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Danaos Corporation: Coustas Hails “Remarkable” Container Segment Recovery

Danaos Corporation, one of the world’s largest independent owners of containerships, today reported unaudited results for the period ended September 30, 2020

Highlights for the Third Quarter and Nine Months Ended September 30, 2020:

Adjusted net income of $47.3 million, or $1.91 per share, for the three months ended September 30, 2020 compared to $37.9 million, or $2.46 per share, for the three months ended September 30, 2019, an increase of 24.8%. Adjusted net income1 of $123.1 million, or $4.97 per share, for the nine months ended September 30, 2020 compared to $110.7 million, or $7.23 per share, for the nine months ended September 30, 2019, an increase of 11.2%.

Operating revenues of $118.9 million for the three months ended September 30, 2020 compared to $111.8 million for the three months ended September 30, 2019, an increase of 6.4%. Operating revenues of $341.9 million for the nine months ended September 30, 2020 compared to $337.0 million for the nine months ended September 30, 2019, an increase of 1.5%.

Adjusted EBITDA 1 of $83.3 million for the three months ended September 30, 2020 compared to $79.3 million for the three months ended September 30, 2019, an increase of 5.0%. Adjusted EBITDA 1 of $235.3 million for the nine months ended September 30, 2020 compared to $232.4 million for the nine months ended September 30, 2019, an increase of 1.2%.

Total contracted operating revenues were $1.1 billion as of September 30, 2020, with charters extending through 2028 and remaining average contracted charter duration of 3.5 years, weighted by aggregate contracted charter hire.

Charter coverage of 87% for the next 12 months based on current operating revenues and 64% in terms of contracted operating days.
On October 12, 2020, we announced the repurchase of 4,339,271 shares of our common stock for an aggregate purchase price of $31.1 million in privately negotiated transactions, including 2,517,013 shares from the Royal Bank of Scotland and 1,822,258 shares from Sphinx Investment Corp. These transactions resulted in the Company’s previously announced share repurchase program being terminated.

Danaos’ CEO Dr. John Coustas commented:

“We are pleased to report improved performance in the Company’s profitability during this quarter. Container trade has staged a remarkable recovery since the end of May, when 11.4% of the vessels in the global fleet stood idle. Time charter rates have increased across all vessel sizes, and the time charter market is at or close to multi-year highs for all vessel sizes. The ability of the liner companies to consistently manage capacity addressed the swift drop in volumes at the onset of the pandemic, which alleviated pressure on our customers’ cash flows and stabilized freight rates. All our customers have reported strong profitability which significantly mitigates our counterparty risk.

Volumes have consistently improved, particularly in Transpacific eastbound, intra-Asia and North-South trade lanes, as volumes have recovered faster than expected. Notably, the increase in rates has been most pronounced in smaller vessel types. Danaos has the greatest amount of leverage to this segment of the market as our larger vessels are contracted on multi-year time charters. From that perspective, the short-term chartering market has been quite dynamic.

Although significant market uncertainty remains, particularly as many countries see increasing spread of COVID-19 cases, global GDP has rebounded swiftly, and IMF has recently revised its 2020 GDP estimates upwards. For 2021, the IMF forecasts global GDP growth of 5.2%, which effectively equals growth of 0.6% compared to 2019, or pre-pandemic levels. The recovery has thus far been primarily concentrated in goods rather than services, which has benefited containerized trade.

We continue to execute our strategy and we are well insulated from near-term volatility due to our high charter coverage of 87% in terms of operating revenues and 64% in terms of operating days over the next 12 months. This provides significant visibility into our cash flows during this period. We also have some leverage to the presently strong market through our smaller vessels. We are also cautiously optimistic about the medium-term market outlook. The orderbook is currently in single digits as a percentage of the world fleet for the first time in 20 years. Combined with an anticipated reduction in speeds due to the various environmental initiatives, the supply side outlook is healthy. Tighter supply will help to maintain momentum in the container market or help to bring about a swift recovery if conditions deteriorate.

Consistent with our growth strategy we have agreed to purchase two 9,000 TEU vessels built in 2009 which are both contracted on two year charters with a major liner company. These vessels are expected to be delivered to us between December 2020 and January 2021 and will be funded with a combination of cash and new credit facilities. With these new deliveries our fleet will for the first time exceed the 400,000 TEU mark.

In the meantime, we are generating strong cash flows from our $1.1 billion charter backlog and have a healthy liquidity position. This enabled us to opportunistically repurchase 4,339,271 shares, or 17.5% of the Company’s outstanding shares, for an aggregate price of $31.1 million in privately negotiated transactions practically tripling our $10 million original buyback program. Given the holding nature of the prior owners of these shares, these repurchases increase our per share results and valuation metrics without impacting trading liquidity.

In light of the continued uncertainty about the duration of the coronavirus pandemic and the ensuing economic recovery, we remain focused on maintaining a conservative financial profile and making thoughtful capital allocation decisions that align with our strategy and market expectations and deliver value to our shareholders.”

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

During the three months ended September 30, 2020, Danaos had an average of 58.0 containerships compared to 55.0 containerships during the three months ended September 30, 2019. Our fleet utilization was 98.7% in each of the three months ended September 30, 2020 and September 30, 2019.

Our adjusted net income amounted to $47.3 million, or $1.91 per share, for the three months ended September 30, 2020 compared to $37.9 million, or $2.46 per share, for the three months ended September 30, 2019. We have adjusted our net income in the three months ended September 30, 2020 for amortization of non-cash fees and accrued finance fees charge of $4.5 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $9.4 million in adjusted net income for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 is attributable mainly to a $7.1 million increase in operating revenues, a $6.8 million decrease in net finance expenses and a $0.9 million increase in the operating performance of our equity investment in Gemini Shipholdings Corporation (“Gemini”), which were partially offset by a $5.4 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $42.8 million, or $1.73 earnings per diluted share, for the three months ended September 30, 2020 compared to net income of $33.9 million, or $2.20 earnings per diluted share, for the three months ended September 30, 2019.

Operating Revenues

Operating revenues increased by 6.4%, or $7.1 million, to $118.9 million in the three months ended September 30, 2020 from $111.8 million in the three months ended September 30, 2019.

Operating revenues for the three months ended September 30, 2020 reflect:

  • a $11.5 million increase in revenues in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 as a result of contractual increases in charter rates of vessels under long-term charters;
  • a $5.5 million increase in revenues in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to the acquisition of new vessels;
  • a $5.6 million decrease in revenues in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to lower non-cash revenue recognition in accordance with US GAAP;
  • a $5.1 million decrease in revenues in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 as a result of lower re-chartering rates for certain of our vessels. This decrease is partially due to a $3.9 million decrease in revenues due to the re-chartering of four vessels in our fleet that concluded long-term charters over the last twelve months and were re-deployed at the prevailing lower spot rates at the time these vessels were re-chartered; and
  • a $0.8 million increase in revenues due to higher fleet utilization of our vessels in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Vessel Operating Expenses

Vessel operating expenses increased by $2.8 million to $27.7 million in the three months ended September 30, 2020 from $24.9 million in the three months ended September 30, 2019, primarily as a result of the increase in the average number of vessels in our fleet and an overall increase in the average daily operating cost to $5,467 per vessel per day for vessels on time charter for the three months ended September 30, 2020 compared to $5,298 per vessel per day for the three months ended September 30, 2019. Management believes that our daily operating cost are 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 6.2%, or $1.5 million, to $25.8 million in the three months ended September 30, 2020 from $24.3 million in the three months ended September 30, 2019 mainly due to the installation of scrubbers on nine of our vessels and the acquisition of the vessels Niledutch Lion, Phoebe and SM Charleston in the nine months ended September 30, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs increased by $0.9 million to $3.2 million in the three months ended September 30, 2020 from $2.3 million in the three months ended September 30, 2019.

General and Administrative Expenses

General and administrative expenses decreased by $0.4 million to $6.0 million in the three months ended September 30, 2020, from $6.4 million in the three months ended September 30, 2019. The decrease was mainly due to decreased non-cash recognition of share-based compensation.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses

Voyage expenses increased by $0.8 million to $3.6 million in the three months ended September 30, 2020 from $2.8 million in the three months ended September 30, 2019 primarily as a result of the increase in the average number of vessels in our fleet.

Interest Expense and Interest Income

Interest expense decreased by 34.6%, or $6.3 million, to $11.9 million in the three months ended September 30, 2020 from $18.2 million in the three months ended September 30, 2019. The decrease in interest expense is attributable to:

  • a $6.8 million decrease in interest expense due to a decrease in debt service cost of approximately 2.3% and a $84.6 million decrease in our average debt (including leaseback obligations), to $1,518.5 million in the three months ended September 30, 2020, compared to $1,603.1 million in the three months ended September 30, 2019; and
  • a $0.5 million increase in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.
    As of September 30, 2020, our outstanding bank debt, gross of deferred finance costs, was $1,376.2 million and our leaseback obligation was $129.4 million compared to bank debt of $1,450.0 million and our leaseback obligation of $141.4 million as of September 30, 2019.

Interest income increased to $1.7 million in the three months ended September 30, 2020 compared to $1.6 million in the three months ended September 30, 2019.

Other finance costs, net

Other finance costs, net remained stable at $0.3 million in each of the three months ended September 30, 2020 and September 30, 2019.

Equity income on investments

Equity income on investments increased by $0.9 million to $1.5 million of income on investments in the three months ended September 30, 2020 compared to $0.6 million in the three months ended September 30, 2019 due to the improved operating performance of Gemini, in which the Company has a 49% shareholding interest.

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 September 30, 2020 and September 30, 2019.

Other income, net

Other income, net was $0.1 million in the three months ended September 30, 2020 compared to nil in the three months ended September 30, 2019.

Adjusted EBITDA

Adjusted EBITDA increased by 5.0%, or $4.0 million, to $83.3 million in the three months ended September 30, 2020 from $79.3 million in the three months ended September 30, 2019. As outlined above, the increase is mainly attributable to a $7.1 million increase in operating revenues and a $0.9 million increase in the operating performance of our equity investees, which were partially offset by a $4.0 million increase in operating expenses. Adjusted EBITDA for the three months ended September 30, 2020 is adjusted for stock based compensation of $0.3 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

During the nine months ended September 30, 2020, Danaos had an average of 56.9 containerships compared to 55.0 containerships during the nine months ended September 30, 2019. Our fleet utilization for the nine months ended September 30, 2020 was 95.8% compared to 98.8% for the nine months ended September 30, 2019. Adjusted fleet utilization, excluding the effect of 188 days of incremental off-hire due to shipyard delays related to the COVID-19 pandemic, was 97.0% in the nine months ended September 30, 2020.

Our adjusted net income amounted to $123.1 million, or $4.97 per share, for the nine months ended September 30, 2020 compared to $110.7 million, or $7.23 per share, for the nine months ended September 30, 2019. We have adjusted our net income in the nine months ended September 30, 2020 for amortization of non-cash fees and accrued finance fees charge of $12.7 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $12.4 million in adjusted net income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is attributable mainly to a $13.1 million decrease in net finance expenses, a $4.9 million increase in operating revenues and a $4.2 million increase in the operating performance of our equity investment in Gemini, which were partially offset by a $9.8 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $110.4 million, or $4.45 earnings per diluted share, for the nine months ended September 30, 2020 compared to net income of $97.4 million, or $6.36 earnings per diluted share, for the nine months ended September 30, 2019.

Operating Revenues

Operating revenues increased by 1.5%, or $4.9 million, to $341.9 million in the nine months ended September 30, 2020 from $337.0 million in the nine months ended September 30, 2019.

Operating revenues for the nine months ended September 30, 2020 reflect:

  • a $26.2 million increase in revenues in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 as a result of contractual increases in charter rates of vessels under long-term charters;
  • a $10.0 million increase in revenues in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to the acquisition of new vessels;
  • a $6.2 million decrease in revenues due to lower fleet utilization of our vessels in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 mainly due to the scheduled installation of scrubbers and dry-dockings of our vessels, of which $3.2 million relates to incremental delays in the Chinese shipyards where these activities were being performed due to the COVID-19 pandemic;
  • a $9.3 million decrease in revenues in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 as a result of lower re-chartering rates for certain of our vessels. This decrease is due to a $12.5 million decrease in revenues due to the re-chartering of six vessels in our fleet that concluded long-term charters over the last twelve months and were re-deployed at the prevailing lower spot rates at the time these vessels were re-chartered, partially offset by a $3.2 million improvement from the re-chartering of other vessels in the fleet; and
  • a $15.8 million decrease in revenues in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to lower non-cash revenue recognition in accordance with US GAAP.

Vessel Operating Expenses

Vessel operating expenses increased by $4.2 million to $82.2 million in the nine months ended September 30, 2020 from $78.0 million in the nine months ended September 30, 2019, primarily as a result of the increase in the average number of vessels in our fleet, partially offset by an overall decrease in the average daily operating cost to $5,592 per vessel per day for vessels on time charter for the nine months ended September 30, 2020 compared to $5,605 per vessel per day for the nine months ended September 30, 2019. Management believes that our daily operating cost are 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 4.9%, or $3.5 million, to $75.6 million in the nine months ended September 30, 2020 from $72.1 million in the nine months ended September 30, 2019 mainly due to the installation of scrubbers on nine of our vessels and the acquisition of the vessels Niledutch Lion, Phoebe and SM Charleston in the nine months ended September 30, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs increased by $1.9 million to $8.4 million in the nine months ended September 30, 2020 from $6.5 million in the nine months ended September 30, 2019.

General and Administrative Expenses

General and administrative expenses decreased by $1.9 million to $17.9 million in the nine months ended September 30, 2020, from $19.8 million in the nine months ended September 30, 2019. The decrease was mainly due to decreased non-cash recognition of share-based compensation.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses

Voyage expenses increased by $2.1 million to $10.9 million in the nine months ended September 30, 2020 from $8.8 million in the nine months ended September 30, 2019 primarily as a result of the increase in the average number of vessels in our fleet.

Interest Expense and Interest Income

Interest expense decreased by 23.7%, or $13.0 million, to $41.9 million in the nine months ended September 30, 2020 from $54.9 million in the nine months ended September 30, 2019. The decrease in interest expense is attributable to:

  • a $12.5 million decrease in interest expense due to a decrease in debt service cost by approximately 1.3% and a $97.3 million decrease in our average debt (including leaseback obligations), to $1,532.5 million in the nine months ended September 30, 2020, compared to $1,629.8 million in the nine months ended September 30, 2019; and
  • a $0.5 million decrease in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.
    As of September 30, 2020, our outstanding bank debt, gross of deferred finance costs, was $1,376.2 million and our leaseback obligation was $129.4 million compared to bank debt of $1,450.0 million and our leaseback obligation of $141.4 million as of September 30, 2019.

Interest income increased by $0.2 million to $5.0 million in the nine months ended September 30, 2020 compared to $4.8 million in the nine months ended September 30, 2019.

Other finance costs, net

Other finance costs, net decreased by $0.4 million to $2.0 million in the nine months ended September 30, 2020 compared to $2.4 million in the nine months ended September 30, 2019 mainly due to the decrease in finance costs related to the leaseback obligations, partially offset by lease termination fees in the nine months ended September 30, 2020.

Equity income on investments

Equity income on investments increased by $4.2 million to $4.7 million of income on investments in the nine months ended September 30, 2020 compared to $0.5 million in the nine months ended September 30, 2019 due to the improved operating performance of Gemini, in which the Company has a 49% shareholding interest.

Loss on derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $2.7 million in each of the nine months ended September 30, 2020 and September 30, 2019.

Other income, net

Other income, net was $0.3 million in the nine months ended September 30, 2020 compared to $0.4 million in income in the nine months ended September 30, 2019.

Adjusted EBITDA

Adjusted EBITDA increased by 1.2%, or $2.9 million, to $235.3 million in the nine months ended September 30, 2020 from $232.4 million in the nine months ended September 30, 2019. As outlined above, the increase is mainly attributable to a $4.9 million increase in operating revenues, a $4.2 million increase in the operating performance of our equity investees and a $0.4 million decrease in other finance expenses, which were partially offset by a $6.6 million increase in operating expenses. Adjusted EBITDA for the nine months ended September 30, 2020 is adjusted for stock based compensation of $0.9 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Recent Developments

On October 12, 2020, we announced the repurchase of 4,339,271 shares of our common stock for an aggregate purchase price of $31.1 million in privately negotiated transactions, including 2,517,013 shares from the Royal Bank of Scotland and 1,822,258 shares from Sphinx Investment Corp. These transactions resulted in the Company’s previously announced share repurchase program being terminated.

On October 16, 2020, we entered into agreements to acquire two 9,000 TEU container vessels built in 2009 for a gross aggregate purchase price of $62.0 million. These vessels are expected to be delivered to us by the end of January 2021.
Source: Danaos Corporation

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