Q2 2024 Danaos Corp Earnings Call

Good day and welcome to the Dan Laus Corporation conference call to discuss the financial results for the three months ended in June 30th, 2024.

Operator: discussed the financial results for the three months ended in June 30th, 2024. As a reminder, today's call is being recorded.

Operator: financial results for the three months ended June 30th, 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. Dr. Coustas and Mr. Chatzis will be making some introductory comments, and then we will open the call to a question and answer session.

Operator: Hosting the call today is Dr. John Coustas, Chief Executive Officer, Danaos Corporation; MS3 Evangelos Chatzis, Chief Financial Officer, Danaos Corporation. Dr. Coustas and Mr. Chatzis will be making some introductory comments, and then we will open the call to a question and intercession.

Evangelos Chatzis: Thank you, operator, and good morning to everyone. Thank you for joining today's call. Before we begin, I quickly want to remind everyone that management remarks this morning may contain certain forward-looking statements and that actual results could differ materially from those projects today. These forward-looking statements are made as of today, and we undertake no obligations to update them.

Evangelos Chatzis: Thank you, operator, and good morning to everyone, and thank you for joining today's call. Before we begin, I quickly want to remind everyone that management 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 disclosure.

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 the accompanying materials. With that, I now turn the call over to Dr. John Coustas, who will provide a broad overview of the quarter. Thank you, Evangelos.

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. Please also note that where we feel appropriate, we will continue to refer to not gap financial measures such as EBDA, adjusted EBDA, adjusted net income, time charted equivalent revenues, and time charted equivalent dollars per day to evaluate our business. Reconciliation of non-GAAP financial measures to GAAP financial measures are included in our earnings release and the accompanying materials.

John Coustas: That let me now turn the call over to Dr. John Coustas, who will provide the broad overview of the quarter.

John Coustas: John. Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for the second quarter of 2024. In the last few months, broad continued market disruption as conditions in the Red Sea remain challenged and the Ukraine were persisted. Panama Canal crossing, however, returned to normal levels, eliminating that sort of disruption gone out. Market conditions have led liner companies to reassess their capacity requirement and last to secure tonnage, including tonnage with forward deliverance.

John Coustas: Good morning, and thank you all for joining today's call to discuss our results for the second quarter of 2024. The last few months brought continued market disruption as conditions in the Red Sea remained challenging and the Ukraine war persisted. Panama Canal crossings, however, have returned to normal levels, eliminating that source of disruption for now.

John Coustas: Market conditions have led liner companies to reassess their capacity requirements and rush to secure tonnage, including tonnage with forward delivery. The forthcoming environmental legislation has further incentivized liner companies to secure modern New Zealand products for medium-term requirements without making long-term commitments in the majority of cases. In this environment, we have secured charter extensions for a number of our existing ships, and furthermore, we extended our new building program to a total of 20 vessels, three of which were delivered on the second floor.

John Coustas: The forthcoming environmental legislation has further incentivized liner companies to secure modern legal imponage for medium term requirements without making long term commitments in the expansion for a number of our existed ships. Further, we extended our new building program to a total of 20 vessels, three of which were delivered in the second quarter. We have secured a multi-year charter with an average charter duration of approximately four and a half years, rated by aggregate contracted charter higher for all of our new buildings, and we are very well positioned for the future. As a result, the company's total contracted cash-reparating readiness are 3.2 billion.

John Coustas: We have secured multi-year charters with an average charter duration of approximately four and a half years, weighted by aggregate contracted charter hire for all of our new buildings, and we are very well positioned for the future. As a result, the company's total contracted cash operating revenues are $3.2 billion. The tractive charge of cabarets for our container vessel fleet, including new buildings, is currently 99% for 2024 and 80% for 2025, providing us with excellent visibility at all times. With respect to our activities in the dry bulk sector, we've recently taken delivery of all 10KH sizes.

John Coustas: Contracted charter coverage for our container vessel fleet, including new buildings, is currently 99% for 2024 and 80% for 2025, providing us with excellent readily visibility.

John Coustas: With respect to our activities in the dry bulk sector, we've recently taken delivery of old 10k size vessels. We have been gearing up our operations to ensure the integration within our fleet during this building phase, before we continue to explore opportunities to further our reach in the sector. Our evidence from the dry bulk sector has been steadily increasing, and to look forward to further diversifying our evidence and creating upside through the spot market exposure offered by the sector. Despite our recent lead growth, renewal and investigation activities, our balance sheet remains very strong with a low net debt position.

John Coustas: We have been gearing up our operations to ensure integration within our fleet during this building phase before we continue to explore opportunities to further our reach in this sector. Our revenues from the dry bulk sector have been steadily increasing, and we look forward to further diversifying our revenues and creating upside through the spot market exposure offered by the sector. Despite our recent growth with more diversification activities, our balance sheet remains very strong, with a low net-debt position.

Speaker Change: You gave some activities our balance sheet remains very strong with a low net debt position.

John Coustas: We'll continue to work tirelessly to ensure a creative performance of our assets and deliver industry-leading returns to our shareholders over the long term.

John Coustas: We'll continue to work tirelessly to ensure the accurate performance of our assets and deliver industry-leading returns to our shareholders over the long term. With that, I'll hand the call back over to Evangelos, who will take you through the financials for the quarter. Thank you, John, and good morning to everyone.

We'll continue to work tirelessly to ensure credit performance of our assets and deliver industry, leading returns for our shareholders over the long term.

Evangelos Chatzis: With that, I'll hand the call back over to Evangelos, who will take you through the financials for the quarter. Evangelos, thank you, John, and again good morning to everyone, and thanks again for joining. I will briefly review the results for the quarter, and then we will open up the conference call to Q&A.

a banker: I'll hand, the call back over to a banker who will take you through the financials for the quarter modulus.

a banker: Thank you John and again, good morning to everyone and thanks again for joining US I will briefly review the results for the quarter and then we will open up the conference call for Q&A.

Evangelos Chatzis: I will briefly review the results for the quarter and then we will open up the conference call to Q&A. We are reporting adjusted EPS for the second quarter of 2024 of $6.78 per share, or adjusted net income of $132.3 million, compared to adjusted EPS of $7.14 per share or $143.4 million for the second quarter of 2023. This $11.1 million decrease in adjusted net income between the two quarters is the result of a $19.9 million increase in total operating expenses, mainly due to the recognition during the current quarter of voyage costs related to voyage charters of a dry-bulk cape-sized fleet, partially offset by a $4.8 million increase in net operating revenues, a $3.7 million improvement in investments, and a $0.3 million improvement in net finance costs.

Evangelos Chatzis: We are reporting a trusted EPS for the second quarter of 2024 of $6.78 per share or a trusted net income of 132.3 million compared to a trusted EPS of $7.14 per share or a $143.4 million for the second quarter of 2023. This 11.1 million decrease in a trusted net income between the two quarters is a result of a 19.9 million increase in total operating expenses, mainly due to the recognition during the Canon quarter of voyage costs related to voyage charters of a dribble cap size fleet. Partially upset by a 4.8 million increase in net operating revenues, a 3.7 million improvement on investments, and a 0.3 million improvement in net finance costs.

Speaker Change: We are reporting adjusted EPS for the second quarter, Australia, 24, or $6 78 per share.

Speaker Change: Or adjusted net income of $32 3 million compared to adjusted EPS of $7 14 per share.

Speaker Change: $443 4 million for the second quarter of 2023.

Speaker Change: This $11 1 million decrease in adjusted net income between the two quarters.

Speaker Change: As a result of a $19 9 million increase in total operating expenses, mainly due to the recognition during the current quarter of voyage costs related to various charters of our dry bulk capesize fleet.

Speaker Change: Partially offset by a $4 8 million increase in net operating revenues of $3 7 million improvement on investments.

Speaker Change: And there's no point 3 million improvement in net finance costs.

Evangelos Chatzis: That's a operating expenses increased by 5.2 million to 47.1 million in the Canon quarter from 41.9 million in the second quarter of 2023 as a result of the increase in the average number of vessels in our fleet, while our daily operating costs remain stable at $6,961 per day for the Canon quarter compared to $6,970 per day for the second quarter of 2023. Our operating costs continue to remain among the most competitive in the industry. GNA expenses increased by 4.1 million to 11.3 million in the Canon quarter compared to 7.2 million in the second quarter of 2023, mainly due to an increase in stock-based non-cash costs.

Evangelos Chatzis: Vessel operating expenses increased by $5.2 million to $47.1 million in the current quarter from 41.9 million in the second quarter of 2023 as a result of the increase in the average number of vessels in our fleet. However, our daily operating costs remain stable at $6,961 per day for the current quarter compared to $6,970 per day for the second quarter of 2023. Our operating costs continue to remain among the most competitive in the industry. G&A expenses increased by $4.1 million to $11.3 million in the current quarter, compared to $7.2 million in the second quarter of 2023, mainly due to an increase in stock-based non-cash costs. Interest expense excluding finance costs amortization decreased by 0.7 million to 4.6 million in the current quarter compared to 5.3 million for the second quarter of 2023.

Speaker Change: That's elaborating expenses increased by $5 2 million to $47 1 million in the current quarter.

Speaker Change: From $41 9 million in the second quarter of 2023 as a result of the increase in the average number of vessels in our fleet.

Speaker Change: While our daily operating costs remained stable.

Speaker Change: <unk> $6961 per day for the current quarter compared to 6000 $9070 per day for the second quarter, Australia 23.

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

Speaker Change: G&A expenses increased by $4 1 million to $11 3 million in the current quarter compared to $7 2 million in the second quarter of 2023.

Speaker Change: Mainly due to an increase in stock based non cash costs.

Evangelos Chatzis: Interest expense, excluding finance costs and motivation, decreased by 0.7 million to 4.6 million in the Canon quarter compared to 5.3 million for the second quarter of 2023. The decrease in interest expense is a combined result of a 1.2 million increase in interest expense due to the increase in our average indebtedness of 52 million between the two periods and the increase in the cost of debt service by approximately 14 basis points as a result of higher software rates between the two periods. We also had the 1.9 million decrease in interest expense due to increased capitalized interest on our vessels under construction.

Speaker Change: Interest expense, excluding finance costs amortization decreased by <unk> 7 million to $4 6 million in the current quarter compared to $5 3 million for the second quarter of 2023.

Evangelos Chatzis: The decrease in interest expense is the combined result of a $1.2 million increase in interest expense due to the increase in our average indebtedness of $52 million between the two periods and an increase in the cost of debt service by approximately 14 basis points as a result of higher SOFR rates between the two periods. We also had a $1.9 million decrease in interest expense due to increased capitalized interest on our vessels under construction.

Speaker Change: The decrease in interest expense as a combined result of it.

Speaker Change: One 2 million increase in interest expense.

Speaker Change: Due to the increase in our average indebtedness.

Speaker Change: 52 million between the two periods and the increase in the cost of debt service by approximately 14 basis points as a result of higher sulfur rates between the two opinions.

Speaker Change: We also had the $1 9 million decrease in interest expense.

Speaker Change: To increased capitalized interest on our vessels under construction at the same time interest income came in at $2 9 million.

Evangelos Chatzis: At the same time, interest income came in at 2.9 million. Adjusted EBDA remains stable, decreasing slightly by 0.3% or half a million, to 176.8 million for the car and quarter, from 177.3 million in the second quarter of 2023 for regions that have already been outlined earlier on this call.

Evangelos Chatzis: At the same time, interest income came in at $2.9 billion. Adjacent EBGAR remains stable, decreasing slightly by 0.3 percent or half a million to 176.8 million for the current quarter from 177.3 million in the second quarter of 2023 for reasons that have already been outlined earlier on this call. We also encourage you to review our updated investor presentation that is posted on our website, as well as subsequent event disclosures. A few of the highlights follow. Over the past two months,

Speaker Change: Adjusted EBITDA remained stable.

Speaker Change: Decreasing slightly by not paying 3% or half a million, but how does the $76 8 million for the current quarter from $177 3 million in the second quarter of 2023 for reasons that have already been outlined earlier on this call.

Evangelos Chatzis: We also encourage you to review our updated investor presentation that is posted on our website, as well as subsequent event disclosures. A few of the highlights follow over the past two months. We have added approximately 900 million to our contracted revenue backlog. As a result, our contracted revenue backlog remains very strong and has increased to 3.2 billion US dollars, with a 3.4 year average charter duration, while contract coverage is at 99% for 2024 and 80% for 2025. Our investor presentation has an analytical disclosure on our contracted charter book. As of June 30th, 2024, our net debt stood at 205 million.

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

Speaker Change: A few of the highlights followed over the past two months.

Evangelos Chatzis: We have added approximately $900 million to our contracted revenue backlog. As a result, our contracted revenue backlog remains very strong and has increased to $3.2 billion. [inaudible] Our investor presentation has analytical disclosure on our contracted charter book. As of June 30th, 2024, our net debt... stood at $205 million. In the current interest rate environment, this position shields us from high interest costs. Additionally, the company's net debt-to-adjusted EBITDA ratio stood at 0.29 times, while 53 out of our 80 vessels are currently unencumbered and debt-free.

Speaker Change: Have added approximately 900 million to our contracted revenue backlog.

Speaker Change: As a result, our contracted revenue backlog remains very strong and has increased to $3 2 billion.

Speaker Change: U S dollars with a three four year average charter duration.

Speaker Change: While contract coverage is at 99% for 2024 and 80% for 2025.

Speaker Change: Well, that's the presentation hasnt identical disclosure on our contracted charter book.

Speaker Change: As of June 30 is 220 before our net debt stood at 205 billion in the current interest rate environment. This position shields us from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio stood at <unk> 29 times, while 53 out.

Evangelos Chatzis: In the current interest environment, this position shields us from high interest costs. Additionally, the company's net debt to adjusted EBDA ratio stood at 0.29 times, while 53 out of our 80 vessels are currently unencumbered and debt-free. Finally, as at the end of the second quarter, cash was at 372 million, while total liquidity, including availability and our revolving credit facility and marketable securities, stood at 787 million, giving examples flexibility to pursue creative capital deployment opportunities.

Speaker Change: About eight vessels that are currently unencumbered and debt free.

Evangelos Chatzis: Finally, as at the end of the second quarter, cash was at $372 million, while total liquidity, including availability under our revolving credit facility and marketable securities, stood at $787 million, giving us ample flexibility to pursue accretive capital deployment. Operator, we are now ready to open the call to Q&A.

Speaker Change: Finally.

Speaker Change: As of the end of the second quarter.

Evangelos Chatzis: With that, I would like to thank you for listening to this first part of our call.

Operator: Operator, we are now ready to open the call with 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.

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 1 and 2. At this time, we will pause momentarily to summarize. Our first question will come from Omar Nokta with Clarkson Plateau Security. You may now go ahead.

If you're using a speaker phone, please pick up your hands up before pressing the keys. To withdraw your question, please press star in 2. At this time, we'll pause momentarily to some more roster.

Omar Nokta: Our first question will come from Omar Nautil with Clarkson and Plateau Securities.

You may not go ahead. Thank you. Hey, John and Vandalos. Good update.

Omar Nokta: Thank you. Hey, John and Evangelos.

Omar Nokta: I just wanted to ask you to expand the backlog here nicely. Definitely, since the last update a month ago. It's interesting you took the 788250 to the building, some 3-year charter, 5-year. I just wanted to ask how did that come about? Was that an option that the charter exercised? Was it a renegotiation? And also, was there any change in day rate?

Omar Nokta: Good update. Just wanted to ask, you've expanded the backlog here nicely, definitely since the last update a month ago. It's interesting you took the 782.50 TE rebuildings from 3-year charters to 5-year. I just wanted to ask, how did that come about? Was that an option that the charter exercised? Was it a renegotiation? And also, was there any change in day rate?

John Coustas: Well, yeah, I, Omar. Well, the charter, yes, they had an option to be declared between three and five years, and they chose the five-year option at a slightly lower charter rate. The other ships were fixed straight for five years from the beginning.

Evangelos Chatzis: Chatzis. Well, the Charteries, they had an option to be declared between three and five years, and they chose the five year option at a slightly less Charter rate. The other ships were fixed straight for five years from the beginning.

Omar Nokta: Okay, thanks, John. And you added a $5,900 to your new building, so you got that one contracted for five years. You now have 20 new buildings, and as you mentioned, three delivered in the second quarter.

Omar Nokta: Okay, thanks, John. And you added a SIF 9200 to EU, a new building, so you've got that one contracted for five years. You now have 20 new buildings, and as you mentioned, three delivered in the second quarter. You know, kind of thinking big picture, what's your appetite here for more orders? Are there still opportunities, do you think, in this market setup? Or do you think Danaos has reached a positive

John Coustas: You know, kind of thinking big picture. What's your appetite here for more orders? Are there still opportunities you think in this market setup? Or do you think you, you know, the analysis reached a positive point? You know, we are talking now for deliveries, which at the earliest are, you know, 28 plus. So I don't think we are there at this moment, you know, to go really so far ahead. We practically are out of all these ships; it is just the last one, which is going to be 28 delivery. And, you know, we will pose for the time being to see the world situation is not really at its best.

John Coustas: You know, we are talking now about deliveries, which, at the earliest, are, you know, twenty-eight plus.

John Coustas: So... I don't think we are there at this moment, you know, to go really so far ahead. Practically, out of all these ships, it's just the last one which is going to be the 28th delivery, and uh... You know, we will pause for the time being to see how the world situation is not really at its best. The good thing is that we are completely covered and practically without debt. So, uh... We will keep our eyes open for any opportunities that are going to appear in the future.

Omar Nokta: understood. Thank you.

The good thing is that we are completely covered and practically without debt. So, yeah, we will keep, let's say, our ambition for any opportunities that are going to appear in the future.

Omar Nokta: I'm just saying, thank you, and maybe just kind of on the final, final question, follow up. You're point about, you know, the being so under-legged. You have plenty of cash in the building. You've got plenty, so financial flexibility going forward.

Omar Nokta: And maybe just kind of on the final question, follow-up, your point about being so under-leveraged. You have plenty of cash in the building. You've got plenty of financial flexibility going forward. You know, in general, what kind of financing, Evangelos, are you guys expecting to put on the new buildings? Or I guess, you know, how much debt do you think you intend to put on the vessel that they deliver?

Evangelos Chatzis: You know, in general, what kind of financing evangelists are you guys expecting to put on the new building? Or, I guess, how much debt do you think you intend to put on the best of the deliverable?

Evangelos Chatzis: Well, we already have the financing for the first eight ships out of the 20. We have reported that, and that is 450 million. This is close to 60% LTV. We anticipate putting in place something similar for the remaining 12 ships.

Evangelos Chatzis: Well, we have already arranged financing for the first eight ships out of the 20. We have reported that, and that is $450 million.

Evangelos Chatzis: This is close to 60% LTV. We anticipate putting in place something similar for the remaining 12 sessions. So, in total..., on a pro forma basis because we haven't arranged the second chunk yet, I would see that for the new builds at around 1.0.

Omar Nokta: So, in total, on a performer basis, because we haven't arranged the second chunk yet, I would see that for the new builds in the region of 1.2 billion. Okay, got it. So, about 60%. Yes, but it's still early because, you know, the second chunk of ships comes online from between 26 and 28.

Evangelos Chatzis: Okay, got it. So about 60% of previews... Yes, but it's still early because, you know, the second chunk of ships comes online between 26 and 28. We will be prudent, we will arrange debt financing, but this is sort of the ballpark number.

We will be present to arrange debt financing, but this is sort of the ballpark number.

Omar Nokta: Okay, I'm just sad. Thanks, Evangelos.

Omar Nokta: Okay, understood. Thanks, Evangelos. Thanks, John. I'll turn it over.

Thanks, John. I'll turn it over.

John Coustas: Thank you. At this time, it appears I know further questions.

Speaker Change: Yeah.

Speaker Change: Okay.

Dr. Cousteau's: This time. It appears there are no further questions I'd like to turn the call back over to Dr. Cousteau's for any further comments or closing remarks.

Operator: At this time, it appears there are no further questions. I'd like to turn the call back over to Dr. Coustas for any further comments or closing remarks. Yes, thank you all for joining this conference.

I'd like to turn the call back over to Dr. Cousas, and your continued interest in our story.

John Coustas: Yes, thank you all for joining this conference call and your continued interest in our story. Look forward to hosting you on our next earnings call. Have a nice day.

Dr. Cousteau's: Yes. 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.

Operator: Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.

John Coustas: Look forward to hosting you on our next earnings goal. Have a nice day. Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you. This concludes today's teleconference, we would like to thank everyone for their participation have a wonderful afternoon.

Operator: This concludes today's teleconference. We would like to take everyone for the participation.

Operator: Have a wonderful afternoon.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.