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spk01: Good day and welcome to the Denel's 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. Posting the call today is Dr. John Kustas, Chief Executive Officer of Denel's Corporation and Mr. Vangelos Hattis, Chief Financial Officer of Denel's Corporation. Dr. Kustas and Mr. Hattis will be making some introductory comments and then we will open the call to a question and answer session. You may begin.
spk03: 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 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, Adjusted Net Income, Time Charter Equivalent Revenues and Time Charter Equivalent Dollars per day to evaluate our business. Reconciliation of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials. Now let me turn the call over to Dr. John Kustas who will provide the broad overview of the quarter. John?
spk04: 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 new buildings 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. Our dry bulk fleet performed reasonably well during the quarter and we're expecting freight rates to gradually improve as we move into 2025. To the certainty provided by the charter backlog in our container segment, the analysis is related 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. The announced remain in the fortunate and enviable position in addition to our charter coverage, our balance sheet is a significant strength. I'm proud of the efforts we have undertaken, efforts that have been acknowledged by Moody's who upgraded the announced to be a one. Together with the S&P credit rating at double B plus, the announced now holds the highest grade assigned to a pure play shipping company. Our credit worthiness 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 accompanied 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. 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 the announced 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.
spk03: Thank you John and again good morning to everyone. I will briefly review the results for the quarter and then open the calls 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 first 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 a dry bulk caped size 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. Vessel OPEX increased by $10.4 million to $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. GNA expenses increased by $3.9 million to $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 to $7.4 million in the current quarter compared to $3.8 million in the corresponding third quarter of 2023. 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. Interest expense is 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 costs 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. Interest income for the quarter came in at $3.1 million. Our drastic EBITDA increased slightly by .5% or approximately $1 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. 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. 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. 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 our creative 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.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. 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, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Omar with Jeffries. Please go ahead.
spk02: Thank you. Hi, John. Good afternoon. Hi, just a couple of questions from my side. I wanted to ask, clearly, as you outlined in the release and presentation and in the discussion, you've taken advantage of this very strong and resurgent container market to fix out shifts longer term. You've ordered some new shifts 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 new building market. We have continued to see interest on the part of liners remain relatively elevated for new buildings. I just wanted to ask, how do you think about where Denalce 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?
spk04: You know, 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 the ball is going. How can I say? To sit. 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. What is for sure is that the new US administration is not going to follow what the previous one is doing, which means I'm not sure really what kind of influence we are going to have on what the IMO is currently discussing about this carbon tax, carbon levy, whatever you're going to call it. This is going, really the way that this is going to be enacted will influence significantly the decarbonization path. On the other hand, new building prices are really on the way up. In general, for most of the ships that we have ordered, prices are on the average between 15 and 20% more. We're going to wait for this to cool down. The reason is because when we order, we do not order just purely on a -to-back with a charter, because as I've said already in the past, deals like that are kind of -single-digit equity returns. We're not prepared really to go down that path. When you're actually taking the risk yourself, the price of the asset is extremely important. This is really the reason that we are kind of temporizing. If we see prices coming back again, retracting, we will definitely be there to take advantage.
spk02: Thanks, John. That's fairly clear. 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 new building prices are high and you don't know where the container market is going, you're content with how things are. You'd rather, when you order, do it opportunistically to give yourself a better ROE. Given that, it makes sense to just wait. Yes, exactly. Okay. Then just a second question. I know we've talked about this before on separate calls before. 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. In general, it feels like the sector's maybe softened a bit relative to what we were seeing previously. How are you thinking about dry bulk in terms of where we are fundamentally, and where do you see the now going with this segment?
spk04: As I said, we've built a fleet of tent ships, and as the Cape size is a new segment for us, we are currently in an experienced 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. 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 US administration, is also relatively unclear. This will affect quite a lot the dry bulk movement, especially on Cape sizes, where iron ore makes a very big proportion.
spk02: Thank you. I'm sorry to follow up and press maybe just one bit further on just a comment you made. If you see an opportunity, you would jump on it. Is that in relation to an opportunity to acquire assets or to sell? Are you talking to say both?
spk04: To acquire more assets or whatever.
spk02: Okay. All right. Well, thanks. That's it for me.
spk04: Great. Thank you, Amar.
spk01: It appears we have no further questions at this time. I would like to turn the call back over to Dr. Koussos for any further comments or closing remarks.
spk04: 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.
spk01: Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.
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