Q3 2024 Danaos Corp Earnings Call

Speaker Change: Good day and welcome to the Denounce Corporation conference call to discuss the financial results for the three months ended September 30, 2024. As a reminder, today's call is being recorded.

Speaker Change: Hosting the call today is Dr. John Coustas, Chief Executive Officer of Danaos Corporation and Mr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation.

Speaker Change: Dr. Coustas and Mr. Chatzis will be making some introductory comments and then we will open the call to a question and answer session. You may begin.

Speaker Change: Thank you, operator, and good morning to everyone, and thank you for joining us today.

Speaker Change: Before we begin, I quickly want to remind everyone that Manatin'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.

Speaker Change: 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.

Speaker Change: 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 Chartered Equivalent Revenues and Time Chartered Equivalent Dollars per day to evaluate our business.

Speaker Change: Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our release and accompanying materials.

Speaker Change: Now, let me turn the call over to Dr. John Coustas, who will provide the broad overview of the quarter. John?

Speaker Change: Thank you, Evangelos. Good morning and thank you all for joining today's call to discuss our results for third quarter 24.

Speaker Change: The container market remained very strong in the third quarter of 2024, allowing us to add over 300 million to our contracted charter backlog, which presently stands at 3.3 billion.

Speaker Change: Importantly, all 14 of our new buildings on order are fixed for five years, except for two that are fixed for two years.

Speaker Change: We have excellent earnings visibility, as we have covered 100% of our container vessel fleet operating days for 2024, 94% for 2025 and 73% for 2026.

Speaker Change: The dry bulk market has been uncharacteristically soft lately, which can be attributed to disruption of seasonal patterns throughout the year, as well as a decrease in Chinese steel production.

Speaker Change: Our dry bulk fleet performed reasonably well during the quarter and we are expecting freight rates to gradually improve as we move into 2025.

Speaker Change: Due to the certainty provided by the chart of backlog in our container segment, Danout is insulated from the unstable and unpredictable nature of the current global backdrop.

Speaker Change: The recent U.S. presidential election has introduced new uncertainty about future policymaking and its effect in the shipping market.

Speaker Change: Most notably, President Trump has openly declared his intention to implement or increase trade tariffs that have the potential to decrease container movements, or at least reshuffle trade links.

Speaker Change: Additionally, it's likely that energy transition initiatives will take place at a slower rate and we don't know to what extent existing IMO initiatives will be supported by the new administration.

Speaker Change: The announced remain in a fortunate and enviable position in addition to our chart of coverage. Our balance sheet is a significant strength.

Speaker Change: I am proud of the efforts we have undertaken, efforts that have been acknowledged by Moody's who upgraded Danaus to be A1.

Speaker Change: Together with the S&P credit rating at WB+, Danaos now holds the highest grade assigned to a pure play shipping company.

Speaker Change: Our credit worthiness will allow us to explore fully the U.S. bond market, creating opportunity to raise competitively priced capital to continue to pursue growth opportunities.

Speaker Change: Our continued strong financial performance and accompanied strengthening of our balance sheet has enabled us to increase our quarterly dividend to $0.85 a share, in line with the commitment we have made to our shareholders.

Speaker Change: We are also continuing to return value through our share buyback program.

Speaker Change: We have now cumulatively bought back stock worth $123 million and have $77 million remaining under our authorized share repurchase program.

Speaker Change: We are continuing our efforts to increase the value of the company, while remaining vigilant about geopolitical risks to ensure the long-term prosperity of Danaos for the benefit of our shareholders.

Speaker Change: With that, I'll hand the call back over to Evangelos who will take you through the financials for the quarter.

Evangelos Chatzis: We are reporting adjusted EPS for this quarter of six and a half dollars per share.

Evangelos Chatzis: or adjusted net income of $126.8 million and that compares to adjusted EPS of $7.26 per share or adjusted net income of $143 million for the third quarter of 2023.

Evangelos Chatzis: The decrease of $16.2 million in adjusted net income between the two quarters is the result of a $31.1 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.

Evangelos Chatzis: and the 3.3 million increase in net finance costs and those were partially offset by a 17 million increase in net operating revenues and the 1.2 million improvement in income from investments.

Evangelos Chatzis: Vessel OPEX increased by 10.4 million to 49.9 million in the current quarter, from 39.5 million in the corresponding third quarter of 2023, as a result of the increase in the average number of vessels in our fleet.

Evangelos Chatzis: while at the same time our daily OPEX cost increased to $6,860 per day for this quarter compared to $6,500 per day for the third quarter of 2023.

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

Evangelos Chatzis: G&A expenses increased by $3.9 million to $11 million in the current quarter, compared to $7.1 million in the third quarter of 2023, mainly due to an increase in stock base.

Lord Cash

Coustas.

Evangelos Chatzis: to $7.4 million in the current quarter compared to $3.8 million in the corresponding third quarter of 2023.

The increase in interest expense...

is a combined result of a 4.2 million increase.

Evangelos Chatzis: in interest expense due to an increase in our average indebtedness by more than 200 million between the two periods, partially offset by a reduction in the cost of debt service by approximately 26 basis points.

Evangelos Chatzis: mainly as a result of a decrease in our financing margin cost between the two periods. This was offset by a 0.6 million decrease in interest expense due to increased capitalized interest.

Evangelos Chatzis: between the two periods on vessels that are under construction. At the same time, interest income for the quarter came in at 3.1 million.

for approximately a million.

Evangelos Chatzis: to $178.9 million in the current quarter from $178 million in the corresponding third quarter of 2023.

Evangelos Chatzis: for the 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.

Evangelos Chatzis: Some of the highlights are that since the date of our prior earnings release, as was earlier mentioned by John, we have added $308 million to our contracted revenue backlog.

Evangelos Chatzis: And as a result, our contracted revenue backlog remains strong and has now increased to $3.3 billion with a 3.4 year average charter duration.

Evangelos Chatzis: Our investor presentation has analytical disclosure on our contracted charter book.

Evangelos Chatzis: Additionally, as of September 30, 2024, our net debt stood at $305 million.

Evangelos Chatzis: and in the current interest rate environment, this position shields us from high interest costs.

Evangelos Chatzis: Additionally, the company's net debt to EBITDA ratio stood at 0.4 times, while 53 out of our 82 vessels are currently unencumbered and debt free.

Evangelos Chatzis: stood at $785 million, giving us ample flexibility to pursue accretive capital deployment opportunities.

Speaker Change: 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.

Speaker Change: 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 the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

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

Speaker Change: The first question comes from Omar Nocta with Jeffreys. Please go ahead.

Thank you. Hi, John Evangelos. Good afternoon.

Speaker Change: Yeah, hi, just a couple of questions from my side, you know want to ask it clearly You know as you outlined in the in the release and the presentation and and in the discussion you've taken quite

Speaker Change: You've taken advantage of this very strong and resurgent container market really to fix out shifts longer term. You've ordered some new ships in the past which are now obviously all contracted.

Speaker Change: Last quarter you mentioned that you're looking to take a bit of a step back.

from the new building market.

So, we really, I guess, we have continued to see...

Speaker Change: You know, the interest on the part of liners remain relatively elevated for new buildings. So, I just wanted to ask, how do you think about where Danaos is on the new building front? Are you still on the sidelines, or do you see an opportunity to come back into the ordering side?

You know, things are progressing, we are

Speaker Change: fixing, you know, more and more. Actually, we have even increased further our contracted revenue since getting this release out quite substantially.

And, you know, it's...

It's just that, you know, today...

Speaker Change: you know to see where really where the ball is going

Speaker Change: is not going to follow what the previous one is doing.

Which means?

Speaker Change: I'm not sure really what kind of influence we're going to have on what the IMO is currently discussing about this carbon tax, carbon levy, whatever you're going to call it.

you know, the decarbonization path.

Speaker Change: In general, for most of the ships that we have ordered, prices are on the average between 15 and 20 percent more.

So...

You know, we're going to wait.

Speaker Change: for, let's say, for this kind of to cool down. And the reason is because...

Speaker Change: When we order, we do not order just purely on a back-to-back basis.

Speaker Change: Because, as I've said already in the past, deals like that are kind of mid-single-digit equity returns.

and we're not prepared really to go down that path.

and when you're actually taking...

The Risk Yourself

Speaker Change: The price of the asset is extremely important. So this is really the reason that we are kind of temporizing. If we see prices, you know, coming back again, retracting, we will definitely be there to take advantage.

Speaker Change: OK. Thanks, John. That's fairly clear. And just to summarize that simply...

Speaker Change: given the uncertainty on the new administration, what that means for environmental.

Speaker Change: Just going forward, you know, that uncertainty plus the fact that new building prices are high and you don't know where this container market's going, you're content with how things are and you'd rather, when you order, do it opportunistically to give yourself a better ROE and given that, it makes sense to just wait.

Yeah, exactly.

Speaker Change: Okay, and then just a second question. I know we've talked about this before on separate calls before, just in terms of the Drybulk investment, you know, you bought into Drybulk at the market lows, I think, starting last year.

Speaker Change: It's strengthened a bit, but it's come off here over the past few months, although I guess you could say recently there's another bounce.

Speaker Change: But in general, it feels like the sectors may be softened a bit relative to what we were seeing previously. How are you thinking about dry bulk in terms of where we are sort of fundamentally, and where do you see Denouf going with this segment?

Speaker Change: As I said, you know, we've built, you know, a fleet of 10 ships and as the cape size is a new segment for us.

We are currently, you know, in an experience-building phase.

that makes sense and they are of course effective.

And, you know, we will...

Speaker Change: Follow the market closely and that this market is much more liquid compared to the container market. There are opportunities out and if we see really that there is

Speaker Change: You know an opportunity. We will jump on it. On the other hand as you said As the dry bulk market is mainly China driven the situation in China

Speaker Change: the dry bulk movement, especially on cape sizes where iron ore makes a very big proportion.

Speaker Change: Right, yeah. Thank you. And then I'm just sorry to follow up just and press maybe just one bit further on just a comment you made on, you know, if you see an opportunity, you would jump on it. Is that in relation to an opportunity to acquire assets or to sell? Or are you talking, say, both?

You know, to acquire more assets.

Or, you know, or whatever.

Okay.

Good. All right. Well, thanks. That's it for me.

Great. Thank you, Amir.

Speaker Change: It appears we have no further questions at this time. I would like to turn the call back over to Dr. Coustas for any further comments or closing remarks.

Dr. Coustas: 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.

Thank you. This concludes today's teleconference.