Costamare Inc (CMRE) Q3 2021 Earnings Call Transcript

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Costamare Inc (CMRE 2.26%)
Q3 2021 Earnings Call
Oct 27, 2021, 8:00 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 Third Quarter 2021 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, October 27, 2021.

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.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you, and good morning, ladies and gentlemen.

The container market rebound that began in the second half of last year is continuing, drawing strength from favorable supply and demand dynamics. The availability of containerships in the market has been stretched thin due to high cargo volumes and strong tonnage demand, that has been exacerbated by port congestion and an overall shortage of equipment.

All our containerships chartered during the quarter have been fixed at increasingly high levels of hire.

On the dry bulk side, we took delivery of 20 additional vessels, bringing the number of dry bulk vessels that have been delivered to us to 34. The remaining three ships are expected to be delivered by year-end. All our dry bulk vessels are employed in the spot market, yielding very healthy returns.

Contracted revenues have reached $3.3 billion and the average time charter duration for our containership fleet stands at more than four years. We have nine containerships coming off charter by the end of next year and 37 dry bulk vessels operating in the spot market, favorably positioning our Company should the currently strong market conditions continue.

Moving now to the slide presentation.

On Slide 3, you can see the highlights of a very profitable third quarter. Net income for the quarter is $107 million and the EPS is $0.87, an increase of over 500% year-over-year. Adjusted net income is $81 million, up more than 200% compared to the third quarter of last year, and adjusted EPS is $0.66. We have now taken delivery of 34 out of the 37 dry bulk vessels, and the three remaining ships are expected to be delivered by year-end. We have also selectively sold some of our old containerships at attractive levels, working capital gains of $36 million.

On Slide 4, you can see our liquidity and new financing arrangements. We have concluded another hunting license financing of $150 million that gives us additional firepower. All our containerships and dry bulk processes have the funding in place, and our remaining capital commitments are minor relative to our cash position. We do maintain a strong balance sheet with liquidity of about $560 million, market value based leverage of 32%, and no meaningful debt maturities until 2025.

On Slide 5, we discuss our new chartering arrangements. We have entered into or extended the charters for five vessels at much higher levels. On average, the new charters were fixed at a rate of 2.2 times higher with a much longer average duration. Our most recent fixture, the Glen Canyon is a forward fixture, commencing in Q2 2022, and was done at $62,500 per day for 3.5 years.

Moving to Slide 6. On Slide 6, you can see the chartering of our dry vessels. We have chartered in total 18 ships at healthy levels. You can see a sample of some of the fixtures, which have been concluded during the quarter.

Moving to Slide 7. The containership charter market has continued to outperform on the back of positive supply and demand fundamentals. The idle fleet was 0.6% in October, indicating a fully employed market. The dry bulk market has reached levels not seen since 2008 as demand for commodities continues and supply constraints remain to drive the market. We have also paid our 43rd dividend in August and we will pay our 44th consecutive dividend in November.

Slide 8. On this slide, you can see the third quarter 2021 results. The Company generated revenues of $216 million and adjusted net income of $81.5 million. Based on the above, the third quarter adjusted EPS is $0.66, up 200% year-over-year. The adjusted figures take into consideration the following non-cash items: the accrued charter revenues; accounting gains or losses from asset disposals; prepaid lease rentals and other non-cash charges; and changes in the fair value of equity securities.

On Slide 9, you can see our capital structure. Our leverage is comfortably at about 32% based on current market values. As you can see from the slide, our market value adjusted assets is equal to $7.6 million.

Slide 10. On this slide, you see the revenue contribution for our containership fleet and our contracted revenues. The revenues come from top charterers like Maersk, MSC, Evergreen, Cosco, Yang Ming, ZIM and Hapag-Lloyd. We have $3.3 billion in contracted revenues and remaining weighted time charter duration of about 4.2 years.

On the next slide, we discuss the containership market that remained tight supply. Charter rates continued to significantly improve across all vessel sizes, up over 900% since the end of June 2020. Box rates have increased by over 210% on a yearly basis. And while there was a slight dip during the Chinese Golden Week, rates continue to remain at healthy levels.

Moving on to Slide 12. The idle fleet is at 0.6%, or full commercial utilization, from a high of 12% one year ago. The order book has risen to 23% as new ordering has accelerated over the past quarters. It will be noted, however, that it takes close to two years to build a new vessel and the majority of newbuilding vessels that have been ordered will not be delivered until 2023 and beyond.

On the last slide, we discuss the dry bulk market. As shown on Slide 13, charter rates have significantly improved since Q3 2020 and have remained at healthy levels. Although asset values have been trending upward since late 2020, they have lagged the increase in charter rates.

On the last slide, you can see that the expectation is for demand growth to continue to exceed supply growth at least through the end of 2022. At the same time, the order book remains at historical low levels, especially for the sizes that we have invested in, and fleet growth is expected to decline over the next several years, which creates a favorable battle [Phonetic] for the market.

This concludes our presentation, and we can now take questions. Thank you. Operator, we can take questions now.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And your first question today comes from Chris Wetherbee of Citi. Please go ahead.

Unidentified Analyst

Hi, guys. This is Elai [Phonetic] sitting in for Chris. Thanks for taking the question here. So, I just want to start off with the current rates. Are you guys shifting to a short-term view to capitalize on the higher rates now, or you guys still playing in the long-term market in terms of duration?

Gregory G. Zikos -- Chief Financial Officer and Director

You are referring to the containership vessels I guess, or to the dry bulk?

Unidentified Analyst

On the containership side, yes.

Gregory G. Zikos -- Chief Financial Officer and Director

On the containership side, there we go long to the extent we can, obviously, for the highest rate available in the market. Assuming that the numbers work, we're going to opt the longest period available. Hence, the example of the Glen Canyon, the 5,600 TEU vessel, which we chartered for a period of 36 of 39 to 42 months, starting from Q2 2022 at $62,500. I think at that level of rate, we would prefer to go for the longest available duration.

Unidentified Analyst

Got it. That makes sense. And we see that you have a longer duration most likely for some of your larger ships. But are you seeing duration increase for the smaller ships as well?

Gregory G. Zikos -- Chief Financial Officer and Director

Yes, we have seen a trend that generally the duration of charter parties has been increasing now. For the larger vessels, we don't have a lot of recent fixtures, simply because most of them are fixed for period, so there are no ships available in the market. However, generally speaking, yes, we see a trend in such a good market environment that average time charter duration will become longer and longer. And this definitely applies for the smaller ships as well, up to feeders [Phonetic] or like the smaller vessels 1,000 TEU or like 2,000 TEUs, yes. Also in that segment, because we also have some ships of that size, we normally ought to go for the longest period available, of course, assuming that the numbers make sense.

Unidentified Analyst

That makes sense. Thank you. And then let's turn to the newbuilds. We know that the trend of ESG focus in terms of newbuilds and fuel use is something that is being thought about right now in terms of what ships people are turning to to order. Are you guys focusing on more fuel efficiency in terms your newbuilds or holding off newbuilds in order to wait for some of the technology to evolve?

Gregory G. Zikos -- Chief Financial Officer and Director

No, look, we do focus on fuel efficiency. This is one of our priorities. At the same time, regarding newbuildings, if it is a newbuilding order, which will be placed on a back-to-back basis with a long-term charter, of course, the ships specification is something that needs to be agreed upon with the charterer as well. So, this is our priority. At the same time, we will also cater to the needs of the charterer.

Unidentified Analyst

Got it. Thank you. And then one more generalized market question. We see the congestion out of China is increasing due to some of their power constraints. How are those conversations going with your customers? And what is your view on the Chinese congestion right now?

Gregory G. Zikos -- Chief Financial Officer and Director

Look, I think it's common knowledge that the condition is quite extensive, especially in the West Coast of the US. And I think, there have been a lot of efforts in order to ease that congestion, which we haven't seen yet. This is not something I can predict how it's going on -- go over the next months, but this is definitely something that liner companies as well as the states take attention of and they want to ease. But I'm not sure whether this is something that can be easily fixed within weeks or within months. I'm afraid, I cannot predict how long this is going to last. But we definitely have seen a lot of efforts.

Unidentified Analyst

Of course. And then I guess just a follow-up there. How is the interaction communication with your customers changed from this quarter to last quarter, given the increase in congestion across the board at the higher rate?

Gregory G. Zikos -- Chief Financial Officer and Director

No, look, our customers are the liner companies. We have been fixing vessels based on supply and demand dynamics. Now congestion, it is one of the factors that it is affecting the supply of the ships. The demand is there and we know that there is substantial demand as we speak, again, especially on the Trans-Pacific trade. So I mean, we still have the same type of communication we used to have. I don't think something [Phonetic] has changed. It is just that the market fundamentals are that we are in a very tight market today, this is pretty much it. Liner companies, they are still chartering in vessels. They have also been buying ships for themselves. So, I think it is the same line of communication, nothing has changed.

Unidentified Analyst

Thanks, Greg. I appreciate it. Congrats on the quarter.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you. Thanks a lot.

Operator

Ladies and gentlemen, our next question comes from Ben Nolan with Stifel. Please go ahead.

Ben Nolan -- Stifel -- Analyst

Hey, thanks. So I got a couple for you, Greg. I'll start with the dry bulk side. You have this new hunting license, but you haven't acquired any additional dry bulk vessels since June or so. How are you thinking about the market, the asset prices and the attractiveness of adding to that fleet here? Is it -- are you kind of waiting for things to normalize a bit?

Gregory G. Zikos -- Chief Financial Officer and Director

Look, we put this hunting license in place. I mean, we have announced this now, but this is something we were discussing with the lender for quite some time. So, this is $450 million for dry bulk vessels. We have it in place. However, we will use it only when we think that the asset prices make sense. So, I cannot predict how the dry bulk market is going to evolve or like what's going to be the price for 10 or 15 year old Panamax or Supramax. But we have it in place.

So, I think it's good to have it in place, because when we felt that market conditions amplified [Phonetic], we committed to 37 vessels within like a couple of months. So, this is one additional tool, but it doesn't mean that because we have it, we will have to utilize it. We're going to look at prices, we're going to look at earnings and how we think these two are going to play out. I'm afraid, I cannot predict the market. All I can say is that, should we feel that the numbers make sense, we have the equity. We have access to commercial bank debt. With this facility plus in any case, we have access to commercial bank debt, and if it makes sense, we're going to proceed. But I'm afraid I cannot be more specific. I cannot predict what the situation will be over the next months or quarters.

Ben Nolan -- Stifel -- Analyst

Yeah, I'm not asking you to predict it. I'm just saying, do you think that right now asset prices are attractive enough for you guys to buy or are they too expensive for you to buy?

Gregory G. Zikos -- Chief Financial Officer and Director

Look, since we started our acquisitions in May, asset prices have moved up, and however, there may still be some opportunities. But definitely today asset values for the five- or 10-year-old dry bulk vessels, we have been buying at those sizes [Indecipherable] Supramax and Kamsarmax. Definitely, price have moved up since we bought those ships. So, it's not exactly the same environment, but it doesn't mean that there may not be some opportunities in the future.

Ben Nolan -- Stifel -- Analyst

Okay. My next question, you still have a pretty decent position. It's not life-altering for the Company, but pretty decent position in ZIM equity. Can you maybe talk through a little bit about sort of what the strategy is there? And if that's a -- if you view that as a long-term position or not?

Gregory G. Zikos -- Chief Financial Officer and Director

Yeah, you're right, we have 1.2 million shares of ZIM, which based on the latest price, if I recall correctly, should be slightly above $60 million. So, this is something we are currently evaluating. We received the latest dividend that was paid. So, this time we're sort of evaluating. We are not in a high to act. We take our time. So, it depends on our view about the market, the liner companies market, they're going forward over the next couple of quarters. But you're right, this is a sizable amount. I mean still $60 million as equity, this is something that cannot be ignored. So, there we take our time and we are evaluating internally. I'm afraid I cannot say much more at this point. You saw in our latest results that the sales were still there.

Ben Nolan -- Stifel -- Analyst

Yeah. And then lastly, something that we've heard some about is the potential for especially smaller like handysize vessels being used to carry containers or more often freight that would have ordinarily gone into containers. I'm curious for your vessels and your customers that are primarily using them in the spot market, are you seeing any of that? Are people trying to find ways to put containers on those ships? Or are you carrying things that ordinarily would be not in a dry bulk ship?

Gregory G. Zikos -- Chief Financial Officer and Director

Yes, you're right. Look, first of all, in our ships, I can tell you that we are using as those ships as opposed to be used and not for containers. Now, of course, we've heard a lot of discussions about using dry bulk vessels in order to carry containers. This is not something we have done internally. Now, I cannot exclude that this is something that some ship owners sort of they have -- they may have commissioned some studies. Still, I don't think that this is something that is going to change the supply and demand dynamics for containerships at all. So, I'm afraid that there aren't much more to say with that.

I can tell you that from our side, this is not something that we have done. In any case, our average ship is like 50,000, 52,000 deadweight. We don't have any capes [Phonetic]. So, I don't know. But I agree with you. There have been a lot of discussion. There also has been some press about those issues. But I don't think that the changes that will be fundamentals at least for container shipping today where the market is.

Ben Nolan -- Stifel -- Analyst

Perfect. Well, and I'm going to slip one more in. You got three more dry bulk ships to take delivery, probably they're not going to take a whole lot of capital. After that, there are no newbuildings that you guys have. You're really sort of in a period of time where outside of just a little bit of maintenance capex. There should be quite a lot of free cash flow, especially signing the types of contracts that you've been signing. How are you thinking about sort of the highest and best use, let's say, over the course of 2022 from where you sit today? Again, I'm appreciating the "you can't predict the market or whatever", but where would you envision the cash flow going as it comes in?

Gregory G. Zikos -- Chief Financial Officer and Director

You're right. Yes, because you see the containership charter rates, you see the rates today, although they offer much shorter nature in the dry bulk fleet. And our capex commitments for the remaining three vessels to be delivered -- for the remaining three dry bulk vessels to be delivered, then we also have one more containership to be delivered, a secondhand ship. In total, our equity commitments, because the funding is already in place, is the region of like $11 million to $12 million. So, this is pretty minimal for the size of the company.

So, the question is what going to be happening with the excess of cash flows. First of all, this is a good topic to discuss. Now the capital allocations, we may be looking at additional dry bulk vessels, assuming, as mentioned earlier, that that mean we still feel that the prices makes sense. I wouldn't exclude, again subject to the numbers, to look at newbuildings for containerships or for secondhand transactions in containerships. I mean again, assuming that we find something we feel makes sense, and it also makes sense from a price perspective and from a chartering perspective.

Then I mean other ways to use our cash is obviously, it's debt repayment, although the leverage is relatively low. In the future, we could discuss share buybacks. We could discuss dividend increases. We could discuss redeeming some of the preferred which are, as you know, more expensive source of capital, although they are, at the same time, very flexible. So, we do have alternatives. All those are being discussed and agreed upon at Board level. So, this is not something that I can comment now. And most of those issues, although, they have been discussed, there is no conclusion yet how we're going to proceed. We still have some of ships, some containerships, coming off charter. These are 6,500 TEU vessels coming off charter end of 2022. Although, I understand that it's more than a year from now, still we have long-term contracted cash flows on those vessels, this is something that we're going to consider as well.

So, I'm afraid I cannot give you a clear answer. We do have alternatives. This is a good topic of discussion to have. Let's see how asset prices go both for newbuildings containers and for secondhand vessels in both sectors we are now in. I think we'll see. But I can tell you that, generally, we are active as we speak, we look at a lot of things in both sectors.

Ben Nolan -- Stifel -- Analyst

All right. Okay, perfect. I appreciate the time.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you. Thanks a lot, Ben.

Operator

[Operator Instructions] And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Gregory Zikos for any closing remarks.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you for dialing in today. We're looking forward to speaking with you again at our next quarterly results call. Thank you.

Operator

[Operator Closing Remarks]

Duration: 25 minutes

Call participants:

Gregory G. Zikos -- Chief Financial Officer and Director

Unidentified Analyst

Ben Nolan -- Stifel -- Analyst

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