Danaos Corp Q1 FY2026 Earnings Call

Good day and welcome to Danaos Corporation conference call to discuss the financial results for the three months ended 03/31/2026. As a reminder, today's call is being recorded. Hosting the call today are Dr. John Coustas, Chief Executive Officer of Danaos Corporation, and Mr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation. Dr. Coustas and Mr. Chatzis will be making some introductory comments, and we will then open the call for a question-and-answer session.

Thank you, operator. Good morning, everyone, and thank you for joining us today. Before we begin, I quickly want to remind everyone that our 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 the 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 2026. This quarter was shaped by the unprecedented events in the Gulf and the closure of the Strait of Hormuz, a situation that is still unfolding, but which we hope will be resolved in the coming weeks. The disruption has primarily benefited the tanker sector where rates spiked sharply before quickly normalizing. In the container sector, the disruption helped stabilize and lift certain box rates; however, it did not have a significant effect. Two of our vessels currently remain in the Gulf, but this does not affect our earnings as both vessels continue to be on charter. The drybulk market has improved considerably and continues to strengthen. Our optimistic outlook for this market prompted us to expand our order book to four Newcastlemaxes for 2028 delivery. We also ordered two 5,000 TEU container ships for 2027 delivery, both of which are backed by three-year charters. Together with charter arrangements for our existing fleet, these additions position us with a pro forma fleet of 104 container ships and 15 Capesize and Newcastlemax vessels with a $4.1 billion contracted revenue backlog. Combined with €1.3 billion of liquidity, this positions us to continue pursuing accretive opportunities as they arise. Resolution of the conflicts in the Gulf and Ukraine should bring meaningful stability for years to come, absent new initiatives by the major global powers. Last year's developments demonstrated that globalization remains resilient and that protectionism is likely to be the exception rather than the rule going forward. Trade is becoming increasingly multilateral, which benefits the midsized containership segment in which we are actively investing. Together with a disciplined expansion strategy, we believe these dynamics will continue to drive improving profitability and create value for our shareholders. With that, I hand the call back over to Evangelos, who will take you through the financials for the quarter. Evangelos?

Thank you, John, and good morning again to everyone. I will briefly review the results for the quarter and then open the call to Q&A. We are reporting adjusted EPS for this quarter of $6.72 per share, or net income of $122.5 million, compared to adjusted EPS of $6.04 per share, or adjusted net income of $113.4 million, in the corresponding 2025 period. This $9.1 million increase in adjusted net income between the two quarters is a combined result of a $0.4 million increase in operating revenues, a $4.4 million improvement in total operating expenses, a $2.4 million improvement in net finance expenses, combined with a $2 million increase in dividend income, partially offset by a $0.1 million increase in loss on equity investments. Operating revenues of our containership fleet decreased by $6.6 million as a result of a $6.9 million decrease due to lower contracted charter rates and $7.2 million decrease due to lower non-cash U.S. GAAP revenue recognition accounting; these were partially offset by a $3.9 million increase in revenues as a result of newbuild containership vessel additions, and $3.6 million of incremental revenues as a result of improved container fleet utilization between the two quarters. Operating revenues of our drybulk fleet deployed in the spot market increased by $7 million, primarily due to a significant improvement in key time charter equivalent earnings that averaged $24.8 thousand per day during this quarter compared to approximately $10.5 thousand per day for 2025. Vessel operating expenses dropped by $1.7 million to $50 million in the current quarter from $51.7 million in 2025 despite the increase in the average number of vessels in our fleet. This improvement was mainly driven by lower repairs and maintenance expenses, with our daily operating costs declining to $6.68 thousand per vessel per day for this quarter compared to $7.03 thousand per vessel per day in 2025. Our operating costs continue to remain among the most competitive in the industry. G&A expenses increased by $2.4 million to $14.6 million in the current quarter compared to $12.2 million in 2025. This is mainly attributable to $1.3 million in higher management fees driven by the increase in the average number of vessels in our fleet, as well as a $1.1 million increase in corporate G&A. Interest expense excluding finance costs and debt finance cost amortization increased by $1.7 million to $10.9 million in the current quarter compared to $9 million in the first quarter of last year. This increase is a combined result of a $4.5 million increase in interest expense due to higher average indebtedness between the two periods by $330 million, and that was partially offset by a reduction in the cost of debt service by approximately 50 basis points mainly as a result of reduced swap rates. We also have a $2.8 million reduction in interest expense due to higher capitalized interest on vessels under construction between the two periods. At the same time, interest income came in at $7.6 million versus $3.6 million in the corresponding 2025 period, mainly due to higher average cash balances. Adjusted EBITDA increased by 5.2%, or by $8.9 million, to $180.6 million in the current quarter from $171.7 million in 2025 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 all subsequent events disclosures. Since the date of our last earnings release, we have added $120 million to our contracted revenue backlog. As a result, our contracted revenue backlog for our containership fleet now stands at $4.1 billion with a 4.2-year average charter duration. Contract coverage stands at 100% for the remainder of this year, 88% for 2027, and 65% for 2028. Our investor presentation has analytical disclosure on our contract charter book. As of 03/31/2026, our net debt stood at $170 million, which translates to a net debt to adjusted EBITDA ratio of 0.2x, while 67 out of our 86 vessels are unencumbered and debt free, and an additional 12 unencumbered vessels that secure our revolving credit facility are also debt free. We have declared a dividend of $0.90 per share for this quarter and we currently have $65 million remaining authority to repurchase stock under our $300 million share repurchase program. Finally, as of the end of Q1 2026, cash stood at $900 million while total liquidity, including availability under our revolving credit facility and marketable securities, stood at €1.3 billion, giving us ample flexibility to pursue accretive capital deployment opportunities. 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. You may press *1 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, you may do so. At this time, we will pause momentarily to assemble our roster. Our first question comes from Omar Nokta with Clarksons. Please go ahead.

Thank you. Hi, John and Evangelos. Good afternoon. I have a couple of things. Welcome back, and thank you, sir. Just a couple of items on my side. I wanted to ask about investments from here. Your last couple of investments outside of your core focus seem to be in LNG — both the stake in ZIM and your investment in the Alaska LNG project earlier this year. Is this a concerted effort on your part to get a bit deeper into LNG? Should we be expecting more of this type of investment going forward?

Yes. I think, in general, the energy sector is our next point of focus. As we see geopolitically, there are a lot of changes in that area, so we are following it very closely, and we try to address it from every angle — both from the angle of transportation and also from the angle of LNG production itself, which is going to give us access to the transportation as well.

Okay, that is helpful. Thank you. And then, just maybe in terms of what we are seeing in the container shipping market: your revenue backlog is at $4.1 billion, which is obviously very strong. Historically, it is a little bit down from where you were last quarter, which I think was $4.3 billion. In general, it looks like backlog additions maybe have been a bit leaner these past couple of months, even though the time charter indexes are at or near all-time highs. What are you seeing at the moment in terms of liner interest for more charter coverage from here?

From what you see from the profile, practically all of 2026 and 2027 are almost fixed; we have very, very little open thereafter. For liner companies to start discussing 2028 ships now might be a bit premature, especially for secondhand tonnage. So I do not think this really signifies anything else apart from that we have been fixing quite a lot in this period of time. It is just circumstantial.

Okay, that certainly makes sense. Just noting that there is not much available to be booked in the next several quarters. And maybe one final question: thoughts on the share buyback? You have obviously historically been quite active on that front. You bought a bit during the first quarter, but not at the same pace we saw in the fourth quarter. I guess that makes sense given the shares have been hitting 52-week highs frequently. How are you thinking about the buyback from here? I guess in the context of two things: one, the shares are obviously at their highs — do you think about the buyback from that perspective? And two, from the perspective of asset value on an NAV basis, where there may be a discount and perhaps a high free cash flow yield. How are you balancing those two considerations with respect to the buyback?

We still have the authority for another $65 million. We are monitoring the situation closely. The stock has done a terrific run over the last few months and we are at kind of an all-time high. Although we still believe that the stock is deeply undervalued, we are being more cautious about continuing purchases during this rally. We will continue to evaluate opportunistically.

Okay, that is fair. Thank you for that color, John and Evangelos. I will pass it back.

Thank you.

Thank you. Our next question comes from Clement Molins with Value Investor's Edge. Please go ahead.

Hi, good afternoon and thank you for taking my questions. Omar already covered a lot of ground, but I wanted to ask about utilization on the Capesize side of the fleet. Could you talk a bit about the drivers behind the significant scheduled off-hire for the quarter? Was it mostly dry-dockings? And secondly, could you remind us about the dry-docking schedule for the remainder of the year?

Yes. It was two vessels that were dry-docked in Q1. I do not have the complete schedule offhand, but I do not think we have any more scheduled dry-dockings for the remainder of this year.

Okay, that is helpful. And all the off-hire days were attributable to those two dry-docking events?

Yes, correct.

Okay, very helpful. Thank you. I'll turn it over.

Thank you. As a reminder, 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 for your continued interest in our story. We look forward to hosting you on our next earnings call. Have a nice day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.