Costamare Inc. (CMRE) Q1 2020 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call on the First Quarter 2020 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 [Operator Instructions] I must advise you that this conference call is being recorded today, Wednesday, April 29, 2020. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read slide number two 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. Good morning, ladies and gentlemen. COVID-19 presents the largest shock in the global economy since the 2008, 2009 crisis. The supplier of containerized goods has experienced episodes of disruption, and the industry must now contend with the consequences of reduced demand. Determining the timing and shape of the recovery is a challenge. Yet it is worth noting that the protective measures adopted across the world are intended to be temporary, and we believe that the restrictions unfold are also creating a difference between demand. In this environment, the safety of our research group as well as our own employees remains our top priority. We have taken steps in order to protect our employees as well as to ensure uninterrupted service to our clients. For the first quarter, the company delivered profitable results. Liquidity increased to $268 million, we have contracted revenues of 2.1 billion, continued access to commercial bank debt, a smooth debt repayment schedule and minimal CapEx requirements. During the quarter, which are then total 12 ships, including 311,000 TEU vessels, which were chartered for periods ranging from one to three years. Finally, we recently declared our 30th dividend has gone public. As has always been the case, but especially during today's unprecedented times, our top priority is to cover our downside. Building up on that, we will continue to monitor the market and assess new initiatives in order to bolster our balance sheet and liquidity position, while at the same time evaluating new opportunities in a volatile market environment. Moving now to the slide's presentation, on slide three, you can see the highlights. Net income rose by approximately 35 million in Q1, compared to last year. The adjusted EPS is $0.27, it had a 40% increase to Q1 2019. We do maintain a strong balance sheet with liquidity close to $270 million leverage of approximately 40% in all meaningful debt maturities over the next 12 months. Moving to slide four, we have concluded three separate financings with European financial institutions for a total amount of $165 million, and maturities ranging from four to five years. Regarding the operational performance during the previous quarter we achieved with utilization rates of close to 100% and very cooperative operating expenses of below $5,100 per day per vessel. Slide five. During Q1 in a volatile charter environment, we have chartered 12 vessels including the 311,000 charter for premiums ranging from one to three years. The containership market has been negatively affected by the COVID outbreaks. At the same time, the iron fleet [indiscernible] scrubber retrofits and blank sailings owned by [indiscernible] providers trends at 1.2%, while the order book has remained the player was close to 10% and is expected to remain low. We will pay our 38 consecutive quarterly dividends in February. Insiders have been participating in the drift and since inception have reinvested in total $87 million. Moving to the next slide, you can see the first quarter 2020 results. During the first quarter of this year, the company generated revenues of $121 million in adjusted income of 33 million. Basically, above the first quarter EPS comes at $0.27 more than double on a year-to-year basis. Our adjusted figures take into consideration the following non-cash items, charter revenues, accounting gains or losses from master disposals and other non-cash charges. On slide seven, we are discussing our capital structure. As already mentioned, there are no substantial balloon payments due over the next 12 months. Our leverage is comfortably below 50%. Net debt to 12-month trailing EBITDA is 3.4 times and EBITDA as a result, our net interest is at 4.9 times when our financial covenants are the minimum requirement of at least 2.5 times coverage. On slide eight, we're showing the rendering contribution for our fleet. 99% of our contracted cash comes from first-class charterers like Maersk, MSC, Evergreen, Costco, Yang Ming, and Hapag-Lloyd. We have today $2.1 billion in contracted revenues and the remaining time for the duration of about 3.4 years. On the last two slides, were discussing the market as well as shown on Slide nine charter rates have fallen in the first quarter as a result to produce demand. Initial blank tailings were followed by substantial capacity reductions in all the major trade. Books rates have been under pressure for most of Q1 they spent however, as never as close to those a year ago. Slide 10, the idle fleet is shown not 10.2% however, the number of ships owned by donors' providers that are today available for charter is only 1.2% of the total capacity. The order book is slightly higher than 10% and it is expected to remain at low levels. As already mentioned, our main priority is to cover our downside risk, while at the same time looking for opportunities in such a volatile shipping environment. This concludes our presentation and we can now take questions. Thank you. Operator we can take questions now.

Thank you. [Operator instructions] And your first question comes from the line of Chris Wetherbee of Citi. Please go ahead.

Good morning James on for Chris. Just wanted to touch on the market and the current outlook, just understand your strategy for possibly managing the current environment looks like rates will probably be softer and you will be recharging below the existing levels. Just wanted to get a sense of how you might meet that and if the environment so we thought we should be really thinking about utilization possibly falling off to some point where it's below the historical run rate in the high 90s?

Yes, first of all, utilization today or like in the last quarter was slightly below 100% and generally we had the utilization rate of between 98% to 99% plus every quarter now. We have ships coming off charter until the end of the year and this is something normal. You've seen that in this quarter we started 12 ships, which today they are at levels that they make sense. Now, what we have been doing is that, as mentioned, we do have a lot of liquidity slightly below $270 million with proactively refinanced debt maturing over the next 12 months. We normally refinance our facilities due a year in advance. We have also been very careful regarding our operating expenses. As you have noticed in this quarter, we've had the average operating expenses of close to $5100 per day per vessel and I have to after stress here that our average see parenthesize of close to 7000 and we do maintain excellent relationship with our charters. So, I agree that the utilization rate can fall although we cannot predict the future and we don't know yet what the recovery shape will be and what the type of the recovery will be and the timing. However, even in that case, based on where we stand today, I think that considering the circumstances, we are in a state where we feel comfortable about weathering the storm. We've been in coastal management in shipping for 45 years or more. It's not the first crisis which have come across, we came across the 2008, 2009 crisis, where we didn't breach any financial covenants during that period. Plus, in the past, we've come along a number of shipping a crisis, so it's not the first time we come up from - we come across a crisis like that. However, I have to say that this is unique. This is something that was definitely unexpected. But as I said, I think that the company fundamentals are such so that I think we are prepared for the next quarters.

Got it. And also, just wanted to touch the impact that the Coronavirus has had on shipyards and dry docking if you think what we should really be expecting for the amount of time that the dry docking takes in the current environment.

Look, for scrap retrofits to start with that, the scrap retrofits have been even before the Coronavirus, there were delays simply because there was a lot of demand for installation of scrubbers and the shipyard capacity was not big enough in order to have this demand absorbed and now this has made even worse and there are delays. So, it could be like two or three months or even more or more than that in order to cover scrubbers are installed. Now regarding dry docking, scheduled dry dockings I don't think that I mean, I cannot predict. But normally we would allow, depending on the size and the circumstances, four to five weeks. Now, this could be something more I cannot say it could be five, six, seven weeks. I cannot tell from now however, I don't think that this incremental - because of the schedule to dry docking, it would change the fundamentals for income statement going forward. We took about a fleet of 65 vessels in the water you took about contract with revenues of 2.1 billion. So, I don't think that the impact from those dry dockings, it's going to be huge. And I'm afraid that I cannot quantify this yet.

Got it. Thank you.

[Operator Instructions] And our next question will come from the Ben Nolan of Stifel Nicolaus. Please go ahead.

Hey, Greg. So, I'll start with some of your contracts, specifically, on the on the 11,000 shares the three that you contracted. Those are what I would think are pretty good rates and so I assume they were probably done a little bit earlier in a timeframe. But if I'm not mistaken, there's two more that come off contract sooner or we're now. Can you maybe compare or give some sort of an idea of where you think the market is for those kinds of shifts relative to the 38,000 or so that you were able to get in the first three?

Yes, the first three ships, you mentioned those 11 cases. They were charged for $38,000, the two of them for one year and the third was started at $38,750 for a three-year period. Now, those others were completed during the first quarter. Not yesterday, but I guess it was during the quarter. Now we have two more sister ships, a can of charter, which is going to be in September, October. So, it's not something imminent, if it was something if those were coming out of charter now as well. I think it would be wise to charter them already, but they're coming out of charter September or October. So, there is still some time for those ships. These are new buildings 2017 built very fuel-efficient vessels which have been in great demand. But I'm afraid that I cannot predict what the rate is going to be for those vessels at the fourth quarter of the year, also at the end of the third quarter or the fourth quarter, and also the rate is also a function of the of the charter period. So, again, we will have to take a view where they would like to go for a longer period for right execution, going for a shorter period at a different rate. But I'm afraid where the market is today and bear in mind that there have been no other recent deals or pictures for that size for those type of new buildings. I'm afraid I cannot predict. Now, the two ships just to close the close the two ships started to seem they were contracted at the end of March. So, it's a month ago. It's not like three or four months ago just to make clear.

Right. Okay, no, that's helpful. And another thing it looks like from the income statement that you guys have been buying back preferred shares. Could you maybe if you can quantify what you've done there and sort of what the thinking is around that?

Yes, we haven't done a match for a couple of reasons. First of all, that we have been in a local look lockout period for the last couple weeks, because of the results and we may be resuming from tomorrow. And secondly because there is a liquidity for those type of instruments. Now ballpark figures, we have bought a preferred or all four classes in aggregate, the dollar value of close to 1.4 million and which and we had the profit of close to $600,000. So, the redemption of preferred shares has been the face value of $2 million, so petty cash $1.4 million then we have redeemed my preferred stock $2 million worth.

And I suppose with those preferred, I think all four of them still trading below par. You're once you're locked out here, that's still something you're interested in doing?

Yes, I mean, depending on how they trade but now the trade between $18 to $20. We managed to buy some at the price of like $14 to $16. So, we had a profit of $600,000 by paying $1.4 million, which you can argue which is quite substantial as a percentage, but by that, I mean, they don't our value cannot be touched. This is something we would assume. As you've seen, we have cash on balance so close to 70. I think there's something that makes sense. The only concern it is the liquidity because generally those instruments are thinly traded.

Sure. Okay, that's helpful. And then lastly from me and then I'll will turn it over. With respect to the five new buildings for Yang Ming to begin to deliver later this year, just curious if there is any interest or capacity by either yourself or Yang Ming or shipyard to slip those back a little bit. Is there any flexibility there just given the kind of state of the market and maybe shipyards might have issues, crewing and staffing up and everything else is or is that something that maybe possibility?

No, nothing, nothing that I can report at this stage. I think the first couple of ships will be delivered just with one-month delay. This is the latest schedule we have today, which is meaningless considering that each of the five new buildings have a 10-year charter. So, nothing to report regarding whether this [indiscernible] also come forward. Nothing to report at this stage, this is the latest schedule we have. I just have to add that, for the sake of clarity that - for those five new buildings, they have been fully funded on a proposed delivery basis and the remaining CapEx commitments for the total of the five ships from our site today is close to 31 million and this is why, I'm mentioning in my commentary that we have a minimal capital commitment. So, it's like close to 6 million per vessel, which of course it is something that can be easily paid when the time comes upon delivery.

All right, that's helpful. I appreciate. Thanks.

Thank you.

Our next question comes from J Mintzmyer of Value Investor's Edge. Please go ahead.

Good afternoon, Greg. How are you?

Hi. Good morning. How are you?

Doing well. Good results. It's good to see the steady cash flows even though the market backdrop of course is challenging, great dialogue before as well about the 11K TEU ships. We'll look forward to the next ones. I did have a question about the 9.5K TEU ships that came off. I believe they were at 29,000 before. You mentioned the roll it was three to six months and it was a confidential rate. Can you provide just a big picture guide of where that was, was that slightly below - substantially below what it was before?

Yes, these are five ships in total. In total, the five - 9.5 thousand TEU ships built in 2006. We have a charter, the first tube which came of charter and we have retargeted them for a period of three to six months, as we mentioned. Now, regarding the charter rate, I'm afraid because of confidentiality reasons. Based on discussions we've had with the charter, I cannot go into more detail probably in the future when hopefully, also the rest of the series will be chartered. And when also additional ships are going to be chartered, then we can give more figures, but at this stage, I'm afraid that I'm not at liberty to disclose more than that.

Okay, understand, I figured I'd try. I figured some broad guidance there. But next question for you with the Coronavirus shutdown of a lot of the ship docks. I know there has been some backup and demolition as well. Now I know you have several older ships that are coming due for surveys that you might have considered scrapping, there's nine 2000 builds and there's one 1995 build. Are you still planning to demolish any of those vessels this year and is that possible in this environment?

Look, depending. First of all, we don't plan to demolish those vessels tomorrow morning, right? So, depending on market conditions, we're going take the view whether it makes sense to keep owning and managing those vessels or not, also bearing in mind what is the related CapEx for those vessels in order to continue trading. This is a decision that is going to be taken on a ship-by-ship basis. Now if we decide to sell for demolition of those vessels, I think that the demolition market was down, was completely locked. Because of the reasons we all know I hear, and we understand that it is slowly coming back and wait to see when sort of it will finally open. But I cannot give you more details because we have not approached any ship wreckers for those vessels today. So, I don't know what like would be the time today if someone wanted to scrap my vessels. Those ships that don't have information, but we're going to take each one of them as it comes. But I don't think that this is something that I mean, if we decide to scrap those vessels, there may be some delay. But finally, at some point, we will scrap them. So, I think it would take the decision is going to be a matter of timing, rather than whether we will be able to actually scrap them. It just - it may take some more time, but I don't have more info on this topic. We don't have any ship to be scrapped imminently.

Excellent, thank you very much, Greg. Keep up the good work.

This concludes our questions-and-answer session. I would like to turn the conference back over to Mr. Zikos for his closing remarks.

Thank you for being with us today. We are looking forward to speaking to you again in our Q2 2020 quarterly results. Thank you.

Thank you. This does conclude our conference for today. Thank you all for participating and you may now disconnect.