Costamare Inc. Q2 FY2023 Earnings Call

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call on the Second Quarter 2023 Financial Results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. I must advise you that this conference is being recorded today, Friday, July 28, 2023. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read Slide number 2 of the presentation which contains the forward-looking statements. And I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir.

Thank you and good morning, ladies and gentlemen. During the second quarter of the year, the company generated net income of about $69 million. As of quarter end, liquidity was $1 billion. In the container ship sector, the charter market has been softening although rates still remain at healthy levels. The order book, however, remains a principal threat to the market. On the dry bulk side, our own dry bulk vessels continue to trade on a spot basis, while the trading platform has grown to a fleet of 56 ships. Having invested $200 million in the dry bulk operating platform, we have a long-term commitment to the sector whose fundamentals we view positively. Regarding Neptune Maritime leasing, the platform has been steadily growing on a prudent basis, having concluded total leasing transactions worth $120 million which are complemented by a healthy pipeline extending over the coming quarters. Finally, during the quarter, we proceeded with our share buyback program and we have bought $15 million worth of common shares highlighting our strong belief that the share price is heavily undervalued considering both the company's performance and prospects. Moving now to the slide presentation. On Slide 3, you can see our second-quarter results. Net income for the quarter was roughly $63 million or $0.52 per share. Adjusted net income was around $69 million or $0.56 per share. Our liquidity stands at over $1 million. On Slide 4, you can see an update on our share repurchase program. Since the beginning of Q2, we purchased approximately 5.4 million common shares for $50 million. Slide 5. As far as CBI is concerned, we have chartered 56 period vessels with the majority of the fleet being on index-linked chartering agreements. 53 of those vessels have been already delivered and are running. Regarding our leasing platform, we have already invested around $50 million. Since inception, NML has financed 12 ships through sale and leaseback transactions. Slide 6. Our financing arrangements amounted to roughly $175 million without an increase in leverage. Those deals were coupled with extension of maturities and improvement on fighting costs. We continue to charter on our dry bulk basis in the spot market, having entered into more than 50 chartering agreements since our last earnings release. On the alternative side, our revenue days are essentially 100% fixed for 2023 and 87% fixed for 2024, while our contracted revenues are $2.9 billion with a TEU-weighted remaining time strategy duration of about 3.9 years. Slide 7, we have sold one dry bulk vessel and have agreed to acquire two Capesize dry bulk ships. Both vessels will be partnered with cash on hand. In addition, we have concluded containership transactions with your capital for two containerships while we have agreed to sell another containership where we own a 49% equity interest. Moving to Slide 8, the containership market has been softening. Although rates remain at healthy levels, the dry bulk market remains volatile while for the remainder of 2023, the FFA market indicates signs of recovery in Q3 and further strengthening in Q4. Finally, we continue to have a long uninterrupted dividend track record boosted by strong sponsor support. On Slide 9, our liquidity has increased significantly over the year, standing at above $1 billion. This liquidity gives us the ability to look for opportunities to grow the company on a healthy basis. Moving to Slide 10, charter rates in the containership market remain at healthy levels. Added capacity remains at historically low levels of about 1%. And finally, on Slide 11, you can see the recent dry bulk market trends in the spot and forward market order book is at 7.4% of the total fleet. With that, we can conclude our presentation, and we can now take questions. Thank you. Operator, we can take questions now.

The first question comes from the line of Mr. Omar Nokta from Jefferies. Please go ahead.

Thank you. Hi, Greg. Good afternoon.

Hi, Omar. Good morning.

Just wanted to check on how things are going operationally. Clearly, Costamare has shifted more so into dry bulk over the past couple of years with investments in the midsize segments. Previously, you've now got the Capesize vessels coming on, and you also have CBI, the sector's been obviously kind of soft here over the past few quarters and just wanted to see in terms of profitability in that business. It looks like it's eating somewhat into the container profits. In the release, you show the container business earning $127 million in the quarter while dry bulk or the dry bulk fleet lost just three million, but the trading business lost $24 million. And just wanted to ask about that $24 million. Would you say that is just simple? Is that commercial performance or is it more of just startup costs and building up CBI?

Yes, it's two things. First of all, regarding our participation in and our investment in the dry bulk sector, we are there for the long term. So, this is a long-term commitment of the company. As I think I have also stated in my commentary, now more specifically regarding CBI, the company started operations within the last six months and has grown quite substantially from zero ships chartered to 56 ships chartering, with 53 of those already delivered. So, I think we need to allow the company some time in order to amortize the setup costs. At the same time, we had a lot of deliveries which are from day one, impacting us without the ships having operated for a full period. So, I would say that it's mainly setup costs and the rollover of a new business. We have invested $200 million, and we are very happy with the way the company has grown over the last six months. At the same time, we are patient. So, I think it's mainly setup costs. And we are now at the initiation phase. We need to allow more time to see the results that this entity will yield. Also, the dry bulk sector is quite volatile, especially right now. But I think we have the right setup, the right people, and the experience to capitalize on the market upside whenever that comes.

Thanks, Greg. That’s helpful. You mentioned taking some time, and with 53 of the 56 ships now in-house, does that mean most of the startup costs have already occurred? Are you considering expanding the fleet beyond 56 ships to perhaps 75 or 100, or is 56 going to be the target in the near term?

It depends on market conditions. Our goal is to grow the company and to have a meaningful size within that sector as an operator. Now, whether we're going to go to a bigger number of ships sooner or later, there are also a lot of commercial considerations. We have the equity, we have the capacity to grow, but we also need to look at market conditions. So most probably, I would say that it's a question of when rather than if we are going to be growing or not. But I think the growth needs to be on a healthy basis and step-by-step. So, let's see. I cannot predict the growth very simply because I cannot predict the market.

Now that's fair. That's a tough question, I guess. And then maybe just one final one. Clearly, you announced the buyback. You were very aggressive putting $50 million to work. And you paid roughly about $9 a share, a little above that. The stock is up a little bit from there. Do you still see the price today as attractive? And can we expect that remaining $40 million to be put to work quickly?

Look, regarding the first part of the question, I do consider that the stock is undervalued. Whether someone looks in terms of NAV, profitability, prospects, or track record, however you look at it, it's undervalued, and this is the reason we bought those common stock shares worth $50 million over the last quarter. Now I cannot predict, and also for legal reasons, I cannot tell you now what's our plan for the remaining $40 million of the program or likely whether this program is going to be extended and add more capacity there. I cannot predict this now. But I can tell you that we generally believe that the stock is undervalued, and we prefer buying back common stock at this level, as it definitely made sense.

Okay. That's clear. Thanks, Greg. I'll turn it over.

The next question comes from Mr. Ben Nolan with Stifel. Please go ahead.

Good morning or good afternoon. It's actually Pranella on for Ben, but thank you for taking my question. I wanted to ask about, at the moment, both container and dry bulk asset prices have come down. Although in each case, both are still historically elevated. But at the moment, do you see Costamare as a better buyer or seller of each type?

Yes, you are right. I mean asset values have come down, but not to a level where they reflect today's charter rates, and especially for the containers, not at a level where they reflect consensus about how the charter rates are going to develop over the next quarters. So, regarding the containerships, for the time being, we are not buyers, and we haven't bought any container ships over the last couple of years. We also didn't put any new building orders because we felt that asset prices, both for second-hand and for new buildings, were elevated. So, there we wait and see. But I agree with you that although asset values can come down still, they are not at levels that are attractive in the way we like normally to buy vessels. Now, regarding the dry bulk market, again, as you saw, we bought two Capesize vessels of middle age. We felt the price made sense. But for the time being, we haven't seen a substantial correction in asset prices, to levels close to where we bought our dry bulk fleet a couple of years ago. So, we do wait and see. We have the equity, we have cash, together with available liquidity of slightly above $1 billion. We have access to commercial bank debt. So, when we feel that the asset prices do make sense, also judging from a track record, we have the ability to buy and execute quite fast. For the time being, we are sitting and waiting opportunistically. We could be buying some assets here and there if on a case-by-case basis we feel it makes sense.

Being no further questions, this concludes the question-and-answer session. I will now pass the floor back to Mr. Zikos for his closing remarks.

Thank you for dialing in, and thank you for your interest in Costamare. We look forward to speaking with you again during our next quarterly results call. Thank you.

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