Good day, and welcome to the Danaos Corporation conference call to discuss the financial results for the three months ended June 30th, 2023. 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'll open the call for questions and answers. Please go ahead.
Thank you, operator, and good morning to everyone, and thank you for joining us today. 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 these 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 that, let me now turn the call over to Dr.
John Coustas, who will provide the broad overview of the quarter. John?
Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for the second quarter of 2023. The world economy stagnated in the second quarter of 2023, resulting in a gradual easing of the container market. Danaos' active strategy in the current market condition is made possible by the prudent approach we have taken to manage our balance sheet to conservative levels, as well as our successful chartering strategy. The latter is reflected in our operating revenues of $241 million, which is near to previous records, despite a charter market drop that is more than 50% lower than a year ago. We continue to be active in the charter market, highlighting the resilience of our business model and secure nearly $500 million in new charter contracts during the quarter.
Our total charter backlog increased to $2.5 billion as of the end of the quarter, and contracted charter coverage currently stands at 99% for 2023 and 86% for 2024. In the second quarter of 2023, Danaos received the gold first place awards in the governance and environment categories in the inaugural ESG Shipping Awards. These accolades, which we're proud of, acknowledge the company's exemplary efforts in promoting sustainable practices, social responsibility, and strong governance, and reaffirm our position as a leader in responsible maritime operations. The timing of the awards is notable, as the IMO recently reiterated and strengthened its commitment to decarbonize shipping by targeting net zero by around 2050. Danaos continues to advance its decarbonization strategy in multiple ways.
We are constantly optimizing and retrofitting our existing fleet and have committed to upgrade around 20 vessels with new propellers, fuel-saving appendages, and low-friction paints. We have also expanded our new building program with the order of four additional new building vessels. These vessels, two of which are 6,000 TEU and two of which are 8,200 TEU, will be delivered methanol-ready, ensuring the longevity of our investment. In total, we have 10 vessels with a total capacity of approximately 75,000 TEU on order. All of these will be able to utilize alternative fuels, and importantly, six of these vessels are already chartered for multi-year periods, beginning on their delivery dates in 2024. We also deployed capital opportunistically after identifying weakness in the dry bulk market, a market we are very familiar with.
We believe the long-term fundamentals in the dry bulk market are very positive. In particular, the order book is at historically low levels, and fleet supply growth is projected to decline significantly over the next several years against a backdrop of rebounding demand. Shorter market sentiment is not as strong, and we were able to make investments at attractive prices. As has been previously reported, Danaos acquired a significant stake in Eagle Bulk Shipping, a New York Stock Exchange-listed dry bulk company. Additionally, we acquired 5 Capesize bulkers in the secondhand market. With respect to Eagle, we were able to purchase shares in a company we believe had best-in-class corporate governance practices at a significant discount to our perception of the company's net asset value.
Shortly following our investment, the board of Eagle unilaterally implemented a poison pill and repurchased Oaktree Capital's 28% stake in the company at nearly a 35% premium to Eagle's 45-day average share prices and a 32% premium to our cost basis. These transactions, which were done by Eagle's board, fundamentally alter our view of Eagle's corporate governance. We are concerned with these developments and are seeking clarification from the board of directors of Eagle. As Eagle Bulk's current larger shareholder, we have a strong vested interest in seeing the company enhance long-term shareholder value, and believe that we have a duty to speak up when we think the board and/or management may be acting outside the best interest of all shareholders.
Accordingly, we are committed to working constructively with the board to identify balanced, well-considered and effective methods to enhance shareholder value on behalf of all shareholders. With respect to our interest in the dry bulk market in general, Danaos has significant experience in the dry bulk market as an owner and operator. We exited the segment years ago, which was a well-timed decision in hindsight, and now we again see opportunity. Given the strength of our balance sheet, we are uniquely positioned to deploy capital in various ways to grow our revenue base and earnings. Our fleet of container vessels, which are contracted on multi-year charters, provide strong revenue and cash flow visibility.
While we will continue to grow and future-proof our core fleet by adding next generation vessels to it, our ultimate goal is to generate value for our shareholders. We will consistently pursue the best opportunities to do so. As I've said before, our healthy balance sheet allows us to opportunistically deploy our capital in various ways. During the quarter, we continued our buyback program and have now spent $65.5 million of our $100 million buyback program to retire more than one million shares. Finally, we remain committed to returning capital to shareholders, as evidenced by our $0.75 per share dividend announced this morning. We will continue to implement our strategy to ensure the long-term growth and profitability of the company. We are consistently focused on creating value for our shareholders.
With that, I'll hand over the call back to Evangelos, who will take you through the financials for the quarter. Evangelos?
Thank you, John, good morning again to everyone, thanks for joining us this morning. I will briefly review the results for the quarter then give call participants the opportunity to ask questions. We are reporting adjusted EPS for the second quarter of 2023 of $7.14 per share, or adjusted net income of $143.4 million, compared to adjusted EPS of $7.59 per share or $157.1 million for the corresponding quarter of 2022. This decrease of $13.7 million in adjusted net income between the two quarters is primarily the result of the $13.9 million ZIM dividend that had been recognized in the second quarter of 2022, which is no longer applicable during this quarter as we have now sold all of our Zim shares.
Otherwise, our adjusted net income improved slightly, mainly as a result of a $5.5 million increase in operating revenues due to better rechartering rates for our fleet, a $10.2 million decrease in net finance expenses, mainly driven by the significant deleveraging of our balance sheet, and a $0.1 million improvement in total operating expenses, partially offset by $5.4 million decrease in operating revenues due to vessel disposals, a $9.5 million decrease in operating revenues as a result of revenue recognition accounting, and a $0.7 million loss on our CTT equity investment that is incurring research and development costs to explore decarbonization technologies for the shipping industry.
Vessel operating expenses increased by $1.3 million to $41.9 million in the current quarter, compared to $40.6 million in the second quarter of 2022, as a result of the increase in the average daily over vessel operating cost, that increased to $6,970 per day for the current quarter, from $6,463 per day in the second quarter of 2022, mainly due to inflationary pressure that affected repairs and maintenance costs between the two periods, as well as increased insurance premiums. Still, our operating costs continue to remain among the most competitive in the industry. G&A expenses remained stable to $7.2 million in the current quarter, compared to $7.1 million in the second quarter of 2022.
Interest expense, excluding finance cost amortization, decreased by $7.6 million to $5.3 million in the current quarter, compared to $12.9 million in the second quarter of 2022. The decrease in interest expense is a combined result of a $5.3 million decrease in interest expense due to the reduction in our average indebtedness by almost $700 million between the two periods, partially offset by an increase in the cost of debt service by approximately 2.9% as a result of rising interest rates. We also had a $3 million decrease in interest expense due to capitalized interest on vessels under construction, and reduced positive recognition through our income statement of accumulated accrued interest of $0.7 million, that have been previously accrued in relation to two of our credit facilities that have now been fully repaid.
At the same time, interest income came in at $3.6 million, effectively covering almost two-thirds of our interest expense for the current quarter. Adjusted EBITDA decreased by 7.7%, or $14.8 million, to $177.3 million in the current quarter, from $192.1 million in the second quarter of 2022, primarily due to the $13.9 million ZIM dividend that had been recognized in the second quarter of 2022, as previously discussed. The other EBITDA drivers have already been 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 event disclosures.
A few of the highlights are: over the past three months, we have secured $469 million of contracted revenue through the arrangement of new charters for 12 container ships in our fleet. The new fixtures notably include additional contracted revenues of $177 million for 3 13,000 TEU vessels that were forward fixed on new 3-year charters, and $227 million for 5 8,500 TEU vessels that were extended forward for an additional 3.6 years. As a result, our contracted cash revenue backlog has now improved to $2.5 billion, with a 3.3 year average charter duration, while contract coverage is at 99% for 2023, and 86% for 2024. Our investor presentation has analytical disclosure on our contracted charter book.
During the second quarter, we also prepaid early the remaining lease obligations for two vessels, but at the end of the first quarter, stood at $66.3 million, and we now no longer have any lease obligations on our balance sheet. As of June 30, 2023, our net debt is down to $131 million. In the current interest rate environment, this position shields us from high interest costs. Additionally, the company's net debt to adjusted EBITDA ratio stood at 0.2 times, and 44 out of our 68 vessels are currently unencumbered and debt-free. Finally, as of the end of the second quarter, cash was $293 million, while total liquidity, including availability under our revolving credit facility, stood at $653 million in total, giving us ample flexibility to pursue accretive capital deployment opportunities.
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.
Thank you. We'll now begin the question and answer session. To ask a question, may press star then one on a touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time we'll pause momentarily to assemble the roster. First question will be from Omar Nokta of Jefferies. Please go ahead.
Hi, thank you. Hi, hi, John and Evangelos. Good afternoon. You guys have been very active here recently. You've added some backlog, you've ordered the, the two container ships, bought back some stock, bought Eagle and, or bought into Eagle and acquired the, the five Capes. Just wanted to ask, you know, maybe just kind of if you could frame it, you know, what's, what's changed here, to give you the confidence to start deploying capital so perhaps aggressively relative to the more restrained outlook you had earlier this year?
Well, as, as we said, we are deploying capital where we can see, let's say that there are going to be, you know, interesting returns. The basic, you know, in terms of capital allocation, investing in new ships that will be able to utilize green fuels is definitely part of our strategy, but also a requirement for the longevity of the company. You know, as I've said, the IMO today is committed to force shipping into a greener environment. Anyone who doesn't really get it and believes that it's gonna be business as usual is going to be for a surprise within the next few years. We definitely need to invest in that part.
Secondly, in terms of our investment in the dry bulk market, as we've already said, fundamentals look good, and we believe that in the future, we can enlarge our source of income through this market as well.
Thanks, John. Yeah, just I did wanna ask, obviously, on dry bulk, you know, you spent the past maybe 15 years or so, almost exclusively, as a containership company. You've, you've now got the, the, the stake in Eagle, gives you exposure to the mid-sized dry bulk classes. You've now got the five Capes on hand. You mentioned, you know, having a bigger piece of earnings coming from dry bulk. Is this w hen we think about Danaos going forward, is it really to become a two pronged story, one leg that's containers, one leg that's dry bulk? Or is this more of an opportunistic investment at this point in the cycle, given where, where, where sentiment has, sentiment is in dry bulk?
Well, as we said, I cannot really say exactly where we will go because I mean, the dry bulk market has an interest if we are able to deploy capital at attractive prices. It's not that we're going to invest in dry bulk at just whatever price in order to diversify our income. We will definitely, you know, be cautious in how we deploy capital. If there are opportunities, yes, we are going to grow. In the dry bulk market, there is, you know, our experience, there is one secret. You... In order to make money, you have to buy cheaply. If you buy at the top of the market, you will very rarely double your investment.
Yeah, that's true. Then maybe then just one final one, just in terms of how you intend to operate the dry bulk, you know, the five c apes and then potential acquisitions down the line. How do you envision Danaos trading these commercially? Is it you put these vessels out on charter, deploy them on the spot market? That's maybe perhaps one question, the other is, you know, do you intend to sort of try to build out a trading platform where you're starting to do TCNs and FFAs and hedging and whatnot? Is it simply own, own the assets and then put them out on charter, whether they're spot or TC?
Well, first of all, you know, we will do everything in-house. If we feel that, you know, we require to hedge in the market, yes, you know, we have the ability to use FFAs as well. This is not necessarily, let's say, something one has to do. It, it depends, you know, if you want to speculate on both the physical and the paper market. It's a question of what strategy we're gonna have, but we will start by operating these vessels ourselves in the spot market, and we will see how it goes.
Omar, if I may add, you know, this is obviously opportunistic, and, you know, it's, it's small scale compared to the container ship business, right? Which is... Which will continue to be the dominant business. I mean, we are now first half, we have EBITDA of... We, we are on track for $700 million+ of EBITDA for the full year, $356 million for the first six months. The contribution of the dry bulk, where rates are, is going to be very small. The investment in dry bulk versus the, the, the fleet value of containers is, again, small, right? To, to your point, still, this is a small.
This is gonna be a small part of the business, that we will seek to maximize, of course, returns, but containers will continue to be the dominant ingredient.
Thank you. Understood, Evangelos. Thanks for that, and thanks for the color there. John, thank you also. I'll turn it over.
Thank you. Thank you, Omar.
Thank you. Again, if you have a question, please press star then sne. Our next question will be from Chris Wetherbee of Citigroup. Please go ahead.
Hey, thanks for taking the question. I wanted to just touch on the, on the Eagle investment and, and sort of see what your thoughts are now. So what would be your intention, you know, going forward with Eagle from here?
Well, Chris, you know, for us, we were interested in building, let's say, a sizable investment. You know, we were blocked, so, you know, there is nothing that really we're waiting for, let's say, management's next actions, to see what they can do about, you know, the actual operations, which are going to be very challenging in the next couple of quarters, at least. You know, we'll take it from there.
Okay. So the position is static, or would you add to your equity position? Or do you have the ability to add to the equity position?
Well, you know, we cannot add because we are already, you know, above the 15%, poison pill level, so we cannot add.
Okay. Okay, that's helpful. I appreciate that. And then I guess in terms of the your thoughts on where you think incremental capital is deployed most effectively, is it? Are there opportunities on the container side still that could be interesting? I certainly understand the countercyclicality of investing in dry bulk and that certainly makes sense to us. Want to get a sense of how you think about where that incremental dollar should go from here. Is it dry bulk or is it container, or would there be potential opportunities for other avenues?
W e do not see any interesting opportunities in the container, sorry, in the container market. There are opportunities about older ships, but I believe that we need to look at the future and look only at very modern tonnage and possibly new buildings. That's the reason also that we have placed these additional four ships for deliveries in, you know, the next two to three years.
Okay. dry bulk would be the, the place where the incremental dollar would go?
For the time being, yes. The only thing is that, you know, as I said, dry bulk, we are very sensitive to cost, so we're not just going to change the market up to build volume.
Okay.
Okay.
Thank you.
As long as the market... Yeah, sorry, go ahead.
No, please continue. Finish.
Yeah. Okay. Thank you.
All right. Thanks for the time, guys. I appreciate it.
Thank you. Since we have no further questions at this time, I'd like to turn the call back over to Dr. Coustas for any further comments or closing remarks.
Okay. Thank you all for joining this conference call and your potential interest in our story. Look forward to hosting you on our next earnings call. Thank you.
Thank you. This concludes today's teleconference. We'd now like to thank everyone for the participation. Have a wonderful afternoon.