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Danaos Corp. Posts Net Income of Over $1 Billion in 2021

Danaos Corporation, one of the world’s largest independent owners of containerships, today reported unaudited results for the fourth quarter and the year ended December 31, 2021.

Highlights for the Fourth Quarter and Year Ended December 31, 2021:

  • Adjusted net income1 of $125.8 million, or $6.10 per share, for the three months ended December 31, 2021 compared to $47.8 million, or $2.29 per share, for the three months ended
  • December 31, 2020, an increase of 163.2%. Adjusted net income1 of $362.3 million, or $17.60 per share, for the year ended December 31, 2021 compared to $170.9 million, or $7.18 per share, for the year ended December 31, 2020, an increase of 112.0%.
  • Reported net income of $1.05 billion, or $51.15 per share, for the year ended December 31, 2021 compared to $153.6 million, or $6.45 per share, for the year ended December 31, 2020.
  • Operating revenues of $215.0 million for the three months ended December 31, 2021 compared to $119.6 million for the three months ended December 31, 2020, an increase of 79.8%. Operating revenues of $689.5 million for the year ended December 31, 2021 compared to $461.6 million for the year ended December 31, 2020, an increase of 49.4%.
  • Adjusted EBITDA1 of $159.2 million for the three months ended December 31, 2021 compared to $83.0 million for the three months ended December 31, 2020, an increase of 91.8%.
  • Adjusted EBITDA1 of $508.8 million for the year ended December 31, 2021 compared to $318.3 million for the year ended December 31, 2020, an increase of 59.8%.
  • Total contracted operating revenues were $2.85 billion as of December 31, 2021, with charters extending through 2028 and remaining average contracted charter duration of 4.0 years, weighted by aggregate contracted charter hire.
  • Charter coverage of 96.6% for the next 12 months based on current operating revenues and 95.5% in terms of contracted operating days.
  • Danaos has declared a dividend of $0.75 per share of common stock for the fourth quarter of 2021, which is payable on February 28, 2022 to stockholders of record as of February 17, 2022.

Danaos’ CEO Dr. John Coustas commented:

“The amount of media and analyst coverage about the positive dynamics in the container market speak for themselves and echo our market view. We foresaw the ongoing disruption in the supply chains and tightening of the container market through 2022 many quarters ago. Our outlook directed our growth and chartering strategy, both of which have maximized our returns. On the other hand, our investment in Zim shares has surpassed all reasonable expectations and led to Danaos posting in excess of 1 billion USD in reported net income for 2021. As a result of these factors, our share price quadrupled in 2021, bringing the company’s market capitalization close to 2 billion USD.

What is equally important is that our chartering policy will generate even better cash flows in 2022, and overall, our 2.8 billion USD contracted revenue with average charter duration of 4 years provides certainty about the future. As a result of our significant earnings visibility, we have decided to increase our quarterly dividend by 50% to 0.75 cents per share. The company’s significant cash flows support the increased dividend and also provide us flexibility to pursue accretive growth opportunities, continue to reduce leverage and also begin to consider a share buyback.

There have also been significant environmental initiatives that advanced in 2021, and already the path to the future decarbonization of the industry is becoming clearer. There is growing consensus that significant investments need to be made to reduce the carbon footprint of existing vessels. These investments will accompany reductions in speed, which will further support the ongoing market strength. Green fuels are a long way of becoming widely available, which means that the industry will have to adapt to continue using fossil fuels. Further the EU commission rightly proposed in the latest EU Fit for 55 climate initiative to place the burden of absorbing carbon cost on vessel operators who are responsible for fuel procurement and speed determination rather than the vessel owners.

To conclude, 2021 was phenomenal for the entire container industry and even more so for Danaos. The element of counterparty risk that dominated the previous decade has completely disappeared. Long term charters are also becoming the norm. Fortunately, liner companies are targeting their expansion in the inland/air transportation and logistics front to vertically integrate their offering. In conjunction with uncertainty about future vessel propulsion standards, this has put a lid on newbuilding ordering, which I hope can be maintained. Also, the German KG market, which was responsible for 70 percent of the ordering during the last shipbuilding boom, does not exist today.

The future is bright, and Danaos is well positioned to benefit from it and continue to reward its shareholders.”

Three months ended December 31, 2021 compared to the three months ended December 31, 2020

During the three months ended December 31, 2021, Danaos had an average of 70.9 containerships compared to 58.5 containerships during the three months ended December 31, 2020. Our fleet utilization for the three months ended December 31, 2021 was 97.4% compared to 97.9% for the three months ended December 31, 2020.

Our adjusted net income amounted to $125.8 million, or $6.10 per share, for the three months ended December 31, 2021 compared to $47.8 million, or $2.29 per share, for the three months ended December 31, 2020. We have adjusted our net income in the three months ended December 31, 2021 for the change in fair value of our investment in ZIM Integrated Shipping Services Ltd. (“ZIM”) of $52.2 million, stock-based compensation of $8.6 million and a non-cash fees amortization and accrued finance fees charge of $3.5 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $78.0 million in adjusted net income for the three months ended December 31, 2021 compared to the three months ended December 31, 2020 is attributable mainly to a $95.4 million increase in operating revenues and recognition of a $16.2 million dividend from ZIM, which were partially offset by $23.9 million increase in total operating expenses, a $8.1 million increase in net finance expenses and a $1.6 million decrease in our equity investment in Gemini Shipholdings Corporation (“Gemini”) following our acquisition and full consolidation of Gemini since July 1, 2021.

On a non-adjusted basis, our net income amounted to $166.0 million, or $8.05 earnings per diluted share, for the three months ended December 31, 2021 compared to net income of $43.2 million, or $2.07 earnings per diluted share, for the three months ended December 31, 2020. Our net income for the three months ended December 31, 2021 includes a total gain on our investment in ZIM of $68.4 million.

Operating Revenues
Operating revenues increased by 79.8%, or $95.4 million, to $215.0 million in the three months ended December 31, 2021 from $119.6 million in the three months ended December 31, 2020.

Operating revenues for the three months ended December 31, 2021 reflect:
• a $38.3 million increase in revenues in the three months ended December 31, 2021 compared to the three months ended December 31, 2020 mainly as a result of higher charter rates;
• a $23.6 million increase in revenues in the three months ended December 31, 2021 compared to the three months ended December 31, 2020 due to the incremental revenue generated by newly acquired vessels;
• a $15.2 million increase in revenue in the three months ended December 31, 2021 compared to the three months ended December 31, 2020 due to higher non-cash revenue recognition in accordance with US GAAP; and
• a $18.3 million increase in revenues in the three months ended December 31, 2021 compared to the three months ended December 31, 2020 due to amortization of assumed time charters.

Vessel Operating Expenses

Vessel operating expenses increased by $8.5 million to $37.2 million in the three months ended December 31, 2021 from $28.7 million in the three months ended December 31, 2020, primarily as a result of the increase in the average number of vessels in our fleet and an increase in the average daily operating cost for vessels on time charter to $5,861 per vessel per day for the three months ended December 31, 2021 compared to $5,571 per vessel per day for the three months ended December 31, 2020. Management believes that our daily operating costs remains among the most competitive in the industry.

Depreciation & Amortization
Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation
Depreciation expense increased by 31.3%, or $8.1 million, to $34.0 million in the three months ended December 31, 2021 from $25.9 million in the three months ended December 31, 2020 mainly due to our recent acquisition of eleven vessels and installation of scrubbers on nine of our vessels in the year ended December 31, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs remained stable at $2.6 million in each of the three months ended December 31, 2021 and December 31, 2020.

General and Administrative Expenses

General and administrative expenses increased by $12.1 million to $18.5 million in the three months ended December 31, 2021, from $6.4 million in the three months ended December 31, 2020. The increase was mainly attributable to increased management fees due to the increased size of our fleet and increased stock-based compensation.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses increased by $3.7 million to $7.1 million in the three months ended December 31, 2021 from $3.4 million in the three months ended December 31, 2020 primarily as a result of the increase in commissions due to the increase in revenue per vessel and the increase in the average number of vessels in our fleet.

Interest Expense and Interest Income
Interest expense increased by 51.7%, or $6.0 million, to $17.6 million in the three months ended December 31, 2021 from $11.6 million in the three months ended December 31, 2020. The increase in interest expense is a combined result of:

• a $6.0 million reduction in the recognition through our income statement of accumulated accrued interest that had been accrued in 2018 in relation to two of our credit facilities that were refinanced on April 12, 2021. As a result of the refinancing, the recognition of such accumulated interest has decreased.
• A $1.0 million increase in interest expense due to an increase in our debt service cost by approximately 0.5%, which was partially offset by a decrease in our average indebtedness by $85.2 million between the two periods (average indebtedness of $1,397.3 million in the three months ended December 31, 2021, compared to average indebtedness of $1,482.5 million in the three months ended December 31, 2020); and
• a $1.0 million decrease in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

Net proceeds from the issuance of our $300 million Senior Notes in February 2021 together with the net proceeds from a new $815 million senior secured credit facility and a new $135 million leaseback arrangement, each of which was drawn down on April 12, 2021, were used to refinance a substantial majority of our then outstanding indebtedness.

As of December 31, 2021, our outstanding debt, gross of deferred finance costs, was $1,142.0 million, which includes $300 million aggregate principal amount of our Senior Notes, and our leaseback obligation was $226.5 million. These balances compare to debt of $1,368.1 million and a leaseback obligation of $123.4 million as of December 31, 2020.

Interest income decreased by $1.1 million to $0.6 million in the three months ended December 31, 2021 compared to $1.7 million in the three months ended December 31, 2020 mainly as a result of full collection of accrued interest on ZIM and HMM bonds, which were redeemed by the issuers thereof in the year 2021.

Gain on investments
The gain on investments of $68.4 million in the three months ended December 31, 2021 consists of the change in fair value of our shareholding interest in ZIM of $52.2 million and net dividends recognized on ZIM ordinary shares of $16.2 million. ZIM completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares on January 27, 2021. In October 2021, we sold 1,000,000 ordinary shares of ZIM resulting in net proceeds of $44.3 million. Our remaining shareholding interest of 7,186,950 ordinary shares has been fair valued at $423.0 million as of December 31, 2021, based on the closing price of ZIM’s ordinary shares on the NYSE on that date.

Equity income on investments
Equity income on investments in Gemini decreased to nil in the three months ended December 31, 2021 compared to $1.6 million in the three months ended December 31, 2020 following our acquisition and full consolidation of Gemini since July 1, 2021.

Other finance costs, net
Other finance expenses, net decreased by $0.1 million to $0.2 million in the three months ended December 31, 2021 compared to $0.3 million in the three months ended December 31, 2020 due to the decreased finance costs on the refinanced debt.

Loss on derivatives
Amortization of deferred realized losses on interest rate swaps remained stable at $0.9 million in each of the three months ended December 31, 2021 and December 31, 2020.

Other income, net
Other income, net was $0.1 million in the three months ended December 31, 2021 compared to $0.2 million in the three months ended December 31, 2020.

Adjusted EBITDA
Adjusted EBITDA increased by 91.8%, or $76.2 million, to $159.2 million in the three months ended December 31, 2021 from $83.0 million in the three months ended December 31, 2020. As outlined above, the increase is mainly attributable to a $77.1 million increase in operating revenues (net of $18.3 million amortization of assumed time charters) and a recognition of net dividends of $16.2 million from ZIM, which were partially offset by a $15.5 million increase in total operating expenses and a $1.6 million decrease in equity investment in Gemini following our acquisition and full consolidation since July 1, 2021. Adjusted EBITDA for the three months ended December 31, 2021 is adjusted for the change in fair value of our investment in ZIM of $52.2 million and stock-based compensation of $9.2 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Year ended December 31, 2021 compared to the year ended December 31, 2020

During the year ended December 31, 2021, Danaos had an average of 64.2 containerships compared to 57.3 containerships during the year ended December 31, 2020. Our fleet utilization for the year ended December 31, 2021 was 98.2% compared to 96.3% for the year ended December 31, 2020. Adjusted fleet utilization, excluding the effect of 188 days of incremental off-hire due to shipyard delays related to the COVID-19 pandemic, was 97.2% in the year ended December 31, 2020.

Our adjusted net income amounted to $362.3 million, or $17.60 per share, for the year ended December 31, 2021 compared to $170.9 million, or $7.18 per share, for the year ended December 31, 2020. We have adjusted our net income in the year ended December 31, 2021 for the change in fair value of our investment in ZIM of $543.6 million, gain on debt extinguishment of $111.6 million, a $64.1 million gain on our acquisition of Gemini, a non-cash fees amortization and accrued finance fees charge of $16.1 million and stock-based compensation of $12.7 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $191.4 million in adjusted net income for the year ended December 31, 2021 compared to the year ended December 31, 2020 is attributable mainly to a $227.9 million increase in operating revenues, recognition of a $28.5 million dividend from ZIM, and partial collection of a common benefit claim of $3.9 million from Hanjin Shipping, which were partially offset by a $56.4 million increase in total operating expenses, a $10.2 million increase in net finance expenses and a $2.3 million decrease in our equity investment in Gemini following our acquisition and full consolidation of Gemini since July 1, 2021.

On a non-adjusted basis, our net income amounted to $1,052.8 million, or $51.15 earnings per diluted share, for the year ended December 31, 2021 compared to net income of $153.6 million, or $6.45 earnings per diluted share, for the year ended December 31, 2020. Our net income for the year ended December 31, 2021 includes a total gain on our investment in ZIM of $572.1 million, a $64.1 million non-cash gain on our acquisition of Gemini and a $111.6 million gain on debt extinguishment.

Operating Revenues
Operating revenues increased by 49.4%, or $227.9 million, to $689.5 million in the year ended December 31, 2021 from $461.6 million in the year ended December 31, 2020.

Operating revenues for the year ended December 31, 2021 reflect:
• a $107.9 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 mainly as a result of higher charter rates and improved fleet utilization;
• a $55.7 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the incremental revenue generated by newly acquired vessels;
• a $36.7 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to higher non-cash revenue recognition in accordance with US GAAP; and
• a $27.6 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to amortization of assumed time charters.

Vessel Operating Expenses
Vessel operating expenses increased by $25.0 million to $135.9 million in the year ended December 31, 2021 from $110.9 million in the year ended December 31, 2020, primarily as a result of the increase in the average number of vessels in our fleet and an increase in the average daily operating cost for vessels on time charters to $5,986 per vessel per day for the year ended December 31, 2021 compared to $5,586 per vessel per day for the year ended December 31, 2020. The average daily operating cost increased mainly due to the COVID-19 related increase in crew remuneration in the year ended December 31, 2021. Management believes that our daily operating cost remains among the most competitive in the industry.

Depreciation & Amortization
Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation
Depreciation expense increased by 15.2%, or $15.4 million, to $116.9 million in the year ended December 31, 2021 from $101.5 million in the year ended December 31, 2020 mainly due to our recent acquisition of sixteen vessels and installation of scrubbers on nine of our vessels in the year ended December 31, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs decreased by $0.8 million to $10.2 million in the year ended December 31, 2021 from $11.0 million in the year ended December 31, 2020.

General and Administrative Expenses
million to $43.9 million in the year ended December 31, 2021, from $24.3 million in the year ended December 31, 2020. The increase was mainly attributable to increased management fees due to the increased size of our fleet and increased stock-based compensation.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses increased by $10.0 million to $24.3 million in the year ended December 31, 2021 from $14.3 million in the year ended December 31, 2020 primarily as a result of the increase in commissions due to the increase in revenue per vessel and the increase in the average number of vessels in our fleet.

Interest Expense and Interest Income

Interest expense increased by 29.0%, or $15.5 million, to $69.0 million in the year ended December 31, 2021 from $53.5 million in the year ended December 31, 2020. The increase in interest expense is a combined result of:

• a $5.9 million decrease in interest expense due to a decrease in our debt service cost by approximately 0.25%, while our average indebtedness also decreased by $41.8 million between the two periods (average indebtedness of $1,478.1 million in the year ended December 31, 2021, compared to average indebtedness of $1,519.9 million in the year ended December 31, 2020);
• a $22.3 million reduction in the recognition through our income statement of accumulated accrued interest that had been accrued in 2018 in relation to two of our credit facilities that were refinanced on April 12, 2021. As a result of the refinancing, the recognition of such accumulated interest has been decreased; and
• a $0.9 million decrease in the amortization of deferred finance costs and debt discount related to our debt.

Net proceeds from the issuance of our $300 million Senior Notes in February 2021 together with the net proceeds from a new $815 million senior secured credit facility and a new $135 million leaseback arrangement, each of which was drawn down on April 12, 2021, were used to refinance a substantial majority of our then outstanding indebtedness.

As of December 31, 2021, our outstanding debt, gross of deferred finance costs, was $1,142.0 million, which includes $300 million aggregate principal amount of our Senior Notes, and our leaseback obligation was $226.5 million. These balances compare to debt of $1,368.1 million and a leaseback obligation of $123.4 million as of December 31, 2020.

Interest income increased by $5.6 million to $12.2 million in the year ended December 31, 2021 compared to $6.6 million in the year ended December 31, 2020, mainly as a result of full collection of accrued interest on ZIM and HMM bonds, which were redeemed by the issuers thereof in 2021.

Gain on investments

The gain on investments of $572.1 million in the year ended December 31, 2021 consists of the change in fair value of our shareholding interest in ZIM of $543.6 million and net dividends recognized on ZIM ordinary shares of $28.5 million. ZIM completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares on January 27, 2021. In 2021, we sold 3,000,000 ordinary shares of ZIM resulting in net proceeds of $120.7 million. For the year ended December 31, 2021, the unrealized gain related to the ZIM ordinary shares still held on December 31, 2021 amounted to $422.97 million. Our remaining shareholding interest of 7,186,950 ordinary shares has been fair valued at $423.02 million as of December 31, 2021, based on the closing price of ZIM’s ordinary shares on the NYSE on that date compared to the book value of these shares of $75 thousand as of December 31, 2020.

Equity income on investments
Equity income on investments increased by $61.7 million to $68.0 million in the year ended December 31, 2021 compared to $6.3 million in the year ended December 31, 2020 mainly due to the non-cash gain of $64.1 million recognized on our acquisition of the remaining 51% equity interest in Gemini on July 1, 2021.

Gain on debt extinguishment
The gain on debt extinguishment of $111.6 million in the year ended December 31, 2021 related to our debt refinancing on April 12, 2021.

Other finance costs, net
Other finance costs, net decreased by $1.0 million to $1.3 million in the year ended December 31, 2021 compared to $2.3 million in the year ended December 31, 2020 due to the decreased finance costs on the refinanced debt.

Loss on derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $3.6 million in each of the years ended December 31, 2021 and December 31, 2020.

Other income, net
Other income, net was $4.5 million in the year ended December 31, 2021 compared to $0.6 million of income in the year ended December 31, 2020. The increase was mainly due to the collection from Hanjin Shipping of $3.9 million as a partial payment of common benefit claim and interest.

Adjusted EBITDA
Adjusted EBITDA increased by 59.8%, or $190.5 million, to $508.8 million in the year ended December 31, 2021 from $318.3 million in the year ended December 31, 2020. As outlined above, the increase is mainly attributable to a $200.3 million increase in operating revenues (net of $27.6 million amortization of assumed time charters), recognition of net dividends of $28.5 million from ZIM and partial collection of a common benefit claim of $3.9 million from Hanjin Shipping in 2021, which were partially offset by a $39.9 million increase in total operating expenses and a $2.3 million decrease in equity income on investment in Gemini following our acquisition and full consolidation of Gemini since July 1, 2021. Adjusted EBITDA for the year ended December 31, 2021 is adjusted for the change in fair value of our investment in ZIM of $543.6 million, gain on debt extinguishment of $111.6 million, a $64.1 million gain on the acquisition of Gemini and stock based compensation of $15.3 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Dividend Payment
Danaos has declared a dividend of $0.75 per share of common stock for the fourth quarter of 2021, which is payable on February 28, 2022 to stockholders of record as of February 17, 2022.

Recent Developments
On January 17, 2022, we entered into an agreement to sell two 20 years old 6,422 TEU vessels for gross consideration of $130 million. The vessels are expected to be delivered to the buyer in November 2022.
Source: Danaos Corporation

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