Q4 2023 Danaos Corp Earnings Call

Yeah.

Operator: Good day, and welcome to the Denaos Corporation conference call to discuss the financial results for the three months ended December 31, 2023. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Kustis, Chief Financial Officer of Denaos Corporation, and Mr. Evangelos Hatzis, Chief Financial Officer of Denaos Corporation. Dr. Kustis and Mr. Hatzis will be making some introductory comments, and then we will open the call to a question and answer session. Thank you, Operator. Good morning, everyone, and thank you for joining us today.

Good day and welcome to they did announce Corporation conference call to discuss the financial results for the three months ended December 31st 2023.

As a reminder, today's call is being recorded hosting the call today is Dr. John <unk>, Chief Financial Officer, After <unk> Corporation and Mr. With Angola, Heartsease, Chief Financial Officer After Nast Corporation.

Doctor crew stuffs and Mr. Heartsease, we'll be making some introductory comments and then we will open the call to a question and answer session.

Thank you operator, 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.

Evangelos Hatzis: 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 appropriate, we will continue to refer to non-GAAP financial measures such as EBITDA, Adjusted EBITDA, Adjusted Net Income, Time Chartered Equivalent Revenues, and Time Chartered Equivalent Dollar Income per day to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials. With that, I now turn the call over to Dr. John Cousteau, who will provide a broad overview of the quarter. Thank you, Evangelos.

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 details 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 adjusted net income.

Time charter equivalent revenues in time charter equivalent dollar income per day.

We evaluate our business.

Conciliation of sort 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. John who stays.

He will provide the broad overview of the quarter.

Thank you Danielle good morning, and thank you all for joining today's call to discuss our results for the fourth quarter of 2023.

Dr. John Kustas: Good morning, and thank you all for joining today's call to discuss our results for the fourth quarter of 2023. Danaos continues to deliver strong results for the fourth quarter of 2023 as geopolitical events continue to impact global shipping markets. Most recently, the conflict in the Middle East expanded to the seas with attacks on vessels in the Red Sea area.

The analysis continues to deliver strong results in the fourth quarter spending 23, as geopolitical events continue to impact global shipping markets.

Mostly recently with <unk>.

The middle East expanded to the seas attacks on vessels in the Red Sea area.

Dr. John Kustas: These dramatically older trade routes and the performance of liner companies, as most major companies decided to reroute their vessels away from the Suez Canal, sailing longer distances around the Cape of Good Hope to reach Europe. This in turn increased on-mile demand, leading to capacity shortages that drove box rates significantly higher, up to 300%, while it's expected that box rates will remain elevated as long as the disruption continues. Against this backdrop, we have secured additional charters for our vessels at very healthy levels. In the fourth quarter of 2023, Danaos completed delivery of all seven cape-sized vessels that we had agreed to acquire earlier in 2020. Subsequent to the end of the year, we entered into agreements to acquire two additional Cape-sized vessels as we continue to diversify our revenues and look to capture upside from a healthy dry bulk market.

These dramatically older trade routes and the performance of liner companies.

Most major companies decided to re route their vessels away from the Suez Canal sailing longer distances are around the Cape of good hope to reach Europe.

These include increased ton mile demand, leading to capacity shortage that drove books rates significantly higher rep up to 300%.

<unk> is expected at books rates will remain elevated as long as the disruption could tedious.

Against this backdrop, we have some secured additional charters for our vessels at very healthy levels.

In the fourth quarter of 2023, Dinos completed delivery of all seven Capesize vessels that we had agreed to acquire earlier in 2023.

Subsequent to the end of the year, we entered into agreements to acquire two additional capesize vessels.

As we continue to diversify our revenues.

And we look to capture upside from a healthy dry bulk market.

The market for Capesize vessels, he shows unusual seasonal strength as Brazilian iron ore exports increased coal trade remains elevated.

Dr. John Kustas: The market for capesized vessels is showing an unusual season of strength as Brazilian iron ore exports increase, coal trade remains elevated, demand for minor minerals like bauxite, and agricultural commodities follows a global recovery. Recent stimulus measures in China aimed at supporting construction, infrastructure projects, and consumer demand are expected to keep demand steady as fleet growth begins to slow over the next two years.

Demand for minor Bulks like bauxite and agriculture vertical mortgages, just following global recovery.

Yes.

Recent stimulus measures in China aimed at supporting construction infrastructure projects and consumer demand is expected to keep demand steady as fleet growth begins to slow over the next two years.

Dr. John Kustas: We continue to explore interesting opportunities in the dry bulk sector. Danaos has recently ordered two more 8,158 TU vessels at Yangtze Yangtze Beard, and we now have a total of four vessels under construction at that yard with delivery scheduled for the second half of 2026 and the first quarter of 2027. All 12 vessels in our New Building Program are methanol ready and are designed with the latest eco characteristics.

We competed to explore interesting opportunities in the dry bulk sector.

She has also recently ordered two more 8258 teu vessels at young T Young shipyard.

And we have now a total of four vessels under construction at that yard with delivery scheduled for second half of 2026 and first quarter of 2027.

All 12 vessels in our new building program are messing already and are designed with the latest equity characteristics.

Dr. John Kustas: Demand for shipyard delivery slots is very high as the industry is quickly moving to reduce carbon emissions by operating green vessels. As we continue to execute our strategy, we remain focused on taking actions that will ultimately benefit our shareholders. Danaos is well positioned with a very strong balance sheet and significant revenue visibility into 2025. This provides us with the flexibility to return value to our shareholders through dividends and share repurchases and also pursue opportunities to ensure the long-term resilience of the company. With that, I'll hand over the call back to Evangelos, who will take you through the finances for the quarter. Evangelos?

A man, who shipyard delivery slots she's very high as the industry is quickly moving to reduce carbon emissions by operating marine vessels.

And we continue to execute our strategy, we remain focused on taking actions that will ultimately benefit our shareholders.

And now she is well positioned with a very strong balance sheet and significant revenue visibility into 2025.

This provides us with the flexibility to return value to our shareholders through dividends and share repurchases and also pursue opportunities to ensure the long term resilience of the company.

With that I'll hand over the call back to Dan Gilbert who will take you through the financials for the quarter Regulus. Thank you and good morning, again to everyone. I will briefly review the results for the quarter and then we will open up the call for Q&A.

Evangelos Hatzis: Thank you and good morning again to everyone. I will briefly review the results for the quarter and then we will open up the call to Q&A. We are reporting adjusted EPS for the current quarter of $6.99 per share, or $136 million, compared to $6.99 per share of EPS for the fourth quarter of 2022, or $141.7 million. This decrease of $5.7 million in adjusted net income between the two quarters is primarily the result.., of a 9.6 million increase in total operating costs, mainly due to the recognition during the current quarter of voyage costs related to voyage charters of our dry-bulk cape-sized fleet, and a 3.2 million reduction in operating revenues, mainly due to vessel disposal, and non-cash revenue recognition accounting, all that being partially offset by a 6.9 million improvement in net finance costs, driven by the significant deleveraging of our balance.

We are reporting adjusted EPS for the current quarter or six point 99 $6.99 per share.

Or how does that $36 million compared to $6.99 per share or EPS for the fourth quarter of 'twenty to 'twenty two.

Or one other than $41 7 million.

This decrease of $5 7 million and adjusted net income between the two quarters is probably a modest as a result.

Off a $9 6 million increase in total operating costs.

Mainly view synthetic cognition during the current quarter, our voyage costs related to bouygues charters of a dry bulk capesize fleet.

$3 2 million reduction in operating revenues, mainly due to vessel disposals.

And noncash revenue recognition accounting all of that being partially offset by a $6 9 million improvement in net finance costs.

Driven by the significant deleveraging of our balance sheet.

Evangelos Hatzis: Vessel operating expenses remained almost the same at $40.1 million in the current quarter compared to $40 million in the fourth quarter of 2022. And while our daily operating cost decreased to $6,188 per day compared to $6,417 per day for the fourth quarter of 2022, OPEC's increased due to the increase in the average number of vessels in our fleet. Our operating costs continue to remain among the most competitive in the industry. GNA expenses increased in Q4 by $7.5 million, mainly due to an increase in stock-based non-cash costs.

Vessel operating expenses remained almost the same to $40 1 million in the current quarter compared to 440 million in the fourth quarter of 'twenty two.

And while our daily operating cost decreased.

The two $6188 per day compared to $6417 per day for the fourth.

Fourth quarter first the 22, well opex increased due to the increasing the average number of vessels in our fleet.

Our operating costs continue to remain among the most competitive in the industry.

G&A expenses increased in Q4 by seven and a half million.

Mainly due to the increase in stock based non cash costs.

Evangelos Hatzis: And they came in at $22.4 million in the current quarter compared to $14.9 million in the fourth quarter of 2022. Interest Expense, excluding amortization of finance costs, decreased by 7.8 million to 3.1 million in the current quarter compared to 10.9 million in the fourth quarter of 2022. The decrease in interest expense is the combined result of a 5.4 million decrease in interest costs because of deleveraging. Our average indebtedness review was lower by almost 400 million between the two periods, and all that was partially offset by an increase in the cost of debt service by approximately 130 basis points as a result of rising interest rates.

And they came in at $22 4 million in the current quarter compared to $14 9 million in the fourth quarter of 2022.

Interest expense.

Excluding amortization and finance costs decreased by seven point million two.

$3 1 million in the current quarter compared to $10 9 million in the fourth quarter of 2022.

The decrease in interest expense is a combined result of a $5 4 million decrease in interest costs.

Because of deleveraging our average indebtedness.

<unk> was lower by almost 400 million between the two periods.

And all of that was partially offset by an increase in the cost of debt service.

By approximately.

How does the 30 basis points as a result of rising interest rates and we also had a $2 4 million decrease in interest expense.

Evangelos Hatzis: And we also had a $2.4 million decrease in interest expense due to capitalization of interest on our vessels under construction. At the same time, interest income came in at $2.7 million, effectively covering almost 90% of our interest expense for the current quarter, and this effectively reflects the almost net debt zero position that we have today. Adjusted EBITDA decreased by 2.2%, or 3.8 million, to 172.6 million in the current quarter from 176.4 million in the fourth quarter of 2022 for reasons that have already been outlined earlier on this call.

Due to capitalization of interest on our vessels under construction.

At the same time interest income came in at $2 7 million effectively covering almost 90%.

All of our interest expense for the current quarter and this effectively reflects the almost net debt net debt zero position that we have today.

Adjusted EBITDA decreased by two 2%.

Or three point million, two or how does that $72 6 billion in the current quarter for my husband, and a 7% to $6 4 million in the fourth quarter of 2022.

These are have been already outlined earlier on this call.

Evangelos Hatzis: We also encourage you to review our updated investor presentation that is posted on our website as well as subsequent event disclosures. I will mention a few of the highlights. Our contracted cash revenue backlog remains strong at $2.3 billion with a three-year average charter duration, while contract coverage is at 95.8% for 2024 and 62% for 2025 in terms of operating days coverage. Our investor presentation has analytical disclosure on our contracted charter book that you can refer to. As of December 31, 2023, our net debt will be down to $138.7 million. And in the current interest rate environment, this low net debt position shields us from high interest costs. Additionally, the company's net debt-to-adjusted EBITDA ratio stood at 0.2 times, while 51 out of our 75 vessels are currently unencumbered and debt-free. Finally, as of the end of the fourth quarter, cash was at $272 million, while total liquidity, including availability under our revolving credit facility, was at $196 million.

We also encourage you to review our updated Investor presentation that is posted on our website as well as subsequent events disclosures.

I only mentioned a few of the highlights our contracted cash revenue backlog remain strong.

I have 2.2 billion with a three year average charter duration, while contract coverage is at 95, 8%.

For 2024, and 62% for 2025 in terms of operating days coverage.

Our investor presentation cause analytical disclosure on our contracted charter book that you kind of referred to.

As of December 31, 2023, our net debt.

It's down to how does the $38 7 million.

And in the current interest rate environment. This a low net debt position.

Just from high interest of course.

Additionally, the company's net debt to adjusted EBITDA ratio stood that 0.2 times, while 51 out of our 75 vessels are currently unencumbered.

And debt free.

Finally as of the end of the fourth quarter cash was up 272 million, while total liquidity, including availability under our revolving credit facility.

Stood at $609 million.

Operator: 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. Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing.

Giving us ample flexibility to pursue accretive 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 very much we will now begin the question and answer session to 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 and to withdraw your question. Please press Star then two.

Operator: And to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Omar Nocta with Jeffreys. Please go ahead. Thank you. Hi, John and Evangelos.

At this time, we will pause momentarily to assemble our roster.

The first question today comes from Omar Doctor with Jefferies. Please go ahead.

Thank you Hi, John and Evangelists good afternoon.

Omar Nocta: Good afternoon. I just have a couple of questions for you. You've obviously added the five charters on those 5,000 to 6,000 EU shifts at better rates and terms. And I think a lot of that is expected coming into the year, especially given where the market was at the end of last year. It looks like each of those has lasted about a year or so of duration. Wanted to ask, what's the minor appetite looking like right now?

Just have a couple of questions for you you've obviously added the five charters on those five to 6000 Teu ships at better rates and terms and I think a lot of us expected coming into the year, especially given where the market was at the end of 'twenty three it looks like each of those has gotten about a year or so duration I wanted to ask what's the liner appetite looking.

Like right now you mentioned freight rates being elevated and they'll continue to do so as long as the red Cedar versions are in place.

You know how is how is the appetite now for further chartering the nurse's lipid vessel classes that you see liners targeting at this point.

Omar Nocta: You mentioned freight rates being elevated, and they'll continue to be so as long as the Red Sea diversions are in place. You know, what is the appetite now for further chartering? Is there a specific vessel class that you see liners targeting at this point?

Okay.

Well Omar.

Yeah.

We do not really I mean of course due to the.

Shortage at present everybody is.

Interested in a prompt vessels.

Dr. John Kustas: Well, Omar, it's... We do not really have any, I mean, of course, due to the shortage at present. Everybody is interested in prompt vessels, and we have practically nothing until year-end.

And Oh, we have practically nothing.

Until he of rent.

Maybe.

You know one or two ships in the second half.

So.

And really you know I cannot really tell you what is that.

Dr. John Kustas: Uh, maybe, you know, one or two ships in the second half. So, uh..., really, you know, I cannot really tell you. What is definite is that there is significant demand from all lines of companies for Modern vessels, even for future 25 or 26 deliveries. But that's for the very modern vessels.

Definite is that there is significant demand for.

All liner companies.

For more doors.

Vessels.

Four.

Even for future 25, or 26 deliveries, but that's supposed to be very modern vessels.

There is significant.

Dr. John Kustas: And there is significant demand for... The other six new buildings that we do not have, let's say, presently committed to, and we are in negotiations for all of them. Thank you. Thanks for that. And then maybe just to follow up, you know, obviously you've been expanding kind of opportunistically within the dry bulk segment. You've got the nine capes now.

Demand for our.

Yeah.

Let's say the other.

Six new buildings that we do not have a let's say presently compete and we are in negotiations for all of them.

Okay.

Thank you Uh huh. Thanks, Thanks for that and then maybe just a follow up.

You've been expanding kind of opportunistically within the Drybulk segment, and you've got the nine capes now it looks like containers are still the core business you do have plenty of liquidity and flexibility.

Omar Nocta: It looks like containers are still the core business. You do have plenty of liquidity and flexibility. Just wanted to get a sense of, you know, any thoughts on where you see the Cape fleet going from here in terms of size. Is there a certain critical mass you're trying to get that segment up to? You know, it's. As we said, we are going into this segment. Order to, say, build it up.

Just wanted to get a sense of and <unk>.

Thoughts on where you see the Cape fleet going from here in terms of size is there a certain critical mass or trying to get that segment up.

Well you know.

Yeah.

As we said.

We are going into this segment.

Or there too.

Uh huh.

Let's say to build it up.

Dr. John Kustas: Of course, as I've already said a number of times, the dry bulk market is quite cost sensitive, and we're not going to chase the market up. Already, I mean, the prices in the market, at least for the first... Let's say seven shifts that we've got, are at least 15%, maybe 20%. So, you know, we are pretty careful.

Of course as I've already said the number of times.

The dry bulk market is flight cost sensitive and we're not going to chase the market up.

Already I mean, the prices in the market.

At least for the first.

Yeah.

Let's say seven ships that we got.

He is at least let's say, 15%, maybe 20% up.

In some instances.

So.

Uh huh.

We are pretty careful of course, he said market segment.

Omar Nocta: Of course, it's a market segment that we want to grow. But we will do it in a kind of measured way. There is no hurry for that. Our main business will continue to be, let's say, the container segment where we have our competitive edge, and we will move cautiously as we have always done. Makes sense.

Segment that we want to grow.

We will do it in a kind of a measure with way there is no hurry for that.

Our main business will continue to be.

Let's say the container segment, where we have our competitive edge.

And yes.

We will move cautiously as we have always done.

Omar Nocta: Yeah, thank you. Thank you. And, you know, one final one, and I know it's a bit sensitive, but just, you know, wanted to ask in terms of the EvoBulk holding you have. It's gone up nicely in value since you took the stake. Anything you're willing to say about the planned merger with Starbuck? And do you see this holding as sort of a core long-term investment? Or is this more of an opportunistic trade?

Makes sense. Thank you. Thank you and one final one and I know its a bit sensitive, but just wanted to ask in terms of the Eagle bulk holding you have gone up nicely in value. Since you took the stake anything you're willing to say about the planned merger.

With star bulk and you see this holding.

Our core long term investment or is this more of an opportunistic trade.

Dr. John Kustas: Uh, We have not really.. site, really how we're going to handle that, uh, for the time being, we do not have any, Let's see, any reason to get out. You know, we will see how it develops. Okay, thank you. That's clear, clear enough. All right. Thank you, John. I'll turn it over.

We have not really.

Besides it.

Really how we're going to handle that.

For the time being we do not have any.

Let's see.

Any reason to get out of this.

Festival and.

We will see how it develops.

Okay. Thank you that's clear a clear enough alright, Thank you John I'll turn it over.

Thank you.

Clement Mullins: The next question is from Clement Mullins with Value Investors. Please go ahead. Good morning. Thank you for taking my question. I wanted to start by asking about the cape sizes you have added over the past few months. Utilization during the quarter was a tad lower than expected.

The next question is from Clement Marlins with value investors. Please go ahead.

Good morning, Thank you for taking my questions.

I wanted to start by asking about the Cape sizes, you have had over the past few months utilization during the quarter was that that's lower than expected could you provide some commentary on the drivers behind that.

Evangelos Hatzis: Could you provide some commentary on the drivers behind that? Was it due to the delivery of the vessels? And secondly, could you give us some insight on the utilization you expect to achieve in the first quarter? Yes, let me take that. First of all, we took delivery of the vessels during Q4, and upon taking delivery, we performed certain repairs on the vessels to bring them up to our standards. So there were certain scheduled days that the vessels were off hire. Hence the 82 percent utilization that you see now is not indicative of how the vessels will be utilized. The vessels are scheduled, some of them, to go to dry dock in Q1 and Q2 and Q3 of this year. So there you may expect to have two or three weeks of downtime, but other than that, we expect them to be fully utilized. Bye. Thanks for the color. I also wanted to ask about the new builds, about the two new builds you've added recently and the ones that remain unfixed.

What does it do to the Liberty off the best phone and secondly, could you give us some insight on utilization you expect to realize in the first quarter.

Yes.

Let me take that we first of all we took delivery of the vessels.

During Q4 right.

And Oh taken delivery, we perform certain repairs on the vessels to bring them up to our standards.

So there were certain scheduled the days that the vessels were off hire hence the 82 almost percent utilization that you see now is not indicative of how the vessels will be utilized.

There are the vessels are scheduled to some of them.

To go to dry dock.

Q1, and Q2 and Q3 of this year.

So there we may you may expect it will have two or three weeks of downtime, but other than that we expect them to be fully utilized.

Thanks for the color I also wanted to ask about the new builds I would say to me when you've had recently and the ones that we may not peak she.

Clement Mullins: Should we expect a charter announcement in the foreseeable future, or do you plan on waiting until closer to delivery before securing a charter? You know, we are already in discussions. So, yeah, we may very well announce something, but... You know, we don't have to, are, you know, in order to contract the vessel, wanted to have a charter beforehand. I mean, for us, and with the strength of our balance sheet, that we can practically buy the vessels with existing liquidity, and we don't need finance.

Should we expect a 10th or announcements in the foreseeable future or do you plan on waiting until closer to delivery before securing a charter.

You know we are already in discussions.

So yeah.

We may very well announce something but.

Yeah.

We don't have for us.

Most companies.

Are you know in order to contract the vessel.

Charles.

Wanted to have a charterer beforehand.

I think for us and the strength of our balance sheet that practically.

We can.

Technically by the vessels with existing liquidity and we don't need financing.

Uh huh.

Dr. John Kustas: Uh... We can wait as long as we want if we do not find the race that makes sense. So. You know, we can always wait. Modern vessels are definitely, car, and we believe that our strategy... You know, he's going to... make much more sense, rather than ordering on the back of a long-term charter where you'll return.

We can wait.

As long as we want if we do not find the rates.

But.

Makes sense to us so.

Yeah, we can always wait modern vessels are definitely.

Scars.

And we believe that our strategy.

He's going to.

Okay make much more sense.

Rather than ordering on the back of a long term charter wherever your return.

Our.

Is squeezed.

Makes sense, that's all for me I'll pass it over thank you for taking my questions.

Clement Mullins: That's all from me. I'll pass it on. Thank you for taking my question. Thank you. It appears we have no further questions at this time. I would like to turn the call back over to Dr. Coustas for any closing remarks. Yes, thank you all for joining us to discover our school and your continued interest in our story. I look forward to hosting you at our next Turning School. Have a nice day. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon! A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by

Thank you.

Thank you.

It appears we have no further questions at this time I would like to turn the call back over to Dr. Christopher <unk> for any closing remarks.

Okay.

Yes. Thank you all for joining us to discuss our call and your continued interest in Archstone look forward.

On our next earnings call have a nice day.

Thank you.

This concludes today's teleconference.

Like to thank everyone for their participation have a wonderful afternoon.

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