Good day, welcome to the Danaos Corporation conference call to discuss the financial results for the three months ended December 31st of 2022. 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, then we will open the call up to a question-and-answer session. Gentlemen, you have the floor.
Thank you, operator, good morning to everyone, and thank you for joining us today. Before we begin, I quickly want to remind everyone that management 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 would continue to refer to non-GAAP financial measures, such as EBITDA, adjusted EBITDA, and adjusted net income to evaluate our business.
The 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 Coustas, who will provide the broad overview of the quarter.
Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for the fourth quarter of 2022. This past year marked the peak of the container market. The exceptionally strong market conditions we saw over the last two years are behind us. The decline in box rates to pre-pandemic levels across all sailing routes foreshadows difficult times ahead.
The liner companies are projecting 2023 earnings materially lower when compared to 2022, and we're still waiting to see the full effect of the looming recession. Charter rates have fallen significantly but remains higher than pre-pandemic levels. However, charter durations rarely exceed 12 months. Fortunately, we're insulated from current market conditions, as 93% of our available days are already contracted for 2023, providing us with excellent visibility for the year ahead.
Given our limited near-term downside risk and our minimal debt obligations, we have ample firepower to opportunistically take advantage of the forthcoming downturn. We're closely following the developments in the liner space, the dismantling of the 2M Alliance will definitely be positive for the non-operating owners as there will be less efficiency in the networks.
Additionally, the effects of decarbonization have not been factored in the forecast for effective fleet supply reductions through the anticipated reduction in service speeds. Liner companies are just now beginning to study the Carbon Intensity Indicator, the CII, of their owned and chartered vessels, due to widespread criticism of the current structure of the index and the expectation that will most likely be modified, no concrete action is being taken to redesign networks with a view to conform to the index.
Danaos is actively investigating various decarbonization strategies for our existing fleet and is actively involved in the optimization of the six environmentally friendly new buildings that are being delivered to us next year. We remain committed to our strategy of accretive growth and delivering superior results for our shareholders. With that, I'll hand over the call back to Evangelos, who will take you through the financials for the quarter.
Thank you, John, good morning to everyone, and thanks again for joining us today. I will briefly review the results for the quarter and then open the call to Q&A. We are reporting adjusted EPS for the current quarter of $6.99 per share or adjusted net income of $141.6 million, compared to adjusted EPS of $6.10 per share or $125.8 million for the fourth quarter of 2021.
This increase of $15.8 million in adjusted net income between the two periods is a result of a $thirty-seven and a half million increase in operating revenues, a five and a half million dollar improvement in net finance expenses, partially offset by a decrease of $16 million dollars in ZIM dividends, whose shares we have now sold, and an $11 million increase in total operating expenses. More specifically, operating revenues increased, as I said, by $thirty-seven and a half million to $252.5 million in the current quarter compared to $215 million in the fourth quarter of 2021.
This increase is attributed to a $72.9 million increase in revenues as a result of higher charter rates, partially offset by $1.6 million lower revenues due to the sale of two vessels during the fourth quarter of 2022, and a $7.9 million decrease in the recognition of assumed charter liabilities, which is the amortization of recent vessel acquisitions.
Finally, we also had a $25.9 million decrease in revenues due to lower non-cash revenue recognition in accordance with U.S. GAAP. Vessel operating expenses increased by $2.8 million to $40 million in the current quarter, from $37.2 million in the fourth quarter of 2021.
Mainly as a result of the increase in the average daily operating costs that increased to $6,417 per day for this quarter, up from $5,860 per day, in the fourth quarter of 2021, mainly due to COVID-19 related increase in crew remuneration and increase in travel expenses, as well as increased insurance premiums and general inflationary pressures. However, our daily running cost remains as one of the most competitive in the industry.
G&A expenses decreased by $3.7 million to $14.9 million in the current quarter compared to $18.6 million in the fourth quarter of 2021, mainly as a result of lower stock-based compensation between the two periods. Interest expense, excluding finance cost amortization, decreased by $3.2 million to $10.9 million in the current quarter compared to $14.1 million in the fourth quarter of 2021.
This is a combined result of a $1.7 million decrease in interest expense because of a decrease in our average indebtedness by approximately $590 million between the two periods, partially offset by an increase in cost of debt service by 238 basis points as a result of rise in floating interest rates.
million decrease in interest expense due to capitalization of interest for the vessels that we have under construction. All that was partially offset by reduced positive recognition through our income statement of accumulated accrued interest of $1.5 million that had been accrued for credit facilities that have now been fully repaid.
Adjusted EBITDA increased by 10.8% or $17.2 million to $176.4 million in the current quarter from $159.2 million in the fourth quarter of 2021 for the reasons outlined earlier on this call. We also encourage you to review our updated investor presentation, which is posted on our website as well as subsequent events disclosures. I'll just make a quick note of certain highlights
As at the end of the year, our contracted cash revenue backlog stood at $2.1 billion, with a 3.4 years average charter duration, while contract coverage is at 93% for 2023 and 63% for 2024. Our investor presentation has analytical disclosure on our contracted charter book. Finally, as reported in our earnings release, the company's net debt to adjusted EBITDA ratio stood at 0.3 times as of year-end, while 42 out of our 68 vessels are currently unencumbered and debt-free.
Last, to also note that as of year-end, our total liquidity, including undrawn available commitments, was approximately $650 million. With that, I would like to thank you for listening to this first part of our call. Operator, we are now ready to open the call to Q&A.
Yes, sir. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Omar Nokta with Jefferies. Please go ahead.
Thank you. Hi, John. Hi, Evangelos. Good afternoon.
Hi, Omar.
Hi. Yeah, just wanted to just ask a bit about the balance sheet. Obviously, 2022 was a transformational year, and you're positioned quite well, we'd say, going into this market downturn. You've got a strong balance sheet. You've got the $2 billion plus backlog.
Evangelos, as you just mentioned, you've got the cash and liquidity of $650 million as of year-end. Y ou brought down your debt levels aggressively over the past year. How do you think about your financial position today, kind of going into this uncertain outlook? At some point, it seems that you may be getting into a net cash position. H ow soon do you think that's realistic?
Well, you know, on the basis of, we will pretty soon, you know, be at net zero debt. Of course, this is not something that we intend to keep. On the other hand, you know, shipping is a kind of a cyclical business. The container market has just entered the downturn, and we will be following exactly what is happening to see at which moment, we think that it's the time is right, in order to make some acquisitions.
It's very difficult to give you a specific kind of timeline. Overall, there is a lot of uncertainty in the world. One thing that we need really to realize is that we are moving after many, many years into a significantly higher interest rate environment, which makes, let's say, break-even calculation for assets quite different than what they were, let's say, in the previous decade.
People are not sure yet what will be the peak interest rate and how long it's gonna last. We will be monitoring all these factors. Exactly because of our very strong position, we are not in a hurry to make sure that we make our call right.
Thanks, John. Yeah, it definitely feels, as opposed to just about 15 years ago, going into the last, you know, major downturn. Y ou and I guess the industry overall is in a much stronger position. As you were just saying, you got strong liquidity, and it seems that, you know, being debt-free is very quickly on the horizon.
Does it... You know, given the uncertain outlook and how it's still playing out, we're in the beginnings of this downturn. Who knows how long it lasts? It could be short, it could be longer. You've got the interest rate situation. You know, if you were to develop into a net cash position, I know you just said you don't know how long of a timetable you'd be there, but how...
If we were to think about just the use of cash here over the next maybe few quarters, is it pay down debt that remains, build up the cash position and then just wait, until maybe deploying capital later in the year? Does it shift into 2024? Any, any kind of color you can give on that?
Well, you know, it's not that we are, let's say, standing still to the extent that we are expecting six vessels next year. W e already have, let's say, a growth commitment. Further than that, as I said, we'll need to see how the market develops. I don't really expect that we will have, let's say, visibility until later in the second half of this year.
Yeah, that makes sense, and it seems to be kind of the same discussion from some of the liners as well, that it's waiting till the second half to have a better sense. Then maybe just one final one. You mentioned that the six new buildings that come on next year. W hat are you thinking right now about those vessels?
Clearly those are, in terms of quality, are the best out there when they deliver. You mentioned in the release that the time charter interest is still there, but it rarely goes beyond 12 months. How do you think about the employment or what kind of discussions are you having now with charters on those new buildings in terms of, say, duration?
You know, 12 months, we're talking about ships in the water. When we are talking about new buildings, we're easily talking three to five years even now. As I said, we are not in a hurry because we don't really need a charter in order to secure finance for the ships. We are funding these vessels from our own resources. W e are fortunate that we are able really to wait and to see exactly, you know, what's going to be the best employment for these ships.
Okay. All right. Well, thank you, John. I'll turn it over.
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 call back over to Dr. Coustas for any closing remarks. Please go ahead, sir.
Yes. 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. Thank you.
Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.