Danaos Corporation Reports Lower Net Income As Container Shipping Rates Decrease

Danaos Corporation, one of the world’s largest independent owners of containerships, today reported unaudited results for the period ended September 30, 2023.

• Adjusted net income1 of $143.0 million, or $7.26 per share, for the three months ended September 30, 2023 compared to $176.9 million, or $8.71 per share, for the three months ended September 30, 2022, a decrease of $33.9 million or $1.45 per share. Adjusted net income for the three months ended September 30, 2022 had included a non-recurring $23.2 million dividend from ZIM Integrated Shipping Services Ltd. (“ZIM”) that accounted for $1.14 per share.
• Adjusted net income of $431.6 million, or $21.54 per share, for the nine months ended September 30, 2023 compared to $569.3 million, or $27.67 per share, for the nine months ended September 30, 2022, a decrease of $137.7 million or $6.13 per share. Adjusted net income for the nine months ended September 30, 2022 had included a non-recurring $147.1 million dividend from ZIM that accounted for $7.15 per share.
• Net income of $133.2 million, or $6.76 per share, for the three months ended September 30, 2023 compared to $66.8 million, or $3.29 per share, for the three months ended September 30, 2022, an increase of $66.4 million, or $3.47 per share. Net income of $426.4 million, or $21.28 per share, for the nine months ended September 30, 2023 compared to $406.5 million, or $19.75 per share, for the nine months ended September 30, 2022, an increase of $19.9 million, or $1.53 per share.
• Adjusted EBITDA1 of $178.0 million for the three months ended September 30, 2023 compared to $213.1 million for the three months ended September 30, 2022, a decrease of $35.1 million. Adjusted EBITDA for the three months ended September 30, 2022 had included a non-recurring $23.2 million dividend from ZIM.
• Adjusted EBITDA of $534.4 million for the nine months ended September 30, 2023 compared to $674.7 million for the nine months ended September 30, 2022, a decrease of $140.3 million. Adjusted EBITDA for the nine months ended September 30, 2022 had included a non-recurring $147.1 million dividend from ZIM.
• Cash and cash equivalents were $306.3 million as of September 30, 2023.
• As of September 30, 2023, Net Debt2 was $111.1 million, and Net Debt / LTM Adjusted EBITDA was 0.16x. Currently, 44 of our container vessels and 4 recently acquired drybulk vessels are debt-free.
• Total liquidity was $655.0 million as of September 30, 2023, including undrawn available commitments under our Revolving Credit Facility.
• As of the date of this release, Danaos has repurchased a total of 1,570,195 shares of its common stock in the open market for $97.4 million, under its share repurchase program of up to $100 million announced in June 2022.
• Additional share repurchase program of up to $100 million was approved by our Board on November 10, 2023.
• In September 2023, we reached an agreement to acquire another 2 Capesize bulk carriers built in 2009 that aggregate 351,765 DWT for a total of $36.6 million. These vessels are expected to be delivered to us between November and December 2023. This will bring the total number of Capesize bulk carriers in our fleet to 7 with an aggregate capacity of 1,231,071 DWT.
• We have 10 container vessels under construction with an aggregate capacity of 74,914 TEU, with expected deliveries of seven vessels in 2024, one vessel in 2025 and two vessels in 2026. All our newbuildings are designed with the latest eco characteristics, will be methanol fuel ready, fitted with Alternative Maritime Power Units and will all be built in accordance with the latest requirements of the International Maritime Organization in relation to Tier III emission standards and Energy Efficiency Design Index (EEDI) Phase III.
• During the last three months we added approximately $178 million to our contracted revenue backlog through the arrangement of new charters for six container vessels in our fleet. The new fixtures notably include additional contracted revenues of $103 million for two 13,100 TEU vessels and $68 million for two 10,100 TEU vessels that were forward fixed on new 3-year charters.
• As a result, total contracted cash operating revenues, on the basis of concluded charter contracts through the date of this release, had increased to $2.5 billion as of September 30, 2023. The remaining average contracted charter duration was 3.2 years, weighted by aggregate contracted charter hire.
• Contracted operating days charter coverage for our containership fleet is currently 100.0% for 2023 and 90.3% for 2024.
• Danaos has declared a dividend of $0.80 per share of common stock for the third quarter of 2023, which is payable on December 6, 2023, to stockholders of record as of November 27, 2023.

Danaos’ CEO Dr. John Coustas commented:

“The macroeconomic environment continued to deteriorate during the third quarter of 2023, and container transport stagnated in most areas due to continued inventory destocking and weak retail sales. As a result, the profitability of liner companies has dramatically decreased, and the major operators have announced sweeping cost cutting measures. The chartering market continued to remain under pressure, particularly in the market for vessels smaller than 3,000 TEU, where charter rates returned to pre-pandemic levels.

In larger vessel segments, charter rates have remained relatively stable given the scarcity of open tonnage for next year, a factor that has enabled us to forward fix all our vessels above 10,000 TEU on three year charters at profitable levels that will commence after expiry of existing charter contracts in 2024. As a result, our charter cover for 2024 has increased to 90%.

Separately, through the date of this release we have taken delivery of the first four capesize bulk carriers and we have achieved rates well ahead of our expectations. While we do not expect a sustained upwards momentum in charter rates in the near term, we will closely monitor the dry bulk market and opportunistically pursue opportunities to expand our presence in this market.

The resilience of our business model has been confirmed by the continuation of our solid results despite the significant fall in the charter market. Our strategy of delevering has also been effective and well timed as we have not been impacted by higher interest rates. Our charter backlog of $2.5 billion in contracted revenue also provides us with significant cash flow visibility and allows us to maintain flexibility in our capital allocation policy.

In this regard, we decided to increase our quarterly dividend to $0.80 and also to authorize an additional $100 million in share buybacks as our initial $100 million authorization has been almost exhausted. Due to the prudent execution of our strategy, we have been able to return over $200 million to our shareholders over the last eighteen months and simultaneously grow our fleet in the container segment by placing 10 newbuilding orders and create exposure to the dry bulk segment through investments in companies and vessels.

We will strive to continue to create value for all our shareholders while ensuring the long-term prosperity of Danaos.”

Three months ended September 30, 2023 compared to the three months ended September 30, 2022
During the three months ended September 30, 2023, Danaos had an average of 68.0 container vessels compared to 71.0 container vessels during the three months ended September 30, 2022. Our containership fleet utilization for the three months ended September 30, 2023 was 97.7% compared to 97.1% for the three months ended September 30, 2022.

Our adjusted net income amounted to $143.0 million, or $7.26 per share, for the three months ended September 30, 2023 compared to $176.9 million, or $8.71 per share, for the three months ended September 30, 2022. We have adjusted our net income in the three months ended September 30, 2023 for a $9.3 million change in fair value of investments and a $0.5 million non-cash finance fees amortization. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The $33.9 million decrease in adjusted net income for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 is primarily attributable to a $22.3 million decrease in dividends received. We also incurred a $0.5 million equity loss on investments in the three months ended September 30, 2023, a $20.8 million decrease in operating revenues and a $0.3 million increase in total operating expenses, which were partially offset by a $10.0 million decrease in net finance expenses.

On a non-adjusted basis, net income amounted to $133.2 million, or $6.76 earnings per diluted share, for the three months ended September 30, 2023 compared to net income of $66.8 million, or $3.29 earnings per diluted share, for the three months ended September 30, 2022. Our net income for the three months ended September 30, 2022 included a $84.0 million total loss on our investment in ZIM, net of withholding taxes on dividends, compared to a $8.4 million total loss on our EGLE investments for the three months ended September 30, 2023.

Operating Revenues

Operating revenues decreased by 8.0%, or $20.8 million, to $239.2 million in the three months ended September 30, 2023 from $260.0 million in the three months ended September 30, 2022.

Operating revenues for the three months ended September 30, 2023 reflected:

• a $9.5 million decrease in revenues in the three months ended September 30, 2023 compared to the three months ended September 30, 2022 due to decreased amortization of assumed time charters,
• a $5.5 million decrease in revenues in the three months ended September 30, 2023 compared to the three months ended September 30, 2022 due to vessel disposals;
• a $3.1 million decrease in revenues in the three months ended September 30, 2023 compared to the three months ended September 30, 2022 due to lower non-cash revenue recognition in accordance with US GAAP; and
• a $2.7 million decrease in revenues in the three months ended September 30, 2023 compared to the three months ended September 30, 2022 mainly as a result of lower charter rates;

Vessel Operating Expenses

Vessel operating expenses increased by $0.3 million to $39.5 million in the three months ended September 30, 2023 from $39.2 million in the three months ended September 30, 2022, primarily as a result of an increase in the average daily operating cost for vessels on time charter to $6,499 per vessel per day for the three months ended September 30, 2023 compared to $6,173 per vessel per day for the three months ended September 30, 2022, which was partially offset by a decrease in the average number of vessels in our fleet. The average daily operating cost increased mainly due to increased repair and maintenance expenses. Management believes that our daily operating costs remain among the most competitive in the industry.

Depreciation & Amortization

Depreciation & Amortization includes Depreciation and Amortization of Deferred Drydocking and Special Survey Costs.

Depreciation

Depreciation expense decreased by 5.3%, or $1.8 million, to $32.3 million in the three months ended September 30, 2023 from $34.1 million in the three months ended September 30, 2022 mainly due to our recent sale of three vessels.

Amortization of Deferred Drydocking and Special Survey Costs

Amortization of deferred drydocking and special survey costs increased by $1.7 million to $4.8 million in the three months ended September 30, 2023 from $3.1 million in the three months ended September 30, 2022.

General and Administrative Expenses

General and administrative expenses decreased by $0.1 million to $7.1 million in the three months ended September 30, 2023, from $7.2 million in the three months ended September 30, 2022.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses

Voyage expenses decreased by $1.3 million to $9.0 million in the three months ended September 30, 2023 from $10.3 million in the three months ended September 30, 2022 primarily as a result of a decrease in the commissions and average number of vessels in our fleet.

Interest Expense and Interest Income

Interest expense decreased by 73.1%, or $11.7 million, to $4.3 million in the three months ended September 30, 2023 from $16.0 million in the three months ended September 30, 2022. The decrease in interest expense is a result of:

• a $5.8 million decrease in interest expense due to a decrease in our average indebtedness by $549.2 million between the two periods. Average indebtedness was $422.1 million in the three months ended September 30, 2023, compared to average indebtedness of $971.3 million in the three months ended September 30, 2022. This decrease was partially offset by an increase in our debt service cost by approximately 2.2% as a result of higher interest rates;
• a $3.5 million decrease in interest expense due to an increase in capitalized interest expense on our vessels under construction in the three months ended September 30, 2023; and
• a $2.4 million decrease in the amortization of deferred finance costs and debt discount.

As of September 30, 2023, outstanding debt, gross of deferred finance costs, was $417.4 million, which included $262.8 million principal amount of our Senior Notes. These balances compare to debt of $868.1 million, which included $300.0 million principal amount of our Senior Notes, and a leaseback obligation of $79.6 million, gross of deferred finance costs, as of September 30, 2022.

Interest income increased by $1.8 million to $3.1 million in the three months ended September 30, 2023 compared to $1.3 million in the three months ended September 30, 2022 mainly as a result of increased interest rates and average amount of time deposits in the three months ended September 30, 2023.

Loss on investments

We recognized a $8.4 million loss on marketable securities, which consisted of the change in fair value of $9.3 million and dividends of $0.9 million in the three months ended September 30, 2023 on our shareholding interest in Eagle Bulk (“EGLE”) of 1,552,865 shares of common stock. This loss compares to a loss on investments of $80.3 million in the three months ended September 30, 2022, which consisted of the change in fair value of our shareholding interest in ZIM of $107.3 million and dividends recognized on ZIM ordinary shares of $27.0 million. In September 2022, we sold all of our remaining ordinary shares of ZIM for net proceeds of $161.3 million.

Equity loss on investments

Equity loss on investments amounting to $0.5 million in the three months ended September 30, 2023 relates to our share of initial expenses of a newly established company, Carbon Termination Technologies Corporation (“CTTC”), currently engaged in the research and development of decarbonization technologies for the shipping industry.

Other finance expenses

Other finance expenses increased by $1.0 million to $1.2 million in the three months ended September 30, 2023 compared to $0.2 million in the three months ended September 30, 2022 mainly due to commitment fees for our recently established revolving credit facility.

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, 2023 and September 30, 2022.

Other income/(expenses), net

Other expenses, net were $1.1 million in the three months ended September 30, 2023 compared to other income, net of $0.4 million in the three months ended September 30, 2022.

Income taxes

Income taxes of $3.8 million in the three months ended September 30, 2022, related to the taxes withheld on dividend income earned on ZIM ordinary shares compared to no income tax in the three months ended September 30, 2023.

Adjusted EBITDA

Adjusted EBITDA decreased by 16.5%, or $35.1 million, to $178.0 million in the three months ended September 30, 2023 from $213.1 million in the three months ended September 30, 2022. As outlined above, the decrease is primarily attributable to a $22.3 million decrease in dividends received. We also incurred a $11.3 million decrease in operating revenues, a $1.0 million increase in total operating expenses and a $0.5 million equity loss on investments in the three months ended September 30, 2023. Adjusted EBITDA for the three months ended September 30, 2023 is adjusted for a $9.3 million change in fair value of investments. Tables reconciling Net Income to Adjusted EBITDA can be found at the end of this earnings release.

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

During the nine months ended September 30, 2023, Danaos had an average of 68.1 container vessels compared to 71.0 container vessels during the nine months ended September 30, 2022. Our containership fleet utilization for the nine months ended September 30, 2023 was 97.7% compared to 98.1% for the nine months ended September 30, 2022.

Our adjusted net income amounted to $431.6 million, or $21.54 per share, for the nine months ended September 30, 2023 compared to $569.3 million, or $27.67 per share, for the nine months ended September 30, 2022. We have adjusted our net income in the nine months ended September 30, 2023 for a $2.9 million change in fair value of investments, a $2.3 million loss on debt extinguishment, a $1.6 million gain on sale of vessel and a $1.7 million non-cash fees amortization. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The $137.7 million decrease in adjusted net income for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 is primarily attributable to a $146.2 million decrease in dividends received. We also incurred a $3.9 million equity loss on investments in the nine months ended September 30, 2023, a $16.6 million decrease in operating revenues and a $1.3 million increase in total operating expenses, which were partially offset by a $30.3 million decrease in net finance expenses.

On a non-adjusted basis, our net income amounted to $426.4 million, or $21.28 earnings per diluted share, for the nine months ended September 30, 2023 compared to net income of $406.5 million, or $19.75 earnings per diluted share, for the nine months ended September 30, 2022. Our net income for the nine months ended September 30, 2022 included a total loss on our investment in ZIM of $29.2 million, net of withholding taxes on dividends and a gain on debt extinguishment of $22.9 million compared to a $2.0 million total loss on our EGLE investment and a $2.3 million loss on debt extinguishment for the nine months ended September 30, 2023.

Operating Revenues

Operating revenues decreased by 2.2%, or $16.6 million, to $724.3 million in the nine months ended September 30, 2023 from $740.9 million in the nine months ended September 30, 2022.

Operating revenues for the nine months ended September 30, 2023 reflect:

• a $33.2 million increase in revenues in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 mainly as a result of higher charter rates;
• a $29.5 million decrease in revenues in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to decreased amortization of assumed time charters;
• a $14.2 million decrease in revenues in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to vessel disposals; and
• a $6.1 million decrease in revenues in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to lower non-cash revenue recognition in accordance with US GAAP.

Vessel Operating Expenses

Vessel operating expenses increased by $3.1 million to $122.0 million in the nine months ended September 30, 2023 from $118.9 million in the nine months ended September 30, 2022, primarily as a result of an increase in the average daily operating cost for vessels on time charter to $6,758 per vessel per day for the nine months ended September 30, 2023 compared to $6,314 per vessel per day for the nine months ended September 30, 2022, which was partially offset by a decrease in the average number of vessels in our fleet. The average daily operating cost increased mainly due to increased repair and maintenance expenses. Management believes that our daily operating costs remain among the most competitive in the industry.

Depreciation & Amortization

Depreciation & Amortization includes Depreciation and Amortization of Deferred Drydocking and Special Survey Costs.

Depreciation

Depreciation expense decreased by 5.4%, or $5.5 million, to $95.8 million in the nine months ended September 30, 2023 from $101.3 million in the nine months ended September 30, 2022 due to our recent sale of three vessels.

Amortization of Deferred Drydocking and Special Survey Costs

Amortization of deferred drydocking and special survey costs increased by $4.1 million to $13.1 million in the nine months ended September 30, 2023 from $9.0 million in the nine months ended September 30, 2022.

General and Administrative Expenses

General and administrative expenses decreased by $0.6 million to $21.1 million in the nine months ended September 30, 2023, from $21.7 million in the nine months ended September 30, 2022. The decrease was primarily attributable to decreased management fees due to the recent sale of three vessels.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses

Voyage expenses decreased by $1.7 million to $25.2 million in the nine months ended September 30, 2023 from $26.9 million in the nine months ended September 30, 2022 primarily as a result of a decrease in commissions and the average number of vessels in our fleet.

Gain on Sale of Vessels

In January 2023, we completed the sale of the Amalia C for net proceeds of $4.9 million resulting in a gain of $1.6 million.

Interest Expense and Interest Income

Interest expense decreased by 65.6%, or $32.3 million, to $16.9 million in the nine months ended September 30, 2023 from $49.2 million in the nine months ended September 30, 2022. The decrease in interest expense is a result of:

• a $16.7 million decrease in interest expense due to a decrease in our average indebtedness by $696.4 million between the two periods. Average indebtedness was $462.9 million in the nine months ended September 30, 2023, compared to average indebtedness of $1,159.3 million in the nine months ended September 30, 2022. This decrease was partially offset by an increase in our debt service cost by approximately 2.7% as a result of higher interest rates;
• a $10.0 million decrease in interest expense due to an increase in capitalized interest expense on our vessels under construction in the nine months ended September 30, 2023;
• a $7.7 million decrease in the amortization of deferred finance costs and debt discount; and
• a $2.1 million reduction of accumulated accrued interest that had been accrued in 2018 in relation to two of our credit facilities that were fully repaid in May 2022.

As of September 30, 2023, outstanding debt, gross of deferred finance costs, was $417.4 million, which included $262.8 million principal amount of our Senior Notes. These balances compare to debt of $868.1 million, which included $300.0 million principal amount of our Senior Notes, and a leaseback obligation of $79.6 million, gross of deferred finance costs, as of September 30, 2022.

Interest income increased by $8.0 million to $9.4 million in the nine months ended September 30, 2023 compared to $1.4 million in the nine months ended September 30, 2022 mainly as a result of increased interest rates and average amount of time deposits in the nine months ended September 30, 2023.

Loss on investments

We recognized a $2.0 million loss on marketable securities, which consisted of the change in fair value of $2.9 million and dividends of $0.9 million in the nine months ended September 30, 2023 on our shareholding interest in EGLE of 1,552,865 shares of common stock. This loss compares to a loss on investments of $11.0 million in the nine months ended September 30, 2022, which consisted of the change in fair value of our shareholding interest in ZIM of $176.4 million and dividends recognized on ZIM ordinary shares of $165.4 million. In the nine months ended September 30, 2022, we sold all of our remaining ordinary shares of ZIM for net proceeds of $246.6 million.

Gain/(loss) on debt extinguishment

A $2.3 million loss on early extinguishment of our leaseback obligations in the nine months ended September 30, 2023 compares to a $22.9 million gain related to our early extinguishment of debt in the nine months ended September 30, 2022.

Equity loss on investments

Equity loss on investments amounting to $3.9 million in the nine months ended September 30, 2023 relates to our share of initial expenses of a newly established company, CTTC, currently engaged in the research and development of decarbonization technologies for the shipping industry.

Other finance expenses

Other finance expenses increased by $2.3 million to $3.4 million in the nine months ended September 30, 2023 compared to $1.1 million in the nine months ended September 30, 2022 mainly due to commitment fees for our recently established revolving credit facility.

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, 2023 and September 30, 2022.

Other income/(expenses), net

Other expenses, net were $0.6 million in the nine months ended September 30, 2023 compared to other income, net of $1.3 million in the nine months ended September 30, 2022.

Income taxes

Income taxes of $18.3 million, in the nine months ended September 30, 2022, related to the taxes withheld on dividend income earned on ZIM ordinary shares and compared to no income tax in the nine months ended September 30, 2023.

Adjusted EBITDA

Adjusted EBITDA decreased by 20.8%, or $140.3 million, to $534.4 million in the nine months ended September 30, 2023 from $674.7 million in the nine months ended September 30, 2022. As outlined above, the decrease is mainly attributable to a $146.2 million decrease in dividends received. We also incurred a $3.1 million increase in total operating expenses and a $3.9 million equity loss on investments in the nine months ended September 30, 2023, which were partially offset by a $12.9 million increase in operating revenues. Adjusted EBITDA for the nine months ended September 30, 2023 is adjusted for a $2.9 million change in fair value of investments, a $2.3 million loss on debt extinguishment and a $1.6 million gain on sale of vessel. Tables reconciling Net Income to Adjusted EBITDA can be found at the end of this earnings release.

Dividend Payment

Danaos has declared a dividend of $0.80 per share of common stock for the third quarter of 2023, which is payable on December 6, 2023 to stockholders of record as of November 27, 2023.

Recent Developments

As of the date of this release, we have repurchased a total of 1,570,195shares of our common stock in the open market for $97.4 million, under our share repurchase program of up to $100 million announced in June 2022. Additional share repurchase program of up to $100 million was approved by our Board on November 10, 2023.

In September 2023, we entered into agreements to acquire 2 additional Capesize bulk carriers built in 2009 that aggregate to 351,765 DWT for a total of $36.6 million. These vessels are expected to be delivered to us between November and December 2023.

Executive Officers

On November 10, 2023, Iraklis Prokopakis’s previously announced retirement from his executive role as Senior Vice President and Chief Operating Officer of the Company became effective. Mr. Prokopakis will remain a member of the Company’s Board of Directors, on which he will serve as Vice Chairman.

On November 10, 2023, Dimitris Vastarouchas, who had been serving as the Company’s Deputy Chief Operating Officer was appointed the Company’s Chief Operating Officer, and Filippos Prokopakis, who had been serving as Commercial Director of our manager, Danaos Shipping, was appointed Chief Commercial Officer of the Company.

Management Agreement

In November 2023, we agreed to extend the term of our Management Agreement with Danaos Shipping from December 31, 2024 to December 31, 2025 and to modify the fees and commissions payable by us thereunder.

Full Report

Source: Danaos Corporation