Danaos Corporation Reports Results for the Fourth Quarter and Year Ended December 31, 2018

ATHENS, Greece, Feb. 19, 2019 /PRNewswire/ -- Danaos Corporation ("Danaos") (NYSE: DAC), one of the world's largest independent owners of containerships, today reported unaudited results for the fourth quarter and the year ended December 31, 2018.

Highlights for the Fourth Quarter and Year Ended December 31, 2018:

• On August 10, 2018, we consummated the agreement with certain of our lenders to refinance 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 income¹ of $36.6 million, or $0.18 per share, for the three months ended December 31, 2018 compared to $31.2 million, or $0.28 per share, for the three months ended December 31, 2017, an increase of 17.3%. Adjusted net income¹ of $131.2 million, or $0.88 per share, for the year ended December 31, 2018 compared to $114.9 million, or $1.05 per share, for the year ended December 31, 2017, an increase of 14.2%.

• Operating revenues of $115.6 million for the three months ended December 31, 2018 compared to $114.2 million for the three months ended December 31, 2017, an increase of 1.2%. Operating revenues of $458.7 million for the year ended December 31, 2018 compared to $451.7 million for the year ended December 31, 2017, an increase of 1.5%.

• Adjusted EBITDA¹ of $80.2 million for the three months ended December 31, 2018 compared to $80.0 million for the three months ended December 31, 2017, an increase of 0.3%. Adjusted EBITDA¹ of $317.8 million for the year ended December 31, 2018 compared to $310.4 million for the year ended December 31, 2017, an increase of 2.4%.

• Total contracted operating revenues were $1.6 billion as of December 31, 2018, with charters extending through 2028 and remaining average contracted charter duration of 4.9 years, weighted by aggregate contracted charter hire.

• Charter coverage of 88% for the next 12 months based on current operating revenues and 74% in terms of contracted operating days.

Danaos' CEO Dr. John Coustas commented:

"The 4th quarter of 2018 was the first full quarter following the completion of our recent debt refinancing which reduced indebtedness by $551 million, reset financial covenants and extended maturities through the end of 2023. As mentioned before, the refinancing has strengthened the Company's balance sheet and growth prospects by removing all balloon payments and maturities of existing debt over the next five years.

Adjusted net income for the 4th quarter of 2018 was $36.6 million, or 18 cents per share, $5.4 million or 17.3% higher when compared to the 4th quarter of 2017. This improvement was primarily the result of a $5.8 million decrease in net finance expenses, combined with a $1.4 million increase in operating revenues due to improved re-chartering rates, and partially offset by a $1.9 million increase in total operating costs. Adjusted EBITDA for the 4th quarter of 2018 was $80.2 million, $0.2 million higher than the 4th quarter of 2017.

Additionally, in the context of prudently evaluating the assets on our balance sheet, we recorded an impairment loss of $210.7 million in relation to the market value of certain of our Panamax vessels.

The charter market for vessels larger than 5,000 TEU has recently shown encouraging signs of recovery, and the market for smaller vessels remains stable albeit at relatively low levels. Anticipated slow steaming and re-designing of liner networks ahead of the implementation of new restrictions on sulphur emissions in 2020 together with vessels exiting service to be fitted with scrubbers are all positive supply side developments that may lead to improved charter rates. There has also been a continued abstention of new ordering as the market is still waiting on the outcome of trade talks to determine the demand side effects. Overall, we believe that the combined effect of these factors will be positive for the market outlook in the medium term from the 2nd half of the year onwards.

Our total contracted revenues as of December 31, 2018 were $1.6 billion, and we maintain our high charter contract coverage of 88% in terms of operating revenues and 74% in terms of operating days over the next 12 months. This insulates us from the near-term soft charter market.

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 deliver value to our shareholders."

Three months ended December 31, 2018 compared to the three months ended December 31, 2017

During the three months ended December 31, 2018 and December 31, 2017, Danaos had an average of 55 containerships. Our fleet utilization for the three months ended December 31, 2018 was 97.9% compared to 97.8% for the three months ended December 31, 2017.

Our adjusted net income amounted to $36.6 million, or $0.18 per share, for the three months ended December 31, 2018 compared to $31.2 million, or $0.28 per share, for the three months ended December 31, 2017. We have adjusted our net income in the three months ended December 31, 2018 mainly for an impairment loss in relation to 10 of our vessels of $210.7 million, accelerated amortization of accumulated other comprehensive loss of $1.4 million and a non-cash fees amortization and accrued finance fees charge of $5.6 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $5.4 million in adjusted net income for the three months ended December 31, 2018 compared to the three months ended December 31, 2017 is attributable mainly to a $5.8 million decrease in net finance expenses, a $1.4 million increase in operating revenues and a $0.1 million operating performance improvement on equity investments, which were partially offset by a $1.9 million increase in total operating expenses.

On a non-adjusted basis, our net loss amounted to $181.0 million, or $0.87 diluted loss per share, for the three months ended December 31, 2018 compared to net income of $22.8 million, or $0.21 per share, for the three months ended December 31, 2017.

Operating Revenues
Operating revenues increased by 1.2%, or $1.4 million, to $115.6 million in the three months ended December 31, 2018 from $114.2 million in the three months ended December 31, 2017.

Operating revenues for the three months ended December 31, 2018 reflect:

• $1.2 million increase in revenues in the three months ended December 31, 2018 compared to the three months ended December 31, 2017 due to the re-chartering of certain of our vessels at higher rates.

• $0.2 million increase in revenues due to higher fleet utilization of our vessels in the three months ended December 31, 2018 compared to the three months ended December 31, 2017.

Vessel Operating Expenses
Vessel operating expenses decreased by 2.3%, or $0.6 million, to $25.6 million in the three months ended December 31, 2018 from $26.2 million in the three months ended December 31, 2017. The average daily operating cost per vessel for vessels on time charter was $5,446 per day for the three months ended December 31, 2018 compared to $5,583 per day for the three months ended December 31, 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 3.6%, or $1.0 million, to $27.0 million in the three months ended December 31, 2018 from $28.0 million in the three months ended December 31, 2017.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $0.6 million, to $2.3 million in the three months ended December 31, 2018 from $1.7 million in the three months ended December 31, 2017. The increase was mainly due to the increased number of vessels dry-docked over the last year.

General and Administrative Expenses
General and administrative expenses increased by $2.1 million to $7.9 million in the three months ended December 31, 2018, from $5.8 million in the three months ended December 31, 2017. The increase was mainly due to increased remuneration costs and professional fees.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses remained stable at $3.0 million in the three months ended December 31, 2018 and 2017.

Impairment Loss
We have recognized an impairment loss of $210.7 million in relation to 10 of our vessels as of December 31, 2018 compared to nil in the comparable period.

Interest Expense and Interest Income
Interest expense decreased by 13.1%, or $2.9 million, to $19.3 million in the three months ended December 31, 2018 from $22.2 million in the three months ended December 31, 2017. The decrease in interest expense is attributable to a:

(i) $10.4 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 debt refinancing.

(ii) $4.8 million increase in interest expense due to an increase in debt service cost of approximately 2.4%, partially offset by a $656.1 million decrease in our average debt, to $1,684.7 million in the three months ended December 31, 2018, compared to $2,340.8 million in the three months ended December 31, 2017.

(iii) $2.7 million increase in the amortization of deferred finance costs and debt discount related to our debt refinancing.

As of December 31, 2018, the debt outstanding, gross of deferred finance costs, was $1,666.2 million compared to $2,340.8 million as of December 31, 2017.

Interest income increased by $0.1 million to $1.5 million in the three months ended December 31, 2018 compared to $1.4 million in the three months ended December 31, 2017.

Other finance costs, net
Other finance costs, net decreased by $0.6 million to $0.4 million in the three months ended December 31, 2018 compared to $1.0 million in the three months ended December 31, 2017 mainly due to decreased exit fees expenses.

Equity income on investments
Equity income on investments amounted to $0.4 million in the three months ended December 31, 2018 compared to $0.3 million in the three months ended December 31, 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 increased by $1.4 million to $2.3 million in the three months ended December 31, 2018 compared to $0.9 million in the three months ended December 31, 2017 due to the accelerated amortization of accumulated other comprehensive loss.

Other income/(expenses), net
Other income/(expenses), net was $0.1 million in income in the three months ended December 31, 2018 compared to $4.3 million in expenses in the three months ended December 31, 2017 mainly due to the decrease in refinancing-related professional fees.

Adjusted EBITDA
Adjusted EBITDA increased by 0.3%, or $0.2 million to $80.2 million in the three months ended December 31, 2018 from $80.0 million in the three months ended December 31, 2017. As outlined above, the increase of $1.4 million in operating revenues and a $0.1 million operating performance improvement on our equity investments, were partially offset by a $1.3 million increase in total operating expenses. Adjusted EBITDA for the three months ended December 31, 2018 is adjusted mainly for impairment loss of $210.7 million, accelerated amortization of accumulated other comprehensive loss of $1.4 million and stock based compensation of $0.8 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Year ended December 31, 2018 compared to the year ended December 31, 2017

During the year ended December 31, 2018 and December 31, 2017, Danaos had an average of 55 containerships. Our fleet utilization for the year ended December 31, 2018 was 96.8% compared to 96.4% for the year ended December 31, 2017. The fleet utilization excluding the off charter days of the vessels that were previously chartered to Hanjin was 97.9% in the year ended December 31, 2017.

Our adjusted net income amounted to $131.2 million, or $0.88 per share, for the year ended December 31, 2018 compared to $114.9 million, or $1.05 per share, for the year ended December 31, 2017. We have adjusted our net income in the year ended December 31, 2018 for the impairment loss of $210.7 million, the gain on debt extinguishment of $116.4 million, refinancing related professional fees of $51.3 million, a non-cash fees amortization and accrued finance fees charge of $17.0 million and an accelerated amortization of accumulated other comprehensive loss of $1.4 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $16.3 million in adjusted net income for the year ended December 31, 2018 compared to the year ended December 31, 2017 is attributable to a $7.0 million increase in operating revenues, a $4.8 million decrease in net finance expenses, a $4.1 million decrease in total operating expenses and a $0.4 million increase in the operating performance of our equity investment in Gemini.

On a non-adjusted basis, our net loss amounted to $32.9 million, or $0.22 loss per share, for the year ended December 31, 2018 compared to net income of $83.9 million, or $0.76 per share, for the year ended December 31, 2017.

Operating Revenues
Operating revenues increased by 1.5%, or $7.0 million, to $458.7 million in the year ended December 31, 2018 from $451.7 million in the year ended December 31, 2017.

Operating revenues for the year ended December 31, 2018 reflect:

• $13.8 million increase in revenues in the year ended December 31, 2018 compared to the year ended December 31, 2017 due to the re-chartering of certain of our vessels at higher rates.

• $6.8 million decrease in revenues due to lower fleet utilization of our vessels in the year ended December 31, 2018 compared to the year ended December 31, 2017 (other than three vessels previously chartered to Hanjin which were less utilized in the year ended December 31, 2017).

Vessel Operating Expenses
Vessel operating expenses decreased by 2.2%, or $2.4 million, to $104.6 million in the year ended December 31, 2018 from $107.0 million in the year ended December 31, 2017. The average daily operating cost per vessel for vessels on time charter was $5,619 per day for the year ended December 31, 2018 compared to $5,661 per day for the year ended December 31, 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 6.4%, or $7.4 million, to $107.8 million in the year ended December 31, 2018 from $115.2 million in the year ended December 31, 2017.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $2.5 million, to $9.2 million in the year ended December 31, 2018 from $6.7 million in the year ended December 31, 2017. The increase was mainly due to the increased number of vessels dry-docked over the last year.

General and Administrative Expenses
General and administrative expenses increased by $3.6 million, to $26.3 million in the year ended December 31, 2018, from $22.7 million in the year ended December 31, 2017. The increase was mainly due to increased remuneration costs and professional fees.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses decreased by $0.4 million, to $12.2 million in the year ended December 31, 2018 from $12.6 million in the year ended December 31, 2017.

Impairment Loss
We have recognized an impairment loss of $210.7 million in relation to 10 of our vessels as of December 31, 2018 compared to nil in the year ended December 31, 2017.

Interest Expense and Interest Income
Interest expense decreased by 1.0%, or $0.9 million, to $85.7 million in the year ended December 31, 2018 from $86.6 million in the year ended December 31, 2017. The decrease in interest expense is attributable to a:

(i) $16.9 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 TDR accounting in connection with our debt refinancing.

(ii) $12.2 million increase in interest expense due to an increase in debt service cost of approximately 1.1%, partially offset by a $358.1 million decrease in our average debt, to $2,051.0 million in the year ended December 31, 2018, compared to $2,409.1 million in the year ended December 31, 2017.

(iii) $3.8 million increase in the amortization of deferred finance costs and debt discount related to our debt refinancing.

As of December 31, 2018, the debt outstanding, gross of deferred finance costs, was $1,666.2 million compared to $2,340.8 million as of December 31, 2017.

Interest income increased by $0.2 million to $5.8 million in the year ended December 31, 2018 compared to $5.6 million in the year ended December 31, 2017.

Other finance costs, net
Other finance costs, net decreased by $1.1 million, to $3.0 million in the year ended December 31, 2018 from $4.1 million in the year ended December 31, 2017 mainly due to decreased exit fees expenses.

Equity income on investments
Equity income on investments amounted to $1.4 million in the year ended December 31, 2018 compared to $1.0 million in the year ended December 31, 2017 and relates to the improved operating performance of Gemini, in which the Company has a 49% shareholding interest.

Gain on debt extinguishment
The gain on debt extinguishment of $116.4 million in the year ended December 31, 2018 relates to our debt refinancing described below and consists of debt principal reduction net of refinancing related fees.

Loss on derivatives
Amortization of deferred realized losses on interest rate swaps increased by $1.4 million to $5.1 million in the year ended December 31, 2018 compared to $3.7 million in the year ended December 31, 2017 due to the accelerated amortization of accumulated other comprehensive loss.

Other income/(expenses), net
Other income/(expenses), net was $50.5 million in expenses in the year ended December 31, 2018 compared to $15.8 million in expenses in the year ended December 31, 2017 mainly due to a $37.0 million increase in refinancing-related professional fees, which were partially offset by a $2.4 million realized loss on sale of HMM securities in the year ended December 31, 2017 that did not recur in the 2018 period. 

Adjusted EBITDA
Adjusted EBITDA increased by 2.4%, or $7.4 million, to $317.8 million in the year ended December 31, 2018 from $310.4 million in the year ended December 31, 2017. As outlined above, this increase is mainly attributable to a $7.0 million increase in operating revenues and a $0.4 million increase in operating performance on our equity investments in the year ended December 31, 2018 compared to the year ended December 31, 2017. Adjusted EBITDA for the year ended December 31, 2018 is adjusted for impairment loss of $210.7 million, a gain on debt extinguishment of $116.4 million, accelerated amortization of accumulated other comprehensive loss of $1.4 million, refinancing-related professional fees of $51.3 million and stock based compensation of $1.0 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 represented 47.5% of our outstanding common stock immediately after this issuance and diluted 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.

Conference Call and Webcast
On Wednesday, February 20, 2019 at 9:00 A.M. ET, the Company's management will host a conference call to discuss the results.

Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1 844 802 2437 (US Toll Free Dial In), 0800 279 9489 (UK Toll Free Dial In) or +44 (0) 2075 441 375 (Standard International Dial In). Please indicate to the operator that you wish to join the Danaos Corporation earnings call.

A telephonic replay of the conference call will be available until February 27, 2019 by dialing 1 877 344 7529 (US Toll Free Dial In) or +44 (0) 2036 088 021 (Standard International Dial In) and using 10126336# as the access code.

Audio Webcast
There will also be a live and then archived webcast of the conference call, including a slide presentation providing additional company information, through the Danaos website (www.danaos.com). Participants of the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

About Danaos Corporation
Danaos Corporation is one of the largest independent owners of modern, large-size containerships. Our current fleet of 59 containerships aggregating 351,614 TEUs, including four vessels owned by Gemini Shipholdings Corporation, a joint venture, ranks Danaos among the largest containership charter owners in the world based on total TEU capacity. Our fleet is chartered to many of the world's largest liner companies on fixed-rate charters. Our long track record of success is predicated on our efficient and rigorous operational standards and environmental controls. Danaos Corporation's shares trade on the New York Stock Exchange under the symbol "DAC".

Forward-Looking Statements
Matters discussed in this release may constitute forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements about the expected benefits of the refinancing and other statements that are forward looking. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The forward-looking statements in this release are based upon various assumptions. Although Danaos Corporation believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, Danaos Corporation cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the effects of the refinancing transactions; Danaos' ability to achieve the expected benefits of the refinancing and comply with the terms of its new credit facilities and other agreements entered into in connection with the refinancing; the strength of world economies and currencies, general market conditions, including changes in charter hire rates and vessel values, charter counterparty performance, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled dry-docking, changes in Danaos Corporation's operating expenses, including bunker prices, dry-docking and insurance costs, ability to obtain financing and comply with covenants in our financing arrangements, actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists.

Risks and uncertainties are further described in reports filed by Danaos Corporation with the U.S. Securities and Exchange Commission.

Visit our website at www.danaos.com

Appendix

Fleet Utilization

Danaos had 74 unscheduled off-hire days in the three months ended December 31, 2018. The following table summarizes vessel utilization and the impact of the off-hire days on the Company's revenue.

Fleet List
The following table describes in detail our fleet deployment profile as of February 19, 2019:

SOURCE Danaos Corporation