Financial Data and Key Metrics - Cash position at the end of Q3 was $306 million, with total liquidity, including the revolving credit facility, standing at $655 million, providing significant flexibility for capital deployment [1] - Net debt decreased to $111 million as of September 30, 2023, with a net debt to adjusted EBITDA ratio of 0.16x, and 48 out of 72 vessels being unencumbered and debt-free [18] - Adjusted net income decreased by $33.9 million to $143 million in Q3 2023 compared to $176.9 million in Q3 2022, primarily due to the absence of a $23.2 million ZIM dividend recognized in the prior year [31] - Adjusted EBITDA decreased by 16.5% or $35.1 million to $178 million in Q3 2023, mainly due to the non-recurrence of the ZIM dividend [34] - Interest expense decreased by $9.3 million to $3.8 million in Q3 2023, driven by significant deleveraging and a $5.8 million reduction due to lower average indebtedness [21][33] Business Line Data and Key Metrics - The company secured $178 million in contracted revenue through new charters for six container ships, including $103 million for two 13,000 TEU vessels and $68 million for two 10,000 TEU vessels [17][35] - Charter coverage for 2024 increased to 90%, with a contracted revenue backlog of $2.5 billion and an average charter duration of 3.2 years [27][35] - Vessel operating expenses increased by $300,000 to $39.5 million in Q3 2023, driven by inflationary pressures on repairs, maintenance, and insurance premiums [32] - G&A expenses decreased slightly to $7.1 million in Q3 2023 compared to $7.2 million in Q3 2022 [21] Market Data and Key Metrics - The container transport market stagnated in Q3 2023 due to inventory destocking and weak retail sales, leading to a dramatic decrease in liner company profitability [25] - Charter rates for vessels smaller than 3,000 TEU returned to pre-pandemic levels, while rates for larger vessels remained stable due to scarcity of open tonnage for 2024 [26][27] - The dry bulk market showed resilience, with the company achieving rates well ahead of expectations for its newly delivered capesize bulk carriers [28] Company Strategy and Industry Competition - The company is pursuing opportunities in both the container and dry bulk sectors, with a focus on the Cape sector and investments in Eagle Bulk for dry bulk, and new building and modern eco vessels for containers [5][6] - The company’s strategy of deleveraging has been effective, shielding it from high interest costs and providing flexibility in capital allocation [18][29] - The company increased its quarterly dividend to $0.80 per share and authorized an additional $100 million in share buybacks, having returned over $200 million to shareholders in the last 18 months [30] Management Commentary on Operating Environment and Future Outlook - Management highlighted significant uncertainty in the market and emphasized the need to be near the bottom of the market before engaging in large-scale investments [6] - The company expects charter rates in the dry bulk market to remain under pressure in the near term but will monitor the market for opportunistic expansion [28] - Management noted that liner companies are still cash-rich, but the possibility of charter amendments and extensions could increase earnings visibility in the future [10] Other Important Information - The company capitalized $3.5 million in interest expense related to vessels under construction, with interest income of $3.1 million covering over 80% of interest expense for the quarter [16] - The company’s investor presentation and updated disclosures are available on its website for further details [34][35] Q&A Session Summary Question: Opportunities in Dry Bulk and Container Markets - The company is actively pursuing opportunities in both dry bulk and container markets, with a focus on the Cape sector and modern eco vessels [4][5] - Management noted that some companies are looking to disengage from the container market due to expiring charters and a challenging environment, creating potential opportunities [8] Question: Charter Amendments and Extensions - The company has not yet seen significant requests for charter amendments or extensions but noted that such deals could be beneficial for increasing earnings visibility [9][10] Question: Market Activity for Modern Eco Vessels - Management observed that some companies are looking to sell modern eco vessels as charters expire, indicating potential opportunities in the market [7][8]

OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements (unaudited) and the notes thereto included elsewhere in this report. Results of Operations Three months ended September 30, 2023 compared to three months ended September 30, 2022 During the three months ended September 30, 2023, Danaos had an average of 68.0 container vessels compared to 71.0 container vessels during the three months en ...

Financial Data and Key Metrics Changes - Adjusted net income for Q2 2023 was $143.4 million, or $7.14 per share, down from $157.1 million, or $7.59 per share, in Q2 2022, primarily due to the absence of a $13.9 million ZIM dividend recognized in the previous year [19][21] - Adjusted EBITDA decreased by 7.7% to $177.3 million from $192.1 million in the same quarter last year [21] - Interest expense decreased significantly to $5.3 million from $12.9 million in Q2 2022, attributed to a reduction in average indebtedness by nearly $700 million [20] - Net debt as of June 30, 2023, was reduced to $131 million, with a net debt to adjusted EBITDA ratio of 0.2 times [25] Business Line Data and Key Metrics Changes - Vessel operating expenses increased by $1.3 million to $41.9 million, with average daily vessel operating costs rising to $6,970 from $6,463 due to inflationary pressures [11] - The company secured $469 million in contracted revenue through new charters for 12 container ships, increasing the total charter backlog to $2.5 billion with a 3.3-year average charter duration [13][15] Market Data and Key Metrics Changes - The container market experienced a drop of over 50% compared to the previous year, yet the company managed to maintain operating revenues of $241 million, close to previous records [15] - The order book for vessels is at historically low levels, with fleet supply growth projected to decline significantly in the coming years against rebounding demand [8] Company Strategy and Development Direction - The company is committed to advancing its decarbonization strategy by retrofitting existing vessels and ordering new vessels that are methanol-ready [7] - The strategy includes opportunistic capital deployment in the dry bulk market, with a focus on acquiring assets at attractive prices [16][18] - The company aims to maintain its core business in container shipping while cautiously expanding into the dry bulk sector [34] Management's Comments on Operating Environment and Future Outlook - Management noted a stagnating world economy affecting the container market, but emphasized the resilience of the business model [6] - The company is focused on investing in green technologies and believes that those who do not adapt to the changing regulatory environment will face challenges [29] - Future capital deployment will prioritize modern tonnage and newbuildings, with dry bulk being a potential area for growth [44] Other Important Information - The company has spent $65.5 million of its $100 million buyback program, retiring over one million shares [4] - Cash as of the end of Q2 2023 was $293 million, with total liquidity of $653 million, providing flexibility for capital deployment [26] Q&A Session Summary Question: What has changed to give the company confidence to deploy capital aggressively? - Management indicated that they are deploying capital where they see interesting returns, particularly in green fuel-capable ships and the dry bulk market, which has favorable fundamentals [28][30] Question: Is the investment in dry bulk a long-term strategy or opportunistic? - Management clarified that while they see potential in dry bulk, it will not dominate the business, and they will be cautious in capital deployment [34][41] Question: What are the intentions regarding the Eagle investment? - The company expressed concerns about Eagle's corporate governance following recent board actions and is seeking clarification [17][38] Question: How will the company operate the newly acquired dry bulk vessels? - The company plans to operate the vessels in-house, potentially using hedging strategies if necessary, but will start by trading them in the spot market [40]

[Operating and Financial Review and Prospects](index=1&type=section&id=OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides a comprehensive overview of the company's financial performance, liquidity, capital structure, strategic investments, and fleet composition [Results of Operations](index=1&type=section&id=Results%20of%20Operations) Operational results show mixed performance with Q2 2023 revenue decline and H1 2023 marginal increase, impacted by investment swings and lower interest expense [Three months ended June 30, 2023 vs 2022](index=1&type=section&id=Three%20months%20ended%20June%2030%2C%202023%20compared%20to%20three%20months%20ended%20June%2030%2C%202022) Q2 2023 saw a 3.7% revenue decline, increased operating expenses, and a significant positive swing in investment gains offsetting prior-year losses Q2 2023 vs Q2 2022 Key Financial Metrics | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | $241.5M | $250.9M | -3.7% | | Vessel Operating Expenses | $41.9M | $40.6M | +3.2% | | Interest Expense | $5.9M | $16.1M | -63.4% | | Gain/(Loss) on Investments | $6.4M | ($168.6M) | N/A | | Dividend Income | $0 | $16.2M | -100% | - The decrease in operating revenue was a net result of a **$5.5 million** increase from higher charter rates, offset by a **$5.4 million** decrease from vessel disposals and a **$9.8 million** decrease from amortization of assumed time charters[7](index=7&type=chunk) - Fleet utilization was **98.7%** for an average of **68.0** containerships in Q2 2023, compared to **99.9%** for **71.0** ships in Q2 2022[3](index=3&type=chunk) - The average daily operating cost per vessel increased to **$6,970** from **$6,463** in the prior-year quarter, mainly due to higher repair and maintenance expenses[6](index=6&type=chunk) [Six months ended June 30, 2023 vs 2022](index=3&type=section&id=Six%20months%20ended%20June%2030%2C%202023%20compared%20to%20six%20months%20ended%20June%2030%2C%202022) H1 2023 operating revenues rose 0.9% due to higher charter rates, while net income was impacted by investment gains and the absence of ZIM dividends H1 2023 vs H1 2022 Key Financial Metrics | Metric | H1 2023 | H1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | $485.0M | $480.8M | +0.9% | | Vessel Operating Expenses | $82.5M | $79.7M | +3.5% | | Interest Expense | $12.6M | $33.2M | -62.0% | | Gain/(Loss) on Investments | $6.4M | ($69.1M) | N/A | | Dividend Income | $0 | $138.4M | -100% | - The increase in operating revenue was primarily due to a **$35.9 million** gain from higher charter rates, which was partially offset by decreases of **$8.7 million** from vessel disposals and **$20.0 million** from amortization of assumed time charters[22](index=22&type=chunk) - Fleet utilization was **97.8%** for an average of **68.2** containerships in H1 2023, compared to **98.7%** for **71.0** ships in H1 2022[20](index=20&type=chunk) - The company recorded a **$1.6 million** gain on the sale of the vessel Amalia C in January 2023[27](index=27&type=chunk) [Liquidity and Capital Resources](index=6&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$293.3 million** cash and **$360.0 million** available credit, supported by **$2.5 billion** in contracted revenues Liquidity Position as of June 30, 2023 | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $293.3M | | Available borrowing capacity | $360.0M | | Total contracted cash revenues | $2.5B | | Outstanding indebtedness (gross) | $424.3M | - Principal sources of funds include operating cash flows, vessel sales, bank borrowings, and proceeds from the divested ZIM investment[37](index=37&type=chunk) - The company has significant contractual commitments for ten newbuilding vessels, with remaining payments totaling **$634.4 million** as of June 30, 2023[43](index=43&type=chunk) [Shareholder Returns and Capital Allocation](index=10&type=section&id=Shareholder%20Returns%20and%20Capital%20Allocation) The company actively returns capital through a **$0.75** per share quarterly dividend and a **$100 million** share repurchase program - A regular quarterly dividend of **$0.75** per share was declared, payable on September 1, 2023[45](index=45&type=chunk) - The company has a **$100 million** share repurchase program. In H1 2023, **597,697** shares were repurchased for **$36.0 million**. Subsequent to quarter-end, an additional **15,895** shares were bought back for **$1.0 million**[46](index=46&type=chunk) [Investments and Strategic Initiatives](index=10&type=section&id=Investments%20and%20Strategic%20Initiatives) The company diversified investments by acquiring a **$68.2 million** stake in Eagle Bulk, investing in decarbonization R&D, and agreeing to acquire five Capesize bulk carriers - Acquired **1,552,865** shares of Eagle Bulk Shipping Inc. (Ticker: EGLE) for **$68.2 million**, which were valued at **$74.6 million** as of June 30, 2023, resulting in a **$6.4 million** unrealized gain[47](index=47&type=chunk) - Invested **$4.3 million** for a **49%** ownership interest in Carbon Termination Technologies Corporation (CTTC), a new company focused on decarbonization R&D for the shipping industry[49](index=49&type=chunk) - In July 2023, reached an agreement in principle to acquire **5** Capesize bulk carriers for a total of **$103 million**, with expected delivery between September and October 2023[50](index=50&type=chunk) - The company fully divested its holdings in ZIM Integrated Shipping Services in 2022, selling the remaining shares for **$161.3 million** in September 2022[48](index=48&type=chunk) [Cash Flow Analysis](index=12&type=section&id=Cash%20Flow%20Analysis) H1 2023 operating cash flow significantly decreased to **$280.6 million** due to absent ZIM dividends and prior-year prepayments, while investing activities shifted to a net cash outflow Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 (In thousands) | 2022 (In thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $280,606 | $620,478 | | Net cash provided by/(used in) investing activities | $(100,277) | $14,286 | | Net cash used in financing activities | $(154,666) | $(431,947) | - The decrease in operating cash flow was mainly due to the absence of **$126.6 million** in ZIM dividends and a **$261.4 million** decrease in cash operating revenues related to a charter prepayment that occurred in 2022[53](index=53&type=chunk) - The shift to cash used in investing activities was driven by **$74.4 million** in net investments (including Eagle Bulk) and the absence of **$85.3 million** in proceeds from ZIM share sales that occurred in 2022[54](index=54&type=chunk) [Non-GAAP Financial Measures](index=14&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA decreased by **$105.3 million** to **$356.3 million** in H1 2023, primarily due to the non-recurrence of ZIM dividend income Reconciliation of Net Income to Adjusted EBITDA (Six Months Ended June 30) | Metric (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $293,222 | $339,689 | | EBITDA | $362,189 | $429,707 | | Adjusted EBITDA | $356,366 | $461,632 | - The decrease in Adjusted EBITDA was mainly due to the non-recurrence of the ZIM dividend, partially offset by a **$24.2 million** increase in operating revenues (excluding amortization of assumed time charters)[62](index=62&type=chunk) [Debt and Financing Structure](index=16&type=section&id=Debt%20and%20Financing%20Structure) As of June 30, 2023, total outstanding debt was **$424.3 million**, with **$360.0 million** available under a revolving credit facility and **44** unencumbered vessels Outstanding Principal Debt as of June 30, 2023 | Credit Facility | Outstanding Principal (in millions) | | :--- | :--- | | BNP Paribas/Credit Agricole Facility | $110.0 | | Alpha Bank Facility | $51.5 | | Citibank Revolving Credit Facility | $0 | | Senior Notes | $262.8 | - As of June 30, 2023, **44** of the company's vessels were unencumbered[64](index=64&type=chunk) - The **8.500%** Senior Notes mature on March 1, 2028. The company repurchased **$37.2 million** of these notes in December 2022[65](index=65&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) [Market Risk and External Factors](index=12&type=section&id=Market%20Risk%20and%20External%20Factors) The company faces market risks from interest rate fluctuations, inflation, geopolitical conflicts, and the inherent volatility of its newly entered dry bulk shipping sector - Elevated inflation and rising interest rates may increase operating expenses and the cost of capital[71](index=71&type=chunk) - The conflict in Ukraine adversely affects crewing operations and global trade, creating economic uncertainty[51](index=51&type=chunk) - The company highlights the cyclical and volatile nature of the dry bulk shipping industry as a new risk factor following its recent acquisitions in the sector[86](index=86&type=chunk) - The company currently has no outstanding interest rate swap agreements to hedge against interest rate fluctuations[69](index=69&type=chunk) [Capitalization](index=18&type=section&id=Capitalization) As of June 30, 2023, total capitalization was **$3.21 billion**, comprising **$424.3 million** in debt and **$2.79 billion** in stockholders' equity Consolidated Capitalization as of June 30, 2023 (Actual) | Category | Amount (US Dollars in thousands) | | :--- | :--- | | Total debt | $424,266 | | Total stockholders' equity | $2,789,482 | | **Total capitalization** | **$3,213,748** | [Fleet Profile](index=20&type=section&id=Fleet%20Profile) As of August 3, 2023, the fleet comprises **68** containerships, with **10** newbuilds under construction and an agreement to acquire **5** Capesize dry bulk vessels - The fleet deployment profile as of August 3, 2023, details charter arrangements for **68** vessels with various charterers like HMM, Hapag Lloyd, MSC, and CMA CGM[78](index=78&type=chunk) - There are **10** containerships under construction, ranging in size from **6,014 TEU** to **8,258 TEU**, with deliveries scheduled from Q3 2024 to Q4 2026[84](index=84&type=chunk) - The company has agreed to acquire **5** Capesize dry bulk vessels, built between 2010 and 2012, with an aggregate capacity of **879,306 DWT**[82](index=82&type=chunk) [Financial Statements and Notes (Unaudited)](index=28&type=section&id=Financial%20Statements%20and%20Notes%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements and detailed notes on key accounting policies, balances, and contractual commitments [Condensed Consolidated Financial Statements](index=29&type=section&id=Condensed%20Consolidated%20Financial%20Statements) Unaudited H1 2023 financial statements show stable assets, decreased liabilities to **$695.0 million**, increased equity to **$2.79 billion**, and net income of **$293.2 million** Condensed Consolidated Balance Sheet Highlights | Metric (in thousands) | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $487,783 | $372,521 | | Total assets | $3,484,432 | $3,400,228 | | Total current liabilities | $185,072 | $228,407 | | Total liabilities | $694,950 | $839,814 | | Total stockholders' equity | $2,789,482 | $2,560,414 | Condensed Consolidated Statement of Income Highlights (Six Months Ended) | Metric (in thousands) | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Operating Revenues | $485,053 | $480,824 | | Income From Operations | $302,097 | $296,888 | | Net Income | $293,222 | $339,689 | | Diluted EPS | $14.51 | $16.40 | [Key Notes to Financial Statements](index=34&type=section&id=Key%20Notes%20to%20Financial%20Statements) Key notes detail **$634.4 million** in new vessel commitments, **$2.55 billion** in future charter revenues, and **$36.0 million** in H1 2023 share repurchases - The company has remaining contractual commitments of **$634.4 million** for vessel construction as of June 30, 2023[118](index=118&type=chunk) - In January 2023, the company gave early termination notice and fully repaid its outstanding leaseback obligation on May 12, 2023, resulting in a **$2.3 million** loss[124](index=124&type=chunk) - Future minimum payments expected to be received on non-cancellable time charters totaled **$2.55 billion** as of June 30, 2023[152](index=152&type=chunk) - Under its share repurchase program, the company repurchased **597,697** shares for **$36.0 million** in the six months ended June 30, 2023[146](index=146&type=chunk)

Danaos Corporation (NYSE:DAC) Q1 2023 Earnings Conference Call May 16, 2023 9:00 AM ET Company Participants Evangelos Chatzis - Chief Financial Officer John Coustas - Chief Executive Officer Conference Call Participants Omar Nokta - Jefferies Climent Molins - Value Investor’s Edge Operator Good day and welcome to the Danaos Corporation Conference Call to discuss the Financial Results for Three Months Ended March 31st, 2023. As a reminder, today’s call is being recorded. Hosting the call today is; Dr. John C ...

EXHIBIT 99.1 DANAOS CORPORATION OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements (unaudited) and the notes thereto included elsewhere in this report. Results of Operations Three months ended March 31, 2023 compared to three months ended March 31, 2022 During the three months ended March 31, 2023, Danaos had an average of 68.3 containerships compared to 71.0 containerships during the t ...

[Forward-Looking Information](index=5&type=section&id=FORWARD-LOOKING%20INFORMATION) This section outlines forward-looking statements, their inherent risks, and key factors that could affect future financial results - This report contains forward-looking statements based on management's current expectations and projections. These statements are identified by words such as "anticipate," "believe," "expect," and are subject to various risks and uncertainties that could cause actual results to differ materially[14](index=14&type=chunk)[15](index=15&type=chunk) - Key factors that could affect future financial results include, but are not limited to: future operating results, the impact of the COVID-19 pandemic and the war in Ukraine, business strategies, market conditions, charter rates, financial condition and liquidity, performance of charterers, changes in regulations, and potential litigation[15](index=15&type=chunk) [PART I](index=6&type=section&id=PART%20I) [Item 3. Key Information](index=6&type=section&id=Item%203.%20Key%20Information) This section details the company's capitalization and outlines significant business, financial, and regulatory risks [Capitalization and Indebtedness](index=6&type=section&id=Capitalization%20and%20Indebtedness) As of December 31, 2022, Danaos Corporation reported total debt of **$510.9 million** and stockholders' equity of **$2.56 billion** Consolidated Capitalization as of December 31, 2022 | | Actual (in thousands) | As Adjusted (in thousands) | | :--- | :--- | :--- | | **Debt:** | | | | Senior unsecured notes | $262,766 | $262,766 | | BNP Paribas/Credit Agricole $130 mil. Facility | $120,000 | $115,000 | | Alpha Bank $55.25 mil. Facility | $55,250 | $53,375 | | Leasing obligations | $72,925 | $68,590 | | **Total debt** | **$510,941** | **$499,731** | | **Stockholders' equity:** | | | | Common stock | $203 | $203 | | Additional paid-in capital | $748,109 | $748,109 | | Accumulated other comprehensive loss | ($74,209) | ($74,209) | | Retained earnings | $1,886,311 | $1,886,311 | | **Total stockholders' equity** | **$2,560,414** | **$2,560,414** | | **Total capitalization** | **$3,071,355** | **$3,060,145** | [Risk Factors](index=8&type=section&id=RISK%20FACTORS) The company faces significant risks from market volatility, customer concentration, substantial debt, and regulations - The company's profitability is highly dependent on the cyclical and volatile containership market. Charter rates, which reached all-time highs in 2021, declined to pre-pandemic levels by the end of 2022. For example, the one-year daily rate for a 4,400 TEU Panamax containership fell from $100,000 at the end of 2021 to $24,300 at the end of December 2022[37](index=37&type=chunk) - A significant portion of revenue comes from a limited number of customers. In 2022, approximately **73%** of operating revenues were generated by six customers, with CMA CGM, MSC, and HMM accounting for **26%**, **13%**, and **12%**, respectively[50](index=50&type=chunk) - The company has substantial debt of **$510.9 million** as of December 31, 2022. Credit facilities contain financial covenants, including maintaining specified collateral coverage ratios, which could be breached if vessel values decline or charter rates fall, potentially leading to debt acceleration[98](index=98&type=chunk)[95](index=95&type=chunk) - The company is subject to increasing environmental regulations, such as the IMO's **0.5%** sulfur cap on marine fuel and new energy efficiency (EEXI) and carbon intensity (CII) standards, which could require significant capital expenditures and increase operating costs[109](index=109&type=chunk)[113](index=113&type=chunk) - As a foreign corporation, the company may be subject to a **4%** U.S. federal income tax on its U.S.-source shipping income if it does not qualify for an exemption under Section 883 of the U.S. Internal Revenue Code. There is also a risk of being classified as a Passive Foreign Investment Company (PFIC), which could result in adverse U.S. tax consequences for U.S. stockholders[164](index=164&type=chunk)[167](index=167&type=chunk) [Item 4. Information on the Company](index=48&type=section&id=Item%204.%20Information%20on%20the%20Company) Danaos Corporation owns 68 containerships and 6 newbuildings, chartered long-term, managed by a related party, and subject to extensive regulations [Business Overview and Fleet](index=50&type=section&id=Business%20Overview%20and%20Fleet) Danaos owns 68 containerships and 6 newbuildings, with **$2.1 billion** in contracted revenues and **3.4 years** average charter duration Fleet and Contracted Revenue Status | Metric | Value | | :--- | :--- | | **Operating Fleet (as of Mar 7, 2023)** | 68 containerships | | Total TEU Capacity | 421,293 TEU | | **Newbuildings (as of Mar 7, 2023)** | 6 containerships | | Total Newbuild TEU Capacity | 46,200 TEU | | **Contracted Revenue (as of Dec 31, 2022)** | ~$2.1 billion | | Average Remaining Charter Duration | 3.4 years (weighted) | - The company has **6** containerships under construction, with expected delivery in 2024. These include two **7,100 TEU** vessels and four **8,000 TEU** vessels[184](index=184&type=chunk) - In 2022, the company sold two vessels, Catherine C and Leo C, for gross proceeds of **$130 million**. It also agreed to sell the Amalia C, which was delivered in January 2023[183](index=183&type=chunk) - The company sold its remaining **7,186,950** ordinary shares of ZIM for net proceeds of **$246.6 million** in 2022 and received **$147.1 million** in dividends from ZIM during the year[186](index=186&type=chunk) [Management and Competition](index=57&type=section&id=Management%20and%20Competition) The company's fleet is managed by a related party, competing in a highly competitive market where its large fleet and long-term contracts are key advantages - Operations are managed by Danaos Shipping Co. Ltd., an entity affiliated with CEO Dr. John Coustas, under a management agreement with a term expiring on December 31, 2024[190](index=190&type=chunk)[194](index=194&type=chunk) Management Fees for 2023 | Fee Type | Amount | | :--- | :--- | | Daily Management Fee | $850 | | Daily Vessel Fee (Time Charter) | $850 | | Daily Vessel Fee (Bareboat Charter) | $425 | | Commission on Freight/Charter Hire | 1.25% | | Fee on Vessel Sale/Purchase | 0.5% of contract price | | Newbuilding Supervision Fee | $725,000 per vessel | - The company faces substantial competition from experienced shipping companies, including state-sponsored entities and those financed by the German KG system, which may offer lower charter rates due to tax benefits[199](index=199&type=chunk)[76](index=76&type=chunk) [Regulation and Compliance](index=59&type=section&id=Regulation%20and%20Compliance) The company's operations are subject to extensive international and U.S. environmental, safety, and security regulations - All vessels must be certified as "in class" by a classification society, requiring annual, intermediate, and special surveys. For 2023, **24** vessels are scheduled for drydocking[203](index=203&type=chunk)[137](index=137&type=chunk)[209](index=209&type=chunk) - The company is subject to IMO regulations, including the global **0.5%** sulfur cap on marine fuel (effective Jan 2020) and new energy efficiency (EEXI) and carbon intensity (CII) rules aimed at reducing greenhouse gas emissions, which came into force in January 2023[226](index=226&type=chunk)[251](index=251&type=chunk) - Compliance with U.S. environmental laws is critical, including the Oil Pollution Act (OPA), which imposes strict liability for oil spills, and the Clean Water Act (CWA), which regulates ballast water discharges through the Vessel General Permit (VGP)[230](index=230&type=chunk)[241](index=241&type=chunk) - Vessel security is managed under the International Ship and Port Facilities Security (ISPS) Code and the U.S. Maritime Transportation Security Act (MTSA), requiring security plans and certifications. The company must also address maritime cyber risks in its Safety Management Systems as of January 2021[256](index=256&type=chunk)[259](index=259&type=chunk) [Item 5. Operating and Financial Review and Prospects](index=76&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) This section analyzes financial performance, noting **44.1%** revenue growth to **$993.3 million**, decreased net income due to ZIM share losses, and significant debt reduction [Results of Operations](index=87&type=section&id=Results%20of%20Operations) Operating revenues rose **44.1%** to **$993.3 million** in 2022, but net income fell to **$559.2 million** due to ZIM investment losses Consolidated Financial Highlights (Years ended Dec 31) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Operating revenues** | **$993,344** | **$689,505** | **$461,594** | | Income from operations | $653,436 | $358,259 | $199,480 | | **Net income** | **$559,210** | **$1,052,841** | **$153,550** | | Diluted EPS | $27.28 | $51.15 | $6.45 | | **Adjusted EBITDA** | **$851,160** | **$508,803** | **$318,331** | - **2022 vs. 2021:** The **$303.8 million** (**44.1%**) increase in operating revenue was primarily driven by a **$260.6 million** increase from higher charter rates and a **$55.8 million** increase from newly acquired vessels. The significant drop in net income was mainly due to a loss on ZIM investments in 2022 compared to a large gain in 2021[312](index=312&type=chunk)[313](index=313&type=chunk)[323](index=323&type=chunk) - **2021 vs. 2020:** The **$227.9 million** (**49.4%**) increase in operating revenue was driven by a **$107.9 million** increase from higher charter rates and improved utilization, and a **$55.7 million** increase from new vessels. Net income surged due to these revenue gains and a **$543.7 million** gain on ZIM investments[333](index=333&type=chunk)[334](index=334&type=chunk)[344](index=344&type=chunk) [Liquidity and Capital Resources](index=96&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by operating cash flows, with **$267.7 million** cash and **$382.5 million** credit available, and debt significantly reduced to **$510.9 million** Cash Flow Summary (Years ended Dec 31) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $934,741 | $428,111 | $265,679 | | Net cash from/(used in) investing activities | $176,572 | ($143,148) | ($170,736) | | Net cash used in financing activities | ($973,401) | ($220,870) | ($168,450) | - Total outstanding debt (including leaseback obligations) was reduced by **$857.6 million** during 2022, from **$1,368.5 million** at year-end 2021 to **$510.9 million** at year-end 2022[354](index=354&type=chunk)[321](index=321&type=chunk) - The company has a share repurchase program of up to **$100 million**, under which it repurchased **466,955** shares for **$28.6 million** as of December 31, 2022[359](index=359&type=chunk) Contractual Obligations as of December 31, 2022 | (In thousands) | Total | Less than 1 year | 2 – 3 years | 4 – 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt obligations | $438,016 | $27,500 | $36,400 | $111,350 | $262,766 | | Long-term leaseback obligations | $72,925 | $27,469 | $45,456 | — | — | | Payments for newbuilding vessels | $343,839 | $31,200 | $312,639 | — | — | | Payments to our manager | $64,006 | $33,719 | $30,287 | — | — | [Critical Accounting Estimates](index=112&type=section&id=Critical%20Accounting%20Estimates) Vessel impairment is a critical accounting estimate, assessed by comparing carrying value to projected cash flows, with no impairment recorded in 2022 - The company evaluates vessels for impairment by comparing their carrying value to undiscounted projected net operating cash flows. This analysis is highly sensitive to assumptions about future charter rates for non-contracted periods[409](index=409&type=chunk) - For future charter rate estimates, management uses a benchmark of **5 to 15-year** historical averages to account for market volatility and cyclicality[412](index=412&type=chunk) - As of December 31, 2022, an impairment assessment was performed due to market volatility. The assessment concluded that no impairment was required for any vessel in the fleet[411](index=411&type=chunk)[415](index=415&type=chunk) [Item 6. Directors, Senior Management and Employees](index=118&type=section&id=Item%206.%20Directors%2C%20Senior%20Management%20and%20Employees) This section details the company's leadership, board structure, and compensation, including **€2.0 million** in executive cash compensation for 2022 Directors and Executive Officers (as of March 7, 2023) | Name | Age | Position | | :--- | :--- | :--- | | Dr. John Coustas | 66 | President and CEO and Class I Director | | Iraklis Prokopakis | 72 | Senior Vice President, COO, Treasurer and Class II Director | | Evangelos Chatzis | 49 | Chief Financial Officer and Secretary | | Dimitris Vastarouchas | 55 | Deputy Chief Operating Officer | | Petros Christodoulou | 62 | Class I Director | | Myles R. Itkin | 75 | Class I Director | | William Repko | 73 | Class III Director | | Richard Sadler | 61 | Class III Director | - Aggregate cash compensation for executive officers was **€2.0 million** (**$2.1 million**) for the year ended December 31, 2022. Non-cash share-based compensation expense for executives was **$5.4 million**[441](index=441&type=chunk) - A defined benefit retirement plan for executive officers was established effective December 14, 2022, with a prior service cost of **$14.2 million** recognized in Other Comprehensive Income[442](index=442&type=chunk) - The company has an equity compensation plan allowing for awards of common stock. In 2022, **100,000** fully vested shares were granted to executive officers[459](index=459&type=chunk)[464](index=464&type=chunk) [Item 7. Major Shareholders and Related Party Transactions](index=129&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) This section outlines related party transactions, primarily with Danaos Shipping Co. Ltd., the company's manager and largest shareholder - The company's manager, Danaos Shipping Co. Ltd., is ultimately owned by a trust for the benefit of CEO Dr. John Coustas and his family. This entity is also the company's largest stockholder[467](index=467&type=chunk) - Management fees paid to the Manager amounted to approximately **$21.9 million** in 2022, **$19.9 million** in 2021, and **$17.7 million** in 2020[469](index=469&type=chunk) - On July 1, 2021, the company acquired the remaining **51%** equity interest in Gemini Shipholdings Corporation from Virage International Ltd., a company controlled by its largest stockholder, for **$86.7 million** in cash[481](index=481&type=chunk) Major Shareholders (as of March 7, 2023) | Beneficial Owner | Number of Shares | Percentage of Common Stock | | :--- | :--- | :--- | | Danaos Investment Limited as Trustee of the 883 Trust | 9,048,502 | 44.5% | | RBF Capital LLC | 1,435,161 | 7.1% | | All executive officers and directors as a group (8 persons) | 9,315,502 | 45.8% | [Item 8. Financial Information](index=138&type=section&id=Item%208.%20Financial%20Information) This section refers to full financial statements, details legal proceedings including a **$597.9 million** claim against Hanjin Shipping, and outlines the company's dividend policy - The company has an unsecured claim of **$597.9 million** against the bankrupt Hanjin Shipping, which is not recognized on the balance sheet. A partial payment of **$3.9 million** on a separate common benefit claim was received in January 2021[497](index=497&type=chunk)[499](index=499&type=chunk)[500](index=500&type=chunk) - The company reinstated quarterly dividends in 2021. In 2022, it paid four quarterly dividends of **$0.75** per share. A dividend of **$0.75** per share was also declared for Q1 2023, payable in March 2023[502](index=502&type=chunk) [Item 10. Additional Information](index=140&type=section&id=Item%2010.%20Additional%20Information) This section details corporate structure, anti-takeover provisions, and tax implications as a Marshall Islands corporation, including potential U.S. federal income tax and PFIC risks - As of March 7, 2023, the company had **20,349,702** shares of common stock outstanding. Authorized capital consists of **750 million** common shares and **100 million** blank check preferred shares[507](index=507&type=chunk) - The company's articles of incorporation include several anti-takeover provisions, such as a classified board with staggered three-year terms, the ability to issue blank check preferred stock without shareholder approval, and prohibitions on certain business combinations with "interested stockholders" (owners of **15%** or more)[518](index=518&type=chunk)[519](index=519&type=chunk)[521](index=521&type=chunk)[526](index=526&type=chunk) - As a Marshall Islands corporation not conducting business there, the company is not subject to Marshall Islands income tax. However, its U.S.-source shipping income could be subject to a **4%** U.S. federal income tax unless it qualifies for an exemption under Section 883 of the U.S. tax code[534](index=534&type=chunk)[545](index=545&type=chunk) - There is a risk the company could be classified as a Passive Foreign Investment Company (PFIC), which would subject U.S. Holders to a disadvantageous tax regime unless they make a QEF or mark-to-market election. The company believes it was not a PFIC for the 2022 taxable year[567](index=567&type=chunk)[571](index=571&type=chunk) [Item 11. Quantitative and Qualitative Disclosures About Market Risk](index=165&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rate fluctuations and unhedged foreign currency exchange rates, with a 10 basis point rate increase impacting 2023 interest expense by **$145,000** - The company currently has no outstanding interest rate swap agreements. It previously used swaps for hedging, and deferred realized losses from these past hedges are being amortized into earnings, with **$3.6 million** reclassified in 2022[590](index=590&type=chunk)[597](index=597&type=chunk) - A sensitivity analysis indicates that a **10 basis point** (**0.10%**) increase in interest rates would result in a **$145,000** increase in interest expense for 2023 based on floating rate debt outstanding at year-end 2022[598](index=598&type=chunk) - The company has foreign currency exchange risk as all revenues are in U.S. dollars, while approximately **22.4%** of operating expenses in 2022 were in other currencies, mainly Euros. This exposure is not hedged[599](index=599&type=chunk) [PART II](index=167&type=section&id=PART%20II) [Item 15. Controls and Procedures](index=167&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management and Deloitte concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[605](index=605&type=chunk) - Management's annual report on internal control over financial reporting concluded that, as of December 31, 2022, the company's internal control over financial reporting was effective based on the COSO framework[609](index=609&type=chunk)[610](index=610&type=chunk) - The independent auditor, Deloitte Certified Public Accountants S.A., provided an unqualified attestation report on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[612](index=612&type=chunk) [Item 16. Corporate Governance and Other Disclosures](index=169&type=section&id=Item%2016.%20Corporate%20Governance%20and%20Other%20Disclosures) This section covers corporate governance, including the audit committee, auditor change to Deloitte in May 2022, share repurchase program, and differences from NYSE governance standards as a foreign private issuer - The Board of Directors has determined that Myles R. Itkin qualifies as an audit committee financial expert[614](index=614&type=chunk) - On May 11, 2022, the company dismissed PricewaterhouseCoopers S.A. ("PwC") and engaged Deloitte Certified Public Accountants S.A. as its new independent registered public accounting firm. There were no disagreements with PwC on any accounting principles or practices[627](index=627&type=chunk)[629](index=629&type=chunk) Principal Accountant Fees (in thousands) | Firm | Year | Audit Fees | Audit-related Fees | Total Fees | | :--- | :--- | :--- | :--- | :--- | | Deloitte | 2022 | $332.5 | $0 | $332.5 | | PwC | 2021 | $497.1 | $0 | $497.1 | - Under its **$100 million** share repurchase program announced in June 2022, the company repurchased **466,955** shares for **$28.6 million** through December 31, 2022[624](index=624&type=chunk)[625](index=625&type=chunk) - As a foreign private issuer, the company follows certain home country (Marshall Islands) governance practices instead of NYSE rules, notably regarding shareholder approval for equity compensation plans and certain share issuances, and the composition of its nominating committee[633](index=633&type=chunk)[634](index=634&type=chunk) [PART III](index=175&type=section&id=PART%20III) [Item 18. Financial Statements](index=175&type=section&id=Item%2018.%20Financial%20Statements) This section contains the audited consolidated financial statements for 2022 and Deloitte's unqualified auditor's reports, highlighting vessel impairment as a critical audit matter [Auditor's Report and Opinion](index=181&type=section&id=Auditor%27s%20Report%20and%20Opinion) Deloitte issued unqualified opinions on the 2022 financial statements and internal control over financial reporting, identifying vessel impairment as a critical audit matter - Deloitte issued an unqualified opinion on the Company's financial statements for the year ended December 31, 2022[649](index=649&type=chunk) - Deloitte also issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022[661](index=661&type=chunk) - The critical audit matter identified was the impairment of long-lived assets, specifically the significant and subjective assumptions related to estimating future charter rates for unfixed days used in the undiscounted cash flow analysis[654](index=654&type=chunk)[657](index=657&type=chunk)[658](index=658&type=chunk) [Consolidated Financial Statements](index=187&type=section&id=Consolidated%20Financial%20Statements) As of December 31, 2022, total assets were **$3.40 billion**, liabilities **$839.8 million**, and stockholders' equity **$2.56 billion**, with **$559.2 million** net income Consolidated Balance Sheet Highlights (as of Dec 31) | (In thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total current assets | $372,521 | $632,492 | | Total non-current assets | $3,027,707 | $2,994,633 | | **Total assets** | **$3,400,228** | **$3,627,125** | | Total current liabilities | $228,407 | $319,307 | | Total long-term liabilities | $611,407 | $1,219,795 | | **Total liabilities** | **$839,814** | **$1,539,102** | | **Total stockholders' equity** | **$2,560,414** | **$2,088,023** | Consolidated Income Statement Highlights (Year ended Dec 31, 2022) | (In thousands) | 2022 | | :--- | :--- | | Operating Revenues | $993,344 | | Income from Operations | $653,436 | | **Net Income** | **$559,210** | [Notes to the Consolidated Financial Statements](index=192&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail accounting policies, fleet assets, newbuilding commitments, debt restructuring, related party transactions, and executive compensation plans - On July 1, 2021, the company acquired the remaining **51%** of Gemini Shipholdings for **$86.7 million**, resulting in a **$64.1 million** gain on its previously held equity interest and full consolidation of Gemini's five vessels[771](index=771&type=chunk) - The company has commitments for six newbuilding vessels with remaining payments of **$31.2 million** in 2023 and **$312.6 million** in 2024[781](index=781&type=chunk) - In 2022, the company significantly restructured its debt, extinguishing the **$815 million** Citibank/Natwest facility and replacing it with a new **$382.5 million** revolving credit facility and a **$55.25 million** facility from Alpha Bank. It also repurchased **$37.2 million** of its senior notes[813](index=813&type=chunk)[818](index=818&type=chunk) - A defined benefit retirement plan for executive officers was established in December 2022, recognizing a prior service cost of **$14.2 million**[861](index=861&type=chunk)

Danaos Corporation (NYSE:DAC) Q4 2022 Earnings Conference Call February 15, 2023 9:00 AM ET Company Participants John Coustas - Chief Executive Officer Evangelos Chatzis - Chief Financial Officer Conference Call Participants Omar Nokta - Jefferies Operator Good day and welcome to the Danaos Corporation Conference Call to discuss the Financial Results for the 3 months ended December 31, 2022. As a reminder, today’s call is being recorded. Hosting the call today is Dr. John Coustas, Chief Executive Officer of ...

Danaos Corporation (NYSE:DAC) Q3 2022 Earnings Conference Call November 8, 2022 9:00 AM ET Company Participants John Coustas - Chairman, President and Chief Executive Officer Evangelos Chatzis - Chief Financial Officer Conference Call Participants Omar Nokta - Jefferies & Company, Inc. Christian Wetherbee - Citi Research Climent Molins - Value Investor's Edge Operator Good day, and welcome to the Danaos Corporation Conference Call to discuss the financial results for the three months ended September 30, 202 ...

[Operating and Financial Review and Prospects](index=1&type=section&id=Operating%20and%20Financial%20Review%20and%20Prospects) [Results of Operations](index=1&type=section&id=Results%20of%20Operations) The company's results of operations showed significant revenue growth for both the three and nine-month periods ending September 30, 2022, primarily driven by higher charter rates and fleet expansion. However, profitability was heavily influenced by the volatility of its investment in ZIM Integrated Shipping Services Ltd. ("ZIM"), with a substantial loss recognized in 2022 compared to a large gain in 2021. Operating expenses increased due to the larger fleet and inflationary pressures on crew and insurance costs. Interest expenses declined as the company actively reduced its overall indebtedness [Three months ended September 30, 2022 vs 2021](index=1&type=section&id=Three%20months%20ended%20September%2030%2C%202022%20compared%20to%20three%20months%20ended%20September%2030%2C%202021) In Q3 2022, operating revenues increased by **32.7% to $260.0 million**, driven by higher charter rates and newly acquired vessels. This was partially offset by increased vessel operating expenses, which rose due to a larger fleet and higher daily costs (**$6,173 vs $5,918**). A significant **$107.3 million loss** on the ZIM investment was recorded, a sharp reversal from the **$47.2 million gain** in Q3 2021, heavily impacting net income. Interest expense decreased by **11.6%** due to lower average indebtedness Q3 2022 vs Q3 2021 Key Financial Metrics | Metric | Q3 2022 (USD Million) | Q3 2021 (USD Million) | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | 260.0 | 195.9 | +32.7% | | Vessel Operating Expenses | 39.2 | 34.7 | +13.0% | | Depreciation | 34.1 | 31.0 | +10.0% | | Interest Expense | 16.0 | 18.1 | -11.6% | | (Loss)/Gain on Investments | (107.3) | 47.2 | -327.3% | | Dividend Income | 27.0 | 16.4 | +64.6% | - The average number of containerships in the fleet increased to **71.0** from **65.7** year-over-year, while fleet utilization saw a slight decrease from **97.7%** to **97.1%**[4](index=4&type=chunk) - The increase in vessel operating expenses was primarily due to a larger fleet and a rise in average daily operating costs to **$6,173** per vessel, up from **$5,918**, driven by higher crew remuneration and insurance premiums related to COVID-19 and the Ukraine war[8](index=8&type=chunk) - The company sold all its remaining **5,686,950** ordinary shares of ZIM in Q3 2022, generating proceeds of **$161.3 million** but resulting in a recognized loss of **$107.3 million** for the quarter[16](index=16&type=chunk) [Nine months ended September 30, 2022 vs 2021](index=4&type=section&id=Nine%20months%20ended%20September%2030%2C%202022%20compared%20to%20nine%20months%20ended%20September%2030%2C%202021) For the first nine months of 2022, operating revenues surged **56.1% to $740.9 million**, reflecting higher charter rates and a larger fleet. A significant loss of **$176.4 million** on the ZIM investment was recorded, compared to a **$491.4 million gain** in the prior-year period. However, this was partially offset by a substantial increase in dividend income from ZIM to **$165.4 million**. The company also recognized a **$22.9 million gain** on debt extinguishment from early debt repayments Nine Months 2022 vs 2021 Key Financial Metrics | Metric | Nine Months 2022 (USD Million) | Nine Months 2021 (USD Million) | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | 740.9 | 474.5 | +56.1% | | Vessel Operating Expenses | 118.9 | 98.7 | +20.5% | | Depreciation | 101.2 | 82.9 | +22.1% | | Gain on Debt Extinguishment | 22.9 | 111.6 | -79.5% | | (Loss)/Gain on Investments | (176.4) | 491.4 | -135.9% | | Dividend Income | 165.4 | 16.4 | +908.5% | - The average number of containerships increased to **71.0** from **61.9** in the prior-year period, with fleet utilization remaining high at **98.1%**[24](index=24&type=chunk) - Average daily operating costs rose to **$6,314** per vessel per day, compared to **$6,034** in the same period of 2021, due to increased crew remuneration and insurance premiums[28](index=28&type=chunk) - The company sold all its ZIM ordinary shares during 2022, generating total proceeds of **$246.6 million** but recognizing a loss of **$176.4 million** for the nine-month period[38](index=38&type=chunk) [Liquidity and Capital Resources](index=7&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is strong, with principal funding sources from operating cash flows, vessel sales, and proceeds from its divested ZIM investment. As of September 30, 2022, the company held **$556.3 million** in cash and had **$2.3 billion** in total contracted cash revenues. Key uses of funds include vessel operating expenses, newbuilding installments, debt service, dividends, and a **$100 million** share repurchase program. The company has been actively deleveraging, making significant early debt and lease repayments during the period Liquidity and Debt Position as of Sep 30, 2022 | Metric | Amount (USD Million) | | :--- | :--- | | Cash and cash equivalents | 556.3 | | Total contracted cash revenues | 2,300.0 | | Outstanding indebtedness (gross) | 868.1 | | Outstanding leaseback obligations (gross) | 79.6 | - The company has committed to aggregate purchase prices of **$156.0 million** for two **7,100 TEU** vessels and **$372.7 million** for four **8,000 TEU** vessels, with payments scheduled through 2024[52](index=52&type=chunk) - A quarterly dividend of **$0.75 per share** was declared, amounting to approximately **$15.2 million**, payable in November 2022[53](index=53&type=chunk) - Under a **$100 million** share repurchase program announced in June 2022, the company repurchased **466,955 shares** for **$28.6 million** by September 30, 2022[54](index=54&type=chunk) [External Factors Impacting Business](index=8&type=section&id=External%20Factors%20Impacting%20Business) The company's operations are affected by significant external factors. The war in Ukraine poses risks to crewing operations, trade patterns, and global economic stability. The COVID-19 pandemic continues to cause disruptions, although the container shipping market has been robust since mid-2020. Pandemic-related issues have led to increased crew remuneration and operational delays. China's Zero COVID-19 policy also presents risks of shipyard delays and increased expenses - The conflict between Russia and Ukraine could adversely affect crewing operations, as the company's Manager has offices in St. Petersburg, Odessa, and Mariupol[56](index=56&type=chunk) - While the COVID-19 pandemic initially caused a decline in global trade, the market rebounded sharply from H2 2020 through Q3 2022, driven by e-commerce growth and supply chain disruptions, leading to higher charter rates[59](index=59&type=chunk) - COVID-19 and the war in Ukraine have directly increased operating costs, with the average daily operating cost rising to **$6,314** per vessel in the first nine months of 2022 due to higher crew remuneration and insurance premiums[60](index=60&type=chunk) - China's Zero COVID-19 policy is a continuing risk, potentially causing delays at shipyards where two of the company's newbuilds are being constructed and affecting dry-docking and repairs[61](index=61&type=chunk) [Cash Flows](index=10&type=section&id=Cash%20Flows) For the nine months ended September 30, 2022, cash flow from operations increased significantly to **$789.2 million** from **$296.1 million** in the prior year, driven by higher revenues and dividend collections. Investing activities provided **$164.5 million** in cash, a reversal from a **$103.8 million** use of cash, mainly due to increased proceeds from the sale of ZIM shares. Financing activities used **$514.2 million**, a substantial increase from **$164.4 million**, reflecting significant early debt repayments, dividend payments, and share repurchases Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2022 (USD Million) | 2021 (USD Million) | | :--- | :--- | :--- | | Net cash provided by operating activities | 789.2 | 296.1 | | Net cash provided by/(used in) investing activities | 164.5 | (103.8) | | Net cash used in financing activities | (514.2) | (164.4) | - The increase in operating cash flow was primarily due to a **$243.5 million** increase in operating revenues and a **$137.5 million** increase in dividend collections from ZIM[65](index=65&type=chunk) - Investing cash flow was positively impacted by a **$170.2 million** year-over-year increase in proceeds from the sale of ZIM shares[66](index=66&type=chunk) - The higher use of cash in financing activities was driven by a **$431.4 million** increase in payments for long-term debt and leasebacks, **$25.7 million** more in dividend payments, and **$28.6 million** in share repurchases[67](index=67&type=chunk) [Non-GAAP Financial Measures](index=11&type=section&id=Non-GAAP%20Financial%20Measures) The company uses EBITDA and Adjusted EBITDA as non-GAAP measures to evaluate performance. For the nine months ended September 30, 2022, EBITDA decreased to **$539.2 million** from **$1,014.8 million** in the prior year, largely due to the negative swing in the fair value of the ZIM investment. In contrast, Adjusted EBITDA, which excludes the ZIM investment's fair value changes and other non-core items, increased significantly by **$325.1 million** to **$674.7 million**, reflecting strong core operating performance driven by higher revenues and ZIM dividends Reconciliation of Net Income to EBITDA and Adjusted EBITDA (Nine Months Ended Sep 30) | Metric (USD thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | 406,489 | 886,844 | | EBITDA | 539,168 | 1,014,761 | | Adjusted EBITDA | 674,738 | 349,639 | - The decrease in EBITDA was mainly attributed to a **$518.8 million** negative change related to the ZIM investment's fair value and dividends, and an **$88.7 million** decrease in gain on debt extinguishment[75](index=75&type=chunk) - The increase in Adjusted EBITDA was driven by a **$229.5 million** increase in operating revenues (net of amortization) and a **$134.9 million** increase in dividends from ZIM (net of taxes)[76](index=76&type=chunk) [Capital Structure and Risk Management](index=12&type=section&id=Capital%20Structure%20and%20Risk%20Management) The company manages its capital structure through a mix of credit facilities, senior unsecured notes, and leaseback obligations. As of September 30, 2022, total debt was **$955.2 million**. The company has been actively managing its debt, including early extinguishments and refinancing activities to improve terms and reduce costs. Market risks include inflation, which affects operating expenses, and rising interest rates, which increase the cost of capital. The company currently has no outstanding interest rate swaps [Credit Facilities and Indebtedness](index=12&type=section&id=Credit%20Facilities%20and%20Indebtedness) As of September 30, 2022, the company had no remaining borrowing availability under its credit facilities and was in compliance with all financial covenants. Key debt instruments include the Citibank/Natwest **$815 million** Facility, a new BNP Paribas/Credit Agricole **$130 million** Facility, and **$300 million** in Senior Notes. The company made significant early debt repayments in Q2 2022 and has an agreement in principle to refinance the Citibank/Natwest facility to further improve its debt profile Outstanding Debt as of Sep 30, 2022 (USD Million) | Facility | Amount | | :--- | :--- | | Citibank/Natwest $815 mil. Facility | 450.6 | | BNP Paribas/Credit Agricole $130 mil. Facility | 125.0 | | Senior Notes | 300.0 | | **Total (Selected)** | **875.6** | - In May 2022, the company made an early extinguishment of **$270.0 million** on the Citibank/Natwest facility and fully repaid loans with Macquarie Bank, Eurobank, and SinoPac[81](index=81&type=chunk) - Subsequent to Q3 2022, an agreement in principle was reached to refinance the remaining **$437.75 million** of the Citibank/Natwest facility with a new **$382.5 million** Revolving Credit Facility and a **$55.25 million** Term Loan[82](index=82&type=chunk)[198](index=198&type=chunk) [Market Risk](index=14&type=section&id=Qualitative%20and%20Quantitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks, primarily from inflation and interest rates. Elevated inflation is impacting operating expenses, particularly energy and commodity prices. Rapidly rising interest rates, driven by central bank policies to combat inflation, are increasing the company's cost of capital. The company currently has no interest rate swaps to hedge this exposure and does not use derivatives for foreign currency risk - The company has no outstanding interest rate swap agreements to hedge against fluctuations in interest rates[88](index=88&type=chunk) - Elevated inflation is affecting operating expenses through higher energy and commodity prices. Rising interest rates are expected to drive a higher cost of capital for the business[90](index=90&type=chunk) [Capitalization](index=14&type=section&id=Capitalization%20and%20Indebtedness) As of September 30, 2022, the company's total capitalization was approximately **$3.38 billion**, consisting of **$955.2 million** in total debt and **$2.42 billion** in total stockholders' equity. The debt is composed of secured credit facilities, unsecured senior notes, and leasing obligations Consolidated Capitalization as of Sep 30, 2022 (Actual) | Category | Amount (USD thousands) | | :--- | :--- | | Total Debt | 955,230 | | Total Stockholders' Equity | 2,422,742 | | **Total Capitalization** | **3,377,972** | [Fleet Information](index=16&type=section&id=Our%20Fleet) As of November 7, 2022, the company's fleet consists of **71** containerships with a diverse range of sizes and charter arrangements. The fleet has a strong contract backlog with major liner companies. Additionally, the company has **6** newbuild vessels under construction, with expected deliveries in 2024, which will add modern, larger-capacity ships to its fleet [Fleet Deployment](index=16&type=section&id=Fleet%20Deployment%20Profile) The fleet deployment table as of November 7, 2022, details **71** vessels with TEU capacity ranging from **2,200 to 13,100**. The vessels are on charter with major industry players like HMM, MSC, CMA CGM, and ZIM, with charter expirations extending out to 2028, providing significant revenue visibility - The fleet consists of **71** containerships as of November 7, 2022[96](index=96&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - The company has agreed to sell two vessels, Catherine C and Leo C, for gross proceeds of **$130 million**, with delivery expected in November 2022[103](index=103&type=chunk) [Vessels Under Construction](index=20&type=section&id=Contracted%20Vessels%20Under%20Construction) The company has **six** newbuild vessels under construction, all scheduled for delivery in 2024. This includes two **7,100 TEU** vessels from Dalian Shipbuilding and four **8,000 TEU** vessels from Daehan Shipbuilding, signaling a strategic move towards larger and more modern assets Newbuild Vessel Specifications | Vessel Type | Quantity | Shipyard | Expected Delivery | | :--- | :--- | :--- | :--- | | 7,100 TEU | 2 | Dalian Shipbuilding | Q2-Q3 2024 | | 8,000 TEU | 4 | Daehan Shipbuilding | Q1-Q3 2024 | [Condensed Consolidated Financial Statements (Unaudited)](index=21&type=section&id=INDEX%20TO%20FINANCIAL%20STATEMENTS) [Condensed Consolidated Balance Sheets](index=22&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets were **$3.70 billion**, a slight increase from **$3.63 billion** at year-end 2021. The increase was primarily driven by a significant rise in cash and cash equivalents to **$556.3 million**. Total liabilities decreased to **$1.27 billion** from **$1.54 billion**, mainly due to reductions in long-term debt and leaseback obligations. Consequently, total stockholders' equity grew to **$2.42 billion** from **$2.09 billion** Balance Sheet Summary (USD thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 556,343 | 129,410 | | Total Assets | 3,696,288 | 3,627,125 | | Total Liabilities | 1,273,546 | 1,539,102 | | Total Stockholders' Equity | 2,422,742 | 2,088,023 | [Condensed Consolidated Statements of Income](index=24&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the nine months ended September 30, 2022, the company reported net income of **$406.5 million**, or **$19.75 per diluted share**. This is a decrease from **$886.8 million**, or **$43.11 per diluted share**, in the same period of 2021. The decline was primarily due to a **$176.4 million loss** on investments in 2022 compared to a **$491.4 million gain** in 2021, despite a strong increase in operating revenues Income Statement Summary (Nine Months Ended Sep 30) | Account (USD thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Operating Revenues | 740,861 | 474,467 | | Income From Operations | 463,037 | 242,623 | | (Loss)/Gain on Investments | (176,386) | 491,404 | | Net Income | 406,489 | 886,844 | | Diluted EPS ($) | 19.75 | 43.11 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=28&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information supporting the financial statements. Key disclosures include the basis of presentation, significant accounting policies, details on fixed assets and newbuilding commitments, debt structure and covenants, financial instruments, stockholders' equity activities including dividends and share repurchases, lease arrangements, and subsequent events such as a major debt refinancing [Note 4: Fixed Assets & Right-of-use Assets](index=31&type=section&id=Note%204%3A%20Fixed%20Assets%20%26%20Right-of-use%20Assets) This note details commitments for new vessel constructions, including four **8,000 TEU** vessels for **$372.7 million** and two **7,100 TEU** vessels for **$156.0 million**. It also discloses an agreement to sell two vessels for **$130.0 million**. As of September 30, 2022, two vessels with a carrying value of **$251.1 million** were subject to leasing obligations - The company has entered into contracts for the construction of **six** new vessels with an aggregate purchase price of **$528.7 million**, with deliveries expected in 2024[143](index=143&type=chunk) [Note 8: Long-Term Debt, net](index=34&type=section&id=Note%208%3A%20Long-Term%20Debt%2C%20net) Total long-term debt was **$868.1 million** as of September 30, 2022. The company actively managed its debt profile in 2022, including an early extinguishment of **$270.0 million** on its main facility and full repayment of three other loans, resulting in a net gain of **$22.9 million**. A new **$130.0 million** facility was secured. The company was in compliance with all financial covenants, which include maintaining minimum liquidity and leverage ratios - In Q2 2022, the company made early repayments on four separate loan facilities, including a **$270.0 million** principal reduction on the Citibank/Natwest facility[158](index=158&type=chunk) - Financial covenants require maintaining minimum liquidity of **$30.0 million**, a maximum debt-to-EBITDA ratio of **6.5x**, and a minimum EBITDA-to-net interest expense ratio of **2.5x**[165](index=165&type=chunk) [Note 11: Stockholders' Equity](index=38&type=section&id=Note%2011%3A%20Stockholders%27%20Equity) During the first nine months of 2022, the company declared and paid dividends totaling **$46.3 million** (**$2.25 per share**). Under its **$100 million** share repurchase program announced in June 2022, the company repurchased **466,955 shares** for **$28.6 million** by September 30, 2022 - The company paid dividends of **$0.75 per share** in each of the first three quarters of 2022, totaling **$46.3 million**[180](index=180&type=chunk) - A **$100 million** share repurchase program was initiated in June 2022, with **$28.6 million** utilized to buy back **466,955 shares** by the end of Q3 2022[181](index=181&type=chunk) [Note 15: Subsequent Events](index=40&type=section&id=Note%2015%3A%20Subsequent%20Events) Subsequent to the reporting period, the company declared another quarterly dividend of **$0.75 per share**. More significantly, it reached an agreement in principle with Citibank and Alpha Bank to refinance the outstanding **$437.75 million** balance of its largest credit facility with two new facilities, expected to be finalized by year-end 2022 - A dividend of **$0.75 per share** was declared, payable on November 30, 2022[196](index=196&type=chunk) - An agreement in principle was reached to refinance the **$437.75 million** Citibank/Natwest facility into a new **$382.5 million** Revolving Credit Facility and a **$55.25 million** Term Loan, improving the debt structure[198](index=198&type=chunk)