Home Greece Danaos John Coustas is pleased to report improved adjusted earnings for the...

Danaos John Coustas is pleased to report improved adjusted earnings for the second quarter of 2020

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

Highlights for the Second Quarter and Half Year Ended June 30, 2020:

  • Adjusted net income1 of $42.5 million, or $1.71 per share, for the three months ended June 30, 2020 compared to $34.3 million, or $2.24 per share, for the three months ended June 30, 2019, an increase of 23.9%. Adjusted net income1 of $75.8 million, or $3.06 per share, for the six months ended June 30, 2020 compared to $72.8 million, or $4.77 per share, for the six months ended June 30, 2019, an increase of 4.1%.
  • Operating revenues of $116.8 million for the three months ended June 30, 2020 compared to $112.3 million for the three months ended June 30, 2019, an increase of 4.0%. Operating revenues of $223.0 million for the six months ended June 30, 2020 compared to $225.2 million for the six months ended June 30, 2019, a decrease of 1.0%.
  • Adjusted EBITDA 1 of $80.1 million for the three months ended June 30, 2020 compared to $75.6 million for the three months ended June 30, 2019, an increase of 6.0%. Adjusted EBITDA 1 of $152.0 million for the six months ended June 30, 2020 compared to $153.1 million for the six months ended June 30, 2019, a decrease of 0.7%.
  • Total contracted operating revenues were $1.2 billion as of June 30, 2020, with charters extending through 2028 and remaining average contracted charter duration of 3.7 years, weighted by aggregate contracted charter hire.
  • Charter coverage of 85% for the next 12 months based on current operating revenues and 62% in terms of contracted operating days.
  • Common stock repurchase program of up to $10 million approved.

Danaos’ CEO Dr. John Coustas commented:

“We are pleased to report improved adjusted earnings for both the second quarter of 2020 and the first six months of the year. The Company’s adjusted net income of $42.5 million for the second quarter of 2020 increased by $8.2 million, or 23.9% when compared to adjusted net income of $34.3 million for the second quarter of 2019. Adjusted EBITDA also improved by $4.5 million, or 6%, to $80.1 million for the second quarter of 2020 compared to $75.6 million for the second quarter of 2019.

Although economic activity has been subdued since the start of the coronavirus pandemic, we have seen increasing signs of confidence with liner companies in recent weeks as a number of previously blanked sailings have been reinstated, implying that demand is gradually improving. This has also translated into improving charter rates for vessels greater than 4,000 TEU in size. Recently reported financial results of the liner companies have also been encouraging since, as we had anticipated, prudent capacity management, reduced bunker prices and falling interest rates have more than compensated for the drop in volumes caused by the pandemic.

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 accelerate the recovery in the container market.

We continue to execute our strategy and we are well insulated from near-term volatility due to our high charter coverage of 85% in terms of operating revenues and 62% in terms of operating days over the next 12 months. This provides significant visibility into our cash flows during this period. We have now concluded all the scrubber installation investments and took delivery of two 8,500 TEU vessels during the second quarter. Finally, we have ample liquidity and a $1.2 billion charter backlog, which provides us with flexibility to both manage our business and react to growth opportunities that may present themselves. Given continued uncertainty about the duration of the coronavirus pandemic and the ensuing economic recovery, we are focused on maintaining a conservative financial profile and making thoughtful capital allocation decisions that align with our strategy and market expectations.

We also remain committed to operational excellence and technological innovation, which allows us to continually deliver a high quality service to our customers. Our commitment has enabled us to maintain our leadership position in the container shipping industry throughout multiple market cycles and during the current challenging environment. We believe that our focus and strategy will ultimately enhance shareholder value far and above the steel value of our fleet.”

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

During the three months ended June 30, 2020, Danaos had an average of 57.1 containerships compared to 55.0 containerships during the three months ended June 30, 2019. Our fleet utilization for the three months ended June 30, 2020 was 97.1% compared to 99.4% for the three months ended June 30, 2019.

Our adjusted net income amounted to $42.5 million, or $1.71 per share, for the three months ended June 30, 2020 compared to $34.3 million, or $2.24 per share, for the three months ended June 30, 2019. We have adjusted our net income in the three months ended June 30, 2020 for amortization of non-cash fees and accrued finance fees charge of $4.0 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $8.2 million in adjusted net income for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 is attributable mainly to a $5.8 million decrease in net finance expenses, a $4.5 million increase in operating revenues and a $1.7 million increase in the operating performance of our equity investment in Gemini Shipholdings Corporation (“Gemini”), which were partially offset by a $3.8 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $38.5 million, or $1.55 earnings per diluted share, for the three months ended June 30, 2020 compared to net income of $30.1 million, or $1.97 earnings per diluted share, for the three months ended June 30, 2019.

Operating Revenues
Operating revenues increased by 4.0%, or $4.5 million, to $116.8 million in the three months ended June 30, 2020 from $112.3 million in the three months ended June 30, 2019.

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

  • a $9.6 million increase in revenues in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 as a result of contractual increases in charter rates of vessels under long-term charters;
  • a $3.6 million increase in revenues in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to the acquisition of new vessels;
  • a $5.3 million decrease in revenues in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to lower non-cash revenue recognition in accordance with US GAAP;
  • a $2.5 million decrease in revenues in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 as a result of lower re-chartering rates for certain of our vessels. This decrease is due to a $4.1 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 in the three months ended June 30, 2020, partially offset by a $1.7 million improvement from the re-chartering of other vessels in the fleet; and
  • a $0.9 million decrease in revenues due to lower fleet utilization of our vessels in the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Vessel Operating Expenses
Vessel operating expenses increased by $1.3 million to $28.6 million in the three months ended June 30, 2020 from $27.3 million in the three months ended June 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 $5,787 per vessel per day for vessels on time charter for the three months ended June 30, 2020 compared to $5,884 per vessel per day for the three months ended June 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 5.4%, or $1.3 million, to $25.3 million in the three months ended June 30, 2020 from $24.0 million in the three months ended June 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 six months ended June 30, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $0.8 million to $2.9 million in the three months ended June 30, 2020 from $2.1 million in the three months ended June 30, 2019.

General and Administrative Expenses
General and administrative expenses decreased by $0.5 million to $6.0 million in the three months ended June 30, 2020, from $6.5 million in the three months ended June 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 $0.6 million to $3.3 million in the three months ended June 30, 2020 from $2.7 million in the three months ended June 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 27.7%, or $5.2 million, to $13.6 million in the three months ended June 30, 2020 from $18.8 million in the three months ended June 30, 2019. The decrease in interest expense is attributable to:

  • a $5.1 million decrease in interest expense due to a decrease in debt service cost of approximately 1.56% and a $95.8 million decrease in our average debt (including leaseback obligations), to $1,534.9 million in the three months ended June 30, 2020, compared to $1,630.7 million in the three months ended June 30, 2019; and
  • a $0.1 million decrease in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

As of June 30, 2020, our outstanding bank debt, gross of deferred finance costs, was $1,392.6 million and our leaseback obligation was $135.2 million compared to bank debt of $1,470.6 million and our leaseback obligation of $144.4 million as of June 30, 2019.

Interest income remained stable at $1.6 million in each of the three months ended June 30, 2020 and June 30, 2019.

Other finance costs, net
Other finance costs, net decreased by $0.8 million to $1.0 million in the three months ended June 30, 2020 compared to $1.8 million in the three months ended June 30, 2019 mainly due to the decrease in finance costs related to the leaseback obligations, partially offset by lease termination fees in the three months ended June 30, 2020.

Equity income/(loss) on investments
Equity income/(loss) on investments increased by $1.7 million to $1.7 million of income on investments in the three months ended June 30, 2020 compared to nil in the three months ended June 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 June 30, 2020 and June 30, 2019.

Other income, net
Other income, net was nil in the three months ended June 30, 2020 compared to $0.4 million in income in the three months ended June 30, 2019.

Adjusted EBITDA
Adjusted EBITDA increased by 6.0%, or $4.5 million, to $80.1 million in the three months ended June 30, 2020 from $75.6 million in the three months ended June 30, 2019. As outlined above, the increase is mainly attributable to a $4.5 million increase in operating revenues, a $1.7 million increase in the operating performance of our equity investees and a $0.7 million decrease in other finance expenses, which were partially offset by a $2.4 million increase in operating expenses. Adjusted EBITDA for the three months ended June 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.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

During the six months ended June 30, 2020, Danaos had an average of 56.4 containerships compared to 55.0 containerships during the six months ended June 30, 2019. Our fleet utilization for the six months ended June 30, 2020 was 94.2% compared to 98.8% for the six months ended June 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 96.1% in the six months ended June 30, 2020.

Our adjusted net income amounted to $75.8 million, or $3.06 per share, for the six months ended June 30, 2020 compared to $72.8 million, or $4.77 per share, for the six months ended June 30, 2019. We have adjusted our net income in the six months ended June 30, 2020 for amortization of non-cash fees and accrued finance fees charge of $8.2 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $3.0 million in adjusted net income for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 is attributable mainly to a $6.3 million decrease in net finance expenses and a $3.3 million increase in the operating performance of our equity investment in Gemini, which were partially offset by a $4.4 million increase in total operating expenses and a $2.2 million decrease in operating revenues, of which $3.2 million relates to incremental off-hire due to shipyard delays related to the COVID-19 pandemic in the first quarter of 2020.

On a non-adjusted basis, our net income amounted to $67.6 million, or $2.73 earnings per diluted share, for the six months ended June 30, 2020 compared to net income of $63.6 million, or $4.16 earnings per diluted share, for the six months ended June 30, 2019.

Operating Revenues
Operating revenues decreased by 1.0%, or $2.2 million, to $223.0 million in the six months ended June 30, 2020 from $225.2 million in the six months ended June 30, 2019.

Operating revenues for the six months ended June 30, 2020 reflect:

  • a $14.7 million increase in revenues in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 as a result of contractual increases in charter rates of vessels under long-term charters;
  • a $4.5 million increase in revenues in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to the acquisition of new vessels;
  • a $7.0 million decrease in revenues due to lower fleet utilization of our vessels in the six months ended June 30, 2020 compared to the six months ended June 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 $4.2 million decrease in revenues in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 as a result of lower re-chartering rates for certain of our vessels. This decrease is due to a $8.6 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 in the six months ended June 30, 2020, partially offset by a $4.5 million improvement from the re-chartering of other vessels in the fleet; and
  • a $10.2 million decrease in revenues in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to lower non-cash revenue recognition in accordance with US GAAP.

Vessel Operating Expenses
Vessel operating expenses increased by $1.4 million to $54.6 million in the six months ended June 30, 2020 from $53.2 million in the six months ended June 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 $5,657 per vessel per day for vessels on time charter for the six months ended June 30, 2020 compared to $5,761 per vessel per day for the six months ended June 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 4.2%, or $2.0 million, to $49.8 million in the six months ended June 30, 2020 from $47.8 million in the six months ended June 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 six months ended June 30, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $1.0 million to $5.3 million in the six months ended June 30, 2020 from $4.3 million in the six months ended June 30, 2019.

General and Administrative Expenses
General and administrative expenses decreased by $1.5 million to $11.9 million in the six months ended June 30, 2020, from $13.4 million in the six months ended June 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 $1.3 million to $7.3 million in the six months ended June 30, 2020 from $6.0 million in the six months ended June 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 18.5%, or $6.8 million, to $29.9 million in the six months ended June 30, 2020 from $36.7 million in the six months ended June 30, 2019. The decrease in interest expense is attributable to:

  • a $5.8 million decrease in interest expense due to a decrease in debt service cost by approximately 0.8% and a $103.9 million decrease in our average debt (including leaseback obligations), to $1,539.5 million in the six months ended June 30, 2020, compared to $1,643.4 million in the six months ended June 30, 2019; and
  • a $1.0 million decrease in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

As of June 30, 2020, our outstanding bank debt, gross of deferred finance costs, was $1,392.6 million and our leaseback obligation was $135.2 million compared to bank debt of $1,470.6 million and our leaseback obligation of $144.4 million as of June 30, 2019.

Interest income increased by $0.1 million to $3.3 million in the six months ended June 30, 2020 compared to $3.2 million in the six months ended June 30, 2019.

Other finance costs, net
Other finance costs, net decreased by $0.4 million to $1.7 million in the six months ended June 30, 2020 compared to $2.1 million in the six months ended June 30, 2019 mainly due to the decrease in finance costs related to the leaseback obligations, partially offset by lease termination fees in the six months ended June 30, 2020.

Equity income/(loss) on investments
Equity income/(loss) on investments increased by $3.3 million to $3.3 million of income on investments in the six months ended June 30, 2020 compared to nil in the six months ended June 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 $1.8 million in each of the six months ended June 30, 2020 and June 30, 2019.

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

Adjusted EBITDA
Adjusted EBITDA decreased by 0.7%, or $1.1 million, to $152.0 million in the six months ended June 30, 2020 from $153.1 million in the six months ended June 30, 2019. As outlined above, the decrease is mainly attributable to a $2.2 million decrease in operating revenues, of which $3.2 million relates to the impact of the COVID-19 pandemic described above and a $2.6 million increase in operating expenses, which were partially offset by a $3.3 million increase in the operating performance of our equity investees and a $0.4 million decrease in other finance expenses. Adjusted EBITDA for the six months ended June 30, 2020 is adjusted for stock based compensation of $0.6 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Common Stock Repurchase Program
The Company’s Board of Directors has approved a share repurchase program and authorized the officers of the Company to repurchase, from time to time, up to $10 million of the Company’s common stock. Shares may be purchased in open market or privately negotiated transactions, at times and prices that are considered to be appropriate by the Company, and the program may be suspended or discontinued at any time.

Recent Developments
On July 2, 2020, we drew down a loan of $13.3 million with SinoPac, which was used to partially finance the acquisition costs of the newly acquired vessel SM Charleston.