Danaos second-quarter net income at $5.8 million

danaos

Danaos, one of the world’s largest independent owners of containerships, reported unaudited results for the period ended June 30, 2018.

Highlights for the Second Quarter and Half Year Ended June 30, 2018:

  • On August 10, 2018, we consummated the agreement reached with certain of our lenders on June 19, 2018 for the refinancing of approximately $2.2 billion of our debt maturing on December 31, 2018, reducing our debt by approximately $551 million, resetting financial and other covenants, modifying interest rates and amortization profiles and extending debt maturities by approximately five years to December 31, 2023. In connection with this refinancing, we issued approximately 99.3 million shares of common stock to certain of our lenders. See “Debt Refinancing”.
  • Adjusted net income[1] of $29.2 million, or $0.27 per share, for the three months ended June 30, 2018 compared to $29.0 million, or $0.26 per share, for the three months ended June 30, 2017, an increase of 0.7%. Adjusted net income1 of $57.1 million, or $0.52 per share, for the six months ended June 30, 2018 compared to $53.6 million, or $0.49 per share, for the six months ended June 30, 2017, an increase of 6.5%.
  • Operating revenues of $113.5 million for the three months ended June 30, 2018 compared to $113.9 million for the three months ended June 30, 2017, a decrease of 0.4%. Operating revenues of $225.3 million for the six months ended June 30, 2018 compared to $224.0 million for the six months ended June 30, 2017, an increase of 0.6%.
  • Adjusted EBITDA 1 of $78.3 million for the three months ended June 30, 2018 compared to $78.1 million for the three months ended June 30, 2017, an increase of 0.3%. Adjusted EBITDA1 of $154.9 million for the six months ended June 30, 2018 compared to $150.6 million for the six months ended June 30, 2017, an increase of 2.9%.
  • Total contracted operating revenues were $1.6 billion as of June 30, 2018, with charters extending through 2028 and remaining average contracted charter duration of 5.3 years, weighted by aggregate contracted charter hire.
  • Charter coverage of 87% for the next 12 months based on current operating revenues and 77% in terms of contracted operating days.

Three and Six Months Ended June 30, 2018

Financial Summary – Unaudited

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

Three months
ended

Three months
ended

Six months
ended

Six months
ended

June 30,

June 30,

June 30,

June 30,

2018

2017

2018

2017

Operating revenues

$113,466

$113,888

$225,320

$223,975

Net income

$5,838

$20,229

$20,830

$38,672

Adjusted net income1

$29,178

$29,037

$57,129

$53,559

Earnings per share

$0.05

$0.18

$0.19

$0.35

Adjusted earnings per share1

$0.27

$0.26

$0.52

$0.49

Weighted average number of shares (in
thousands)

109,799

109,825

109,799

109,825

Adjusted EBITDA1

$78,294

$78,063

$154,932

$150,609

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.

Danaos’ CEO Dr. John Coustas commented:

“Following the successful completion of our debt re-financing, the Company’s capital structure has been strengthened by a significant debt reduction of approximately $551 million, while financial covenants have been amended and the maturities have been extended by more than 5 years until the end of 2023. We are currently fully compliant with all terms of our debt agreements and the Company is now free to resume its pursuit of growth opportunities with the goal of creating value for its shareholders.

The Company continued to achieve strong financial results in the second quarter of 2018. Adjusted net income of $29.2 million for the quarter was slightly higher when compared to $29 million for the second quarter of 2017.

The charter market, showed signs of improvement in the second quarter, but has softened by about 10 – 15% on average across all segments since June.  Larger vessels have recorded slightly higher percentage reductions as they had outpaced the market average. The market is very skeptical of trade developments and the recently announced new tariffs on Chinese imports. At the same time uncertainty discourages new ordering, which is positive for the medium to long-term health of the charter market as liner companies are refraining from making substantial commitments until the outlook becomes clearer. There is interest on the new regulations and the question of scrubbers and we expect this to play out over the next few months.

We are of course largely insulated from the softening charter market since we maintain high charter contract coverage of 87% for the next 12 months based on current operating revenues and 77% in terms of contracted operating days.

Danaos continues to be a leader in the container shipping industry as a result of our intense focus on continuously enhancing our operations and leveraging technical innovation to provide the highest quality service to our customers. Our industry has undergone significant changes during the past few years, and with the improved capital structure contemplated by our comprehensive re-financing agreement, we are well positioned to take advantage of the growth opportunities in the container sector and create value for our shareholders.”

Three months ended June 30, 2018 compared to the three months ended June 30, 2017

During the three months ended June 30, 2018 and June 30, 2017, Danaos had an average of 55 containerships. Our fleet utilization for the three months ended June 30, 2018 was 96.1% compared to 97.9% for the three months ended June 30, 2017. The fleet utilization excluding the off charter days of the vessels that were previously chartered to Hanjin Shipping (“Hanjin”) was 98.8% in the three months ended June 30, 2017.

Our adjusted net income amounted to $29.2 million, or $0.27 per share, for the three months ended June 30, 2018 compared to $29.0 million, or $0.26 per share, for the three months ended June 30, 2017. We have adjusted our net income in the three months ended June 30, 2018 for refinancing related professional fees of $20.1 million and a non-cash amortization charge of $3.2 million for fees related to our 2011 comprehensive financing plan (comprised of non-cash, amortizing and accrued finance fees). Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $0.2 million in adjusted net income for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 is attributable to a $1.8 million decrease in total operating expenses, a $0.5 million increase in other income and a $0.1 million operating performance improvement on equity investments, which were partially offset by a $0.4 million decrease in operating revenues and a $1.8 million increase in net finance expenses.

On a non-adjusted basis, our net income amounted to $5.8 million, or $0.05 per share, for the three months ended June 30, 2018 compared to net income of $20.2 million, or $0.18 per share, for the three months ended June 30, 2017.

Operating Revenues
Operating revenues decreased by 0.4%, or $0.4 million, to $113.5 million in the three months ended June 30, 2018 from $113.9 million in the three months ended June 30, 2017.

Operating revenues for the three months ended June 30, 2018 reflect:

  • $3.0 million increase in revenues in the three months ended June 30, 2018 compared to the three months ended June 30, 2017 due to the re-chartering of certain of our vessels at higher rates.
  • $3.4 million decrease in revenues due to lower fleet utilization of our vessels in the three months ended June 30, 2018 compared to the three months ended June 30, 2017 (other than three vessels previously chartered to Hanjin which were less utilized in the three months ended June 30, 2017).

Vessel Operating Expenses
Vessel operating expenses decreased by 1.8%, or $0.5 million, to $26.7 million in the three months ended June 30, 2018 from $27.2 million in the three months ended June 30, 2017. The average daily operating cost per vessel for vessels on time charter was $5,762 per day for the three months ended June 30, 2018 compared to $5,734 per day for the three months ended June 30, 2017. 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 8.6%, or $2.5 million, to $26.7 million in the three months ended June 30, 2018 from $29.2 million in the three months ended June 30, 2017.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $0.7 million, to $2.4 million in the three months ended June 30, 2018 from $1.7 million in the three months ended June 30, 2017. The increase was mainly due to the increased number of vessels dry-docked over the last six months.

General and Administrative Expenses
General and administrative expenses increased by $0.5 million to $5.8 million in the three months ended June 30, 2018, from $5.3 million in the three months ended June 30, 2017. The increase was mainly due to increased professional fees.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses remained stable, amounting to $3.2 million in the three months ended June 30, 2018 and in the three months ended June 30, 2017.

Interest Expense and Interest Income
Interest expense increased by 7.5%, or $1.6 million, to $23.0 million in the three months ended June 30, 2018 from $21.4 million in the three months ended June 30, 2017. The increase in interest expense was mainly due to the increase in average cost of debt due to the increase in US$ Libor between the two periods, which was partially offset by a decrease in our average debt by $152.5 million, to $2,275.1 million in the three months ended June 30, 2018, from $2,427.6 million in the three months ended June 30, 2017 and a $0.3 million decrease in the amortization of deferred finance costs.

As of June 30, 2018, the debt outstanding gross of deferred finance costs was $2,293.9 million compared to $2,425.3 million as of June 30, 2017.

Interest income increased by $0.1 million to $1.4 million in the three months ended June 30, 2018 compared to $1.3 million in the three months ended June 30, 2017.

Other finance costs, net
Other finance costs, net remained stable, amounting to $1.0 million in the three months ended June 30, 2018 and 2017.

Equity income on investments
Equity income on investments amounted to $0.2 million in the three months ended June 30, 2018 compared to $0.1 million in the three months ended June 30, 2017 and relates to the improved operating performance of Gemini Shipholdings Corporation (“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 the three months ended June 30, 2018 and 2017.

Other income/(expenses), net
Other income/(expenses), net was $19.5 million in expenses in the three months ended June 30, 2018 compared to $5.1 million in expenses in the three months ended June 30, 2017 mainly due to a $14.9 million  increase in refinancing-related professional fees, which were partially offset by a $0.5 million increase in other income.

Adjusted EBITDA
Adjusted EBITDA increased by 0.3%, or $0.2 million, to $78.3 million in the three months ended June 30, 2018 from $78.1 million in the three months ended June 30, 2017. As outlined above, this increase is attributable to a $0.5 million increase in other income and a $0.1 million operating performance improvement on equity investments, which were partially offset by a $0.4 million decrease in operating revenues. Adjusted EBITDA for the three months ended June 30, 2018 is adjusted for refinancing-related professional fees of $20.1 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Six months ended June 30, 2018 compared to the six months ended June 30, 2017

During the six months ended June 30, 2018 and June 30, 2017, Danaos had an average of 55 containerships. Our fleet utilization for the six months ended June 30, 2018 was 95.9% compared to 95.3% for the six months ended June 30, 2017. The fleet utilization excluding the off charter days of the vessels that were previously chartered to Hanjin was 98.5% in the six months ended June 30, 2017.

Our adjusted net income amounted to $57.1 million, or $0.52 per share, for the six months ended June 30, 2018 compared to $53.6 million, or $0.49 per share, for the six months ended June 30, 2017. We have adjusted our net income in the six months ended June 30, 2018 for refinancing related professional fees of $29.7 million and a non-cash amortization charge of $6.6 million for fees related to our 2011 comprehensive financing plan (comprised of non-cash, amortizing and accrued finance fees). Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $3.5 million in adjusted net income for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 is attributable to a $5.7 million decrease in total operating expenses, a $1.3 million increase in operating revenues and a $0.8 million increase in other income, which were partially offset by a $4.1 million increase in net finance expenses and a $0.2 million decrease in the operating performance of our equity investment in Gemini.

On a non-adjusted basis, our net income amounted to $20.8 million, or $0.19 per share, for the six months ended June 30, 2018 compared to net income of $38.7 million, or $0.35 per share, for the six months ended June 30, 2017.

Operating Revenues
Operating revenues increased by 0.6%, or $1.3 million, to $225.3 million in the six months ended June 30, 2018 from $224.0 million in the six months ended June 30, 2017.

Operating revenues for the six months ended June 30, 2018 reflect:

  • $6.2 million increase in revenues in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 due to the re-chartering of certain of our vessels at higher rates.
  • $4.9 million decrease in revenues due to lower fleet utilization of our vessels in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 (other than three vessels previously chartered to Hanjin which were less utilized in the six months ended June 30, 2017).

Vessel Operating Expenses
Vessel operating expenses decreased by 2.0%, or $1.1 million, to $53.6 million in the six months ended June 30, 2018 from $54.7 million in the six months ended June 30, 2017. The average daily operating cost per vessel for vessels on time charter was $5,806 per day for the six months ended June 30, 2018 compared to $5,745 per day for the six months ended June 30, 2017. 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 7.2%, or $4.2 million, to $53.8 million in the six months ended June 30, 2018 from $58.0 million in the six months ended June 30, 2017.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $0.9 million, to $4.3 million in the six months ended June 30, 2018 from $3.4 million in the six months ended June 30, 2017. The increase was mainly due to the increased number of vessels dry-docked over the last six months.

General and Administrative Expenses
General and administrative expenses decreased by $0.5 million, to $11.0 million in the six months ended June 30, 2018, from $11.5 million in the six months ended June 30, 2017.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses decreased by $0.8 million, to $6.3 million in the six months ended June 30, 2018 from $7.1 million in the six months ended June 30, 2017.

Interest Expense and Interest Income
Interest expense increased by 8.5%, or $3.6 million, to $45.9 million in the six months ended June 30, 2018 from $42.3 million in the six months ended June 30, 2017. The increase in interest expense was mainly due to the increase in average cost of debt due to the increase in US$ Libor between the two periods, which was partially offset by a decrease in our average debt by $167.5 million, to $2,288.2 million in the six months ended June 30, 2018, from $2,455.6 million in the six months ended June 30, 2017 and a $0.6 million decrease in the amortization of deferred finance costs.

As of June 30, 2018, the debt outstanding gross of deferred finance costs was $2,293.9 million compared to $2,425.3 million as of June 30, 2017.

Interest income remained stable, amounting to $2.8 million in the six months ended June 30, 2018 and 2017.

Other finance costs, net
Other finance costs, net decreased by $0.2 million, to $1.9 million in the six months ended June 30, 2018 from $2.1 million in the six months ended June 30, 2017.

Equity income on investments
Equity income on investments amounted to $0.2 million in the six months ended June 30, 2018 compared to $0.4 million in the six months ended June 30, 2017 and relates to the 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 the six months ended June 30, 2018 and 2017.

Other income/(expenses), net
Other income/(expenses), net was $28.9 million in expenses in the six months ended June 30, 2018 compared to $7.6 million in expenses in the six months ended June 30, 2017 mainly due to a $24.5 million increase in refinancing-related professional fees, which were partially offset by a $0.8 million increase in other income and a $2.4 million realized loss on sale of HMM securities in the six months ended June 30, 2017 that did not recur in the 2018 period.

Adjusted EBITDA
Adjusted EBITDA increased by 2.9%, or $4.3 million, to $154.9 million in the six months ended June 30, 2018 from $150.6 million in the six months ended June 30, 2017. As outlined above, this increase is mainly attributable to a $2.3 million decrease in operating expenses, a $1.3 million increase in operating revenues and a $0.8 million increase in other income, which were partially offset by a $0.2 million decrease in operating performance on our equity investments. Adjusted EBITDA for the six months ended June 30, 2018 is adjusted for refinancing-related professional fees of $29.7 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Debt Refinancing
On August 10, 2018, we consummated the agreement reached with certain of our lenders on June 19, 2018 for the refinancing of approximately $2.2 billion of our debt maturing on December 31, 2018, reducing our debt by approximately $551 million. This agreement significantly strengthened our capital structure and financial position through this significant debt reduction, resetting financial and certain other covenants in our credit facilities, modifying interest rates and amortization profiles and extending debt maturities by approximately five years to December 31, 2023. In connection with this debt refinancing, we issued 99,342,271 new shares of Danaos common stock to certain of our lenders, which represent 47.5% of our outstanding common stock after giving effect to this issuance and diluting existing shareholders ratably. For additional information regarding the debt refinancing, see the Company’s Reports on Form 6-K filed with the SEC on June 25, 2018 and August 14, 2018.

 

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