Mama's Creations Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 4 speakers on the call.

Operator

Good day, and welcome to the Danaos Corporation Conference Call to discuss the Financial Results for the 3 Months Ended September 30, 2023. As a reminder, today's call is being recorded. Hosting the call today is Doctor. John Coustas, Chief Executive Officer of Danaos Corporation and Mr. Evangelos Hatzis, Chief Financial Officer of Danaos Corporation.

Operator

Doctor. Coustas and Mr. Hassis will be making some introductory comments, and then we will open the call to a question and answer session. Please go ahead.

Speaker 1

Thank you, operator, and good morning to everyone. 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 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 we feel appropriate, we will continue to refer to non GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted net income to evaluate our business.

Speaker 1

Reconciliations 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 Doctor. John Coustas, who will provide the broad overview of the quarter. John?

Speaker 2

Thank you, Evangelos. Good morning and thank you all for joining today's call to discuss results for Q3 of 2023. The macroeconomic environment continued to deteriorate during the Q3 of 2023 and container transport stagnated with most areas due to continued inventory destocking and weak retailer sales. As a result, Profitability of liner companies has dramatically decreased and major operators have announced sweeping cost cutting measures. The chartering market continued to remain under pressure, particularly in the market for vessels smaller than 3,000 TEU, where charter rates returned to pre pandemic levels.

Speaker 2

In larger vessel segments, charter rates have remained relatively stable, Given the scarcity of open tonnage for next year, the factor that has enabled us to forward fix All our vessels above 10,000 TEU on 3 year charters at profitable levels that will commence after expiring of existing charter contracts 2024. As a result, our charter cover for 2024 has increased 90%. Separately, through the date of this release, we've taken delivery of the first 4 Capesize bulk carriers, and we have achieved rates well ahead of our expectations. While we do not expect to sustain upwards momentum in charter rates in the near term, We will closely monitor the drybulk market and opportunistically pursue opportunities to expand our presence in this market. The resilience of our business model has been confirmed by the continuation of our solid results despite the significant fall in the charter market.

Speaker 2

Our strategy of delevering has also been effective in world time, as we have not been impacted by higher interest rates. Our chartered backlog of $2,500,000,000 in contracted revenue also provides us with significant cash flow visibility and allows us to maintain flexibility in our capital allocation policy. In this regard, we decided to increase our quarterly dividend to $0.80 per share and also to authorize an additional $100,000,000 in share buybacks as our initial $100,000,000 authorizations have been almost exhausted. Due to the prudent execution of our strategy, We have been able to return over $200,000,000 to our shareholders over the last 18 months And simultaneously grow our fleet in the container segment by placing 10 new building orders and create exposure to the dry bulk segment through investments in companies and vessels. We will strive to continue to create value for all our shareholders while ensuring the long term prosperity of Danaos.

Speaker 2

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

Speaker 1

Thank you, John, and good morning again to everyone. I will briefly review the results for the quarter and then open the call to Q and A. This quarter, we are reporting adjusted EPS of $7.26 per share or adjusted net income of $143,000,000 compared to adjusted EPS of $8.71 per share or $176,900,000 for the Q3 of 2022. This $33,900,000 decrease in adjusted net income between the two quarters is primarily the result of the $23,200,000 ZYN dividend that had been recognized in our income statement during the Q3 of 2022 and it's no longer applicable as we have now sold all of our ZYN shares. Otherwise, our adjusted net income was further by a $20,800,000 drop in operating revenues, mainly due to non cash revenue recognition accounting, And that was partially offset by a reduction of $10,000,000 in our net finance expenses, which was driven by the significant deleveraging of our balance sheet.

Speaker 1

Vessel operating expenses increased by $300,000 to $39,500,000 in the current quarter compared to $39,200,000 in the Q3 of 2022 as a result of the increase in the average daily Vessel operating costs that increased to $6,500 per vessel per day for the current quarter from $6,173 per day for the corresponding quarter of 2022 and that is related to inflationary pressures that have affected repairs and maintenance costs as well as increased insurance premiums. Our operating costs However, to remain among the most competitive in the industry. G and A expenses decreased slightly to $7,100,000 in this quarter compared to $7,200,000 in the Q3 of 2023. Interest expense excluding finance costs Amortization dropped by $9,300,000 to $3,800,000 in the current quarter compared to $13,100,000 in the Q3 of 2022. The increase the decrease in interest expense is the combined result of A $5,800,000 decrease because of a decrease in the average indebtedness by $549,000,000 between the two periods, which was partially offset by an increase in the cost of debt service by approximately 2.2% as a result of rising interest rates.

Speaker 1

Additionally, we had $3,500,000 decrease in interest expense due to capitalized interest on our vessels under construction, which is the 10 new buildings we have on order. At the same time, interest income came in at $3,100,000 effectively covering over 80% of our interest expense for the quarter. Adjusted EBITDA decreased by 16.5 percent or $35,100,000 to $178,000,000 in the current quarter From $213,100,000 in the Q3 of 2022, primarily as previously discussed, Due to the $23,200,000 ZIM dividend that had been recognized and is no longer applicable. The other EBITDA drivers 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 events disclosures.

Speaker 1

A few of the highlights are the following. Over the past 3 months, we have secured $178,000,000 of contracted revenue through the arrangement of new charters for Six containerships in our fleet and these new features notably include additional contracted revenues of $103,000,000 for 2 13,000 TEU vessels and $68,000,000 for 2 10,000 TEU vessels. As a result, our contracted revenue backlog currently stands at $2,500,000,000 with a 3.2 year average charter duration, while contract coverage is now at 100% for 2023 90% for 2024. Our investor presentation has analytical As of September 30, 2023, our net debt was down to $111,000,000 In the current interstate environment, this position from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio stood at 0.16, while 48 Out of our 72 vessels are currently unencumbered and debt free.

Speaker 1

Finally, as of the end of the third quarter, Cash was at $306,000,000 while total liquidity including availability under our revolving credit facility stood at $655,000,000 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 to Q and A.

Operator

Great. Thank you. Today's first question comes from Omar Khnabta with Jefferies. Please go ahead.

Speaker 3

Thank you. Hi, John, Evangelos. Good afternoon. Nice quarter, definitely some good updates, especially those Fixtures you just highlighted and it looks like you guys are feeling quite confident with things, especially given that you've been active with the buyback, you've just announced the buyback. You have the backlog of $2,500,000,000 and it sounds like you obviously have quite a bit of flexibility going forward with the low debt you just outlined, Evangelos.

Speaker 3

In terms of how you see opportunities ahead, clearly there you have the firepower, the muscle to go out and do more if you so choose. Just want to get your sense at the moment if there's a preference as you think about the opportunities that are ahead, what's attractive? Do you think There's more to do in the dry bulk side of things. Is that where you want to deploy more capital on an opportunistic basis? Or do you think there are Opportunities that are starting to showcase themselves in the container market.

Speaker 2

Yes. Omar. We are as you said, we have ample firepower. When we identify opportunities to pursue them. And we are Actually pursuing opportunities, both in the container sector And in the dry bulk.

Speaker 2

In the dry bulk, as we already said, We have identified, let's say, our strategy that we like The cape sector where we have invested and also in the smaller sector rather than Investment directly in ships, we have taken a significant position in the bulk. In terms of the containers, we are Looking at both further opportunities in the newbuilding front and also maybe some opportunities of modern eco vessels in the secondhand front. And we'll take it from there. We are not in a rush. In general, we see a lot of uncertainty going forward.

Speaker 2

And We must be sure really that we are at or near, We would say the bottom of the market in order to start engaging in the larger scale.

Speaker 3

Yes, makes sense, John. Thank you. And maybe just a follow-up just to that point regarding the opportunities you're looking at. You mentioned the new buildings and the I know in the past, especially maybe in this sort of period of downshift From a strong market to a softer one over the past maybe a year and a half or so, there hasn't really been much in the or much liquidity in that modern eco side In terms of transactions, are you seeing that pick up? Is there more activity or is there at least more maybe inquiry Ahead versus maybe what we saw 6 months ago?

Speaker 2

Well, we'll start seeing opportunities. There are companies

Speaker 3

That,

Speaker 2

let's say, have both vessels And kind of chartered them companies that have not been, let's say, long term players in the market. And we're now in 2024, they see that the charters are Kind of expiring, and the environment is not going to be very good for the chartering. They are looking to disengage from this sector. And there are a number of, say, opportunities floating around.

Speaker 3

Thank you. And one just final one for me, John, some of the things that we've started to see a bit more of, not a big scale, but is the Liners coming to the ship owners and requesting relief perhaps or maybe just more amendments on the charters and Basically the amend and extend approach. Are you seeing that coming your way? It didn't look to didn't seem to be Any sort of indication of that in your fleet list? But just wanted to get a sense from you, are you seeing any amend and extend?

Speaker 3

And if so, How do you think that shakes out for Danaos in terms

Speaker 2

of say, an NPV basis? We have not really seen anything happening. It's very early. The drop It has been relatively quick and liner companies are still Very kind of cash rich. So yes, I cannot rule out Things like that happening in the future.

Speaker 2

I mean that, to a certain extent, for companies like us That are practically debt free to be able, I mean, all these deals we amend and Extend are beneficial because they practically increase our earnings visibility for the future, While the actual, let's say, PV is not so important because In any case, it's going to be the cost is going to be priced in. It's just many companies may not be able to afford something like that For example, the debt obligations.

Speaker 3

Yes. Makes sense. Thank you, John. That's it for me. I'll turn it over.

Speaker 2

Thank you.

Operator

Thank you. It appears we have no further questions at this time. I would like to turn the call back over to Doctor. Cuszak for any further comments or closing remarks.

Speaker 2

Yes. Thank you, operator. Thank you, everyone, for listening to our story. We will continue to work towards making Danaos better and more profitable in the future. Thank you.

Operator

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

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Earnings Conference Call
Mama's Creations Q3 2023
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