Danaos Corporation (NYSE:DAC) Q4 2024 Earnings Call Transcript

Danaos Corporation (NYSE:DAC) Q4 2024 Earnings Call Transcript February 11, 2025

Operator: Good day, and welcome to the Danaos Corporation Call to discuss financial results for the three 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. Then we will open the call to a question and answer session. Gentlemen, the floor is yours.

Evangelos Chatzis: 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 a broad overview.

John Coustas: 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. Delivery of new tonnage starting this year will likely be a 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 are still much higher than pre-pandemic levels. We will have to wait until after the 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 Corporation is highly insulated from near-term market uncertainty with 97% coverage for 2025 and 79% for 2026 at healthy rates, shielding us from market volatility. Our chartered backlog of $3.4 billion provides us with a certainty of income and firepower to explore accretive investments.

We have chartered 13 out of our 15 new buildings for five years and have arranged a new $850 million facility from the bank syndicate to fully cover the financing of all vessels in order. Our profitability remains consistent, and we are 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 will hand the call back to Evangelos, who will take you through the financials for the quarter.

Evangelos Chatzis: 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 income of $133.3 million, compared to adjusted EPS of $6.99 per share or adjusted income of $136 million for the fourth quarter of 2023. This $2.7 million decrease in adjusted net income between the two 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 handling 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 in the fourth quarter of 2023. Our operating costs continue to remain among the most competitive in the industry. G&A expenses decreased by $9.7 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.

This increase in interest expense is the combined result of a $5.3 million increase due to higher average indebtedness of around $330 million between the two periods, partially offset by a reduction in the cost of debt service by approximately 78 basis points as a result of a decrease in swap costs between the two periods. We also had a $0.7 million increase in interest expense due to lower capitalized interest on vessels under construction between the two 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 February 7, 2025, we entered into an $850 million syndicated loan facility agreement to finance all of our remaining new building container vessels, including the two 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 0.4 times, 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 for questions.

Q&A Session

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

Omar Nokta: Thank you. Hi, John and Evangelos.

John Coustas: Hi, Omar.

Omar Nokta: Obviously, another strong quarter with some real free cash flow generation. As you noted in the presentation, you generated $30 a share in free cash flow in 2024. Looks like that can pretty much be repeated in 2025. I guess a couple of things. It looks like you are back to being on pace to get into that net cash position again sometime during 2025. I guess, do you agree with that, that you are on pace to get to a 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?

John Coustas: You know, we are looking as usual. We have arranged an $850 million facility, which covers all the financing of our new building program. Of course, we are generating, we are keeping substantial amounts of cash for opportunities. At present, with all our new building program, we do not even, you know, going forward, manage to go to a negative net cash position. So we are still, let’s say, in surplus, and this is also one of the reasons that we have continued our and expanded our building program with ships that we believe are going to be required in the market and in line with the other vessels that we have already ordered.

Operator: Your next question will come from Clement Mullins with Value Investors Edge. Please go ahead.

Clement Mullins: Hi. Good afternoon. Thank you for taking my questions. I wanted to start by asking about the utilization on the dry bulk side. This was mostly attributable to scheduled off-hire days. 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?

John Coustas: Are you talking about just the dry bulk fleet or are you talking about the whole fleet?

Clement Mullins: About the dry bulk fleet.

John Coustas: Yeah. The dry bulk will have, we have decided to put all our dry bulk vessels in dry dock. And presently, apart from one, all the rest have completed their dry docking in the last six months, where we have installed appendages which are extremely efficient. So we even managed, for example, vessels that were right ship E-rated, we moved them up to a C+ rating. So we have done a lot of investment in these ships, and we believe that when the dry bulk market picks up, we are going to enjoy that. We will not have dry dockings of the dry bulk fleet over the next, at least, two to three years.

Clement Mullins: That’s helpful. Thank you. Dry bulk rates have been quite soft recently, and asset values have declined 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 Panamaxes or Ultramaxes as well?

John Coustas: No. We are concentrating on Capesizes. Yes, if prices are attractive, we have already said we are going to increase our presence in the sector.

Clement Mullins: Thanks for the call. I will turn it over. Thank you for taking my questions and congratulations on the quarter.

Operator: Thank you. The next question is a follow-up from Omar Nokta with Jefferies. Please go ahead.

Omar Nokta: Thank you. Sorry for letting me back on. Just a couple of quick ones. Or maybe not so much this first one, but you know, you mentioned, John, in your presentation, or I think not in the press release and in your opening comments, you know, near-term forecasts are basically unreliable in this climate. You know, you have ordered the two new ships after a bit of a pause. Just wanted to ask, you know, what gave you confidence to kind of jump back into the new building side of things?

John Coustas: Well, first of all, we believe that, you know, the sector needs more fuel-efficient ships, especially in this size bracket. And secondly, you know, we have arranged financing and charter for everything else. So there is very little, let’s say, risk, if any, you know, by our investment.

Omar Nokta: Okay. And then just separately, obviously, you stepped up the share repurchases pretty meaningfully here 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 Chatzis: Can you repeat, Omar, are you referring to the share count?

Omar Nokta: Yeah. Just the share count post the latest repurchases.

Evangelos Chatzis: It’s just below 19 million shares. Something like 18.8, 18.9 at this point.

Omar Nokta: Got it. Okay. Well, thank you. Thanks, John. Thanks, Evangelos.

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 closing remarks. Please go ahead, sir.

John Coustas: 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.

Operator: 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.