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 telephone keypad. If 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 will come from Omar Nocta with Jeff Rees. You may now go ahead. Thank you. Hey guys, hey John , hi Evangelos.

I guess first off, I guess congratulations on such a...

a strong shift and overall turnaround in the company. I would say when we look at and hearing what evangelists you were just saying about getting into a net cash position here in the next couple of months, clearly you positioned the company into basically its best financial condition ever, or at least since it came public. So clearly you've been

building up your cash position and you've been looking at fine-tuning your fleet you've done these new buildings and you've added to it here recently. I wanted to ask about the opportunity to acquire vessels in the market today and I remember maybe a couple years back you were able to find a transaction where you were able to get six ships.

that were eco-designed, modern, and they came with the low market contracts that you got them on the cheap. Those types of transactions are they available today, given the sort of the market shakeup that we have seen? Are there more SMT deals becoming available with that type of contract exposure? Any color you can give on that would be helpful. Well, there are very limited...

let's say availability of vessels, modern vessels.

There are of course plenty of older ships out in the market with charter that one could get.

of all those ships out in the market with charcoal that one could get.

Again, I think that paying high dollar, top dollar for ships that are not of the latest technology doesn't really make sense, at least for the vision that we have for our company.

We are in a...

in a situation that there is very little visibility as to how exactly the environmental issues are going to play.

And so we want all our new investments to be, let's say, environmentally safe.

We have a lot of older vessels and if of course these vessels are longer of course we can keep them the better but we already have a big bet.

this type of tonnage. So we want to let's say increase our bet towards

you know we also ordered two more ships

Our, let's say, bet when we ordered six ships last year, about a year ago, more than a year ago, without any charter commitments has paid off because these ships found pretty good employment. This is what Chapter 1 could of been about.

And actually we did not really seek any very long-term employment because we believe that for the echo ship is going to be upside.

Thanks, John . That's helpful. And maybe just on the, you know, your, your five biggest ships, the 13,000 to you vessels, you know, those have been on long term contracts since delivery back in 2012. They're starting to come up open for renewal.

Here at the beginning of 24, I see in the chart that there's those three-year extensions, wanted to just ask, how do those options extensions work? They were to be exercised for the full three years or a year at a time. And then two, when would we expect the option to be exercised? Or when is the strike conclude?

Well, the declaration of the option.

is

going to be sometime in the...

if I remember well, in the fourth quarter.

of this year. It's approximately 120 days before the earliest expiry. Well, in any case, we are not really concerned because there are very few, if any, chips of that size available.

in 2024 and we are already in contact with a number of liner companies about the employment of these ships.

You know, we are working towards something and definitely we will have something let's say fixed as soon as there is more clarity whether the existing chart is going to exercise the option.

Okay, thank you. And then maybe, John , just finally on those two new buildings you just ordered, those are late 24, first half of 25 deliveries, which have been a bit sooner than we've generally been expected to see.

Were those options that you had that you've exercised? You know slot options or these fresh orders and you've just been able to capture pretty good delivery. No, no, these were kind of fresh orders.

I mean, the yard had these slots kind of available as part of a series of other vessels that they're building.

And we moved very, very quickly. I mean, the whole deal probably closed within almost a week.

And that is the reason we've managed to do it because we've booked the ships.

without worrying about finance, worrying about charter or anything like that. So this is what I've always been saying, that the strength of our balance sheet is giving us extreme flexibility to grasp opportunities as soon as they come.

about finance, worrying about charter or anything like that. So this is what I've always been saying that the strength of our balance sheet is giving us extreme flexibility to grasp opportunities as soon as they come.

Great, well thanks John . That's it for me. I'll pass it over.

That's it for me. I'll pass it over. Okay. Thank you all more.

Again, if you have a question, please tell Star there's one.

Our next question will come from Clement Mullins with Value Investor's Edge. You may now go ahead. You may now go ahead and close the poll.

Our next question will come from Client, Mullins with Value Investors Edge. If you may now go ahead. Good morning. Thank you for taking my questions.

I wanted to ask on capital allocation. You've been clear you want to be in a position to be able to invest in modern turnage when the time is right.

and the orders announced yesterday were a step in that direction. But considering you'll be net debt free pretty soon, how should we think about additional share repurchases or potential dividend increases? Well, I think we've been very clear about that. We have in place a fair...

almost 40 million dollars. We hope we have another 60.

dollars we hope we have another 60

So, you know, that part is there.

In terms of dividends, we are maintaining the dividend.

despite, let's say, the uncertainties around in the market. And on the other hand, we are investing cautiously.

for the future as we've done with all our new buildings.

Alright, that's helpful. And regarding the two new build orders, how should we think about pricing? Is it in line with the orders you placed last year?

I'm sorry you broke up. Can you please repeat the question?

I'm asking about the pricing on the new new build orders.

Yes, it's something which cannot be disclosed at this stage. Today we will be in a position to disclose it.

in the next quarter earnings.

These were freshly executed. There are certain formalities that we need to conclude and at this point.

unfortunately will not have liberty to disclose the price. Alright, that makes sense. Thank you for taking my questions.

One moment, please.

One moment, please.

Showing no further questions, this will conclude the question and answer session.

I'd like to turn the conference back over to management for closing remarks.

Thank you all for joining this conference call and your continued interest in our story. Look forward to hosting you in our next earnings call. Have a nice day.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect.