Danaos(US:DAC)2023-11-14 16:10Financial Data and Key Metrics - Cash position at the end of Q3 was $306 million, with total liquidity, including the revolving credit facility, standing at $655 million, providing significant flexibility for capital deployment [1] - Net debt decreased to $111 million as of September 30, 2023, with a net debt to adjusted EBITDA ratio of 0.16x, and 48 out of 72 vessels being unencumbered and debt-free [18] - Adjusted net income decreased by $33.9 million to $143 million in Q3 2023 compared to $176.9 million in Q3 2022, primarily due to the absence of a $23.2 million ZIM dividend recognized in the prior year [31] - Adjusted EBITDA decreased by 16.5% or $35.1 million to $178 million in Q3 2023, mainly due to the non-recurrence of the ZIM dividend [34] - Interest expense decreased by $9.3 million to $3.8 million in Q3 2023, driven by significant deleveraging and a $5.8 million reduction due to lower average indebtedness [21][33] Business Line Data and Key Metrics - The company secured $178 million in contracted revenue through new charters for six container ships, including $103 million for two 13,000 TEU vessels and $68 million for two 10,000 TEU vessels [17][35] - Charter coverage for 2024 increased to 90%, with a contracted revenue backlog of $2.5 billion and an average charter duration of 3.2 years [27][35] - Vessel operating expenses increased by $300,000 to $39.5 million in Q3 2023, driven by inflationary pressures on repairs, maintenance, and insurance premiums [32] - G&A expenses decreased slightly to $7.1 million in Q3 2023 compared to $7.2 million in Q3 2022 [21] Market Data and Key Metrics - The container transport market stagnated in Q3 2023 due to inventory destocking and weak retail sales, leading to a dramatic decrease in liner company profitability [25] - Charter rates for vessels smaller than 3,000 TEU returned to pre-pandemic levels, while rates for larger vessels remained stable due to scarcity of open tonnage for 2024 [26][27] - The dry bulk market showed resilience, with the company achieving rates well ahead of expectations for its newly delivered capesize bulk carriers [28] Company Strategy and Industry Competition - The company is pursuing opportunities in both the container and dry bulk sectors, with a focus on the Cape sector and investments in Eagle Bulk for dry bulk, and new building and modern eco vessels for containers [5][6] - The company’s strategy of deleveraging has been effective, shielding it from high interest costs and providing flexibility in capital allocation [18][29] - The company increased its quarterly dividend to $0.80 per share and authorized an additional $100 million in share buybacks, having returned over $200 million to shareholders in the last 18 months [30] Management Commentary on Operating Environment and Future Outlook - Management highlighted significant uncertainty in the market and emphasized the need to be near the bottom of the market before engaging in large-scale investments [6] - The company expects charter rates in the dry bulk market to remain under pressure in the near term but will monitor the market for opportunistic expansion [28] - Management noted that liner companies are still cash-rich, but the possibility of charter amendments and extensions could increase earnings visibility in the future [10] Other Important Information - The company capitalized $3.5 million in interest expense related to vessels under construction, with interest income of $3.1 million covering over 80% of interest expense for the quarter [16] - The company’s investor presentation and updated disclosures are available on its website for further details [34][35] Q&A Session Summary Question: Opportunities in Dry Bulk and Container Markets - The company is actively pursuing opportunities in both dry bulk and container markets, with a focus on the Cape sector and modern eco vessels [4][5] - Management noted that some companies are looking to disengage from the container market due to expiring charters and a challenging environment, creating potential opportunities [8] Question: Charter Amendments and Extensions - The company has not yet seen significant requests for charter amendments or extensions but noted that such deals could be beneficial for increasing earnings visibility [9][10] Question: Market Activity for Modern Eco Vessels - Management observed that some companies are looking to sell modern eco vessels as charters expire, indicating potential opportunities in the market [7][8]