Danaos Q2 2024 Earnings Call Transcript

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August 6, 2024

There are 4 speakers on the call.

Operator

Good day, and welcome to the Daimler's Corporation Conference Call to discuss the Financial Results for the 3 Months Ended in June 30, 2024. As a reminder, today's call is being recorded. Hosting the call today is Doctor. John Coustas, Chief Executive Officer of Banos Corporation and Mr. Evangelos Hastyes, Chief Financial Officer of Banos Corporation.

Operator

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

Speaker 1

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'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 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 and time charter equivalent dollars per day to evaluate our business.

Speaker 1

Reconciliations of non GAAP financial measures to GAAP financial measures are included in our earnings release and the 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 our results for the Q2 of 2024. The last few months brought continued market disruption as conditions in the Red Sea remained challenged and the Ukraine were persisted. Panama Canal Crossings, however, returned to normal levels, eliminating that source of disruption for now. Market conditions have led liner companies to reassess their capacity requirement and rush to secure tonnage, including tonnage with forward deliveries.

Speaker 2

The forthcoming environmental legislation has further incentivized liner companies to secure modern newbuilding tonnage 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 further, we extended our newbuilding program to a total of 20 vessels, 3 of which were delivered in the 2nd quarter. We have secured multiyear charters with an average charter duration of approximately 4.5 years, weighted by aggregate contracted charter hire for all of our newbuildings, and we are very well positioned for the future. As a result, the company's total contracted cash operating revenues are $3,200,000,000 Contracted charter coverage for our container vessel fleet, including new buildings, is currently 99% for 2024 80% for 2025, providing us with excellent revenue visibility.

Speaker 2

With respect to our activities in the dry bulk sector, we've recently taken delivery of all 10 Cape sized 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 this sector. Our revenues from the drybulk 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 fleet growth, renewal and diversification activities, our balance sheet remains very strong with a low net debt position. We'll continue to work tirelessly to ensure accretive performance of our assets and deliver industry leading returns to our shareholders over the long term.

Speaker 2

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

Speaker 1

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 and A. We are reporting adjusted EPS for the Q2 of 2024 of $6.78 per share or adjusted net income of $132,300,000 compared to adjusted EPS of $7.14 per share or $143,400,000 for the Q2 of 2023. This $11,100,000 decrease in adjusted net income between the two quarters is a result of a $19,900,000 increase in total operating expenses, mainly due to the recognition during the current quarter of voyage costs related to voyage charters of our drybulk Capesize fleet, partially offset by a $4,800,000 increase in net operating revenues, a $3,700,000 improvement on investments and there's $300,000 improvement in net finance costs.

Speaker 1

Vessel operating expenses increased by $5,200,000 to $47,100,000 in the current quarter from $41,900,000 in the Q2 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 current quarter compared to $6,970 per day for the Q2 of 2023. Our operating costs continue to remain among the most competitive in the industry. G and A expenses increased by $4,100,000 to $11,300,000 in the current quarter compared to 7 point $2,000,000 in the Q2 of 2023, mainly due to an increase in stock based non cash costs. Interest expense excluding finance costs amortization decreased by $700,000 to $4,600,000 in the current quarter compared to $5,300,000 for the Q2 of 2023. The decrease in interest expense is a combined result of $1,200,000 increase in interest expense due to the increase in our average indebtedness of $52,000,000 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.

Speaker 1

We also had the $1,900,000 decrease in interest expense due to increased capitalized interest on our vessels under construction. At the same time, interest income came in at $2,900,000 Adjusted EBITDA remained stable, decreasing slightly by 0.3 percent or $500,000 to $176,800,000 for the current quarter from $177,300,000 in the Q2 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 2 months, we have added approximately $900,000,000 to our contracted revenue backlog.

Speaker 1

As a result, our contracted revenue backlog remains very strong and has increased to 3,200,000,000 dollars with a 3.4 year average charter duration, while contract coverage is at 99% for 2024 80% for 2025. Our investor presentation has analytical disclosure on our contracted charter book. As of June 30, 2024, our net debt stood at $205,000,000 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. Finally, as of the end of the Q2, cash was at 372,000,000 dollars while total liquidity, including availability under our revolving credit facility and marketable securities, stood at $787,000,000 giving us ample flexibility to pursue accretive capital deployment opportunities.

Speaker 1

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

We will now begin the question and answer session. Will come from Omar Khnath with Clarksons Platou Securities. You may now go ahead.

Speaker 3

Thank you. Hey, John and Van Dylos. Good update. Just wanted to ask you to expand the backlog here nicely since the last update a month ago. And it's interesting you took

Speaker 2

the 78,250 TEU buildings from

Speaker 3

3 year charges to 5 years. I just wanted to ask how did that come about? Was that an option that the charter exercise? Was it a renegotiation? And also, is there any change in day rate?

Speaker 2

Well, yes, hi, Omar. Well, the charter, yes, they had an option to be declared between 3 5 years, and they chose the 5 year option at a slightly less charter rate. The other ships were fixed straight for 5 years from the beginning.

Speaker 3

Okay. Thanks, John. And you added a 5th 9,200 TEU new building. So you've got that one contracted for 5 years. You now have 20 new buildings.

Speaker 3

And as you mentioned, 3 delivered in the 2nd quarter. 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 the announcement reached a positive point?

Speaker 2

We are talking now for deliveries, which at the earliest are 28 plus. So I don't think we are there at this moment to go really so far ahead. We practically out of all these ships, it's just the last one, which is going to be 28 delivery. And we will pause for the time being to see the world situation is not really at its best. The good thing is that we are completely covered and practically without debt.

Speaker 2

So we will keep, let's say, our ambition for any opportunities that are going to appear in the future.

Speaker 3

Understood. Thank you. And maybe just kind of on the final question follow-up, your point about being so under levered. You have plenty of cash in the building and you've got plenty of financial flexibility going forward. In general, what kind of financing of Evangelos are you guys expecting to put on the new buildings?

Speaker 3

Or I guess how much debt do you think you intend to put on the vessels as they deliver?

Speaker 1

Well, we already have our financing for the first 8 ships out of the 20. We have reported that and that is 450,000,000 dollars This is close to 60% LTV. We anticipate putting in place something similar for the remaining 12 ships. So in total, on a pro form a basis, because we haven't arranged the 2nd chunk yet, I would see debt for the new builds in the region of $1,200,000,000

Speaker 3

Okay. Got it. So about 60% LTV?

Speaker 1

Yes. But it's still early because the second chunk of ships comes online from between 2628. We will be prudent to arrange debt financing, but this is sort of the ballpark number.

Speaker 3

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

Speaker 2

Thank you.

Operator

At this time, it appears there are no further questions. I'd like to turn the call back over to Doctor. Koussos for any further comments or closing remarks.

Speaker 2

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.

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
Danaos Q2 2024
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