Danaos Corp. Q1 FY2026 earnings call

• Market Context and Geopolitical Impact

  • The quarter was impacted by the ongoing unprecedented conflict in the Gulf and closure of the Strait of Hormuz, which caused sharp but temporary rate spikes in the tanker sector that quickly normalized
  • The disruption had a minor stabilizing and uplifting effect on container shipping rates, with no material overall impact
  • Two Denoz vessels remain in the Gulf but continue operating on charter, so there is no negative impact on current earnings
  • The dry bulk market has improved considerably and continues to strengthen; globalization remains resilient, and trade is becoming increasingly multilateral, benefiting the mid-sized container ship segment that Denoz prioritizes

• Fleet and Investment Updates

  • Management expanded the order book: four Newcastle Max dry bulk vessels scheduled for 2028 delivery, and two 5,000 TEU container ships scheduled for 2027 delivery, with the new container vessels backed by 3-year charters
  • Post these additions, Denoz has a pro forma fleet of 104 container ships and 15 Cape-sized Newcastle Max vessels, with a total $4.1 billion contracted revenue backlog
  • $120 million was added to the contracted revenue backlog since the last earnings release, with an average 4.2-year charter duration for the container fleet

• Financial Performance Summary

  • Q1 2026 adjusted EPS is $6.72 per share (adjusted net income of $122.5 million), up from $6.04 per share ($113.4 million adjusted net income) in Q1 2025
  • Special operating expenses dropped $1.7 million YoY to $50 million despite a larger average fleet, driven by lower repairs and maintenance; daily operating costs fell to $6,680 per vessel per day from $7,028, remaining among the most competitive in the industry
  • G&A expenses increased $2.4 million YoY to $14.6 million, driven by higher management fees from a larger fleet and increased corporate overhead
  • As of March 31 2026, the firm holds $0.9 billion in cash, with total liquidity of $1.3 billion (including revolving credit facility access and marketable securities); net debt is $170 million, for a net debt to adjusted EBITDA ratio of 0.2x
  • 67 out of 86 current vessels are unencumbered and debt-free, with an additional 12 unencumbered debt-free vessels securing the firm's revolving credit facility
  • A $0.90 per share quarterly dividend was declared, with $65 million of remaining authority under the $300 million share repurchase program

1. Container Segment: Operating revenues decreased by $6.6 million year-over-year (YoY). The decline stemmed from a $6.9 million drop from lower contracted charter rates and a $7.2 million decrease from non-cash U.S. GAAP revenue recognition adjustments. These were partially offset by a $3.9 million increase from new vessel additions and $3.6 million from improved fleet utilization. As of Q1 2026 end, the container fleet contracted revenue backlog is $4.1 billion, with 100% contract coverage for 2026, 88% for 2027, and 65% for 2028. It contributes an overwhelming majority of the firm's total contracted revenue backlog of $4.1 billion. 2. Dry Bulk Segment (spot market deployed): Operating revenues increased by $7 million YoY. The growth was driven by a significant improvement in time-charter equivalent earnings, which averaged $24,825 per day in Q1 2026, up from approximately $10,500 per day in Q1 2025. Overall company adjusted EBITDA increased 5.2% ($8.9 million) YoY to $180.6 million in Q1 2026.

No explicit numerical full-year guidance was provided in this call. Key forward-looking positioning from management includes:

• Management expects resolution of the Gulf and Ukraine conflicts will deliver multi-year meaningful market stability, barring new policy actions by major global powers
• The firm's disciplined expansion strategy and favorable structural trade dynamics are expected to drive continued profitability improvement and shareholder value creation
• The strong $1.3 billion liquidity position and low leverage give Denoz ample flexibility to pursue accretive growth opportunities as they emerge

Management noted that forward-looking statements are inherently uncertain, and actual results could differ materially from projections, with key risk factors detailed in the firm's SEC filings. The ongoing Gulf conflict and Strait of Hormuz closure remains an unfolding situation with unknown future impacts, though it has not affected current earnings. Geopolitical shifts in global energy markets create both uncertainty and opportunity for the firm's expanding energy sector focus.

Q: Denoz has recently made two investments in LNG (a stake in Yoda and the Alaska LNG project). Is this a planned strategic shift to deeper LNG exposure, and should investors expect more similar investments? / A: Management confirms the energy sector, including LNG, is a deliberate new core focus for the firm. Large geopolitical shifts are reshaping global energy markets, so Denoz is pursuing opportunities across both LNG transportation and production, with production investments also providing exposure to related transportation opportunities. (211 characters)

Q: Denoz's contracted revenue backlog fell quarter-over-quarter even as time charter rates are near all-time highs, and backlog additions have slowed recently. What is driving this slowdown in new charter bookings, and what are you seeing in liner company demand for future coverage? / A: The decline is purely circumstantial. Denoz has already locked in nearly all vessel coverage for 2026 and 2027, leaving very little available tonnage to book for the near term. Liner companies are not yet actively negotiating 2028 charters, so the current slowdown does not reflect weak demand. (273 characters)

Q: Denoz's share price has hit repeated 52-week highs recently, but the stock still trades at a discount to net asset value (NAV) and has a high free cash flow yield. How is management approaching the remaining $65 million share repurchase authorization amid these conflicting dynamics? / A: Management still believes the stock is deeply undervalued relative to its fundamentals. However, given the recent sharp run-up to all-time highs, the firm is being more cautious about continuing repurchases during this period of market hype. (242 characters)

Q: All of the Q1 off-hire days for Cape-sized dry bulk vessels were tied to scheduled dry dockings for two vessels, right? Are there any more dry dockings scheduled for this segment for the remainder of 2026? / A: Yes, all Q1 off-hire days came from the two vessels that entered dry dock this quarter. Management confirmed there are no additional dry dockings scheduled for the Cape-sized dry bulk fleet for the rest of 2026. (189 characters)