Danaos Corporation — FY2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 20-F, not a standalone 2022 fourth-quarter filing. Danaos is a Marshall Islands corporation operating one reportable segment: ownership and chartering of containerships. As of March 7, 2023, the fleet comprised 68 operating vessels totaling 421,293 TEU, plus six 2024 newbuildings totaling 46,200 TEU.
Financial performance and position
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Operating revenue | $993.3 million | $689.5 million | +44.1% |
| Income from operations | $653.4 million | $358.3 million | +82.4% |
| Operating margin | 65.8% | 52.0% | +13.8 percentage points |
| Net income | $559.2 million | $1,052.8 million | -46.9% |
| Net margin | 56.3% | 152.7% | Declined due to unusual 2021 gains |
| Basic EPS | $27.30 | $51.75 | -47.2% |
| Adjusted EBITDA | $851.2 million | $508.8 million | +67.3% |
| Net cash from operations | $934.7 million | $428.1 million | +118.3% |
| Cash and cash equivalents | $267.7 million | $129.4 million | +106.9% |
| Total debt, gross, including leaseback obligations | $510.9 million | $1,368.5 million | Material reduction |
| Stockholders’ equity | $2.560 billion | $2.088 billion | +22.6% |
Operating expenses were $339.9 million, including $159.0 million of vessel operating expenses, $134.3 million of depreciation and amortization, $35.1 million of voyage expenses and $36.6 million of general and administrative expenses. Fleet utilization was 97.3%, compared with 98.2% in 2021. Average daily operating cost for time-chartered vessels increased to $6,339 from $5,986.
Cash flow benefited from a $238.9 million charter-hire prepayment received in May 2022, higher ZIM dividends and vessel-sale proceeds. Investing activities generated $176.6 million, including $246.6 million from the sale of ZIM shares, while vessel additions and construction advances used $199.1 million. Financing activities used $973.4 million, primarily for debt and leaseback repayments, dividends and share repurchases.
Material changes versus FY2021
- Revenue increased primarily from higher charter rates, incremental contribution from acquired vessels and amortization of assumed below-market time charters.
- Adjusted EBITDA increased to $851.2 million, while reported EBITDA fell to $728.6 million because FY2021 included a $543.7 million ZIM fair-value gain, a $111.6 million debt-extinguishment gain and $68.0 million of Gemini equity income.
- FY2022 included a $176.4 million loss on ZIM investments, offset partly by $165.4 million of ZIM dividend income. Danaos sold all remaining ZIM shares for $246.6 million and held none at year-end.
- Two vessels were sold in November 2022 for gross proceeds of $130.0 million, producing a $37.2 million gain. Amalia C was sold in January 2023 for $5.1 million and produced an approximately $1.7 million gain.
- Debt was substantially reduced through early repayments and refinancing. Gross bank debt declined to $438.0 million from $1.142 billion, and leaseback obligations declined to $72.9 million from $226.5 million.
- The company established a $382.5 million secured revolving credit facility, undrawn at year-end, and repurchased $37.2 million of senior notes. It also repurchased 466,955 common shares for $28.6 million.
- In 2022, Danaos declared and paid $61.5 million of dividends, or $3.00 per share, compared with $30.9 million, or $1.50 per share, in 2021.
Liquidity, debt and commitments
- Available liquidity included $267.7 million of cash and $382.5 million of undrawn revolving-credit capacity at December 31, 2022.
- Scheduled long-term debt principal repayments were $27.5 million in 2023, $36.4 million in 2024-2025, $111.35 million in 2026-2027 and $262.8 million thereafter, primarily the 8.5% senior notes due March 2028.
- The company reported compliance with its financial covenants at year-end. Key requirements include minimum liquidity of $30 million, maximum net debt-to-EBITDA of 6.5x and minimum EBITDA-to-net-interest expense of 2.5x, along with collateral coverage requirements.
- Remaining newbuilding payments totaled approximately $343.8 million: $31.2 million in 2023 and $312.6 million in 2024. The six newbuildings had no employment arranged as of December 31, 2022.
- Management stated that available sources of funds were expected to meet short- and long-term liquidity requirements, but future cash generation depends on charterer performance, rechartering rates, vessel values and interest rates.
Outlook, commentary and key risks
- Management described the containership market as having weakened materially in the second half of 2022 and early 2023, with charter rates returning toward pre-pandemic levels. Containerized trade was estimated to have declined 5.3% in 2022, with a further approximately 2% decline expected in 2023.
- Ten vessel charters were scheduled to expire in 2023 and 27 in 2024. The company expects to recharter affected vessels at rates at or below existing contract rates, creating meaningful earnings and cash-flow exposure.
- Contracted minimum charter revenues totaled approximately $2.089 billion through 2028, including $785.7 million in 2023. These amounts remain subject to charterer performance.
- Revenue concentration is significant: approximately 73% of 2022 operating revenue came from six customers, with CMA CGM contributing 26%, MSC 13% and HMM 12%.
- Major risks include excess containership capacity, falling charter rates and vessel values, charterer defaults, customer concentration, covenant compliance, floating SOFR exposure, inflation, foreign-exchange exposure and substantial newbuilding obligations.
- The company does not currently maintain interest-rate swaps. A 10-basis-point increase in rates on floating-rate debt outstanding at year-end was estimated to increase 2023 interest expense by approximately $145,000.
- Environmental requirements, including EEXI, CII, ballast-water compliance, emissions controls and potential EU emissions regulation, may require additional capital expenditures or reduce vessel operating flexibility.
- The company identified potential impairment indicators for certain vessels and estimated that 25 vessels had market values below carrying value; however, undiscounted projected cash flows exceeded carrying values and no impairment loss was recorded.
- A $597.9 million unsecured claim against bankrupt Hanjin Shipping remains unrecognized on the balance sheet. The company previously received a $3.9 million partial payment.
- Related-party items include management fees of $21.9 million, manager commissions of approximately $14.6 million and $6.6 million of insurance premiums paid to The Swedish Club, whose board includes the CEO.
Investor verification points
- Verify current charter coverage, renewal rates and counterparty credit quality for the 2023-2024 expirations, especially the six uncontracted 2024 newbuildings.
- Reconcile reported operating cash flow to the one-time $238.9 million charter prepayment, ZIM dividends and other nonrecurring cash inflows.
- Review debt amortization, SOFR sensitivity, collateral coverage and covenant headroom after the 2022 refinancing and the planned repayment of the $72.9 million leaseback obligation by May 2023.
- Assess the sensitivity of vessel impairment conclusions to future charter-rate assumptions, vessel values, operating-cost inflation and regulatory compliance costs.
- Confirm dividend sustainability against contracted cash flows, newbuilding payments, debt obligations and financing restrictions.
- Consider customer concentration and the unrecognized Hanjin claim when evaluating counterparty and liquidity risk.
- Note that Deloitte issued unqualified opinions on the 2022 financial statements and internal controls; PwC was replaced as auditor in May 2022 without reported disagreements or reportable events.