Costamare Inc. Q1 FY2022 Earnings Call

Thank you for joining us, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call regarding the First Quarter 2022 Financial Results. With us is Mr. Gregory Zikos, the Chief Financial Officer of the company. I must inform you that this conference is being recorded today, Thursday, May 5, 2022. We would like to remind you that this call includes forward-looking statements. Please take a moment to review Slide number 2 of the presentation, which contains those statements. I will now turn it over to Mr. Zikos. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen. During the quarter, the company delivered strong results. Revenues more than doubled to approximately $270 million, and net income reached $115 million compared to $60 million for the same period of last year. As of quarter end, liquidity stood at $640 million. The fundamentally strong charter rates for the container market remained unchanged. Commercially, we are fully employed with no vessels available on short notice. Congestion shows no signs of easing, while recent events are, in fact, contributing to further increases. In such an opportune market environment, we have covered all of our containership open days for 2022, and we have about 95% coverage for 2023. Contracted revenues for the containership fleet in the water amount to $3.3 billion with a remaining time charter duration of 4.1 years. On the dry bulk side, the market continues to be strong with smaller ships sharing a premium to the larger ones, also benefiting from container spillover. Supply and demand dynamics remain healthy, underpinned by historically low order book. Moving now to the slide presentation. On Slide 3, you can see our first quarter results, which was the best Q1 since our listing. Net income was $115 million or $0.93 per share. Adjusted net income was around $105 million or $0.84 per share. Our liquidity is up over $400 million year-over-year to more than $640 million. Moving to the next slide. For 2022, our containership revenue days are 100% fixed. And for next year, we're about 95% covered, locking in $3.3 billion in contracted revenues over the next 4 years. At the bottom of the slide, you can see some spot fixtures for our dry bulk fleet. Turning to Slide 5, we continue to be active in the sale and purchase market. We took delivery of our last dry bulk vessel Norma and sold our dry bulk fleet for a solid profit. We also concluded the sale of the Messini for a capital gain of around $18 million. On Slide 6, you can see an update on our liquidity and financing arrangements. During Q1, we concluded 2 new facilities for over $160 million. We have also concluded another hunting license of $120 million that gives us additional firepower and executed a $40 million loan to refinance dry bulk vessels with a leading European bank. At the same time, we continue to maintain a strong balance sheet with liquidity of over $640 million and market value-based leverage at around 20%. Slide 7. The containership market continues to perform well. The dry bulk market has rebounded from its seasonal lows in February, and the order book remains low. We also continue to have a long uninterrupted dividend track record posted by today’s payment of a special dividend and strong sponsor support. Moving on to the next slide. Looking at our leverage development in more detail on Slide 8, you can see again that our liquidity continues to trend upwards, while our leverage trends down, as already mentioned, is at a modest level of about 20%. In the next slide, you can see our first quarter 2022 snapshot. We had an average of around 117 vessels during Q1, up 87% year-over-year, and our adjusted net income was $0.84 per share, our best first quarter since going public. Our adjusted figures take into consideration the following noncash items, aggregate revenues, accounting gains from asset disposals, and other noncash items. On Slide 10, you can see some information on the containership market. Charter rates continue to remain high, while the average duration of time charter fixtures is also well above historical averages. Turning to Slide 11, you can see that while box rates have declined during the seasonally weak first quarter, they do remain healthy while the commercial containership fleet is fully employed. On the last slide, Slide 12, we are discussing the dry bulk market where rates have rebounded from their seasonal lows in February and rates for the sizes of vessels we own are up 36% year-over-year in April. Finally, the order book remains at slightly below 7%, which is expected to reduce fleet growth at least for the next 2 to 3 years. This concludes our presentation, and we can now take questions. Thank you. Operator, we can take questions now.

The first question is from Chris Wetherbee with Citi.

Eli on for Chris. Maybe we can just start with liquidity. So your liquidity stepped up, leverage goes down 5.5%. What are the plans that you guys see to continue growth with investment of some of this liquidity going forward?

Look, it's a lot of things. This has to do with the more generic capital allocation question. Depending on market conditions and we try to be countercyclical, assuming that we feel that the asset prices make sense, we will continue expanding our fleet base. However, as you've noticed for the time being, we haven't done any transactions in containerships recently. And we have also paused in the dry bulk vessels. Of course, as I mentioned, subject to market conditions, we have liquidity, we have access to commercial bank debt. We also have a hunting license, as mentioned. And should we feel that the prices are justified, we may very well continue expanding the fleet at prices that we feel makes sense. Now apart from that, in the previous quarters, we authorized a share buyback program that can be utilized, and paying back more debt in today's market, we have a 20% leverage, which is generally low. And the dry bulk vessels, which are on spot trading, have a leverage of below 50%. So I'm not sure whether it will be optimal to further reduce commercial bank debt. So it's going to be either expansion, assuming market conditions justify that share buyback, and we will see the debt repayment is also an option, but it might not be the optimal one today.

That makes sense. So I guess one more on rates and understanding you don't have a crystal ball, but the congestion out of Shanghai and East Asia and the flow back over to the West Coast of the United States, what is the cadence of that in your view right now out through the end of the year into '23? And how does that relate to the rate expectations? Understandably, you guys are saying that they're going to be high, but what does that look like from your seat?

Look, it's generally, we don't predict the market. You're right that we don't hold the crystal ball and generally, we are very cautious, particularly about the market. We know that congestion is still the case. There are some concerns regarding labor negotiations coming up in the West Coast of the U.S. But we cannot possibly tell you that the charter rates for the Panamax in a year's time or the end of this year will be at those levels. I can tell you that now we have fewer fixtures compared to the fixtures we used to have. Of course, it is a factor that there are fewer ships available for delivery. However, some charterers may be adopting a wait-and-see approach, which I feel makes sense from their side, and also some owners may be adopting a similar approach. So I'm afraid I cannot tell you more than that, simply because we never predict the market. But today, the latest fixtures we've seen, especially for the larger vessels, reflect the charter rates that are definitely at historically high levels.

The next question is from Ben Nolan with Stifel.

This is Macalla Rogers on for Ben. Congrats on the quarter. On the container side, would you be able to provide any color around the 2 containership orders that were canceled? And if there's any chance that they might be reinstated at some point down the road?

I'm sorry, but I'm unable to comment on that or make predictions as it is quite challenging. We have outlined the reasons for the cancellations in one of our filings. This is something we are actively addressing, but I cannot provide further details at this time.

Sure. That makes sense. And if I can maybe just squeeze in one more on that note. Kind of piggybacking off the dry bulk assets and maybe some capital allocation plans. You mentioned maybe waiting for asset prices to get a bit cheaper before buying more on the dry bulk side. Could you maybe provide any insight about how you're thinking about what might be an acceptably cheaper range?

Look, it’s difficult for me to put our numbers for that type of vessel because it depends on the base specifications, delivery dates, and a lot of other factors. But as you know, beginning from the second quarter of 2021, we started buying dry bulk ships. In total, we bought 46 vessels, mainly smaller vessels, but primarily Panamax. Since then, the market has improved a lot, and as asset values have moved up. So all those acquisitions today, one by one, they are all in the money. I cannot provide specific figures. But as mentioned earlier, we try to be countercyclical in assessing asset values. Today, we have a wait-and-see approach. Of course, there are always opportunities; we do inspect vessels. We are active. But this is something that we’re thinking twice about. So I’m not saying that we’re not going to be expanding. All I’m saying is that we definitely want to make sure that the equity we put to work is going to be invested in assets whose values today make sense. It’s pretty much it, but I cannot make any predictions. And if we find something that makes sense, we’re going to go for that. The same applies for the containerships, but where asset values are today for the containerships, I think it would have been very difficult to find those that we feel do make sense.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Zikos for any closing remarks.

Thank you for your interest in Costamare and for dialing in today. We're looking forward to speaking with you again during our next quarterly results call. Thank you.

Thank you, sir. That does conclude our conference for today. Thank you all for participating. You may now disconnect.