Danaos (DAC) Q2 2026 earnings call transcript

I would now like to turn the conference over to Evagelis Khadziz, 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 have future results are discussed in our findings 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 Kustos 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 finance for our new building program. This quarter, we saw significant contribution from our dry bulk investment as capesize 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 1800TU new buildings. With 78 of our 87 operating vessels head head not free and possibly 1 billion we remain in the 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 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. Our last 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 measure 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 are further 0.6 million. Offsetting this were a 3.4 million reduction in non-cash revenue recognition under US GAAP and the 1.2 million effect from higher off-hack charges during this period.

Drive-out 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 drive-out market. Our website 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 EB9 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, I will now turn the call over to management for the Danaos Corp. The interest 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 GMA. 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 stoffer 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 or 10 million to 186 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 event 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 2027. 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 undrawn.

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.

Hi, Omar. Hi, John.

Well, you know, the actual, let's say, risk of new investments at elevated prices is becoming higher. And, you know, of course, growing is extremely easy. I think, 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 clearly looking at all this. We have executed our growth at times where prices were more reasonable, and availability of long-term charters was at much more accretive rates.

I mean, nowadays, we are very careful. We have positioned ourselves where we want it, and we'll take it as it goes.

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. You know, in general, we have not been there for spectacular dividend rises. However, you know, this is something to discuss for the next quarter.

Okay. Thanks very much.

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.

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.

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.