Danaos Corporation

Good day and welcome to the Denaos Corporation conference call to discuss the financial results for the three months ended June 30th, 2026. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Coustas, Chief Executive Officer of Denaos Corporation and Mr. Evangelos Chatzis, Chief Financial Officer of Denaos Corporation. Dr. Coustas and Mr. Chatzis will be making some introductory comments and then we will open the call to a question and answer session. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Evangelos Chatzis, Chief Financial Officer. Please go ahead.

Thank you operator, good morning everyone and thank you for joining us today. 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. Reconciliations 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. John Coustas, who will provide the broad overview of the quarter. John?

Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for the second quarter of 2026. The conflicts in Ukraine and Iran continue with no clear resolution in sight. although a brief ceasefire allowed us to move our two vessels out of the Gulf and both our crews and vessels safe and fully operational. Uncertainty in global supply chains, the disruption in the Gulf, the restrictions in Bab el-Mandeb and the tariff measures in the United States have combined create exceptionally tight conditions with rates across most shipping sectors at multi-year highs. Shipping remains the only industry capable of absorbing disruption on this scale and keeping the world supplied with goods, energy, and raw materials. Against this backdrop, Danaos continued to execute its long-term strategy of securing extended charter employment at attractive rates and arranging competitive long-term financing for our new building program. This quarter we saw significant contribution from our dry bulk investment as cape size rates reached multi-year highs and the segment contributed 18.8 million of adjusted EBITDA against 5.9 million a year ago. As charters continue to compete for quality tonnage, we took the opportunity to extend charters across a broad part of the fleet adding approximately 683 million to our contracted revenue backlog. Backlog now stands at the record 4.6 billion, with 100% of our container operating days contracted for 2026, 93% for 2027, and 79% for 2028, while even for 2029 contract coverage is already above 60%. We also continue to term out our financing, refinancing two further vessels through Japanese operating leases. We also added a further $236 million in Jolko financing commitments for three vessels delivering in 2027 and enter into a $132 million credit facility to finance our six 1800 T-Union buildings. With 78 of our 87 operating vessels debt-free, and Leverett Mott, who are possibly one and a half billion. We remain in a position to pursue accretive opportunities, including the development of our investment in the Alaska LNG project. Together with a disciplined approach to expansion, we believe these dynamics will continue to drive improving profitability and create lasting value for our shareholders. With that, I'll hand the call over back to Evangelos who will take you through the financials for the quarter. Evangelos.

Thank you John and good morning again to everyone and thank you for joining us. I will review the results for the quarter and we will then open the call to Q&A. Adjusted net income for the second quarter was $133.1 million or $7.29 per share compared to $117 million or $6.36 per share in the second quarter of 2025. That is an increase of 16.1 million or approximately 15% on a per share basis. The improvement was driven principally by our dry bulk segment. Container vessel revenue was broadly unchanged, down 0.8 million on a base of 238.7 million. New building deliveries of container ships contributed 3.2 million of incremental revenues and higher charter rates a further 0.6 million. Offsetting this were a 3.4 million reduction in non-cash revenue recognition under U.S. GAAP and the 1.2 million effect from higher charges during this period. Drive-up revenue, on the other hand, increased by 13 million or 57%. from 22.7 million to 35.7 million, and the principal driver was the improved dry bulk market. Our HSI time chart equivalent rate rose to $30,400 per day from approximately $18,000 per day in the comparable prior quarter, which reflects improved market conditions. During this quarter, we also operated one additional vessel that we acquired a few months ago. Segment adjusted EBITDA for the dry bulk segment increased to 18.8 million from 5.9 million a year ago. Turning now to operating costs. Vessel operating expenses were stable and came in at 56.7 million in the current quarter against 56.4 million in the second quarter of 2025. notwithstanding an increase in the average number of vessels in the fleet between the two periods. Daily operating costs declined to $7,416 per vessel per day in the current quarter from $7,556 per vessel per day in the second quarter of 2025. Our operating costs remain among the most competitive in the industry. G&A expenses increased by $3.7 million to $14.9 million in the current quarter compared to $11.2 million in the second quarter of 2025. This increase mainly relates to $1.5 million in higher management fees, partially driven by the increase in the average number of S's in our fleet, as a $2.2 million increase in corporate G&A. On the finance cost side, the interest expense, excluding amortization of finance fees and debt discount, decreased by 1.6 million to 7.3 million in the current quarter from 8.9 million in the second quarter of 2025. Now, there are two components to this improvement. Capitalized interest on investment under construction rose to 9 million from 4.8 million previously as our new building program advanced, thus reducing interest expense by 4.2 million. And working in the opposite direction, average indebtedness increased by 326 million to 1.1 billion, and that added 2.6 million in interest expense. The effect of the increase in average indebtedness was partially mitigated by a reduction in our average cost of debt service of approximately 1.1%, reflecting lower stoff rates and a lower bond coupon following the refinancing of our bond in Q4 of last year. Interest income doubled to 7.4 million compared to 3.7 million a year ago on the back of higher cash balances. Therefore, net interest expense decreased by 5.3 million between the two periods. adjusted EBITDA increased by 6.1% or 10.8 million to 186.8 million this quarter compared to 176 million in the second quarter of 2025 for reasons that have already been outlined earlier on this call. We would also encourage you to review our updated investor presentation and the subsequent events disclosures, both of which are available on our website. We would like to turn to some of the highlights. Since the date of our last earnings release, we have added 683 million to our contracted revenue backlog. As a result, our backlog stands at 4.6 billion with a 4.7 average charter duration, while contract coverage is already at 100% for this year 93% for 2027, 79% for 2028, and 61% for 2029. Our investor presentation has analytical disclosure on our contracted charter book. As of June 30, net debt stood at $224.5 million, equivalent to 0.3 times last 12 months EBITDA, and out of our 87 vessels, 78 carry no debt, that is 66 are unencumbered and a further 12 secure our revolving credit facility which remains ungrown. Finally, as at the end of the second quarter of 2026, cash stood at $1 billion, total liquidity that includes cash availability under our RCF and value of marketable securities stood at approximately 1.5 billion, while in addition to that we also hold committed and drawn facilities in support of our new building program. This gives us ample flexibility to pursue accretive capital deployment opportunities. In summary, strong contract coverage for the next four years, a record contracted revenue backlog, Net leverage of three-tenths of a turn and the fully financed construction program. With that, I would like to thank you all for listening to this first part of our call. Operator, we are now ready to open the call to Q&A.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. 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. Our first question comes from Omar Nocta. of Clarkson Securities. Go ahead, please.

Thank you. Hi, John, Evangelos. Good afternoon. Hi, Omar. Hi, John. Yeah, I just wanted to ask a bit about, you know, the business obviously is thriving as we see it. You've added a good amount of backlog here these past few months as you were highlighting, and that's going to give you a nice continued stream of revenue visibility and obviously a really good amount of free cash flow. Well, you know,

The actual, let's say, risk of new investments at elevated prices is becoming higher. Of course, growing is extremely easy. Growing accretively is much more difficult. So, for the time being, we are let's say using these extraordinary times in order to make an even better balance fortress balance sheet to make our financing towards let's say longer duration with Jolkos and You know, we will just try to be there when the opportunities rise. I mean, the situation is extremely volatile. We see that new buildings overall are increasing by the day. And we are very closely looking at all this. We have executed our growth at times where, you know, prices were more reasonable and availability of long-term charters, you know, was at much more accretive rates. I mean, nowadays, we are very careful. We have positioned ourselves where we wanted and, you know, we'll take it as it goes.

Yeah, no, it makes sense. That's understood on that part. And I guess perhaps then, given just how much cash you've been generating, you've been returning capital to shareholders both via the dividends and the buyback, although you paused that recently. But I guess as we think about the dividends here moving ahead, last month you declared the 90 cents, which is the fourth one at that level since you raised it from, I think it was 85, the prior four quarters. as we think about what the next dividend looks like, should we anticipate it being another moderate rise as we've seen in the past or would it be something more sizeable, you think?

Well, you know, we have a kind of a pattern until now. It's up to the board to decide really at what pace we're going to increase it. In general, we have not been there for spectacular dividend rises. However, this is something to discuss for the next quarter.

Yeah, got it. I'll look forward to that. All right. Well, thank you, John. Thanks, Evangelos. And congrats on the sizable backlog additions here. I'll pass it back.

Okay. Thanks very much.

The next question comes from Climate Mullins of Value Investors Edge. Go ahead, please.

Hi, good afternoon, and thank you for taking my questions. OMER has already covered a lot of ground, but I wanted to ask about the relative performance on the Cape Sea side, which improved nicely quarter over quarter. Are most vessels employed on spot, or do you have any fixed time charter cover?

The vessels are in general spot. We have a couple of vessels on index, which practically is, let's say, spot again, and only one vessel on fixed rate until year-end or whatever. So more or less, yes, we are playing the market.

That's helpful, thank you. And my other question was on the Alaska LNG project. Could you talk a bit about how the project is progressing? And as you think about the LNG industry, is it fair to expect you to only place orders if they are backed by long-term contracts? For the Alaska LNG project, I believe that's the case, but would you be willing to take speculative orders for other projects?

No, I think if we wanted to take speculative orders, we would have done it. We want to tie up the orders together with the LNG production out of Alaska. The project is progressing. There are some kind of legislative arrangements that need to be performed. before FID is given and the project is running full steam, which we expect sometime in September.

Okay, perfect. Thank you for the call. Thank you for taking my questions and congratulations for the quarter.

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

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

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