Q1 2024 Danaos Corp Earnings Call
Good day and welcome to the announced Corporation conference call to discuss the financial results for the three months ended March 31st 2024, as a reminder, today's call is being recorded.
Operator: Good day, and welcome to the Danaos Corporation conference call to discuss the financial results for the three months ended March 31st, 2024. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Coustas, Chief Executive Officer of Danaos Corporation, and Mr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation. Mr. Chatzis will be making some introductory comments, and then we will open the call to a question and answer session.
Okay.
Speaker Change: Hosting the call today is Dr. John <unk>, Chief Executive Officer, After Nast Corporation and Mr. If Ankylose Heartsease, Chief financial officer of NASCAR precious.
Speaker Change: That's a cool stuff and Mr. <unk> will be making some introductory comments never will open the call to a question and answer session.
Speaker Change: Thank you operator, and good morning to everyone and thank you for joining us today before we begin.
Evangelos Chatzis: 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 the detailed safe harbor and risk factor disclosures.
Evangelos Chatzis: 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 Dollars 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 Coustas, who will provide a broad overview of the quarter.
Speaker Change: Quickly want to remind everyone that my husband's remarks. This morning may contain certain forward looking statements and that actual results could differ materially from those projected today.
Speaker Change: These forward looking statements are made as of today and we undertake no obligation to update them.
Speaker Change: 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.
Speaker Change: Please also note that where we feel appropriate we will continue to refer to non-GAAP.
Speaker Change: Onshore measures such as EBITDA adjusted EBITDA adjusted net income time charter equivalent revenues in time charter equivalent per day.
Speaker Change: Evaluate our business reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
Speaker Change: With that let me now turn the call over to Bob Jones, who will provide the broad overview of the quarter Jeff.
John Coustas: Thank you Evangelos, good morning, and thank you for joining today's call to discuss our results for the first quarter of 2024. The container market continued to strengthen in the first quarter of 2024, a trend that has continued into the second quarter. Both Charter and BoxRage are gaining momentum, and we have completed all necessary recharging activity in excess of our internal forecast.
Bob Jones: Thank you Ivan good morning, and thank you for joining today's call to discuss our results for first quarter of 2024.
Speaker Change: The container market continued to strengthen in the first quarter of 2024th a trend that has continued into the second quarter.
Speaker Change: Both charter in box rates are gaining momentum.
Speaker Change: And we have completed all the fish have even chartering activity in excess of our internal forecast.
John Coustas: The renewed optimism in the market extends to the longer-term view of the charters who are making charter commitments and rebuilding vessels with deliveries scheduled from 2025 through the end of 2027. Following the recent placement of an order for an additional two 8,250 T.E.U. Vessels for 2027 delivery, our new building order book currently consists of 14 vessels totaling 108,000 T.E.U., two of which have already been delivered to us. More importantly, we have now secured multi-year chartering agreements for all our vessels on order, while we have also extended charters of certain existing vessels. As a result of this chartering activity over the past three months, we have added $423 million to our contracted revenue backlog, which today stands at $2.5 billion, with an average charter duration of 2.9 years.
Speaker Change: The renewed optimism in the market extends to the longer term view of the charterers, who are making charter could make much of a newbuild vessel deliveries.
From 2005 through end of 2027.
Speaker Change: Following our recent placement of an order for an additional two 8250 Teu vessels for 2027 delivery are you building order book currently consists of 14 vessels totaling 108000 Teu.
Speaker Change: Two of which have already been delivered to us.
Speaker Change: More importantly, we have now secured multiyear chartering agreements for all our vessels on order.
Why do we have also extended the charters of silicon existing vessels.
Speaker Change: As a result of these chartering activity over the past three months, we have added 423 million to our contracted revenue backlog because that today stands at $2 5 billion.
Speaker Change: <unk> average charter duration of two nine years.
John Coustas: All the vessels in our new building order book are methanol-ready, future-proofing a portion of our fleet for green fuel usage. We have also arranged very conservative financing for the first eight new buildings at competitive rates to ensure that we are able to maintain a strong liquidity profile to support continued opportunistic fleet expansion. In our dry bulk vessel segment, we've added an additional Cape size to our fleet, increasing our fleet to 10 vessels in total.
Speaker Change: All the vessels you know when you're building order book are men already future proofing, a portion of our fleet on green fuel usage.
Speaker Change: We have also arranged very conservative financing for the first eight new buildings at competitive rates to ensure that we're able to maintain a strong liquidity profile to support continued opportunistic fleet expansion.
Speaker Change: In our dry bulk vessels segment, we've added an additional Cape size of our fleet, increasing our fleet to 10 vessels in total.
John Coustas: We are continuing to explore ways to increase our exposure to this market. The dry bulk market has performed above expectations, and we are confident that an eventual Chinese recovery will drive the market higher. Our entry point into the dry bulk market is relatively low, and our break-even is therefore easily achievable. Despite geopolitical uncertainties, most of the economies around the world are performing relatively well and are displaying no signs of recession. The biggest risk to our market outlook comes from trade hurdles that various countries are putting in place in the form of tariffs and trade restrictions on energy as well as manufactured goods.
Speaker Change: We are continuing to explore ways to increase our exposure because these market.
Speaker Change: The dry bulk market has performed above expectations and we are confident with an eventual Chinese recovery will drive the market higher.
Speaker Change: Our entry point into the dry bulk market is related to you know in our breakeven is therefore easily achievable.
Despite geopolitical uncertainties most of the economies around the world are performing relating to do well and are displaying no signs of recession.
Speaker Change: The biggest risk to our market outlook commerce from trade hurdles that various countries are putting in place in the form of tariffs and trade restrictions on energy as well as manufactured goods.
John Coustas: Despite the positive short-term impacts of these practices, we believe they will ultimately result in trade contraction in the longer term. In the meantime, our strategy has continued to result in consistent, solid results. We will continue to explore growth opportunities while ensuring the longevity of our investments for the benefit of our shareholders. With that, I'll hand the call over to Evangelos, who will take you through the financials for the quarter. Evangelos. Thank you, John.
Speaker Change: Despite the positive short term impact to these practices. We believe it will ultimately result in trade contraction in the longer term.
Speaker Change: In the meantime, our strategy has continued to result in consistent strong results.
Speaker Change: We will continue to explore growth opportunities, while ensuring the longevity of our investments for the benefit of our shareholders with that I'll hand, the call over back to you if I can get it who will take you through the financials for the quarter a vacuous. Thank you Don and again good morning to everyone. I will briefly review the results for the quarter and then open the call.
Evangelos Chatzis: Thank you, John. And again, good morning to everyone.
Evangelos Chatzis: I will briefly review the results for the quarter and then open the call to Q&A. This quarter, we are reporting adjusted EPS, of $7.15 per share or adjusted net income of $140 million, compared to adjusted EPS of $7.14 per share or $145.3 million, for the first quarter of 2023. This $5.3 million decrease in adjusted net income between the two quarters, is the result of a 22.2 million increase in total operating costs mainly due to the recognition during the current quarter of voyage costs related to voyage charges of our dry bulk cape size fleet, partially obsessed by a 9.8 million increase in operating revenues, a 3.7 million improvement in net finance costs, mainly driven by the significant deleveraging of the balance sheet and a $3.4 million net improvement on investment.
Speaker Change: The Q&A.
Speaker Change: This quarter, we are reporting adjusted EPS.
Don: $7.15 per share or adjusted net income of I havent been 40 million comp.
Speaker Change: Compared to adjusted EPS of $7.14 per share or $45 3 million.
Speaker Change: For the first quarter of 2023.
This $5 3 million decrease in adjusted net income between the two quarters.
Speaker Change: Is the result of a $22 2 million increase in total operating costs, mainly due to the vehicle mission during the current quarter, our voyage costs related to voyage charters, all dry bulk capesize fleet parked.
Speaker Change: Partially offset by a $9 8 million increase in operating revenues.
Speaker Change: $3 7 million improvement in net finance costs.
Speaker Change: Mainly driven by the significant deleveraging the balance sheet and a 3.4 million net improvement on investments.
Evangelos Chatzis: Vessel operating costs increased by $2.5 million to $43.1 million in the current quarter from $40.6 million in the first quarter of 2023 as a result of the increase in the average number of vessels in our fleet, while our daily operating costs decreased to $6,493 per day for the current quarter from $6,807 per day in the corresponding first quarter of 2023. Our operating costs continue to remain among the most competitive, in the end.
Speaker Change: That's a little bit anything costs increased by two and a half million to $43 1 million in the current quarter.
Speaker Change: From $40 6 million in the first quarter of 2023.
Speaker Change: As a result of the increase in the average number of vessels in our fleet.
Speaker Change: Why our daily operating cost.
Speaker Change: Greece to $6493 per day for the current quarter from $6807 per day.
Speaker Change: A corresponding first quarter of 2023.
Speaker Change: Our operating costs continue to remain among the most competitive.
Speaker Change: In the industry.
Evangelos Chatzis: GNI expenses increased by $3.4 million to 10.2 million in the current quarter, compared to 6.8 million in the first quarter of 2023, mainly due to an increase in stock-based non-cash costs. Interest expense, excluding finance costs amortization, decreased by 3.4 million to 2.6 million in the current quarter compared to 6 million in the first quarter of 2023. The decrease in interest expense is the combined result of a $1 million decrease because of lower average indebtedness by approximately 100 million between the two periods, partially offset by an increase in the cost of debt service by approximately 60 basis points as a result of rising interest rates.
Speaker Change: <unk> expenses increased by $3 4 million.
The $10 2 million in the current quarter compared to $6 8 million in the first quarter of 'twenty to 'twenty three mainly due to an increase in stock based noncash of course.
Speaker Change: Interest expense, excluding finance costs amortization decreased by $3 4 million.
Speaker Change: $2 6 million in the current quarter compared to 6 million in the first quarter of 2023.
The decrease in interest expense is the combined result of $1 million decrease.
Speaker Change: Because of lower average indebtedness by approximately 100 million between the two periods.
Speaker Change: Partially offset by an increase in the cost of debt service by approximately 60 basis points as a result of rising interest rates.
Speaker Change: You also have the $2 4 million decrease in interest expense due to capitalization of interest on our vessels under construction.
Evangelos Chatzis: We also had a 2.4 million decrease in interest expense due to the capitalization of interest on our vessels under construction. At the same time, interest income came in at $2.9 million, which is higher than the $2.6 million interest expense for the current quarter. Excluding amortization of financing, adjusted EBITDA decreased by 1% to $1.8 million, to $177.2 million in the current quarter from $179 million in the first quarter of 2023 for reasons that have already been outlined earlier on this call. We also encourage you to review our updated in-vehicle presentation that has been posted on our website, as well as subsequent events disclosed. Let me summarize a few of the highlights.
At the same time interest income came in at $2 9 million, which is higher than the $2 6 million and interest expense for the current quarter.
Speaker Change: Excluding amortization and I'll find my schools.
Speaker Change: EBITDA decreased by 1% with one 8 million.
Speaker Change: $177 2 million in the current quarter for my husband, and 17 9 million in the fiscal 2023 for reasons that have already been outlined earlier on this call.
Speaker Change: We also encourage you to review our updated Investor presentation that has been posted on our website.
As well as subsequent events disclosures.
Speaker Change: Let me summarize a few of the highlights following recent chartering activity.
Evangelos Chatzis: Following recent charting activity, our contracted cash revenue backlog remains strong and actually has increased to $2.5 billion, with a 2.9 year average charted duration while contract coverage is at 99% for 2024 and 69% for 2025. That is coverage, in terms of operating data. Our investor presentation has analytical disclosures on our contracted charter book. As of March 31, our net debt is now down to $134.3 million. And obviously, in the current interest rate environment, this position shields us from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio came in at 0.19 times. Meanwhile, 50 out of our 76 vessels are currently unencumbered, and that's it.
Speaker Change: Our contracted revenue backlog.
Speaker Change: Remain stronger actually has increased to two and a half a billion.
Speaker Change: With a 2.9, you had a bit of chocolate duration.
Speaker Change: While contract coverage is up 99% for 2024.
Speaker Change: And 69% for 2025 that is coverage.
Speaker Change: In terms of operating days.
Speaker Change: Our investor presentation cause analytical disclosures on our contracted charter book.
Speaker Change: As of March 31, our net debt is now down to $34 2 million.
Speaker Change: And obviously in the current interest rate environment. This position she just from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio came in at 0.19 times.
Why 50, Alco about 76 vessels are currently unencumbered.
Betsy: And Betsy.
Betsy: Finally as of the end of Q1.
Evangelos Chatzis: Finally, as of the end of Q1, cash was at $324 million, while Total Liquidity, including availability under our revolving credit facility and valuation of marketable securities, stood at $748 million, giving us ample flexibility to pursue a creative capital deployment opportunity. 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.
Betsy: Cash was up $324 million.
Betsy: While total liquidity, including availability under our revolving credit facility and.
Betsy: While the Asia those marketable securities stood at 748 million.
Betsy: Giving us ample flexibility to pursue accretive capital deployment.
Speaker Change: With that I would like to thank you for listening to this first part of I'll call. The operator, we are now ready to open the call to Q&A.
Betsy: Yes.
Betsy: Okay.
Operator: 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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our office. The first question comes from Omar Nokta at Jeff.
Speaker Change: Well now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: We are 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.
The first question comes from Omar and Okta and Jeff.
Speaker Change: Okay.
Thank you Hi, Jonathan it's Angela good afternoon, Hi, It looks like are you Hi, you had good no. It looks like the business is coming along quite nicely here in quite a bit of a turnaround over the past couple of months.
Omar Mostafa Nokta: Thank you. Hi, John and Evangelos. Good afternoon. Hi, Omar. Looks like... How are you?
John Coustas: Good, good. No, it looks like the business is coming along quite nicely here and quite a bit of a turnaround over the past couple of months. You know, you've obviously had the backlog, and now it's gotten bigger. I think now that you've secured all 14 new buildings, including the latest orders from February and March, the market has clearly gotten much stronger. You're now pretty much contracted for all of 24. You've got some open capacity in 25.
You've obviously had the backlog and now it's gotten bigger I think now that you've secured all 14, new buildings, including the latest orders from February and March you can see the market's clearly gotten.
Speaker Change: Much stronger youre not pretty much contracted for all of 24, you've got some open capacity and twenty-five how would you characterize the law.
John Coustas: How would you characterize, you know, Liner's interest today in securing those shifts that open up in 25? Obviously, there's some forward fixing happening, especially as you've been able to fix the 27 delivery new buildings. But what about on the water shifts? What does the appetite look like from your lens for shifts that open up in 25?
Speaker Change: Liners interest today and in securing those shifts that open up in 'twenty five.
Speaker Change: Theres some forward fixing happening, especially as you've been able to fix the twenty-seven delivery new buildings, but what about on the water ships, what's the appetite look like from your lens for ships that open up in 'twenty five.
Speaker Change: Ah well the appetite is pretty strong and we are already.
John Coustas: Well, the appetite is pretty strong. We are already, let's say, negotiating 25 deliveries. I mean ships that we have that are open in 25, you know. There is no doubt that part of the strength of the market has to do with the Suez Canal situation. Peace is not something that will last forever, but at least the way things look now. It will continue for, let's say, at least 2024, and overall... Behold the combination of slowing speeds and some of the shifts and the continued relative strength of trade and the economy. They have led, really, to a situation of pretty solid demand.
Speaker Change: Let's say negotiating 2005 our deliveries.
Speaker Change: I mean ships that we have the opening 25.
Speaker Change:
Speaker Change: It's.
Speaker Change: You know.
Speaker Change: There is no doubt that a part of the strength of the market has to do with the.
Speaker Change: She was candela situation.
Speaker Change: He or she is not something that will last forever.
Speaker Change: But at least the way things look like.
Speaker Change: It will continue for a let's say at least 2024.
Speaker Change: And Uh Huh overall.
Speaker Change: The hold the combination of a slowing speeds in some of the on the ships.
Speaker Change: And the continued.
Speaker Change: The relative strength of trade and economies.
Speaker Change: They have led to a situation of a pretty shortly.
Speaker Change: Mt.
Speaker Change: Yeah, Yeah. Thank you and I guess you know what.
John Coustas: Yeah, yeah, thank you. And I guess, you know, with that backdrop, and, you know, you mentioned definitely for 24, what's the interest from your side on additional new buildings, given that you've been able to order shifts and shortly thereafter get them contracted? And also, maybe just kind of a qualitative question on those new buildings. Do you think it's more of was it the methanol-ready component that drove the charter interest in securing those well ahead of time? Or simply just a desire for liners to have shifts that default?
Speaker Change: With that backdrop and you know that you mentioned, it's definitely for 24, what what's the interest from your side on additional new buildings.
Speaker Change: Then that you've been able to order ships then shortly thereafter get them contracted.
Speaker Change: And so you know what's your appetite for new buildings and also maybe just kind of a perhaps a qualitative question on those new buildings do you think it's more of the was it the methanol ready component that was that drove the charterer interest in securing those well ahead of time or simply just a desire for liners to have ships that deep out.
Speaker Change: Hello, It's a mathematical component.
John Coustas: You know, the methanol component is really irrelevant once there is no green methanol around, so and doesn't look it's going to be available you know before let's say 2030 which is more or less the time horizon of let's say our charter On the other hand, what is definitely important is that all these new vessels, which are tier three and are much more economical than the old ones, you know, existing vessels, is the main driving factor that will help charters to meet environmental regulations and, on the other hand, reduce their costs through the lower fuel consumption.
Speaker Change: It's really irrelevant once if there is no green methanol around.
Speaker Change: Show and.
Speaker Change: Doesn't look it's going to be available.
Speaker Change: Yeah before and it takes 20, Cherokee, which is more or less the time horizon of our let's say our charters.
Speaker Change: On the other hand, what is definitely important he is that all these new vessels, we chalk tier three and a much more economical than you know.
Speaker Change: Existing vessels ease the main driving factor, but will help charter rush to meet environmental regulations and the other hand, we do.
Speaker Change: Sure. They are of course through the a lower.
Speaker Change: Fuel consumption.
Speaker Change: Yeah, that's right.
John Coustas: Yeah, thank you. And maybe just, thanks for that, John.
Speaker Change: And maybe just are there.
Speaker Change: Thanks for that John just a final one just on the dry bulk business you know that investment spend.
John Coustas: Just a final one, just on the dry bulk business. You know, that investment's been very decent, I would say. You've bought the 10 caves quite well, and just looking at sale and purchase values, you're up quite a bit nicely on that. What do you think is next for this business? You've got the 10 ships. Do you want to, you know, operate, harvest the cash flow, build it further, or do you think of monetizing it? Make sense? Do you have any sort of sense of how you think about that business?
Speaker Change: <unk> been very decent I would say you bought the 10 capes quite well and it is just looking at purchase values, you're up quite a bit nicely on on the on that what do you think its next year for this business you've got to 10 ships is it do you want to operate harvest the cash flow build it further or do you think monetize.
Speaker Change: It makes sense any.
Speaker Change: Any sort of sense of how you're thinking about that business.
Speaker Change: Yeah.
John Coustas: We definitely are here to stay in dry bulk. We would like to have another, let's say, leg of the business, and the company.
Speaker Change: Well, we definitely are here to stay and dry bulk we would like to have.
Speaker Change: Other.
Speaker Change: Let's say leg.
John Coustas: The only thing with dry bulk is that it's a sector highly sensitive to cost, and uh... You know, if you go and commit today to very expensive new buildings. I'm not sure you know exactly how you're going to pay back, and I'm saying that because, you know, the fuel consumption on a cape size today, let's say the way that they are kind of slow stealing, is in the region of, let's say around 30 tons. O'Day
Speaker Change: And the company and the only thing with dry bulk is that.
Speaker Change: It's a sector, which is a highly sensitive to the call.
Speaker Change: Yeah.
Speaker Change: And.
Speaker Change: You know if you go and compete today.
Speaker Change: Into very expensive.
New buildings.
Speaker Change: I'm not sure.
Speaker Change: You know exactly how youre going to pay back and I'm, saying that because.
Speaker Change: You know each of the.
Speaker Change: The fuel consumption on the Cape size to date.
Speaker Change: Let's see the way that they are kind of slow steaming in the region of let's say around 30 tons.
Speaker Change: Good day.
John Coustas: Which is, of course, important, but it's nothing like the 70 or 80 tons that, you know, a medium-sized container ship consumes. So this gives, of course, the container ship a much greater sensitivity to the cost of fuel and carbon. In the bulk market, you know, things are a bit more subdued, which, of course, is going to make a difference. But on the other hand, with high interest rates and high capital costs... You know, it's hard to make, let's say, to justify that.
Speaker Change: Which is of course, its important but Ah it's nothing like the 70 or 80 times that you know a medium sized container ship is consuming.
Speaker Change: So these gibbs.
Speaker Change: Of course, there's a container ship a much greater sensitivity to the cost of fuel and carbon eventually.
Speaker Change: In the.
Bulk market you know things are a bit more subdued which of course is going to make a difference.
Speaker Change: Oh on the other hand with high interest rates and high capital costs.
Hard to to make.
Speaker Change: Yeah, let's say to justify that.
Speaker Change: Yeah. Thank you. Thank you John Thanks, Angela I'll turn it over.
Omar Mostafa Nokta: Yeah, thank you. Thank you, John. Thanks, Evangelos. I'll turn it over.
Speaker Change: Okay.
Speaker Change: This concludes the question and answer session.
Operator: This concludes the question and answer session. I would like to turn the call back over to Dr. Coustas for any further comments or closing remarks.
I would like to turn the call back over to Dr. Chris just for any further comments or closing remarks.
Dr. Chris: Great. Thank you all for joining this conference call and your continued interest in our story, we look forward to hosting you on our next earnings call.
John Coustas: Great. Thank you all for joining this conference call and your continued interest in our story. We look forward to hosting you on our next earnings call.
Dr. Chris: Okay.
Operator: Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.
Thank you. This concludes today's teleconference, you would like to thank everyone for their participation.
Have a wonderful afternoon.
Dr. Chris: Okay.
[music].