Danaos Corp
NYSE:DAC
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Danaos Corp
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Good morning and welcome to the Danaos Corporation conference call to discuss the financial results for the three months ended December 31, 2017. As a reminder, today’s call is being recorded. Hosting the call today is 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 then we will open the call to a question and answer session.
Good morning everyone and thank you for joining us this morning. Before we begin, I quickly want to remind everyone that management’s remarks this morning may contain certain forward-looking statements and that actual results could differ materially from those projected today. These forward-looking statements are made as of today and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC and we encourage you to review 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, and adjusted net income to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
With this, let me now turn the call over to Dr. Coustas, who will provide the broad overview of the quarters.
Thank you, Evangelos. Good morning and thank you all for joining today’s call to discuss our results for the fourth quarter of 2017. Our earnings for the fourth quarter of 2017 improved markedly when compared to the earnings from the fourth quarter 2016, which had been negatively impacted in the aftermath of the Hanjin bankruptcy. This is mainly the result of our high charter contract coverage, which remains at 86% for the next 12 months based on current operating revenues and 69% in terms of contracted operating days.
Adjusted net income of $31.2 million for the quarter represented an increase of $8 million or 34.5% compared to $23.2 million for the fourth quarter of 2016. This increase was attributable to a $5.2 million increase in the operating revenues of the vessels that were previously chartered to Hanjin compared with the fourth quarter of 2016 and improved operating performance of $2.8 million.
As previously reported, the company is in breach of certain financial covenants as a result of the Hanjin bankruptcy. We are currently engaged in discussions with our lenders regarding restructuring our debt, substantially all of which matures on December 31, 2018. In the meantime, we continue to generate positive cash flows from our operations and currently have sufficient liquidity to service all our operational obligations as well as scheduled principal amortization and interest payments under the original terms of our debt agreements, leading up to the December 18 maturity date.
The charter market in general has stabilized at slightly better levels compared to the load of 2016. However, although the size segment above 10,000 TEU has recently seen some improvement, the size segment between 5,000 and 10,000 TEU has detracted from the charter rate levels achieved within 2017. For Panamax vessels between 4,000 and 5,000 TEU, the market is stagnant, however comfortably above operating costs. For the smaller feeder sector there is a firming market, however the lack of long-term fixtures shows that there is no faith in the sustainability. We do not expect a material improvement in the market environment within 2018 given the large number of scheduled vessel deliveries. Danaos continues to have low near-term exposure to the weak spot market as a result of the aforementioned charter coverage.
During this extended period of market weakness, which has presented many challenges, we remain focused on taking the necessary action to preserve the value of our company.
With that, I hand over the call back to Evangelos who will take you through the financials for the quarter.
Good morning again and thanks to all of you for joining us today. I will briefly review the results for the quarter and then give the call participants the opportunity to ask questions.
During the fourth quarter of 2017, we had an average of 55 containerships, as was also the case for the fourth quarter of 2016. Our adjusted net income was $31.2 million or $0.28 per share for the quarter compared to $23.2 million or $0.21 per share of adjusted net income for the fourth quarter of 2016, an increase of 34.5%. This increase of $8 million is attributable to a $2.1 million increase in operating revenues, a $5.6 million decrease in total operating expenses, a $1 million decrease in realized losses on derivatives, and $0.3 million improvement in the operating performance of our equity investment in Gemini, all of the above partially offset by a $1 million increase in net finance expenses.
Vessel operating costs increased by 1.2% or $0.3 million to $26.2 million in the current quarter from $25.9 million in the fourth quarter of 2016, while the average daily vessel operating cost was $5,583 per day for the quarter, which remains as one of the most competitive in the industry.
G&A expenses decreased to $5.8 million in the current quarter compared to $6 million in the fourth quarter of 2016. Interest expense excluding amortization of deferred finance costs increased by $1.4 million to $19.6 million in the current quarter compared to $18.2 million in the fourth quarter of 2016 mainly as a result of approximately half a percentage point of higher LIBOR rates between the two quarters. This increase in LIBOR was partially offset by our persistent efforts to de-lever our balance sheet. Indicatively, during the last 12 months we reduced our indebtedness by almost $190 million.
Finally, adjusted EBITDA increased by 5.4% or $4.1 million to $80 million in the current quarter from $75.9 million in the fourth quarter of 2016 for the reasons outlined earlier on this call.
With that, I would like to thank you for listening to this first half of our call. Operator, we are ready to open the call to Q&A.
[Operator instructions]
Our first question comes from Randy Giveans of Jefferies. Please go ahead.
Hey guys, this is Chris Robertson on for Randy. Thanks for taking my call. I was wondering if you could give just a bit more commentary around the debt payment schedule for 2018. I know that you had mentioned it at the start of the call just in terms of the situation there, but just a little bit more commentary, please.
Well, this is really nothing to add. As I said, as far as the current cash flow is concerned, we are servicing all our debt obligations and what we’re really working is about the refinancing of that debt, which matures at the end of the year.
Okay, thank you very much.
Thank you.
Again if you have a question, please press star, then one.
It appears we have no further questions at this time. I would like to turn the conference back over to Dr. Coustas for any further comments or closing remarks.
Thank you all for joining this conference call and your continued interest in our story. We look forward to hosting you on our next call. Have a nice day.
Thank you. This concludes today’s teleconference. We would like to thank everyone for their participation and have a wonderful afternoon.