Danaos Corporation (“Danaos”) (NYSE: DAC), one of the world’s largest independent owners of containerships, reported unaudited results for the period ended June 30, 2023.
Highlights for the Second Quarter and Half Year Ended June 30, 2023:
Adjusted net income1 of $143.4 million, or $7.14 per share, for the three months ended June 30, 2023 compared to $157.1 million, or $7.59 per share, for the three months ended June 30, 2022, a decrease of $13.7 million or $0.45 per share. Adjusted net income for the three months ended June 30, 2022 had included a non-recurring $13.9 million dividend from ZIM that accounted for $0.67 per share.
Adjusted net income of $288.7 million, or $14.28 per share, for the six months ended June 30, 2023 compared to $392.4 million, or $18.95 per share, for the six months ended June 30, 2022, a decrease of $103.7 million or $4.67 per share. Adjusted net income for the six months ended June 30, 2022 had included a non-recurring $123.9 million dividend from ZIM that accounted for $5.98 per share.
Net income of $147.0 million, or $7.32 per share, for the three months ended June 30, 2023 compared to $8.2 million, or $0.40 per share, for the three months ended June 30, 2022, an increase of $138.8 million, or $6.92 per share. Net income of $293.2 million, or $14.51 per share, for the six months ended June 30, 2023 compared to $339.7 million, or $16.40 per share, for the six months ended June 30, 2022, a decrease of $46.5 million, or $1.89 per share.
Adjusted EBITDA1 of $177.3 million for the three months ended June 30, 2023 compared to $192.1 million for the three months ended June 30, 2022, a decrease of $14.8 million. Adjusted EBITDA for the three months ended June 30, 2022 had included a non-recurring $13.9 million dividend from ZIM.
Adjusted EBITDA of $356.3 million for the six months ended June 30, 2023 compared to $461.6 million for the six months ended June 30, 2022, a decrease of $105.3 million.
Adjusted EBITDA for the six months ended June 30, 2022 had included a non-recurring $123.9 million dividend from ZIM.
Cash and cash equivalents were $293.3 million as of June 30, 2023.
As of June 30, 2023, Net Debt2 was $131.0 million, and Net Debt / LTM Adjusted EBITDA was 0.18x, while 44 of our vessels are debt-free currently.
Total liquidity was $653.3 million as of June 30, 2023, including undrawn available commitments under our Revolving Credit Facility.
As of the date of this release, Danaos has repurchased a total of 1,080,547 shares of its common stock in the open market for $65.6 million, under its share repurchase program of up to $100 million announced in June 2022.
During the three months ended June 30, 2023 we acquired 1,552,865 shares of common stock of Eagle Bulk Shipping Inc. (“Eagle Bulk”) for a total of $68.2 million that currently represents a 16.7% shareholding stake. Eagle Bulk is listed on the New York Stock Exchange (Ticker: EGLE) and currently owns and operates a fleet of 52 Ultramax and Supramax bulk carriers that aggregate to approximately 3.2 million deadweight tons (“DWT”).
On June 20, 2023, we entered into contracts for the construction of two 8,258 TEU containerships. These containerships are expected to be delivered to us in 2026.
This brings the total tally of our newbuilding order-book to 10 vessels with an aggregate capacity of 74,914 TEU, with expected deliveries of seven vessels in 2024, one vessel in 2025 and two vessels in 2026. All our newbuildings are designed with the latest eco characteristics, will be methanol fuel ready, fitted with Alternative Maritime Power Units and will all be built in accordance with the latest requirements of the International Maritime Organization in relation to Tier III emission standards and Energy Efficiency Design Index (EEDI) Phase III.
In July 2023, we reached an in principle agreement to acquire 5 Capesize bulk carriers built in 2010 through 2012 that aggregate to 879,306 DWT for a total of $103 million. The agreement is subject to entry into definitive documentation. These vessels are expected to be delivered to us between September and October 2023.
During the last three months we added approximately $469 million to our contracted revenue backlog through the arrangement of new charters for 12 containerships in our fleet. The new fixtures notably include additional contracted revenues of $177 million for three 13,100 TEU vessels that were forward fixed on new 3-year charters and $227 million for five 8,530 TEU vessels that were extended forward for an additional 3.6 years.
As a result, total contracted cash operating revenues, on the basis of concluded charter contracts through the date of this release, had increased to $2.5 billion as of June 30, 2023. The remaining average contracted charter duration was 3.3 years, weighted by aggregate contracted charter hire.
Contracted operating days charter coverage for our containership fleet is currently 99.4% for 2023 and 86.1% for 2024.
Danaos has declared a dividend of $0.75 per share of common stock for the second quarter of 2023, which is payable on September 1, 2023, to stockholders of record as of August 23, 2023.
Danaos’ CEO Dr. John Coustas commented:
“The world economies stagnated in the second quarter of 2023, resulting in a gradual easing of the container market. Danaos active strategy in the current market conditions is made possible by the prudent approach we have taken to manage our balance sheet to conservative levels as well as our successful chartering strategy. The latter is reflected in our operating revenues of $241 million, which is near to previous records despite a charter market drop that is more than 50% lower than a year ago. We continue to be active in the charter market, highlighting the resilience of our business model, and secured nearly $500 million in new charter contracts during the quarter. Our total charter backlog increased to $2.5 billion as of the end of the quarter, and contracted charter coverage currently stands at 99% for 2023 and 86% for 2024.
In the second quarter of 2023, Danaos received the Gold, first place awards in the Governance and Environment categories in the inaugural ESG Shipping Awards. These accolades, which we are proud of, acknowledge the company’s exemplary efforts in promoting sustainable practices, social responsibility, and strong governance and reaffirm our position as a leader in responsible maritime operations. The timing of the awards is notable as the IMO recently reiterated and strengthened its commitment to decarbonize shipping by targeting a net zero by around 2050.
Danaos continues to advance its decarbonization strategy in multiple ways. We are constantly optimizing and retrofitting our existing fleet and have committed to upgrade around 20 vessels with new propellers, fuel saving appendages and low friction paints. We have also expanded our new building program with the order of four additional newbuilding vessels. These vessels, two of which are 6,000 TEU and two of which are 8,200 TEU, will be delivered methanol-ready, ensuring the longevity of our investment. In total, we have 10 vessels, with a total capacity of approximately 75,000 TEU, on order. All of these will be able to utilize alternative fuels. Importantly, six of these vessels are already chartered for multi-year periods beginning on their delivery dates in 2024.
We also deployed capital opportunistically, after identifying weakness in the dry bulk market, a market we are very familiar with. We believe the long-term fundamentals in the dry bulk market are very positive. In particular, the orderbook is at historically low levels, and fleet supply growth is projected to decline significantly over the next several years against a backdrop of rebounding demand. Short-term market sentiment is not as strong, and we were able to make investments at attractive prices. As has been previously reported, Danaos acquired a significant stake in Eagle Bulk Shipping, Inc., a NYSE listed dry bulk company (“Eagle”). Additionally, we acquired five Capesize bulk carriers in the secondhand market.
With respect to Eagle, we were able to purchase shares in a company we believed had best in class corporate governance practices at a significant discount to our perception of the company’s net asset value. Shortly following our investment, the Board of Eagle unilaterally implemented a poison pill and repurchased Oaktree Capital’s 28% stake in the company at nearly a 35% premium to Eagle’s 45-day average share prices and a 32% premium to our cost basis. These transactions, which were done by Eagle’s Board fundamentally alter our view of Eagle’s corporate governance. We are concerned with these developments and are seeking clarification from the Board of Directors of Eagle. As Eagle Bulk’s current largest shareholder, we have a strong vested interest in seeing the company enhance long-term shareholder value and believe that we have a duty to speak up when we think the Board and/or management may be acting outside the best interests of all shareholders. Accordingly, we are committed to working constructively with the Board to identify balanced, well-considered, and effective methods to enhance shareholder value on behalf of all shareholders.
With respect to our interest in the dry bulk market in general, Danaos has significant experience in the dry bulk market as an owner and operator. We exited the segment years ago, which was a well-timed decision in hindsight, and now we again see opportunity. Given the strength of our balance sheet, we are uniquely positioned to deploy capital in various ways to grow our revenue base and earnings. Our fleet of container vessels, which are contracted on multi-year charters, provides strong revenue and cash flow visibility. While we will continue to grow and future-proof our core fleet by adding next generation vessels to it, our ultimate goal is to generate value for our shareholders, and we will consistently pursue the best opportunities to do so.
As I have said before, our healthy balance sheet allows us to be opportunistic and deploy our capital in various ways. During the quarter, we continued our buyback program and have now spent $65.5 million from our $100 million buyback program to retire more than one million shares. Finally, we remain committed to returning capital to shareholders, as evidenced by our $0.75 per share dividend announced this morning.
We will continue to implement our strategy to ensure the long-term growth and profitability of the company and are consistently focused on creating value for our shareholders.”
Three months ended June 30, 2023 compared to the three months ended June 30, 2022
During the three months ended June 30, 2023, Danaos had an average of 68.0 containerships compared to 71.0 containerships during the three months ended June 30, 2022. Our fleet utilization for the three months ended June 30, 2023 was 98.7% compared to 99.9% for the three months ended June 30, 2022.
Our adjusted net income amounted to $143.4 million, or $7.14 per share, for the three months ended June 30, 2023 compared to $157.1 million, or $7.59 per share, for the three months ended June 30, 2022. We have adjusted our net income in the three months ended June 30, 2023 for a $6.4 million change in fair value of investments, a $2.3 million loss on debt extinguishment and a $0.6 million non-cash finance fees amortization. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.
The $13.7 million decrease in adjusted net income for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 is primarily attributable to a $13.9 million dividend from ZIM (net of withholding taxes) recognized in the three months ended June 30, 2022. We also incurred a $0.7 million equity loss on investments in the three months ended June 30, 2023 and a $9.4 million decrease in operating revenues, which were partially offset by a $10.2 million decrease in net finance expenses and a $0.1 million decrease in total operating expenses.
On a non-adjusted basis, net income amounted to $147.0 million, or $7.32 earnings per diluted share, for the three months ended June 30, 2023 compared to net income of $8.2 million, or $0.40 earnings per diluted share, for the three months ended June 30, 2022. Our net income for the three months ended June 30, 2022 included a $154.7 million total loss on our investment in ZIM and a $22.9 million gain on debt extinguishment compared to a $6.4 million gain on our investments and a $2.3 million loss on debt extinguishment for the three months ended June 30, 2023.
