Danaos Corporation (DAC) Earnings Call Transcript & Summary

Good day, and welcome to the Danaos Corporation conference call to discuss financial results for the 3 months ended December 31, 2024. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Coustas, Chief Executive Officer at Danaos Corporation; and Mr. Evangelos Chatzis, Chief Financial Officer at 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. Gentlemen, the floor is yours.

Thank you, operator. Good morning to everyone, and thank you for joining us this morning. 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. 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 Dr. John Coustas, who will provide the broad overview of the quarter. John?

Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for the fourth quarter of 2024. The world is entering uncharted territory and any near-term predictions about the direction of shipping markets are inherently unreliable. The tariff war is bound to generate disruptions, which have historically benefited shipping. However, an economic slowdown might negate these benefits. The dry bulk market continues to suffer from ongoing malaise due to the pace of the recovery of the Chinese economy, which has not shown signs of accelerating. The delivery of new tonnage starting this year will add to this weakness, particularly in the Panamax and smaller segments where the order book is concentrated. The Capesize segment where our fleet is concentrated continues to have an order book that remains at historically low levels. The container charter market remains healthy, albeit liners are exhibiting more caution, particularly with respect to forward dates. While box rates are weakening, they're still much higher than pre-pandemic levels. We'll have to wait until after Chinese New Year to gauge the effect of the front-loading of exports that occurred in anticipation of tariffs and the demand pattern in the new trade environment. Danaos is highly insulated from near-term market uncertainty with 97% CAGRs for 2025 and 79% for 2026 at healthy rates, shielding us from market volatility. Our charter backlog of $3.4 billion provides us with a certainty of income and firepower to explore accretive investments. We've chartered 13 out of our 15 newbuildings for 5 years and have arranged a new $850 million facility from a bank syndicate to fully cover the financing of all vessels in order. Our profitability remains consistent, and we're using our strong balance sheet to increase dividends, continue the share buyback and source opportunities to grow our company for the benefit of our shareholders. Our strategic focus remains on maintaining a robust financial position, securing long-term contracts for vessels coming off charter and investing in modern fuel-efficient container vessels to enhance our competitive position in the market. We are committed to delivering value to our shareholders through prudent financial management and strategic growth initiatives. With that, I'll hand the call back to Evangelos, who will take you through the financials for the quarter. Evangelos?

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&A. We are reporting adjusted EPS for the fourth quarter of 2024 of $6.93 per share or adjusted net income of $133.3 million compared to adjusted EPS of $6.99 per share or adjusted net income of $136 million for the fourth quarter of 2023. This $2.7 million decrease in adjusted net income between the 2 quarters is a result of an $11 million increase in total OpEx, mainly due to the recognition during the current quarter of voyage costs related to voyage charters of our dry bulk Capesize fleet and a $4.9 million increase in net finance costs partially offset by an $8.9 million increase in net operating revenues, a $2.2 million net improvement on income from investments and dividends from such investments and $2.1 million collected in relation to our Hanjin bankruptcy claim. Vessel operating expenses increased by $5.5 million to $45.6 million in the current quarter from $40.1 million in the fourth quarter of 2023 as a result of the increase in the average number of vessels in our fleet, while our daily operating costs slightly improved to $6,135 per vessel per day for the current quarter compared to $6,188 per vessel per day for the fourth quarter of 2023. Our operating costs continue to remain among the most competitive in the industry. G&A expenses decreased by $0.7 million to $21.7 million in the current quarter compared to $22.4 million in the fourth quarter of 2023, mainly due to a decrease in stock-based non-cash costs. Interest expense, excluding amortization of finance costs increased by $6 million to $9.1 million in the current quarter compared to $3.1 million in the fourth quarter of 2023. The increase -- this increase in interest expense is a combined result of a $5.3 million increase due to higher average indebtedness of around $330 million between the 2 periods that was partially offset by a reduction in the cost of debt service by approximately 78 basis points as a result of a decrease in software cost between the 2 periods, while we also had a $0.7 million increase in interest expense due to lower capitalized interest on vessels under construction between the 2 periods. At the same time, interest income came in at $3.9 million. Adjusted EBITDA increased by 9.9% or by $17.1 million to $189.7 million in the current quarter compared to $172.6 million in the fourth quarter of 2023 for the reasons that have been already 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. Allow me to give you a few highlights. Since the date of our last earnings release, we have added $336 million to our contracted revenue backlog. As a result, our contracted revenue backlog remains strong and has increased to $3.4 billion with a 3.7-year average charter duration, while contract coverage is at 97% for 2025 and 79% for 2026. Our investor presentation has analytical disclosure on our contracted charter book. On 7th of February 2025, we entered into an $850 million syndicated loan facility agreement to finance all of our remaining newbuilding container vessels, including the 2 additional recent orders, all of which have deliveries between 2026 and 2028. As of December 31, 2024, our net debt stood at $291 million. In the current interest rate environment, this position changes from higher interest costs. Additionally, the company's net debt to adjusted EBITDA ratio stood at 0.4x, while 53 out of our 84 vessels are currently unencumbered and debt-free. We continue to repurchase stock. And since the date of the last earnings release, we have repurchased an additional $45.6 million. To date, we have executed on total share repurchases of $168.8 million out of the $200 million authority that has been provided by our Board. Finally, as of the end of the fourth quarter, cash was at $453.4 million, while total liquidity, including availability under our revolving credit facility and marketable securities stood at $807 million, giving us ample flexibility to pursue accretive capital deployment opportunities. With that, I would like to thank you all for listening to this first part of our call. Operator, we are now ready to open the call to Q&A.

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Omar Nokta with Jefferies.

Just another strong quarter with some real free cash flow generation. And as you note in the presentation, you generated $30 a share in free cash flow in '24. It looks like that can pretty much be repeated in '25. I guess a couple of things. It looks like you're back to being on pace to that -- getting into that net cash position again sometime during 2025. I guess do you agree with that, that you're on pace to get to the net cash position yet again? And then also, do you want to be in a net cash position? Or do you prefer to keep more leverage in place?

We are looking -- as you saw, we have arranged an $850 million facility, which covers all the financing of our newbuilding program at 60%. Of course, we are generating and we are keeping substantial amounts of cash for opportunities. At present, with all our newbuilding program, we don't even going forward, manage to go to a negative net cash position. So we're still, let's say, in surplus, and this is also one of the reasons that we've continued our -- and expanded our newbuilding program. With ships that we believe they are going to be required in the market and in line with the other vessels that we have already ordered.

The next question will come from Climent Molins with Value Investor's Edge.

I wanted to start by asking about the utilization on the dry bulk side. This was mostly attributable to scheduled off-hire days. And I was wondering, could you talk a bit about what that includes and how many dry dockings were conducted during the quarter? And secondly, how many dry dockings do you have planned on that side of the fleet throughout 2025?

Are you talking about just the dry bulk fleet? Or are you talking about the whole fleet?

About dry bulk fleet.

Yes. The dry bulk, we have decided to put all our dry bulk vessels in dry dock. And presently, apart from one, all the rest have been -- have completed their dry docking in the last 6 months, where we've installed appendages and paints, which are extremely efficient. So even we've managed, for example, vessels that were rightship E-rated to move them up to a C+ rating. So we've done a lot of investment on these ships, and we believe that when the dry bulk market picks up, we're going to enjoy that. We will not have dry dockings of the dry bulk fleet over the next at least 2 to 3 years.

That's helpful. Dry bulk rates have been quite soft recently and asset values have declined at that from the highs. Is there any appetite to potentially add additional vessels going forward? And if so, would you still focus on Capesizes? Or would you be willing to add Kamsarmaxes or Ultramaxes as well?

No, we are concentrating on Capesizes. Yes, if prices are attractive, we've already said we are going to increase our presence in the sector.

Congrats for the quarter.

The next question is a follow-up from Omar Nokta with Jefferies.

Just a couple of quick ones or maybe not so much this first one, but you mentioned, John, in your presentation or in the press release and in your opening comments, near-term forecasts are basically unreliable in this climate. You've ordered the 2 new ships after a bit of a pause. Just wanted to ask what gave you confidence to kind of jump back into the newbuilding side of things?

Well, first of all, we believe that the sector needs modern efficient ships, especially in this size bracket. And secondly, we have arranged financing charter for everything else. So -- there is very little, let's say, risk, if any, by our investment.

Okay. And then just separately, obviously, you stepped up the share repurchases pretty meaningfully here in the past few months. I just wanted to ask, are you able to give us a snapshot of what the share count looks like today?

Evangelos can answer that.

Can you repeat, Omar, are you referring to the share count?

Yes, just the share count post the latest repurchases.

It's just that below 19 million shares, something like 18.8 million, 18.9 million at this point.

It appears we have no further questions at this time. I would like to turn the call back over to Dr. Coustas for any closing remarks. Please go ahead, sir.

Yes. Thank you for your continued interest in our story. We will continue to implement our program for the benefit of our shareholders. Thank you.

Thank you all for joining the conference call and for your continued interest in our story. We look forward to hosting you on our next earnings call. Have a nice day.