Danaos posts higher profit in first quarter

danaos

Danaos, one of the world’s largest independent owners of containerships, reported unaudited results for the quarter ended March 31, 2019.

Highlights for the First Quarter Ended March 31, 2019:

  • Adjusted net income1 of $38.6 million, or $2.53 per share2, for the three months ended March 31, 2019 compared to $28.0 million, or $3.56 per share2, for the three months ended March 31, 2018, an increase of 37.9%.
  • Operating revenues of $112.9 million for the three months ended March 31, 2019 compared to $111.9 million for the three months ended March 31, 2018, an increase of 0.9%.
  • Adjusted EBITDA1 of $77.5 million for the three months ended March 31, 2019 compared to $76.6 million for the three months ended March 31, 2018, an increase of 1.2%.
  • Total contracted operating revenues were $1.5 billion as of March 31, 2019, with charters extending through 2028 and remaining average contracted charter duration of 4.7 years, weighted by aggregate contracted charter hire.
  • Charter coverage of 86% for the next 12 months based on current operating revenues and 71% in terms of contracted operating days.
  • Effected 1:14 reverse stock split on May 2, 2019, which the Company believes will cure the previously announced NYSE deficiency caused by our stock trading below $1.
  • Concluded sale and leaseback transactions for two 13,100 TEU containerships on April 12, 2019, resulting in net proceeds of $144.8 million, which were used to repay credit facilities secured by mortgages on the vessels.

Three Months Ended March 31, 2019

Financial Summary – Unaudited

(Expressed in thousands of United States dollars, except per share amounts) 

Three months

ended

Three months 

ended

March 31,

March 31,

2019

2018

Operating revenues

$112,891

$111,854

Net income

$33,443

$14,992

Adjusted net income1

$38,569

$27,951

Earnings per share, diluted2

$2.19

$1.91

Adjusted earnings per share, diluted1,2

$2.53

$3.56

Diluted weighted average number of shares (in thousands)2

15,237

7,843

Adjusted EBITDA1

$77,538

$76,638

1 

Adjusted net income, adjusted earnings per share and adjusted EBITDA are non-GAAP measures. Refer to the reconciliation of net income to adjusted net income and net income to adjusted EBITDA.

Earnings per share and weighted average number of shares give retroactive effect to the reverse stock split of 1-for-14 implemented on May 2, 2019, for both periods presented.

Danaos’ CEO Dr. John Coustas commented:

“Danaos Corporation’s adjusted net income of $38.6 million, or $2.53 per share, for the first quarter of 2019 increased by $10.6 million, or 37.9%, when compared to the first quarter of 2018. This improvement was primarily the result of a $7.6 million decrease in net finance expenses and a $2 million decrease in total operating costs, combined with a $1 million increase in operating revenues due to improved fleet utilization. Adjusted EBITDA for the first quarter of 2019 was $77.5 million, $0.9 million higher than the first quarter of 2018.

“Effective May 2, 2019, following approval of our shareholders and our Board, we effected a 1:14 reverse stock split, which we believe will cure the previously announced NYSE deficiency caused by our stock trading below $1.

“At the beginning of April we concluded a $150 million sale and leaseback transaction for two 13,100 TEU vessels, fulfilling a requirement from the re-financing we concluded last August. The net proceeds of the transaction were used to prepay certain credit facilities that had financed the vessels. Under the terms of the transaction, the Company will re-acquire the vessels at the end of their five-year lease periods.

“The charter market for vessels over 5,500 TEU has seen significant improvement when compared to the recent lows of the fourth quarter of 2018. In general, the charter market for larger vessels has improved considerably, which is notable as more than 70% of our fleet in terms of capacity, is comprised of such vessels. Vessels below 5,500 TEU have also improved slightly since last November’s downturn.

“On the investment side, we have recently concluded our first scrubber installation on a vessel owned by Gemini Shipholdings Corporation, an entity in which Danaos has a 49% shareholding interest, and will proceed with installing scrubbers on a further nine vessels wholly-owned by Danaos and one additional vessel owned by Gemini over the next few months.

“Our total contracted revenues as of March 31, 2019 were $1.5 billion, and we maintain our high charter contract coverage of 86% in terms of operating revenues and 71% in terms of operating days over the next 12 months. This insulates us from near-term market weakness.

“Danaos continues to be a leader in the container shipping industry on the back of a solid track record of operational excellence and technological innovation that allows us to continually deliver high quality service to our customers. At the same time, the recently concluded refinancing transaction further enhances our ability to pursue growth opportunities and our goal of delivering value to our shareholders.”

Three months ended March 31, 2019 compared to the three months ended March 31, 2018

During the three months ended March 31, 2019 and March 31, 2018, Danaos had an average of 55 containerships. Our fleet utilization for the three months ended March 31, 2019 was 98.2% compared to 95.6% for the three months ended March 31, 2018.

Our adjusted net income amounted to $38.6 million, or $2.53 per share, for the three months ended March 31, 2019 compared to $28.0 million, or $3.56 per share, for the three months ended March 31, 2018 (after giving retroactive effect to the reverse stock split of 1-for-14 implemented on May 2, 2019). We have adjusted our net income in the three months ended March 31, 2019 for a non-cash fees amortization and accrued finance fees charge of $5.1 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $10.6 million in adjusted net income for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 is attributable mainly to a $7.6 million decrease in net finance expenses, a $2.0 million decrease in total operating expenses and a $1.0 million increase in operating revenues.

On a non-adjusted basis, our net income amounted to $33.4 million, or $2.19 earnings per diluted share, for the three months ended March 31, 2019 compared to net income of $15.0 million, or $1.91 earnings per diluted share, for the three months ended March 31, 2018 (after giving retroactive effect to the reverse stock split of 1-for-14).

Operating Revenues
Operating revenues increased by 0.9%, or $1.0 million, to $112.9 million in the three months ended March 31, 2019 from $111.9 million in the three months ended March 31, 2018.

Operating revenues for the three months ended March 31, 2019 reflect:

  • $0.9 million increase in revenues due to higher fleet utilization of our vessels in the three months ended March 31, 2019 compared to the three months ended March 31, 2018.
  • $0.1 million increase in revenues in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 due to the re-chartering of certain of our vessels at higher rates.

Vessel Operating Expenses
Vessel operating expenses decreased by 3.4%, or $0.9 million, to $25.9 million in the three months ended March 31, 2019 from $26.8 million in the three months ended March 31, 2018. The average daily operating cost per vessel for vessels on time charter was $5,636 per day for the three months ended March 31, 2019 compared to $5,849 per day for the three months ended March 31, 2018. Management believes that our daily operating cost ranks as one of 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 decreased by 12.2%, or $3.3 million, to $23.8 million in the three months ended March 31, 2019 from $27.1 million in the three months ended March 31, 2018 mainly due to decreased depreciation expense for ten vessels for which we recorded an impairment charge on December 31, 2018.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $0.4 million, to $2.2 million in the three months ended March 31, 2019 from $1.8 million in the three months ended March 31, 2018. The increase was mainly due to an increased number of vessels dry-docked.

General and Administrative Expenses
General and administrative expenses increased by $1.7 million, to $6.9 million in the three months ended March 31, 2019, from $5.2 million in the three months ended March 31, 2018. The increase was mainly due to increased share based compensation and professional fees.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses increased by $0.1 million, to $3.3 million in the three months ended March 31, 2019 from $3.2 million in the three months ended March 31, 2018.

Interest Expense and Interest Income
Interest expense decreased by 21.9%, or $5.0 million, to $17.8 million in the three months ended March 31, 2019 from $22.8 million in the three months ended March 31, 2018. The decrease in interest expense is attributable to:

(i) a $11.4 million decrease in interest expense on two of our credit facilities for which we have recognized an interest expense accrual, which has been classified on our balance sheet under “Accumulated accrued interest” and represents future interest expense for the relevant facilities that has been recognized in advance as a result of the application of Troubled Debt Restructuring (“TDR”) accounting in connection with our 2018 debt refinancing;

(ii) a $4.0 million increase in interest expense due to an increase in debt service cost of approximately 2.3%, partially offset by a $645.1 million decrease in our average debt, to $1,656.3 million in the three months ended March 31, 2019, compared to $2,301.4 million in the three months ended March 31, 2018; and

(iii) a $2.4 million increase in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

As of March 31, 2019, debt outstanding, gross of deferred finance costs, was $1,641.7 million compared to $2,299.9 million as of March 31, 2018.

Interest income increased by $0.2 million to $1.6 million in the three months ended March 31, 2019 compared to $1.4 million in the three months ended March 31, 2018.

Other finance costs, net
Other finance costs, net decreased by $0.7 million to $0.3 million in the three months ended March 31, 2019 compared to $1.0 million in the three months ended March 31, 2018 mainly due to decreased exit fees expenses.

Equity income/(loss) on investments
Equity income/(loss) on investments decreased by $0.1 million to a $0.1 million loss on investments in the three months ended March 31, 2019 and relates to the operating performance of Gemini Shipholdings Corporation, 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 March 31, 2019 and 2018.

Other income/(expenses), net
Other income/(expenses), net was nil in the three months ended March 31, 2019 compared to $9.4 million in expenses in the three months ended March 31, 2018 mainly due to $9.6 million of refinancing-related professional fees in the prior period.

Adjusted EBITDA
Adjusted EBITDA increased by 1.2%, or $0.9 million, to $77.5 million in the three months ended March 31, 2019 from $76.6 million in the three months ended March 31, 2018. As outlined above, the increase is mainly attributable to a $1.0 million increase in operating revenues and a $0.1 million decrease in operating performance on our equity investments. Adjusted EBITDA for the three months ended March 31, 2019 is adjusted for stock based compensation of $0.8 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Recent Developments
On April 12, 2019, we completed the refinancing of two of our 13,100 TEU vessels, the Hyundai Honour and Hyundai Respect through a sale and leaseback arrangement with a term of five years at the end of which we will reacquire the vessels. The net proceeds amounting to $144.8 million were applied pro rata to repay the existing credit facilities secured by mortgages on these vessels.

At our Special Meeting of Stockholders on March 5, 2019, our shareholders approved an amendment to our Restated Articles of Incorporation to effect a reverse stock split of the issued and outstanding shares of common stock with the exact ratio to be determined by the Board of Directors. On April 16, 2019, our Board of Directors determined to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of 1-for-14. The reverse stock split occurred, and our common stock began trading on a split adjusted basis as of the opening of trading on the NYSE on May 2, 2019 under the existing trading symbol “DAC”. The reverse stock split reduced the number of our outstanding shares of common stock from 213,324,455 to 15,237,456 and affected all issued and outstanding shares of common stock. No fractional shares were issued in connection to the reverse stock split. Stockholders who would otherwise hold a fractional share of our common stock received a cash payment in lieu of such fractional share. The par value and other terms of our common stock were not affected by the reverse stock split. All share and per share data in this Earnings Release give retroactive effect to this reverse stock split, for both periods presented.

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