Danaos Corporation Reports Second Quarter and Half Year Results for the Period Ended June 30, 2019

ATHENS, Greece, Aug. 5, 2019 /PRNewswire/ -- Danaos Corporation ("Danaos") (NYSE: DAC), one of the world's largest independent owners of containerships, today reported unaudited results for the period ended June 30, 2019.

Highlights for the Second Quarter and Half Year Ended June 30, 2019:

• Adjusted net income¹ of $34.3 million, or $2.24 per share², for the three months ended June 30, 2019 compared to $29.2 million, or $3.72 per share², for the three months ended June 30, 2018, an increase of 17.5%. Adjusted net income¹ of $72.8 million, or $4.77 per share², for the six months ended June 30, 2019 compared to $57.1 million, or $7.28 per share², for the six months ended June 30, 2018, an increase of 27.5%.
• Operating revenues of $112.3 million for the three months ended June 30, 2019 compared to $113.4 million for the three months ended June 30, 2018, a decrease of 1.0%. Operating revenues of $225.2 million for the six months ended June 30, 2019 compared to $225.3 million for the six months ended June 30, 2018.
• Adjusted EBITDA¹ of $75.6 million for the three months ended June 30, 2019 compared to $78.3 million for the three months ended June 30, 2018, a decrease of 3.4%. Adjusted EBITDA¹ of $153.1 million for the six months ended June 30, 2019 compared to $154.9 million for the six months ended June 30, 2018, a decrease of 1.2%.
• Total contracted operating revenues were $1.5 billion as of June 30, 2019, with charters extending through 2028 and remaining average contracted charter duration of 4.5 years, weighted by aggregate contracted charter hire.
• Charter coverage of 87% 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 cured 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.

Danaos' CEO Dr. John Coustas commented:

"The Company's adjusted net income of $34.3 million, or $2.24 per share, for the second quarter of 2019 increased by $5.1 million, or 17.5%, when compared to the second quarter of 2018. This improvement was primarily the result of a $4.4 million decrease in net finance expenses and a $2 million decrease in total operating costs, partially offset by a $1.1 million decrease in operating revenues mainly due to the re-chartering of certain of our vessels that concluded long-term charters over the last 12 months and were re-deployed at lower rates during the quarter. Adjusted EBITDA for the second quarter of 2019 was $75.6 million, $2.7 million lower than the second quarter of 2018.

The charter market for 5,500+ vessels TEU remained strong over the last three months, and the market for Panamax vessels is improving due to the lack of availability of larger vessels. Rates on smaller vessels remain stable albeit at relatively low levels. We anticipate that the implementation of IMO 2020 sulphur emissions regulations will result in a healthy charter market for the larger vessels through 2020 due to downtime related to scrubber retrofits and reduced sailing speeds that a high fuel price environment are expected to bring about. Escalations in trade tensions between the U.S. and China persist, and uncertainty on the outcome and the impact on trade flows has discouraged market participants from placing newbuilding orders. Collectively, these factors are expected to result in positive vessel supply side effects, which should support the strengthening of the charter market going forward.

Our total contracted revenues as of June 30, 2019 were $1.5 billion, and we maintain our high charter contract coverage of 87% 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 June 30, 2019 compared to the three months ended June 30, 2018

During the three months ended June 30, 2019 and June 30, 2018, Danaos had an average of 55 containerships. Our fleet utilization for the three months ended June 30, 2019 was 99.4% compared to 96.1% for the three months ended June 30, 2018.

Our adjusted net income amounted to $34.3 million, or $2.24 per share, for the three months ended June 30, 2019 compared to $29.2 million, or $3.72 per share, for the three months ended June 30, 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 June 30, 2019 for non-cash fees amortization and accrued financing fees of $4.1 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $5.1 million in adjusted net income for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 is attributable mainly to a $4.4 million decrease in net finance expenses and a $2.0 million decrease in total operating expenses, which were partially offset by a $1.1 million decrease in operating revenues 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 $30.1 million, or $1.97 earnings per diluted share, for the three months ended June 30, 2019 compared to net income of $5.8 million, or $0.74 earnings per diluted share, for the three months ended June 30, 2018 (after giving retroactive effect to the reverse stock split of 1-for-14).

Operating Revenues 
Operating revenues decreased by 1.0%, or $1.1 million, to $112.3 million in the three months ended June 30, 2019 from $113.4 million in the three months ended June 30, 2018.

Operating revenues for the three months ended June 30, 2019 reflect:

• a $4.1 million decrease in revenues in the three months ended June 30, 2019 compared to the three months ended June 30, 2018, mainly due to the re-chartering of certain of our vessels that concluded long-term charters over the last twelve months and were re-deployed at lower spot rates in the three months ended June 30, 2019; and
• a $3.0 million increase in revenues due to higher fleet utilization of our vessels in the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Vessel Operating Expenses 
Vessel operating expenses increased by 2.2%, or $0.6 million, to $27.3 million in the three months ended June 30, 2019 from $26.7 million in the three months ended June 30, 2018. The average daily operating cost per vessel for vessels on time charter was $5,884 per day for the three months ended June 30, 2019 compared to $5,762 per day for the three months ended June 30, 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 10.1%, or $2.7 million, to $24.0 million in the three months ended June 30, 2019 from $26.7 million in the three months ended June 30, 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 decreased by $0.3 million, to $2.1 million in the three months ended June 30, 2019 from $2.4 million in the three months ended June 30, 2018. The decrease was mainly due to a decreased number of vessels dry-docked.

General and Administrative Expenses 
General and administrative expenses increased by $0.7 million, to $6.5 million in the three months ended June 30, 2019, from $5.8 million in the three months ended June 30, 2018. The increase was mainly due to increased share based compensation.

Other Operating Expenses 
Other Operating Expenses include Voyage Expenses.

Voyage Expenses 
Voyage expenses decreased by $0.5 million, to $2.7 million in the three months ended June 30, 2019 from $3.2 million in the three months ended June 30, 2018.

Interest Expense and Interest Income 
Interest expense decreased by 18.3%, or $4.2 million, to $18.8 million in the three months ended June 30, 2019 from $23.0 million in the three months ended June 30, 2018. The decrease in interest expense is attributable to:

(i) a $11.5 million decrease in interest expense on two of our credit facilities for which we recognized an interest expense accrual in Q3 2018, 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 $5.8 million increase in interest expense due to an increase in debt service cost by approximately 2.8%, partially offset by a $644.4 million decrease in our average debt (including leaseback obligations), to $1,630.7 million in the three months ended June 30, 2019, compared to $2,275.1 million in the three months ended June 30, 2018; and

(iii) a $1.5 million increase in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

As of June 30, 2019, our bank debt outstanding, gross of deferred finance costs, was $1,470.6 million and leaseback obligation was $144.4 million compared to bank debt of $2,293.9 million outstanding as of June 30, 2018.

Interest income increased by $0.2 million to $1.6 million in the three months ended June 30, 2019 compared to $1.4 million in the three months ended June 30, 2018.

Other finance costs, net 
Other finance costs, net increased by $0.8 million to $1.8 million in the three months ended June 30, 2019 compared to $1.0 million in the three months ended June 30, 2018 mainly due to increased finance costs, which were partially offset by decreased exit fees expenses.

Equity income/(loss) on investments 
Equity income/(loss) on investments decreased by $0.2 million to nil in the three months ended June 30, 2019 compared to equity income on investments amounting to $0.2 million in the three months ended June 30, 2018 and relates to the 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 each of the three month periods ended June 30, 2019 and 2018.

Other income/(expenses), net 
Other income/(expenses), net was $0.4 million in income in the three months ended June 30, 2019 compared to $19.5 million in expenses in the three months ended June 30, 2018 mainly due to $20.1 million of refinancing-related professional fees in the prior period.

Adjusted EBITDA 
Adjusted EBITDA decreased by 3.4%, or $2.7 million, to $75.6 million in the three months ended June 30, 2019 from $78.3 million in the three months ended June 30, 2018. As described above, the decrease is mainly attributable to a $1.4 million increase in net finance expenses, a $1.1 million decrease in operating revenues and a $0.2 million decrease in operating performance on our equity investments. Adjusted EBITDA for the three months ended June 30, 2019 is adjusted for stock based compensation of $1.0 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Six months ended June 30, 2019 compared to the six months ended June 30, 2018

During the six months ended June 30, 2019 and June 30, 2018, Danaos had an average of 55 containerships. Our fleet utilization for the six months ended June 30, 2019 was 98.8% compared to 95.9% for the six months ended June 30, 2018.

Our adjusted net income amounted to $72.8 million, or $4.77 per share, for the six months ended June 30, 2019 compared to $57.1 million, or $7.28 per share, for the six months ended June 30, 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 six months ended June 30, 2019 for non-cash fees amortization and accrued financing fees of $9.2 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $15.7 million in adjusted net income for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 is attributable to a $12.0 million decrease in net finance expenses and a $4.0 million decrease in total operating expenses, which were partially offset by a $0.2 million decrease in the operating performance of our equity investment in Gemini and a $0.1 million decrease in the operating revenue.

On a non-adjusted basis, our net income amounted to $63.6 million, or $4.16 per diluted share, for the six months ended June 30, 2019 compared to net income of $20.8 million, or $2.66 per diluted share, for the six months ended June 30, 2018 (after giving retroactive effect to the reverse stock split of 1-for-14).

Operating Revenues 
Operating revenues decreased by $0.1 million, to $225.2 million in the six months ended June 30, 2019 from $225.3 million in the six months ended June 30, 2018.

Operating revenues for the six months ended June 30, 2019 reflect:

• a $4.0 million decrease in revenues in the six months ended June 30, 2019 compared to the six months ended June 30, 2018, mainly due to the re-chartering of certain of our vessels that concluded long-term charters over the last twelve months and were re-deployed at lower spot rates in the six months ended June 30, 2019; and
• a $3.9 million increase in revenues due to higher fleet utilization of our vessels in the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Vessel Operating Expenses 
Vessel operating expenses decreased by 0.7%, or $0.4 million, to $53.2 million in the six months ended June 30, 2019 from $53.6 million in the six months ended June 30, 2018. The average daily operating cost per vessel for vessels on time charter was $5,761 per day for the six months ended June 30, 2019 compared to $5,806 per day for the six months ended June 30, 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 11.1%, or $6.0 million, to $47.8 million in the six months ended June 30, 2019 from $53.8 million in the six months ended June 30, 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 remained stable at $4.3 million in each of the six month periods ended June 30, 2019 and 2018.

General and Administrative Expenses 
General and administrative expenses increased by $2.4 million, to $13.4 million in the six months ended June 30, 2019, from $11.0 million in the six months ended June 30, 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 decreased by $0.3 million, to $6.0 million in the six months ended June 30, 2019 from $6.3 million in the six months ended June 30, 2018.

Interest Expense and Interest Income 
Interest expense decreased by 20.0%, or $9.2 million, to $36.7 million in the six months ended June 30, 2019 from $45.9 million in the six months ended June 30, 2018. The decrease in interest expense is attributable to:

(i)  a $22.9 million decrease in interest expense on two of our credit facilities for which we recognized an interest expense accrual in Q3 2018, 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 2018 debt refinancing;

(ii)  a $9.8 million increase in interest expense due to an increase in debt service cost of approximately 2.6%, partially offset by a $644.8 million decrease in our average debt (including leaseback obligations), to $1,643.4 million in the six months ended June 30, 2019, compared to $2,288.2 million in the six months ended June 30, 2018; and

(iii) a $3.9 million increase in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

As of June 30, 2019, our bank debt outstanding, gross of deferred finance costs, was $1,470.6 million and leaseback obligation was $144.4 million compared to bank debt of $2,293.9 million outstanding as of June 30, 2018.

Interest income increased by $0.4 million to $3.2 million in the six months ended June 30, 2019 compared to $2.8 million in the six months ended June 30, 2018.

Other finance costs, net 
Other finance costs, net increased by $0.2 million, to $2.1 million in the six months ended June 30, 2019 from $1.9 million in the six months ended June 30, 2018.

Equity income/(loss) on investments 
Equity income/(loss) on investments decreased by $0.2 million to nil in the six months ended June 30, 2019 compared to $0.2 million income in the six months ended June 30, 2018 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 each of the six month periods ended June 30, 2019 and 2018.

Other income/(expenses), net 
Other income/(expenses), net was $0.4 million in income in the six months ended June 30, 2019 compared to $28.9 million in expenses in the six months ended June 30, 2018 mainly due to $29.7 million of refinancing-related professional fees in the prior period.

Adjusted EBITDA 
Adjusted EBITDA decreased by 1.2%, or $1.8 million, to $153.1 million in the six months ended June 30, 2019 from $154.9 million in the six months ended June 30, 2018. As described above, this decrease is mainly attributable to a $1.4 million increase in other finance costs, to a $0.2 million decrease in operating performance on our equity investments and a $0.1 million decrease in operating revenue. Adjusted EBITDA for the six months ended June 30, 2019 is adjusted for stock based compensation of $1.9 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Recent Developments 
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 all periods presented.

Conference Call and Webcast 
On Tuesday, August 6, 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 August 14, 2019 by dialing 1 877 344 7529 (US Toll Free Dial In) or +44 (0) 2036 088 021 (Standard International Dial In) and using 10134150# as the access code.

Audio Webcast 
There will also be a live and then archived webcast of the conference call on 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. 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 10 unscheduled off-hire days in the three months ended June 30, 2019. 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 August 5, 2019:

SOURCE Danaos Corporation