Danaos Corporation

and fleet utilization given the softer market conditions and a 5.3 million decrease in revenues due to lower non-cash revenue recognition US GAAP accounting. Vessel operating expenses increased by 1.3 million to 28.6 million in the current quarter from 27.3 million in the second quarter of 2019. And that was a result of the increase in the average number of vessels in our fleet while at the same time the average daily vessel operating cost decreased to $5,787 per day for the current quarter from $5,884 per day in the second quarter of 2019 and remains as one of the most competitive in the industry. G&A expenses decreased by half a million to $6 million in the current quarter compared to $6.5 million in the second quarter of 2019, mainly due to decreased non-cash recognition of stock-based compensation. Interest expense, excluding finance cost amortization and accruals, decreased by $5.1 million to $9.8 million in the current quarter, compared to $14.9 million in the second quarter of 2019. This improvement is attributed to a $95.8 million decrease in our average indebtedness and the reduction of US dollar LIBOR by 155 basis points between the two periods. Finally, adjusted EBITDA increased by 6% or 4.5 million to 80.1 million in the current quarter from 75.6 million in the second quarter of 2019 for the reasons outlined earlier on this call. With that, I would like to thank you for listening to this first part of our call. Operator, we are now ready to open the call to Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Randy Gibbons with Jefferies LLC. Please go ahead.

Howdy, gentlemen. How's it going? First and foremost, obviously, great to see the new $10 million repurchase authorization. As I've been saying, the current equity valuation is pretty cheap here. And although I've kind of advocated for dividends earlier this year, share repurchases at these levels certainly make the most sense. So with that said, you know, authorization is one thing, implementation is another. So based on the current trading volumes, it would probably take a while to repurchase $10 million worth of shares, right? But do you expect to do a tender offer or a privately negotiated transaction here during 3Q?

Well, you know, It's not, we don't really have anything specific. What we wanted is practically for the board to authorize the share purchases one way of allocation of capital. And, you know, it will, we do not have any, specific, let's say, kind of targets. We just wanted to have, let's say, this tool in place, and we will use it depending on circumstances and opportunities.

Got it. Okay, so no specific plan now, just the opportunity, I guess, gives you the option for it. Yeah, exactly, exactly. All right, and then now that you've taken delivery of the, you know, the final two 8500 vessels, how do you view your fleet currently? Right, should we expect some sales of maybe the smaller unchartered vessels, possible acquisitions, or are you pretty content with your fleet as it stands today?

Well, if there are kind of opportunities, as we said, We have ample liquidity and good cash flow. We have not really seen, especially in the larger vessels, that we are looking for any interesting opportunities, any collapsing prices or anything like that. As I said, for the time being, I think we have a very good fleet and we will concentrate on the employment of the vessels and to be able to secure even longer term commitments so that we increase the visibility of our cash flows.

That makes sense. Two more quick questions. for the charter rates, right, for the container ships. Obviously, it's been above second quarter. However, in recent weeks, the rates have been climbing, so that's been encouraging. Now, what kind of rates are you booking for some of your intermediate vessels on these short-term, you know, three, let's call it six-month charters?

Well, first of all, if I can give you as an indication, how the baby Panamaxes have fared. I mean, these vessels pre-pandemic, they were at something like maybe $13,000 a day. They dropped down to something like $7,000. And now they're back up to whatever, $10,500 or so. I mean, that's more or less where we are on that kind of segment.

And that's for like the $3,500 to $4,500?

Yeah.

Okay.

So we're definitely well off the lows.

Right. That's good. And then I guess the last question, how is the contract business continue holding up? You've mentioned I think it was 85%, but in your presentation, 95% of 2020s pretty much contracted. Charters still, you know, all on board in terms of payments and everything. We've seen some of your peers do some kind of reduction and extensions of charters, but how do you feel about your counterparties and your current kind of charter backlog here?

Well, first of all, there are some, first of all, there have been no requests for outright reductions. There were some discussions about, let's say, extensions with kind of a small discount. Some companies have already reported that they have done similar deals. We are looking if it makes sense to get a small discount and extend your charter for a couple of years. This is part of our strategy into ensuring, let's say, visibility. But the good thing is that all our customers are in very good financial shape. If you see one after the other, the results which they are actually publishing show a much stronger EBITDA than whatever they had budgeted at the beginning of the year, even without the pandemic.

Sure, sure. Okay. Well, I think that's it for me, but, you know, I certainly advocate for those share repurchases if and when you can. Obviously, the shares are trading very cheaply here, and $10 million is not a huge sum of cash with your substantial target backlog. So, Great quarter, and keep it up. Thank you. Thank you. Thank you very much.

As a reminder, if you would like to ask a question, please press star, then 1. Our next question comes from Chris Weatherby with Citi. Please go ahead.

Hey, thanks. Good morning, guys. I guess maybe a specific question about the quarter. Could you outline sort of how OPEX trends related to the pandemic? I think we've heard operational challenges as a result of crew changes and other things over the course of the quarter. Were there any costs that you guys incurred that you could specifically call out so we can get a clean run rate from an OPEX perspective going forward?

There are not really. any specific costs. I mean, what is happening, of course, is that we are unable to change crews. This, of course, has a positive, let's say, part that we don't incur traveling expenses. On the other hand, for the crew that we are managing to change, all the associated costs are higher. We're not talking about, let's say, huge numbers, but for sure it's above what was budgeted. It's not, you know, all these costs are not really, I mean, financially make or break situation. What is really much more important for us is to ensure that we manage properly all this process, and the people that we have on board are in the proper and fit condition to be able to continue their duty.

Okay. Okay. That's helpful. And then when you think about your – when we think about sort of the – the facilities that are out there. Can you give us, is there anything more that needs to be done, either from a refinancing perspective? Do you have kind of the portfolio on the debt side of the house relatively sort of fixed where you want it to be? I just want to get a sense of kind of where you are in that process.

Well, there are always, we are always looking at opportunities to finance let's say, to change our debt structure to the better. We do not have, of course, any pressure. I mean, our debt matures end 2023, so we've got plenty of time ahead. But if there are, let's say, going to be opportunities to either reduce the cost or to be able to to change the profile or anything like that. We're always looking at opportunities like that. But as I said, this is purely on an opportunistic basis. There is no need for all of that. We are very fortunate not to have the need of any immediate refinancing.

Okay, that's helpful. And I guess maybe my last question is a bit more sort of conceptual. When you think about the liner industry and the incremental consolidation that we've seen over the course of the last few years, we've gotten to the point where there seems to be a bit more discipline from the big players and players Flying sailings capacity management has become more of a hallmark of the industry. As a capacity provider, how do you think the next couple of years play out in that respect? Would you still expect to see sort of the historical split between chartered-in capacity and liner-owned capacity to hold? Do you think that there could be potentially any changes to that, whether in favor of liner capacity or chartered-in capacity?

I think that the split will have to do a lot with the ability of the liner companies themselves to finance the new buildings which they have. Here, as I said before, our business model is, at least for the long term, deals is competing with the Chinese leasing companies and in this respect liner companies have approached these Chinese lessors to do most of their new buildings rather than relying to us also because they don't have anymore the benefit of off-balance sheet financing when the new accounting rules came into existence.

Okay. Okay. Well, thank you very much for the time. I appreciate it.

Thank you.

Our next question comes from Karim Aksoy with Glacier Pass Partners. Please go ahead.

Hi. Great job on the quarter. Great to see the year-over-year increase in EBITDA. Thanks for taking my questions. I had two. First, I was hoping you could talk about the economics of the recent boat which was purchased, the Charleston. Maybe give some color around the purchase price and charter strategy and how you were thinking about the unlevered and levered returns for this investment.

Well, the market, I mean, we had made... a relatively short-term charter for the ship because of all the COVID issues to be able, because the ship needs to go into dry dock by end of October. And we believe that the market is already picking up and we're going to secure deals similar than we had for the other system when we took delivery.

Okay. I'll keep an eye on that. I wanted to follow up to Randy's question. Oh, sorry. I didn't mean to cut you off.

No, no, okay.

Okay, thanks. I just wanted to follow up to Randy's question earlier. At the start of the year, the company had an objective of paying a dividend And I think he had recommended $0.80 per share per year. Obviously, COVID hit. The company put that on hold, which made a lot of sense. So now the markets are covering. So I think the share repurchase is a nice move. And I hear the need to be opportunistic with it. But I think what shareholders would like to hear, and I'm curious what your thoughts are, is going back to that commitment to return capital to shareholders, whether it's a a buyback or a dividend. So is that how you guys are thinking about it? You have this opportunistic buyback, but to the extent that opportunity is not available, could shareholders expect that capital to be returned via a dividend? Just some color on the overall thought process would be really helpful. Thank you.

Well, as we said, the dividend is not, let's say, an opportunistic thing. The moment that you declare a dividend, and you have a dividend strategy, it's on the basis that you will be able to maintain it. We are, to date, still in pretty, let's say, strange circumstances. What is happening today in the world economy has no precedent, so we cannot commit into this kind of long-term initiatives like the dividend. And at this moment, I've not seen many companies initiating dividends. I've seen companies cutting dividends or reducing them or some of them keeping them, but no one initiating. On the other hand, there may be also an opportunity for the share repurchase. And we have asked the board to add that kind of tool in all the management initiatives that we may have to enhance shareholder value.

Thanks. That makes sense. It is a pretty uncertain world. I guess we'll continue to follow and see when there's enough of a marked recovery to have that confidence. Thanks for walking me through that.

Yeah. Again, if you would like to ask a question, please press star, then 1. It appears we have no further questions at this time. I would like to turn the call back over to Dr. Koustas for any closing remarks.

Thank you all for joining this conference call and your continued interest in our story. We look forward to hosting you in our next earnings call. Have a nice day.

Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.