Costamare Inc. (CMRE) Q1 2022 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 2022 Financial Results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the company. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, May 5, 2022. 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 over to your speaker today, 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. Fundamental strong charter rates for the container market remained unchanged. Commercially full employed contained lead with no vessels available on short notice. Congestion shows no signs to 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 ship sharing a premium to the larger ones, also benefiting from container spillover. Supply and demand dynamics remains 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 on 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 concluded another handing license of $120 million that gives us additional firepower and executed a $40 million loan to refinance for dry bulk vessels with the 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 [tracker] 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, 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 in [going public]. Our adjusted figures take into consideration the following noncash items arrogate 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 [fix] 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.

[Operator Instructions] And the first question is from Chris Wetherbee with Citi.

Eli on for Chris. Maybe we can just start 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 recently any transactions in containerships. And also, we have paused in the dry bulk vessels. Of course, as I mentioned, subject to market conditions, we have a 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 which can be if you are 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, they 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 they will see the debt repayment is also an option, but it might not be the optimal 1 today.

That makes sense. So I guess 1 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 last 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 in particularly the market. We know that the 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 end of this year, it's going to be at those levels. I can tell you that now we have less fixtures compared to the fixtures we used to have. Of course, it is a factor that there are less ships available for [indiscernible] delivery. However, some charterers now they may be adopting a wait-and-see approach, which I feel that from their side that makes sense 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, which are definitely at historically high levels.

[Operator Instructions] 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 afraid this is something -- I'm afraid that I cannot comment on that and make predictions, this is even more difficult. I think we have -- in a filing of ours, we have stated the reasons that those have been canceled. This is something we are currently working on. But I cannot say something more than that, I'm afraid.

Sure. That makes sense. And if I can maybe just squeeze in 1 more on that note. Kind of piggybacking off the dry bulk assets and maybe some capital allocation plans. You mentioned kind of 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 that amount of [the charter] because it depends on the base specifications, deliver date and lot of things. But as you know, last year, beginning from the second quarter of 2021, we started buying dry bulk ships. And in total, we bought 46 vessels, mainly [plan this] up to Panamax, but mainly smaller vessels. Since then, the market has improved a lot, and as advisers 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 and seeing asset values. Today, we have a wait-and-see approach. Of course, there is always opportunities. We do inspect vessels. We are active. But this is something that we’re thinking twice. 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 into work, it's going’ to be invested in assets whose values today makes sense. It’s pretty much it, but I cannot make any predictions. And we will find something that still today would really make sense, of course, we’re going to go for that. The same applies for the containership, but where asset values are today for the containerships. I think it would have been very difficult to find them 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.