Q2 2023 Danaos Corporation Earnings Call
Good day and welcome to the Dol.
Corporation Conference call to discuss the financial results for the three months ended June 30th 2023.
As a reminder, today's call is being recorded.
Hosting the call today is Dr. John <unk>.
Chief Executive officer of within our Corporation.
Mr <unk> gala puppy cheap.
Chief Financial Officer.
Corporation.
And that's the.
Pete.
We'll be making some indirectly comments and then we'll open the call for questions and answers. Please.
Go ahead.
Thank you operator, and good morning to everyone. Thank you for joining us today before we begin I quickly want to remind everyone.
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 the safe Harbor and risk factor disclosures.
Also note that where we've seen the appropriate we will continue to refer to non-GAAP financial measures such as EBITDA adjusted EBITDA and adjusted net income.
With our business the conciliation drove non-GAAP financial measures adopt financial measures are included in our earnings release and accompanying materials with that let me now turn the call over to Dr. John <unk> will provide the broad overview of the quarter John .
Thank you have annulus.
Good morning, and thank you all for joining today's call to discuss our results for the second quarter 2023.
The world economies stagnated in the second quarter of 2023, resulting in a gradual easing of the container market.
Now now active strategy in the current market condition is made possible by the prudent approach we have taken to manage our balance sheet too conservative levels as well as all successful chartering strategy.
The latter is reflected in our operating revenue was up 241 million, which is new York two previous record.
Bight, a charter market dropped that is more than 50% lower than a year ago.
We continue to be active in the charter market highlighting the resilience of our business model and secure nearly half a billion in new charter contracts during the quarter.
Our total charter backlog increased to two and a half billion as of the end of the quarter.
Perhaps a childhood Fabulous currently stands at 19, 9% for 2023, 86% for 2024.
In the second quarter of 'twenty fleet analysis, we see the Gold's first place awards in the Gamma Ray mentioned environment categories. The inaugural ESG sitting at work.
These accolades, which we're proud of Acknowleged company's exemplary airports and promoting sustainable practices.
So the responsibility and strong governance and reaffirm our position as a leader in responsible my time operations.
The timing of your words, just north of book I am always simply reiterate even strengthen its commitment to decarbonize shipping by targeting net zero by around 2016.
The analysis continues to advance its urbanization strategy in multiple ways.
Constantly optimizing and retrofitting our existing fleet that have committed look great around 20 vessels with new propeller smell saving offended Jason little puts and takes.
We have also expanded our new building program with the order of four additional new building vessels.
These vessels two of which are 6000, Teu and two of which are 8200 <unk>.
Well, we delivered already.
Shoring the longevity of our investment.
In total we have 10 vessels with a total capacity of approximately 75000 teu or not.
All of these will be able to utilize alternative fuels and importantly, six of these vessels already chartered for multiyear periods beginning on their delivery dates in 2024.
We also deployed capital Opportunistically after identifying weakness in the dry bulk market a market we are very familiar with.
We believe the long term fundamentals in the dry bulk market are very positive.
Particular, the order book is at historically low levels and fleet supply growth is projected to decline significantly over the next several years against the backdrop of rebounding demand.
Short term market sentiment is not as strong and we were able to make investments at attractive prices.
It's been previously recorded another supplier.
I'm speaking Eagle bulk shipping the New York Stock Exchange listed dry bulk company.
Additionally, we acquired five capesize bulk her in the secondhand market.
With respect to Eagle, we were able to purchase shares in a company. We believe our best in class corporate governance practices, I think significant discount to our perception companys net asset value.
Shortly following our investment the border, we do lots of Remy complemented the poison pill and repurchase Oaktree capital was 28% stake in the company.
35% premium.
45 day, although it's fair prices and a 32% premium to our cost basis.
These transactions, which were done by Eagles board fundamentally alter our view of Eagle's corporate governance.
Our concern with these developments and are seeking clarification from the board of directors.
I think the bulk second largest shareholder we have a strong vested interest in seeing the company enhance long term shareholder value and believe that we have a judy to speak up when we think of the board and our management, maybe acting outside the best interest of all shareholders.
Accordingly, we are committed to working constructively with the Barclay identify balance well considered and effective methods to enhance shareholder value on behalf of all shareholders.
With respect to our interest in the dry bulk market in general that now has significant experience the dry bulk market is an older and operator.
We exited the segment years ago, which was a well timed to see her insight and now we again see opportunities.
The strength of our balance sheet.
<unk> position.
<unk> capital in various ways to grow our revenue base and earnings.
Our fleet of container vessels, which are contracted a multitude of charter provide strong revenue and cash flow visibility.
Why do we will continue to grow and future proof our core fleet by adding next generation vessels. Our ultimate goal is to generate value for our shareholders and we will consistently pursue the best opportunity to do so.
And as I've said before our healthy balance sheet allows us to opportunistically deploy our capital in various ways. During the quarter. We continued our buyback program and have now spent 65 and a half million about 100 million buyback program to retire more than 1 million shares.
Finally, we remain committed to returning capital to shareholders as evidenced by your point 75 per share dividend and Alex This morning.
We will continue to implement our strategy to ensure the long term growth and profitability of the company and are consistently focused on creating value for our shareholders.
With that I'll hand over the call back to you, but I can look who will take you through the financials for the quarter.
Thank you John and good morning, again to everyone and thanks 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 2023 of $7.14 per share or adjusted net income was $143 4 million compared to adjusted EPS of seven point.
$59 per share or $157 1 million.
For the corresponding quarter of 2022, this decrease of $13 7 million and adjusted net income between the two quarters is primarily the result of the $13 9 million zinc dividend. That's have been recognized in the second quarter of 2022, which is no longer applicable during this quarter as we have now sold.
All of ours in shares.
Otherwise our adjusted net income improved slightly mainly as a result of a five and a half a million increase in operating revenues due to better your child's getting rates for our fleet a 10.2 million decrease in net finance expenses, mainly driven by the significant deleveraging of our balance sheet.
And North point 1 million improvement in total operating expenses.
Suddenly offset by highest point 4 million decrease in operating revenues due to vessel disposals.
None of the half million decrease in operating revenues.
The revenue recognition accounting.
And in North point 7 million loss on our C. T T equity investment that is in getting the research and development costs to explore decarbonization technologies for the shipping industry.
Vessel operating expenses increased by 1.2 million to $41 9 million in the current quarter compared to $40 6 million in the second quarter of 'twenty to 'twenty two as a result of the increasing the average daily.
Vessel operating cost increased to $6970 per day for the current quarter from $6463 per day in the second quarter of 2022, mainly due to inflationary pressures that's affected the repairs and maintenance costs between the two periods as well.
As increased insurance premiums still our operating costs continue to remain among the most competitive.
The industry.
<unk> expenses remained stable at 272 million in the current quarter compared to $7 1 million in the second quarter of 2022.
Interest expense.
Excluding finance costs on amortization decreased by $7 6 million to $5 3 million in the current quarter compared to $12 9 million.
The second quarter of 2022.
The decrease in interest expense as a combined result of a $5 3 million decrease in interest expense due to the reduction in our average indebtedness by almost 700 million between the two periods, partially offset by an increase in the cost of debt service by approximately two 9% as a result.
Rising interest rates.
We also had the 3 million decrease in interest expense due to capitalized interest on vessels under construction.
And reduce positive recognition through our income statement of our accumulated back with interest.
Not one 7 million.
That had been previously accrued in relation to two of our credit facilities have now been fully repaid at.
At the same time interest income came in at $3 6 million effectively covering almost two thirds of our interest expense for the current quarter.
Adjusted EBITDA decreased by seven 7% or $14 8 million.
Seven $7.3 million in the current quarter from 192 points 1 million in the second quarter of 2022, primarily due to the $13 9 million Zim dividend that had been recognized in the second quarter of 2022 as previously discussed the.
The other EBITDA, but all of us have already been 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 if few of the highlights.
Over the past three months, we have secured.
$469 million of contracted revenue.
The arrangement of new charters for 12 container ships in our fleet.
The new fixtures, notably include additional contracted revenues of us other than 77 million or 313000 Teu vessels that were forward fixed on new three year charters.
And two other than 27 million or five eight and a half thousand teu vessels, but were extended for the Florida, an additional three six years.
As a result, our contracted cash revenue backlog has now improved to two and a half billion.
With the three points a year average charter duration, while contract coverage is up 19, 9% for 2023.
And 86%.
For 2024 hour Investor presentation, Hudson elliptical disclosure on our contracted charter book.
During the second quarter, we also prepaid early the remaining lease obligations for two vessels.
First quarter stood.
$66.3 million and we now no longer have indeed lease obligations on our balance sheet.
As of June 32023, our net debt is down to 131 million.
In the current interest rate environment. This position she just chrome.
Interest costs. Additionally, the company's net debt to adjusted EBITDA ratio stood up not 0.2 times.
And 44 out of our 68 vessels are currently unencumbered.
And debt free.
Finally as of the end of the second quarter cash was 293 million, while total liquidity, including availability on there.
Sure.
53 million in total, giving us ample flexibility to pursue.
These capital deployment opportunities.
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.
Thank you well now begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
As you know speaker phone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
Tom will pause a moment apparently to assemble the roster.
First question will be from Omar <unk> of Jefferies. Please go ahead.
Alright, thank you.
Hi, John Evangelists good afternoon.
You guys had been a very active here recently, you've added some backlog if ordered the the two container ships bought back some stock bought eagle and or a button for Eagle and acquired the five Capes just wanted to ask you know maybe just kind of if you could frame it what what's changed here to give you the confidence to start deploying capital so.
So perhaps aggressively relative to the more restrained outlook you had earlier this year.
Yeah.
Uh huh.
Well as we said we are deploying capital where we can.
C.
Let's say that they're all going to be.
No interesting recurrence.
And.
The basic.
Capital allocation.
Investing in new ships that are will be able to utilize a green fuels.
It's definitely part of our strategy, but also a requirement for the longevity of the company.
And you know.
As I've said.
The I M mode today is kmiec at.
For shipping.
Into a greener environment.
And and you want it doesn't really get he believes that he has.
It's going to be business as usual.
Is going to be for a surprise within the next few years, so we definitely need.
To invest in that park.
Secondly in terms of our investment.
In the dry bulk market.
As we've already said fundamentals look good.
And we believes that.
In the future we can enlarge our source of income to this market as well.
Thanks, Jonathan Yeah, just I did want to ask obviously on dry bulk you spent the past maybe 15 years or so almost exclusively as a containership company.
You've now got the stake in Eagle gives you exposure to the mid sized drybulk classes, you've now got the five case on hand.
You mentioned, having a bigger piece of our earnings coming from Drybulk is this when we think about the announced going forward is it really has to become a two pronged story one leg. That's containers. One that's drybulk or is this more of an opportunistic investment at this point in the cycle given where.
Where where sentiment has a.
Sentiment is in Drybulk.
Okay.
As we said I cannot really say exactly.
Where we will go because I.
I mean, the dry bulk market.
As an interest, but if we are able to deploy capital at.
Prices.
It's not that we're going to invest in dry bulk at just whatever.
Price in order to diversify.
Our income.
So.
We will definitely.
Be cautious in how we deploy capital and if the opportunity is yes, we're going to grow but in the dry bulk market are.
Our experience at least one.
Secret you in order to make money.
You have to buy cheaply.
If you buy at the top of the market.
It will vary around the top of your investment.
Yes, that's true and then maybe then just one final one just in terms of how you intend to operate.
The dry bulk.
Capes and potential acquisitions down the line.
How do you envision that.
<unk>.
Trading these commercially.
You put these vessels on charter deploy them on the spot market and that's maybe perhaps one question. But then the other is you know do you intend to sort of try to build out the trading platform, where youre starting to do T. C ends in FSA and hedging and whatnot or is it simply on the own the assets and then put them out on charter, whether the spot or <unk>.
T.
Well first of all you know, we will do everything to in house.
If we feel that are you know we require.
To hedge in the market, Yes, you know we have the ability to use a phased as well.
This is not necessarily.
Let's say something one has to do.
It depends you know if you want to speculate in both the physical and the paper market.
So what's your question of.
What strategy will go ahead, but we will start by operating these vessels ourselves.
In the spot market and we will see how it goes.
Okay, Omar if I may.
You know this is obviously opportunistic.
And.
You know, it's it's small scale compares to the containership business right, which is which will continue to be the dominant business. I mean, we are now first half.
Have ebitdas, we are on track for 700 million plus of EBITDA for the full year.
So 356 million for the first six months.
And the contribution of the dry bulk where rates are.
It's going to be very small and the investment in dry bulk versus the the fleet value of containers is again small right. So to your point.
Sterling. This is a small who's just going to be a small part of the business.
We will seek to maximize ROE of course in terms of containers will continue to be the dominant.
Ingredient.
Thank you understood Angeles, Thanks for that and thanks for the color there and John Thank you all so I'll turn it over.
Thank you thank you Omar.
Thank you again, if you have a question. Please press Star then one.
Our next question will be from Chris Wetherbee of Citigroup. Please go ahead.
Yeah. Thanks for taking the question.
I wanted to just touch on the on the Eagle investment in and sort of see what your thoughts are now so what would be your intention going forward.
Illegal from here.
Yeah, well it Chris.
Yeah. So we were interested in.
Building.
Let's say a sizable.
First one.
Yeah, we were blocked.
So.
You know it was there is nothing that really we're waiting for.
Let's say manage months next actions.
I see what they can do.
About he got.
The actual operations, which are going to be very challenging in the next couple of quarters at least.
And you know, we'll take it from there.
Okay are you in a position of static or would you add to your equity position or do you have the ability to add the equity position.
But you know we cannot add because we are already.
You know.
Above the 15%.
Poison pill level, so we cannot add.
Okay. Okay. That's helpful. I appreciate that.
And then I guess in terms of the your thoughts on where you think incremental capital was deployed most effectively is it or are there opportunities on the container side, so that could be interesting I certainly understand the counter cyclicality of investing in dry bulk and that certainly makes sense to us when it gets into that.
How you think about where that incremental dollar should go from here, it's a dry bulker container or would there be potentially opportunities for other avenues.
We did not see any interesting opportunities.
The container.
Sure.
In the container market.
There are opportunities.
About all the ships.
I believe that we need to look at the future and look.
Only a very modern tonnage and possibly BELBUCA and that's the reason also.
That'd be if placed additional four.
All ships.
For deliberation.
The next.
Two three years.
Okay. So then dry bulk would be the place where the incremental dollar would go.
For the time being yes. The only thing is that you know as I said dry bulk.
And we are.
Very sensitive cost so.
So we're not just going to change the market.
Because of the volume.
Okay. Okay.
And the longer the market.
Yeah.
Yeah, sorry go ahead.
No. Please continue.
Yeah.
Yeah.
Okay. Thank you.
Alright, thanks for the time guys I appreciate it.
Thank you.
Yeah.
First we have no further questions at this time I would like.
The turn the call back over Dr. Calkins for any further comments or closing remarks.
Okay. Thank you all for joining the call and your potential interest in our story and look forward to hosting you on our next earnings call. Thank you.
Thank you. This concludes today's teleconference. You may now I'd like to thank everyone for their participation have a wonderful afternoon.
Yeah.