Danaos Corporation

Good day and welcome to the Denounce Corporation Conference call to discuss the financial results for the three months ended March 31, 2025. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Koustas, Chief Executive Officer of Denounce Corporation, and Mr. Evangelos Hatzis, Chief Financial Officer of Denounce Corporation. Dr. Koustas and Mr. Hatzis will be making some introductory comments and then we will open the call to a question and answer session.

Thank you, operator. Good morning, everyone, and thank you for joining us. Before we begin, I quickly want to remind everyone that management's remarks this morning may contain certain forward-looking statements and that actual results could differ materially from those projected today. These forward-looking statements are made as of today and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC and we encourage you to review these detailed safe harbor and risk factor disclosures. Please also note that where we feel appropriate, we will continue to refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, time charter equivalent revenues and time charter equivalent dollars per day to evaluate our business. Reconciliation of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials. With that, let me now turn the call over to Dr. Koustas, who will provide the broad overview of the quarter.

Thank you, Evangelos. Good morning and thank you all for joining today's call to discuss results for the first quarter of 2025. As the year progresses, the level of global disruption shows no signs of abating. Armed conflicts continue, mostly recently involving India and Pakistan, and the uncertainty of tariffs has led to a dramatic decline in the US Pacific market. Thus far, the US economy remains resilient and as long as American consumers continue to spend, we anticipate that trade flows will rebound with depleted inventories eventually driving a surge in demand. The dry bulk market has recovered from its first quarter lows, although the rebound has been modest. In our view, a meaningful and sustained recovery will be challenging absent further growth initiatives in China. While the much publicized Simandu project is expected to benefit the Cape size market by increasing ton miles, overall iron ore consumption is not projected to rise significantly. Our financial performance continues to be strong, although it has been impacted by a number of charter renewals at lower rates than those seen during the COVID pandemic. On the other hand, we continue to build our charter backlog effectively insulating ourselves from near-term market weakness. Our charter coverage for 2025 and 2026 is largely secured. A noteworthy recent development is the proposed IMO regulation on greenhouse gas emissions. Unfortunately, the regulation falls short of the industry's more ambitious proposals and is unlikely to drive meaningful progress on decarbonization of our industry. There is limited incentive to use expensive green fuels and LNG has not been meaningfully prioritized. As a result, there is little clarity on the fuel of the future and at present, conventional scrubber-fitted vessels remain the default option and there would be in essence a paid to pollute framework. We are currently holding off on new vessel investments and are focusing on optimizing the performance of our existing fleet. Our significant growth backlog vessel order book includes 15 container vessels scheduled for delivery over the next three years, all backed by solid and profitable charter arrangements that will enhance both our fleet profile and our earnings potential. Despite the broader uncertainties, we remain committed to delivering superior returns to our shareholders through disciplined execution and long-term strategic focus. With that, I'll hand over the call back to Evangelos who will take you through the financials for the quarter.

Evangelos? Thank you, John, and good morning again. I will briefly review the results and then open the call to Q&A. We are reporting adjusted EPS for the first quarter of 2025 of $6.04 per share or adjusted net income of $113.4 million compared to adjusted EPS of $7.15 per share or adjusted net income of $140 million for the corresponding first quarter of 2024. This $26.6 million decrease in adjusted net income between the two quarters is a result of a $19.8 million increase in total operating costs, mainly due to the increase in the average number of vessels in our fleet, a $6 million increase in net finance costs, and a $0.6 million decrease in dividend income. As analyzed in our earnings release, the increase in our fleet that produced the incremental costs produced a combined $30.1 million of incremental operating revenues that was, however, offset by a $9 million decrease in revenues of our dry bulk segment as a result of a softer spot market in Q1, a $9.4 million decrease in revenues of our container segment as a result of lower contracted charter rates, a $6.4 million decrease in revenues as a result of lower fleet utilization, mainly due to the increased number of dry dockings between the two periods, and last $5.4 million lower non-cash US gap revenue recognition income. Vessel operating expenses increased by $8.6 million to $51.7 million in the current quarter from $43.1 million in the first quarter of 2024 as a result of the increase in the average number of vessels in our fleet, while our daily operating costs increased to just above $7,000 per vessel per day for the current quarter compared to $6,500 per vessel per day for the corresponding quarter of 2024. Still, our operating costs continue to remain among the most competitive in the industry. G&A expenses increased by $2 million to $12.2 million in the current quarter compared to $10.2 million in the first quarter of 2024, mainly due to higher management fees because of the increase in the average number of vessels in the fleet. Interest expense excluding finance costs amortization increased by $6.6 million to $9.2 million in the current quarter compared to $2.6 million in the first quarter of 2024. This decrease is a combined result of a $5.2 million increase in interest expense due to a rise in our average indebtedness of $364 million between the two periods that was partially offset by a reduction in the cost of debt service by approximately 100 basis points as a result of a decrease in software costs between the two periods, together with a $1.4 million increase in interest expense due to lower capitalized interest on vessels under construction between the two periods. At the same time, interest income came in at $3.6 million in the current quarter. Adjusted EBITDA decreased by 3.1%, or $5.5 million, to $171.7 million in the current quarter compared to $177.2 million in the first quarter of 2024 for the reasons that have already been outlined earlier on this call. We also encourage you to review our updated investor presentation that is posted on our website as well as subsequent event disclosures. Since the date of our last earnings release, we have added more than half a billion dollars to our contracted revenue backlog. As a result, our contracted revenue backlog remains strong and has now grown to $3.7 billion with a .9-year average charter duration, while contract coverage is at 99% for this year and 85% for 2026. Our investor presentation has an analytical disclosure on our contracted charter book that you can refer to. On February 7, 2025, we entered into an $850 million syndicated loan facility agreement, which concludes the financing of all of our remaining new building container vessels, including the two additional recent orders with deliveries from 2026 to 2028. As of March 31, 2025, our net debt stood at $299 million, and in the current interest rate environment, this position shields us from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio stood at 0.4 times at the end of Q1, while 53 out of our 84 vessels are currently unencumbered and debt-free. We have declared a dividend of 85 cents per share for this quarter, and we continue to repurchase our stock. Since the date of the last earnings release, we have repurchased an additional $36.9 million, and to date, we have executed in total share repurchases of $205.7 million, while our share repurchase program has recently been upsized to $300 million. Finally, as at the end of the Q1, cash was at $480 million, while total liquidity, including availability under our revolving credit facility and marketable securities, stood at a strong $825 million, giving us ample flexibility to pursue our creative capital deployment opportunities. With that, I would like to thank you for listening to this first part of our call. Operator, we can now open the call to Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Omar Nakhda with Jefferies. Please go ahead.

Hi Jon, hi Vangelos. A good update. Clearly, things are going, despite all the market headwinds and everything that you outlined, Jon, in your opening comments, you've added backlog, you've charted out your new buildings, or the final two at least, that were open. As you mentioned, you're going to hold off now on new vessel investments and focus on optimizing the performance of your existing fleet. I just want to get a sense from you. When you say that, does that mean maybe focus on harvesting the cash from these assets that you own, or do you see investment opportunities or upgrades that you can do in your existing fleet that could boost earnings power down the line?

Well, definitely the second one. We are investing into a lot of energy saving devices that will make our vessels more competitive in the future. We've already seen benefits from that, both on our dry bulk fleet that we have started a program of, let's say, upgrading all the ships. The same thing we're doing in parallel with our container vessels where we're doing all the combinations of bulbous bow, propeller, and low friction paints, which is going to definitely reduce the gap between, let's say, new buildings and secondhand. On the other hand, yes, of course, we'll be generating quite a lot of cash. We are open. We are continuously evaluating opportunities. Today, we are in an environment of expensive new buildings without any clear roadmap as far as the fuel of the future. The recent IMO decision, which we still don't know whether it's going to be approved in next October, that doesn't really give us any hints as to where we should go.

Yes, that makes sense. I guess maybe just separately, the stock has done very well recently. You bought back, I think, most recently subsequent to the first quarter, you bought a good amount of stock in the low 70s. The stock is now kind of closer to 90. You still see buybacks continuing at a decent clip here, or do you shift back and maybe see how things go from here?

We see, you know, we do not, let's say, declare as to when or don't set any target levels for the buyback. The only thing which we really inform the market is that we have another 100 million authorized at this moment for buybacks. I mean, when we're going to execute on it, it's to be seen.

Okay, I get that. Thank you. Maybe just one final one and I'll pass it back. Obviously, you've taken your stake up in Starbulk by another 2 million shares recently. You're over 5%. Anything you can say about what drove that extra investment? Is it the valuation? Is it the dry bulk outlook or something else?

I think it's an investment we believe, you know, it makes sense. We were already in a position since our EagleBulk shareholding that was transformed into Starbulk shareholding about a year and a half almost ago. It was an opportunity. We added up. You know, we will evaluate performance of the market and, you know, we don't have any specific plans for the time being.

Yeah, and Omar, we added post-liberation day where, you know, it was significant. It was a compelling price. We reduced our average cost. So that was the

incentive. Got it. Yeah, an opportunistic deal. Yeah, makes sense. Great. Thanks, Evangelos. Thanks, John.

Thank you.

It appears we have no further questions at this time. I would like to turn the call back to Dr. Koutstis for any further comments or closing remarks.

Yes, thank you all for joining this conference call and your continued interest in our story. Look forward to hosting you on our next airing call. Have a nice day.

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