Danaos Q3 2024 Earnings Results & Report

Danaos EPS Results

• Actual EPS: $6.50
• Consensus EPS: $6.86
• Beat/Miss: Missed by -$0.36
• One Year Ago EPS: $7.26
• EPS Beat Rate: 3 of last 8 quarters

Danaos Revenue Results

• Actual Revenue: $256.18 million
• Expected Revenue: $251.16 million
• Beat/Miss: Beat by +$5.02 million
• YoY Revenue Growth: N/A

Danaos (NYSE:DAC) is a Greece-based international owner and operator of containerships. The company provides vessels for the transportation of containerized cargo and generally charters its ships to major liner companies, which use them to serve global trade routes.

Founded in 1972, Danaos has developed a fleet serving customers across major shipping markets and geographic regions. Its operations support the movement of manufactured goods, consumer products, industrial materials and other cargo transported in standardized shipping containers.

Danaos is headquartered in Piraeus, Greece, and its management is led by Dr. John Coustas, who serves as chief executive officer. The company’s shares trade on the New York Stock Exchange under the symbol DAC.

Danaos Q3 2024 Earnings Call Transcript

Key Takeaways

• Strong container charter backlog of $3.3 billion with full coverage for 2024, 94% for 2025 and 73% for 2026, providing excellent earnings visibility.
• Credit ratings upgraded by Moody’s to BA1 and S&P to BB+, the highest levels for a pure‐play shipping company, enhancing access to competitively priced capital.
• Increased quarterly dividend to $0.85 per share and completed $123 million in share repurchases, with $77 million remaining under the program.
• Adjusted EPS fell to $6.50 from $7.26 year-over-year, driven by a $31 million rise in operating expenses and higher net finance costs.
• Net debt of $305 million (0.4x EBITDA), 53 of 82 vessels unencumbered, and total liquidity of $785 million bolster financial flexibility.

Presentation

[Operator]

Good day, and welcome to the Danaos Corporation conference call to discuss the financial results for the three months ended September 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. You may begin.

[Evangelos Chatzis, CFO at Danaos Corporation]

Thank you, Operator, and good morning to everyone, and thank you for joining us today. Before we begin, I quickly want to remind everyone that Manos' 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 accompanying materials.

[Evangelos Chatzis, CFO at Danaos Corporation]

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

[John Coustas, CEO at Danaos Corporation]

Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for third quarter 2024. 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. Importantly, all 14 of our newbuildings on order are fixed for five years, except for two that are fixed for two years. 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. 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.

[John Coustas, CEO at Danaos Corporation]

Our dry bulk fleet performed reasonably well during the quarter, and we're expecting freight rates to gradually improve as we move into 2025. Due to the certainty provided by the charter backlog in our container segment, Danaos is insulated from the unstable and unpredictable nature of the current global backdrop. The recent U.S. Presidential election has introduced new uncertainty about future policymaking and its effect in the shipping market. 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 lanes. 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. Danaos remains in a fortunate and enviable position. In addition to our charter coverage, our balance sheet is a significant strength.

[John Coustas, CEO at Danaos Corporation]

I'm proud of the efforts we have undertaken, efforts that have been acknowledged by Moody's, who upgraded Danaos to Ba1. Together with the S&P credit rating at BB plus, Danaos now holds the highest grade assigned to a pure-play shipping company. Our creditworthiness will allow us to explore fully the U.S. bond market, creating opportunity to raise competitively priced capital to continue to pursue growth opportunities. Our continued strong financial performance and accompanying 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. We're also continuing to return value through our share buyback program. We have now cumulatively bought back stock worth $123 million and have $77 million remaining under our authorized share repurchase program.

[John Coustas, CEO at Danaos Corporation]

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

[Evangelos Chatzis, CFO at Danaos Corporation]

Thank you, John, and again, good morning 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 this quarter of $6.5 per share, 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. The decrease of $16.2 million in adjusted net income between the two quarters is a 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 our dry bulk Capesize fleet, 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, CFO at Danaos Corporation]

Vessel OPEX increased by $10.4 million-$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, 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. Our operating costs continue to remain among the most competitive in the industry. G&A expenses increased by $3.9 million-$11 million in the current quarter, compared to $7.1 million in the third quarter of 2023, mainly due to an increase in stock-based non-cash costs. Interest expense, excluding amortization of finance costs, increased by $3.6 million-$7.4 million in the current quarter, compared to $3.8 million in the corresponding third quarter of 2023.

[Evangelos Chatzis, CFO at Danaos Corporation]

The increase in interest expense is a combined result of a $4.2 million increase 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, 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 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. Adjusted EBITDA increased slightly by 0.5%, or approximately a million, to $178.9 million in the current quarter, from $178 million in the corresponding third quarter of 2023, for reasons that have already been outlined earlier on this call.

[Evangelos Chatzis, CFO at Danaos Corporation]

We also encourage you to review our updated investor presentation that is posted on our website, as well as subsequent events disclosures. 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, 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. Our investor presentation has analytical disclosure on our contracted charter book. Additionally, as of September 30, 2024, our net debt stood at $305 million, and in the current interest rate environment, this position shields us from high interest costs. 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, CFO at Danaos Corporation]

Finally, at the end of the third quarter, cash was at $384 million, while total liquidity, including availability under our revolving credit facility and marketable securities, stood at $785 million, 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&A.

[Operator]

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Omar Nokta with Jefferies. Please go ahead.

[Omar Nokta, Equity Analyst at Jefferies]

Thank you. Hi, John and Evangelos. Good afternoon.

[John Coustas, CEO at Danaos Corporation]

Hi, Omar.

[Omar Nokta, Equity Analyst at Jefferies]

A couple of.

[John Coustas, CEO at Danaos Corporation]

Yeah, hi.

[Omar Nokta, Equity Analyst at Jefferies]

Just a couple of questions from my side. I wanted to ask, clearly, as you outlined in the release, in the presentation, and in the discussion, you've taken advantage of this very strong and resurgent container market, really to fix out ships longer term. You've ordered some new ships in the past, which are now obviously all contracted. Last quarter, you mentioned that you're looking to take a bit of a step back from the newbuilding market, though we've really, I guess, we have continued to see 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?

[John Coustas, CEO at Danaos Corporation]

Things are progressing. We are fixing more and more. Actually, we have even increased further our contracted revenue since getting this release out quite substantially. It's not that we do not believe that the market will hold. It's just that today we want to see where really the ball is going, how can I say, to sit. And the biggest issue that we have is really because when you're talking about new buildings, you have always to take into account the future environmental legislations. And what is for sure is that the new U.S. administration is not going to follow what the previous one is doing, which means I'm not sure really what kind of influence they're going to have on what the IMO is currently discussing about this carbon tax, carbon levy, whatever you're going to call it.

[John Coustas, CEO at Danaos Corporation]

And this is going really the way that this is going to be enacted, will influence significantly the decarbonization path. On the other hand, newbuilding prices are really on the way up. And in general, for most of the ships that we have ordered, prices are on the average between 15% and 20% more. So we're going to wait for, let's say, for this kind of to cool down. And the reason is because when we order, we do not order just purely on a back-to-back with a charter, 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, the price of the asset is extremely important. So this is really the reason that we are kind of temporizing.

[John Coustas, CEO at Danaos Corporation]

If we see prices coming back again, retracting, we will definitely be there to take advantage.

[Omar Nokta, Equity Analyst at Jefferies]

Okay. Thanks, John. That's fairly clear. And just to summarize that simply, given the uncertainty on the new administration, what that means for environmental shifts going forward, that uncertainty, plus the fact that newbuilding 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.

[John Coustas, CEO at Danaos Corporation]

Yeah, exactly.

[Omar Nokta, Equity Analyst at Jefferies]

Okay. And then just a second question. I know we've talked about this before on separate calls before. Just in terms of the dry bulk investment, you bought into dry bulk at the market lows, I think, starting last year. 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. But in general, it feels like the sectors maybe 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 Danaos going with this segment?

[John Coustas, CEO at Danaos Corporation]

As I said, we've built a fleet of 10 ships, and as the Capesize is a new segment for us, we are currently in an experience-building phase. We are operating the ships. We want to see exactly where do we see benefits, which are the qualities of the ships that make sense and they are cost-effective. And we will follow the market closely, and this market is much more liquid compared to the container market. There are opportunities out. And if we see really that there is 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, also again with the new U.S. administration, is also relatively unclear.

[John Coustas, CEO at Danaos Corporation]

This will affect quite a lot the dry bulk movement, especially on Capesize where, I mean, iron ore makes a very big proportion.

[Omar Nokta, Equity Analyst at Jefferies]

Right. Yeah. Thank you. And then I'm just sorry to follow up just and press maybe just one bit further on just the comment you made on 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?

[John Coustas, CEO at Danaos Corporation]

No, to acquire more assets or whatever.

[Omar Nokta, Equity Analyst at Jefferies]

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

[John Coustas, CEO at Danaos Corporation]

Great. Thank you, Omar.

[Operator]

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.

[John Coustas, CEO at Danaos Corporation]

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.

[Operator]

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

Participants

Executives

• Evangelos Chatzis, CFO
• John Coustas, CEO

Analysts

• Omar Nokta, Equity Analyst at Jefferies