Danaos Corporation Reports Third Quarter and Nine Months Results for the Period Ended September 30, 2014
Danaos Corporation, a leading international owner of containerships, reported unaudited results for the period ended September 30, 2014
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Highlights for the Third Quarter and Nine Months Ended September 30, 2014:
Operating revenues of $139.5 million for the three months ended September 30, 2014 compared to $148.4 million for the three months ended September 30, 2013, a decrease of 6.0\%. Operating revenues of $411.4 million for the nine months ended September 30, 2014 compared to $441.1 million for the nine months ended September 30, 2013, a decrease of 6.7\%.
Adjusted EBITDA1 of $104.1 million for the three months ended September 30, 2014 compared to $109.5 million for the three months ended September 30, 2013, a decrease of 4.9\%. Adjusted EBITDA1 of $299.5 million for the nine months ended September 30, 2014 compared to $325.5 million for the nine months ended September 30, 2013, a decrease of 8.0\%.
Adjusted net income1 of $18.0 million, or $0.16 per share, for the three months ended September 30, 2014 compared to $13.4 million, or $0.12 per share, for the three months ended September 30, 2013. Adjusted net income1 of $36.6 million, or $0.33 per share, for the nine months ended September 30, 2014 compared to $39.1 million, or $0.36 per share, for the nine months ended September 30, 2013.
The remaining average charter duration of our fleet was 8.2 years as of September 30, 2014 (weighted by aggregate contracted charter hire).
Total contracted operating revenues were $3.8 billion as of September 30, 2014, through 2028.
Charter coverage of 93\% for the next 12 months in terms of contracted operating days and 98\% in terms of operating revenues.
Danaos’ CEO Dr. John Coustas commented:
Danaos is reporting a solid third quarter with adjusted net income of $18 million, or 16 cents per share, which is higher by $4.6 million or 34\% when compared to the $13.4 million, or 12 cents per share of adjusted net income for the 3rd quarter of 2013. The Company’s profitability improved between the 2 quarters through a $9.4 million improvement in financing costs together with a $4.1 million improvement in operating costs, despite a decrease in operating revenues. The decline in operating revenues between the 2 quarters mainly reflects $4.7 million related to softer charter market conditions and $4.2 million attributable to the reduced charter hire on six of our vessels following the previously announced restructuring of Zim.
The reduction in finance costs is expected to continue in the coming quarters as we reduce leverage and benefit from the expiration of expensive interest rate swaps. Total debt repayments in 2014 will reach $221.5 million and swap expirations will exceed $1 billion in notional terms.
Executing on our fleet renewal program, during the first half of the year we sold three 4,814 TEU vessels and two 4,651 TEU vessels with an average age of 23 years, while on October 14, 2014 we entered into an agreement for the purchase of two 6,402 TEU containerships built in 2002.
The container market demand / supply fundamentals have remained weak and all metrics inevitably lead to the conclusion that 2014 will be a sluggish year. As the super post panamaxes continue to be delivered and deployed in the Europe – Far East route, the capacity being cascaded inevitably creates over-capacity in the remaining routes, adversely affecting box freight rates and charter rates. Demand is not helping either as world GDP growth recent downward revisions will further delay recovery in the container trade. On the other hand, the Panamax sector which has suffered the most in this prolonged soft market, has seen signs of recovery during the 3rd quarter mainly as a result of the increased scrapping of vessels between 3,000 to 5,000 TEU that has been taking place over the last 18-24 months.
Despite the soft charter market, with 98\% charter coverage for the next 12 months in terms of operating revenues we are substantially insulated from market volatility and the timing of any recovery. Additionally, our $5,611 daily operating cost for the 3rd quarter clearly positions us as one of the most efficient operators in the industry.
We will continue our efforts to de-lever our balance sheet, manage our fleet efficiently and capitalize on the resilience of our business model towards creating value for our shareholders.
Three months ended September 30, 2014 compared to the three months ended September 30, 2013
During the three months ended September 30, 2014, Danaos had an average of 54.0 containerships compared to 61.0 containerships for the three months ended September 30, 2013. Our fleet utilization increased to 99.5\% in the three months ended September 30, 2014 compared to 94.8\% in the three months ended September 30, 2013, mainly due to the sale of a number of our older vessels certain of which were off-charter and laid-up during the three months ended September 30, 2013.
Our adjusted net income was $18.0 million, or $0.16 per share, for the three months ended September 30, 2014 compared to $13.4 million, or $0.12 per share, for the three months ended September 30, 2013. We have adjusted our net income in the three months ended September 30, 2014 for unrealized gains on derivatives of $9.1 million and a non-cash expense of $4.7 million for fees related to our 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 34.3\%, or $4.6 million, in adjusted net income for the three months ended September 30, 2014 compared to the three months ended September 30, 2013, was attributed to a reduction of $4.1 million in total fleet operating costs and a $9.4 million reduction in net finance costs (mainly due to lower debt balances and interest rate swap expirations), which was partially offset by a $4.2 million reduction in operating revenues as a result of reduced rates for six 4,253 TEU vessels on charter to Zim following the Zim restructuring, as well as a $4.7 million net decrease in operating revenues mainly attributed to lower re-chartering rates for certain of our vessels as a result of the continuing soft charter market and vessels sold that were generating revenue in the three months ended September 30, 2013 partially offset by vessels acquired subsequent to September 30, 2013 that were generating revenue in the three months ended September 30, 2014.
On a non-adjusted basis our net income was $22.4 million, or $0.20 per share, for the three months ended September 30, 2014, compared to net income of $8.8 million, or $0.08 per share, for the three months ended September 30, 2013.
As of July 16, 2014, ZIM and its creditors entered into definitive documentation effecting ZIM’s restructuring with its creditors on substantially the same terms as the agreement in principle previously announced by ZIM in January 2014. The terms of the restructuring include a reduction in the charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of our vessels, which had already been implemented beginning in January 2014. The terms also include our receipt of approximately $49.9 million aggregate principal amount of unsecured, interest bearing ZIM notes maturing in 2023 (consisting of $8.8 million of 3\% Series 1 Notes due 2023 amortizing subject to available cash flow in accordance with a corporate cash sweep mechanism, and $41.1 million of 5\% Series 2 Notes due 2023 non-amortizing (of the 5\% interest rate, 3\% is payable in cash and 2\% is payable in kind, accrued quarterly with deferred cash payment on maturity)) and ZIM shares representing approximately 7.4\% of the outstanding ZIM shares immediately after the restructuring, in exchange for such charter rate reductions and cancellation of ZIM’s other obligations to us which relate to the outstanding long term receivable as of December 31, 2013. As of July 16, 2014, we recorded at fair value $6.1 million in relation to the Series 1 Notes, $30.1 million in relation to the Series 2 Notes and $28.7 million in relation to our equity participation in ZIM.
As of August 7, 2014, we entered into a new agreement with the lenders under the HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank credit facility in relation to the use of proceeds from the sale of 5 mortgaged vessels (the Marathonas, the Commodore, the Duka, the Mytilini and the Messologi), all of which were sold during the nine months ended September 30, 2014 for an aggregate of $55.2 million gross sale proceeds less sale commissions. In accordance with this agreement, $18.2 million was applied against prepayment of the respective facility on August 18, 2014 while the remaining $37.0 million were deposited in a restricted cash account and can be used to finance the acquisition of new containership vessels no later than December 31, 2014. We will pay the lenders a fee of 25 basis points if any portion of the $37.0 million is used in the acquisition of any replacement vessels. As of September 30, 2014, an amount of $37.0 million was recorded as non-current restricted cash. Pursuant to an agreement we entered into on October 14, 2014 for the purchase of two 6,402 TEU vessels built in 2002, we anticipate to fully utilize this restricted cash for the acquisition of these vessels within the three months ended December 31, 2014.
Operating Revenues
Operating revenues decreased 6.0\%, or $8.9 million, to $139.5 million in the three months ended September 30, 2014, from $148.4 million in the three months ended September 30, 2013.
Operating revenues for the three months ended September 30, 2014 reflect:
$1.7 million of additional revenues in the three months ended September 30, 2014 compared to the three months ended September 30, 2013, $1.6 million of which related to the Niledutch Palanca and the Dimitris C, which were added to our fleet on November 13, 2013 and November 21, 2013, respectively and $0.1 million related to incremental revenues in the three months ended September 30, 2014 of the Amalia C and the MSC Zebra, which were added to our fleet on May 14, 2013 and June 25, 2013, respectively.
$4.2 million decrease in revenues in the three months ended September 30, 2014 compared to the three months ended September 30, 2013, related to the agreement we entered into with ZIM for a reduction in the charter rates payable by ZIM under the time charters for six of our vessels.
$3.6 million decrease in revenues in the three months ended September 30, 2014 compared to the three months ended September 30, 2013, related to the Hope, the Kalamata, the Komodo, the Lotus, the Commodore, the Messologi and the Mytilini, which were generating revenues in the three months ended September 30, 2013, but were sold within 2013 and 2014.
$2.8 million decrease in revenues in the three months ended September 30, 2014 compared to the three months ended September 30, 2013, which was mainly attributable to the rechartering of certain vessels at lower rates between the two quarters as a result of the soft charter market.
Vessel Operating Expenses
Vessel operating expenses decreased 12.7\%, or $3.9 million, to $26.8 million in the three months ended September 30, 2014, from $30.7 million in the three months ended September 30, 2013, reflecting lower average daily operating cost per vessel and lower average number of vessels in our fleet in the 2014 period.
The average daily operating cost per vessel decreased to $5,611 per day for the three months ended September 30, 2014, from $5,856 per day for the three months ended September 30, 2013 (excluding vessels on lay-up in 2013), mainly as a result of the sale of the older vessels in our fleet whose contribution in daily operating expenses was higher than the fleet average. 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 0.9\%, or $0.3 million, to $34.4 million in the three months ended September 30, 2014, from $34.7 million in the three months ended September 30, 2013. The decrease in depreciation expense was mainly due to the decreased average number of vessels in our fleet during the three months ended September 30, 2014 compared to the three months ended September 30, 2013.
Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs decreased 15.4\%, or $0.2 million, to $1.1 million in the three months ended September 30, 2014, from $1.3 million in the three months ended September 30, 2013. The decrease reflects decreased dry-docking and special survey costs incurred within the year and amortized during the three months ended September 30, 2014 compared to the three months ended September 30, 2013.
General and Administrative Expenses
General and administrative expenses increased 6.1\%, or $0.3 million, to $5.2 million in the three months ended September 30, 2014, from $4.9 million in the three months ended September 30, 2013. The increase was mainly due to increased fees of $0.2 million paid to our Manager in the three months ended September 30, 2014 compared to the three months ended September 30, 2013, due to an increase in the per day fee payable to our Manager since January 1, 2014, which was partially offset by a decrease in the average number of vessels in our fleet in the three months ended September 30, 2014 compared to the three months ended September 30, 2013.
Effective January 1, 2014, our management fees were adjusted to a fee of $800 per day for commercial, chartering and administrative services, a technical management fee of $400 per vessel per day for vessels on bareboat charter and $800 per vessel per day for vessels on time charter.
