Costamare (CMRE) Q1 2020 Earnings Call Transcript

Costamare (NYSE: CMRE)
Q1 2020 Earnings Call
Apr 29, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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.

[Operator instructions] I must advise you that this conference 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 No. 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.

Gregory Zikos -- Chief Financial Officer

Thank you, and good morning, ladies and gentlemen. COVID-19 presents the largest shock in the global economy since the 2008-2009 crisis. The supply of containerized goods has experienced another episode of disruption and the industry must now contain 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 and force are also creating a deferred built-in demand. In this environment, the safety of our vessel crews as well as of our onshore 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, we chartered in total 12 ships, including three 11,000 TEU vessels, which were chartered for periods, raising from one to three years. Finally, we recently declared our 38th dividend is going public.

As has always been the case, but especially during today's unprecedented times, our top priority is to cover our downside. Building upon 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 presentation. On Slide 3, 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 has a 40% increase to Q1 2019. We do maintain a strong balance sheet with liquidity close to EUR 270 million, leverage of approximately 40% and no meaningful debt maturities over the next 12 months.

Moving to Slide 4. 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 operational performance, during the previous quarter, we achieved utilization rates of close to 100% and very competitive operating expenses of below $5,100 per day per vessel. Slide 5.

During Q1, in a volatile charter environment, we have chartered 12 vessels, including the three 11,000s, chartered for periods ranging from one to three years. The containership market has been negatively affected by the COVID outbreak. At the same time, the idle fleet, adjusted for vessels undergoing scrubber retrofits and blank sailings owned by tonnage providers, stands at 1.2%, while the order book has remained at levels close to 10% and is expected to remain low. We will pay our 38th consecutive quarterly dividend in February.

Insiders have been participating in the DRIP, 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 and adjusted net 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 noncash items: accrued charter revenues, accounting gains or losses from asset disposals and other noncash charges. On Slide 7, we are discussing our capital structure. As already mentioned, there are no substantial value payments due over the next 12 months.

Our leverage is constantly below 50%. Net debt to 12-month trailing EBITDA is 3.4x, and EBITDA over net interest is at 4.9 times, when our financial covenants have a minimum requirement of at least 2.5 times coverage. On Slide 8, we are showing the revenue contribution for our fleet. 99% of our contracted costs come from first-class charters like Maersk, MSC, Evergreen, Cosco, Yang Ming and Hapag-Lloyd.

We have today $2.1 billion in contracted revenues and the remaining time charter duration of about 3.4 years. On the last two slides, we're discussing the market. As shown on Slide 9, charter rates have fallen in the first quarter as a result of reduced demand. Initial blank sailings were followed by substantial capacity reductions in all major trades.

Most trades have been under pressure for most of Q1. The start, however, has let us close to those a year ago. Slide 10. The idle fleet is shown at 10.2%.

However, a number of ships owned by tonnage 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.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Chris Wetherbee of Citi.

James Yoon -- Citi -- Analyst

James on for Chris. I just wanted to touch on the market and the current outlook. Just to understand your strategy for possibly managing the current environment, looks like rates will probably be softer and you will be rechartering below the existing levels. Just wanted to get a sense of how you might net that? And if the environment, so we felt 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?

Gregory Zikos -- Chief Financial Officer

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-percent every quarter. Now we have six coming off charter until the end of the year, and this is something normal.

You've seen that in this quarter, we chartered 12 ships at rates, which today, they are at levels that make sense. Now what we have been doing is that, as mentioned, we do have a lot of liquidity, slightly below $270 million. We have 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 had average operating expenses of close to $5,100 per day per vessel. And I have to stress here that our average ship has a size of close to 7,000 TEUs. And we do maintain excellent relationship with our charterers.

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 stage where we feel comfortable about weathering the storm. Costamare has been shipping for 45 years or more. It's not the first crisis we have come across.

We came across the 2008-2009 crisis, where we didn't reach any financial covenant during the period. Plus, in the past, we've come along a number of shipping crisis. So it's not the first time 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.

James Yoon -- Citi -- Analyst

Got it. And also just wanted to touch the impact that the coronavirus has had on shipyards and dry docking. What should we really be expecting for the amount of time that dry docking takes in the current environment?

Gregory Zikos -- Chief Financial Officer

Look, for scrubber rental fleets, to start with that. The scrubber rental fleets have been, even before the coronavirus, there were delays, simply because there was a lot of demand for installation of scrubbers. And the shipper capacity was not big enough in order to have this demand absorbed. 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 90 days in order to have scrubbers installed. Now regarding dry dockings, scheduled dry dockings, I don't think that. mean I cannot predict but normally, we would allow, depending on the vessel, 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 increment of high because of the scheduled dry docking, it would change the fundamentals of our income statement going forward. We talked about a fleet of 65 vessels in the water.

We talked about contracted revenues of $2.1 billion. So I don't think that the impact from those dry dockings is going to be that huge. And I'm afraid that I cannot quantify this yet.

Operator

[Operator instructions] And our next question will come from Ben Nolan of Stifel.

Ben Nolan -- Stifel Financial Corp. -- Analyst

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

Gregory Zikos -- Chief Financial Officer

Yes. The first three ships, you mentioned those 11,000s. We chartered for $38,000, the two of them for one year. And the third was chartered at $38,750 for a three-year period.

Now those charters were concluded during the first quarter, not yesterday, but I guess it was during the quarter. Now we have two more sister ships coming off charter, which is going to be in September, October. So it's not something imminent. If it was something, if closes were coming out of charter now as well, I think it would have been 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 your buildings 2017-built. Very few 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 charter period. So again, we will have to take a view whether we would like to go for a longer period, for ex versus 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 two ships chartered to ZIM, 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 this clear.

Ben Nolan -- Stifel Financial Corp. -- Analyst

Right. OK. No, that's helpful. And another thing, it looked like from the income statement that you guys have been buying back preferred shares.

Can you maybe if you can quantify what you've done there and sort of what the thinking is around that?

Gregory Zikos -- Chief Financial Officer

Yes. We have been buying back for a couple of reasons. First of all, that we have been in a lockout period for the last three, four weeks because of the results, and we may be resuming from tomorrow. And secondly, because there is, I think, liquidity for those types of instruments.Now ballpark figures, we have bought preferred.

I mean all four classes in aggregate at the dollar value of close to $1.4 million. And we have the profit of close to $600,000. So the redemption of preferred stock has been in the face value of $2 million. So petty cash, $1.4 million, then we have redeemed preferred stock $2 million worth.

Ben Nolan -- Stifel Financial Corp. -- Analyst

And I suppose with those preferreds, I think all four of them stood trading below par your — once you're locked out, that's still something that you're interested in doing? Yes?

Gregory Zikos -- Chief Financial Officer

Yes. Yes. I mean depending on how they trade. But now the rate is 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 know, it is quite substantial. As a percent, that's vast, but I mean, the dollar value has not been that huge. So this is something we would resume.

As you've seen, we have cash on balance sheet of close to $270 million. I think this is something that makes sense. The only concern, it is the liquidity because generally, those instruments are still being traded.

Ben Nolan -- Stifel Financial Corp. -- Analyst

Sure. yes. OK. No, that's helpful.

And then lastly for me and I'll turn it over. With respect to the five new buildings for Yang Ming that begin to deliver later this year, just curious if there's any interest or capacity by either your self reaging your 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 that something that may be a possibility?

Gregory Zikos -- Chief Financial Officer

No. 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 could slip back or probably 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 that for those five new buildings, they have been fully funded on a preposed delivery basis. And the remaining capex commitments for the total of the five ships from our side today is close to $31 million.

And this is why I mentioned in my commentary that we have a minimal capex 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.

Operator

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

J. Mintzmyer -- Value Investor's Edge -- Analyst

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 11,000 TEU ships, we'll look forward to the next ones. I do have a question about the 9,500 TEU ships that came off.

I believe they're at $29,000 before. You mentioned the role, it was three to six months, and there 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?

Gregory Zikos -- Chief Financial Officer

Yes. These are five sister ships in totals. In total, the five 9,500 TEU ships built in 2006. We have reached out to the first two, which came off charter and we have rechartered them for a period of three to six months, as we mentioned.

Now regarding the charter rate and the trade because of confidentiality reasons, based on discussions we had with the charterer, I cannot go into more details. Probably in the future, when hopefully, also the rest of the six will be chartered and when also additional ships are going to be rechartered, then we can give more figures. But at this stage, I'm afraid that I'm not at liberty to disclose more of that.

J. Mintzmyer -- Value Investor's Edge -- Analyst

OK. I 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's 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?

Gregory Zikos -- Chief Financial Officer

Yes. Look, first of all, we don't like to demolish those vessels tomorrow morning, right? So depending on market conditions, we're going to take the view whether it makes sense to keep owning and managing those vessels. All in all, also bearing in mind what is the related capex for those vessels in order to continue to trading. This is a decision that is going to be taken on a ship-by-ship basis.

Now if we decide to send for the 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 finally open. But I cannot give you more details because we have not approached any ship breakers for those vessels today. So I don't know what like would be the timing today if someone wanted to scrap the vessels, those ships I 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 if we take the decision, it's going to be a matter of timing rather than whether we would be able to actually scrap them. It just it may take some more time.

But I don't more info on this topic. We don't have any ship to be scrapped imminently.

Operator

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

Gregory Zikos -- Chief Financial Officer

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

Operator

[Operator signoff]

Duration: 23 minutes

Call participants:

Gregory Zikos -- Chief Financial Officer

James Yoon -- Citi -- Analyst

Ben Nolan -- Stifel Financial Corp. -- Analyst

J. Mintzmyer -- Value Investor's Edge -- Analyst

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