Danaos Corp
NYSE:DAC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
67.13
97.07
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Danaos Corp
You don't have any saved screeners yet
Good day, and welcome to the Danaos Corporation Conference Call to discuss Financial Results for the three months ended March 31, 2019. 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. Please go ahead.
Thank you, operator. Good morning, 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 the 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. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
With this, let me now turn the call over to Dr. Coustas, who will provide the growth overview of the quarter.
Thank you, Evangelos. Good morning and thank you all for joining today’s call to discuss our results for the first quarter 2019.
Danaos Corporation’s adjusted net income was $38.6 million or $2.53 a share for the first quarter of 2019, increased by $10.6 million or 37.9% compared to the first quarter of 2018. This improvement was primarily the result of a $7.6 million decrease in net finance expenses and a $2 million decrease in total operating costs, combined with a $1 million increase in operating revenues due to improved fleet utilization. Adjusted EBITDA for the first quarter of 2019 was $77.5 million, $0.9 million higher than the first quarter of 2018.
Effective May 2, 2019, following approval of our shareholders and the Board, we effected a 1:14 reverse stock split which we believe will cure the previously announced New York Stock Exchange deficiency caused by our stock trading below $1 for over 30 days.
At the beginning of April we concluded $150 million sale and leaseback transaction for two 13,100 TEU vessels, fulfilling a requirement from re-financing we concluded last August. The net proceeds of the transaction were used to prepay certain credit facilities that had financed the vessels. Under the terms of the transaction, the company will re-acquire the vessels at the end of their five-year lease periods.
As far as the market is concerned, vessels over 5,500 TEU has seen significant improvement when compared to the recent lows of the fourth quarter of 2018. In general, the charter market for larger vessels has improved considerably, which is notable as more than 70% of our fleet in terms of capacity is comprised of such vessels. Vessels below 5,500 TEU have also improved slightly since last November's downturn.
On the investment side, we recently concluded our first scrubber installation on a vessel owned by Gemini Shipholdings, an entity in which Danaos has a 49% shareholding interest, and will proceed with installing scrubbers on a further nine vessels wholly-owned by Danaos and one additional vessel owned by Gemini over the next few months.
Total contracted revenues as of March 31, 2019 were $1.5 billion, and we maintain our high charter contract coverage of 86% in terms of operating revenues and 71% in terms of operating days over the next 12 months. This insulates us from near-term market weakness.
Danaos continues to be a leader in the container shipping industry on the back of a solid track record of operational excellence and technological innovation that allows us to continuously deliver high quality service to our customers. At the same time, the recently concluded refinancing transaction further enhances our ability to pursue growth opportunities and our goal of delivering value to our shareholders.
With that, I’ll hand over the call back to Evangelos who will take you through or financials for the quarter. Evangelos.
Thank you, John, and again good morning to everyone. I will briefly review the results for the quarter and then the call will be opened to Q&A.
Adjusted net income of $38.6 million for the first quarter is higher by $10.6 million when compared to adjusted net income of $28.0 million for the first quarter of 2018. We have adjusted our net income this quarter for deferred finance fees amortization of $5.1 million.
Operating revenues increased by $1 million or 0.9% to $112.9 million in the current quarter compared to $111.9 million in the first quarter of 2018, as a result of improved fleet utilization.
Vessel operating expenses decrease by 3.4% or $0.9 million to $25.9 million in the current quarter from $26.8 million in the first quarter of 2018, while the average daily vessel operating cost was $5,636 per day for the current quarter and remains as one of the most competitive in the industry.
G&A expenses increased by $1.7 million to $6.9 million in the current quarter compared to $5.2 million in the first quarter of 2018, mainly due to recognition of stock-based compensation and increased professional fees.
Interest expense, excluding amortization of deferred finance costs, decreased by $7.4 million to $12.9 million in the current quarter compared to $20.3 million in the first quarter of 2018. In accordance with U.S. GAAP, at the time of consummation of the refinancing, we recognized in our income statement in advance all anticipated future interest expense for two of our credit facilities through their maturity.
As a result, $11.4 million of interest expense for the current quarter did not flow through interest expense, as it has already been charged in the income statement. This decrease was partially offset by a $4 million increase in interest expense as a result of higher debt service costs, while our average debt between the two periods decreased considerably by almost $650 million as a result of amortization over the last 12 months and the result of the refinancing transaction.
Finally adjusted EBITDA increased by $0.9 million or 1.2% to $77.5 million in the current quarter from $76.6 million in the first quarter of 2018 for the reasons outlined earlier on this call.
With that, I would like to thank you all for listening to this first part of our call; and operator, we are now ready to open the call to Q&A.
[Operator Instructions]. The first question comes from Randy Giveans with Jefferies. Please go ahead.
Hey guys, this is Chris Robertson on for Randy. Thanks for taking our call. Just wanted to ask on the, you know the U.S. China trade war is kind of escalating here in the past week, how do you see the containership market being impacted by no trade deal in 2019 versus a trade deal actually happening within the next few months.
Well, I think that as far as trade is concerned, I don’t think we will have any changes, because whatever – let's say you source from China, at least you know in the short to medium term will continue to be sourced from there until some kind of other alternative, let’s say places, have been located.
In general, all the other alternatives, I mean most of the other alternatives are also in Asia. So, it's not going to change the actual TEU miles now for that kind of cargo. If of course we were talking about the import substitution from the U.S., then of course that would make a considerable difference, but I don't really think that this would be the case, because the issue of the tariffs, everybody knows, it’s relatively a short-term issue.
We took a short term may be one year until let’s say trade concerns have been resolved. But this is not really – no one is going to invest in the U.S. to produce things that at presently manufactured in China. So I don't think we're going to have anything else other than let's say some kind of psychological issues that might reflect demand, but not the actual let’s say traffic.
Fine, that’s fair. I guess looking at the reverse split, can you give us some insight how you came to the 1:14 number and not 1:10 or 1:20. What was kind of the thinking around the final decision?
Yeah, we wanted to end up with a double-digit figure because we believe that you know this is much better for the investors and also when we are talking about, let’s say the investor universe, there are investors who would not invest in a single dollar stock and let alone below $1.5 because of the absence of leverage.
Can you give us any updates on the scrubber installation program in terms of timing, CapEx, and the rate step-up?
Well, we have completed, as we said, the first installation. The other installations will happen in Q3 practicality from August/September onwards on all the other vessels. The CapEx is going to be – is in the region of around $45 million to $50 million, and it’s going to be derived from internal resources.
Got you. And then last question for me. So kind of looking at the short-term rates on the 4000 TEU vessels that are currently around 10,000 to 11000 a day. What are you seeing in terms of the one to three year time charter rates and how robust is that market right now?
Are you talking about the 4000 TEU vessels?
Yes.
There is actually little interest in long-term deals. The market as you know, I mean before these vessels, it was something like you know back in May last year these vessels were earning, could be chartered for a year at $12,000 a day. Back in, let's say November/December, the rate dropped to around 8, and now they are hovering let’s say around may be 9, 9.5 for, let's say for a one-year commitment, but there is little interest for longer periods.
Got you. Alright, thanks for taking my questions. I appreciate the time.
Okay, thank you.
[Operator Instructions]. 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.
Okay, thank you. Thank you all for joining this conference and for your continued interest in our story. We look forward to hosting you in our next earning call. Have a nice day!
Thank you. This concludes today's conference. We would like to thank everyone for their participation. Have a wonderful afternoon!