Costamare Inc (CMRE) 2022 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call on the Third 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, Wednesday, November 2, 2022. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read Slide #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.

Thank you, and good morning, ladies and gentlemen. During the third quarter, revenues reached approximately $290 million and adjusted net income reached $107 million, compared to $216 million and $82 million for the same period last year. As of quarter end, cash balances and short-term investments stood at around $745 million. And total liquidity, including undrawn credit lines, was above $890 million.

Focusing on increasing visibility and our contracted cash flow base, we have recently chartered with a leading liner company a total of 11 containerships, with existing charters originally expiring between 2023 and 2025. Seven of those vessels were chartered for a period ranging from 4 to 5 years starting from 2025 onwards. And the remaining ships were chartered for the period ranging from 2 to 3 years, with forward starts in 2023 and 2024. The new charters increase our contracted revenue by about $420 million and resulted in incremental charter coverage of about 4.5 years.

Regarding the container market, cargo volumes have been softening across several trade lanes, with energy costs and inflation impacting consumer spending. Fixing activity has been at low levels as the majority of new fixtures are for short-term employment. Charter rates have been under pressure, although they do remain at profitable levels. On the dry bulk market, rates for our vessel sizes remain profitable, especially for owners who entered the market the year before.

We feel comfortable with the long-term supply and demand dynamics of the sector, and we view any potential softening of asset values as a compelling buying opportunity. On the back of our increased liquidity and containers charter coverage, we are focused on new investment opportunities in the shipping sector that have the potential to provide enhanced returns at acceptable risk levels.

Moving now to the slide presentation. On Slide 3, you can see our third quarter results which was the best Q3 since our listing. For the quarter, net income was $108 million or $0.89 per share. Adjusted net income was $0.88 per share, and our liquidity is up by almost $640 million year-over-year to roughly $900 million.

Slide 4. As already mentioned, during the quarter, we forward-fixed 11 containerships for an incremental average period of 4.6 years that adds approximately $420 million in contracted revenues. The new charters begin between 2023 and 2025 for the latest. Our revenue days are 100% fixed for '22, over 96% fixed for '23 and 84% fixed for '24. We do continue to charter all our dry bulk vessels in the spot market, charting 24 ships since our last earnings release.

On Slide 5, you can see an update on our financing arrangements. We refinanced 2 26-year-old vessels during the Q4 for 4 years -- during Q3 for 4 years through a $46 million facility. Our corporate leverage remains below 30%, and we continue to maintain a strong balance sheet. Finally, in October, we concluded the sale of 3 containerships for a combined capital gain of around $106 million expected to be realized in Q4 of the year.

Slide 6. The containership charter market has been under pressure over the past months. The dry bulk market has also weakened, but remains at healthy levels, especially for smaller-sized vessels, which we operate. The order book is at historically low levels. Finally, we continue to have a long, uninterrupted dividend track record boosted by strong sponsor support.

Slide 7. Our liquidity has increased significantly both year-over-year and quarter-over-quarter. This liquidity gives us the ability to look for opportunities to grow without risking our balance sheet and provides us with a strong cushion.

Moving to the next slide, Slide 8. You can see our containership fleet has a current backlog of $3.5 billion, with a duration of 4.4 years. As already mentioned, we are fully fixed for '22, and we are more than 96% and 84% fixed for 2023 and 2024, respectively. These fixed revenues come from a diversified list, and from a diversified list of first-class charters, such as Maersk, MSC, Evergreen, Cosco, Yang Ming and Hapag-Lloyd.

Slide 9, you can see the third quarter 2022 snapshot. We had an average of 117 vessels, and our adjusted net income was $107 million or $0.88 per share. The adjusted figures take into consideration the following items: accrued charter revenues, accounting gains and losses for asset disposals and other nonrecurring or noncash assets.

Moving to Slide 10. Over the past few months, there have been a limited number of fixtures and the ones that have been concluded were for shorter periods and at lower rates. However, charter rates remain firm in historical context. The commercial containership fleet remains essentially employed, with a very low idle capacity of about 1.8%, while present availability remains low.

Moving to the last slide, Slide 11. You can see the recent dry bulk market trends where rates have been volatile, but do remain at profitable levels, especially for owners like us who went to the market last year. The order book is around 7%, a historically low figure, which translated to modest fleet growth.

With that, we conclude our presentation, and we can now take questions. Thank you. Operator, we can take questions now.

(Operator Instructions) The first question today comes from Chris Wetherbee with Citigroup.

This is Eli on for Chris. Guys, maybe we can just start with the bulk market and try to get a better understanding of what the rate environment looks like specifically there. So you don't have a lot of replacement grain. You have more storage on the ships, so that would theoretically be putting pressure downwards on the TEU rates that you guys are able to get. So it looks like that remained a little stronger than we thought. So maybe you could just help us understand what that could look like during the 4Q and then through the winter, and how that would change into 2023.

Sorry, I didn't hear you properly. It's like the question has to do with debt levels or sort of charter rates. I completely missed it. Or is it about the...

Charter rates on the bulk side, yes. So how should we be thinking about that, if it's a little stronger than you planned for.

Okay. Well, charters -- okay. Recently, I mean, the last couple of days, we have seen a softening in the market and it's been volatile for all the bulkers. Now I think they are trading at around $15,000, $16,000 per day, the Handys and the Supramax, this is where the market has recently been. We do have all our ships spot. In the future, this might change, I don't know, depending on the view we take. But considering our low cash breakeven levels, and the fact that we're generally positive on the fundamentals of the dry bulk market, for the time being, we follow this strategy.

Now I cannot forecast, and we never provide forecast where we think the market will be [trending] the next quarter, or [also like] Q2 or like Q1 of next year. But I can tell you that considering the low order book and being generally bullish on the dry bulk sector, this is a view we have today.

When we look at the macro environment, maybe more specifically, understanding that I'm not looking for a forecast on the rate side, but what are some of the pressures coming in 4Q that could impact the rate side? You have little replacement grain coming out of Russia and just lower demand in some of the other places like in China [for instance], the imports are down. So just curious what some of those puts and takes are there.

Yes. Well, it's a couple of things. You rightly pointed out Russia, it is China, which is the biggest player in dry bulk. It is COVID disruptions. It is inflation which generally does not help. And also congestion easing does not help either. In the past, I have to tell you that there were some sort of part of the upside in the Handys that had to do with the elevated levels and no -- and little availability in the containers. And congestion was a determining factor there.

However, at the same time, as I already mentioned, we have a very low order book and we do feel that, in that sector compared to the containers, for instance, the supply-demand dynamics are overall more positive. Now to conclude, it is Russia, as you mentioned, it is China, it is congestion easing and it also inflation. At the same time, if there is some stimulus packages or sort of some growth, for instance, in the construction industry in China, this is going to be a huge boost for the dry bulk prices and this could also be the case. So it's a lot of factors. It's not only 1 or 2, I'm afraid.

The next question comes from Omar Nokta with Jefferies.

I just wanted to continue on that kind of the topic on dry bulk. And I wanted to ask you how you're thinking about deploying capital right now. You guys are obviously very aggressive last year, expanding into dry bulk, look like that was well timed. We have seen dry bulk values easing here over the past several months, but also containers are coming down pretty aggressively. What do you think about the S&P market here? And do you look to buy containerships after having taken a step back over the past couple of years? Or do you still look to commit more into the dry bulk market?

Yes. For the containers -- let's just take them one by one. For the containers, you're right, we have seen the market softening in terms of charter rates and also in terms of box rates. However, we don't feel asset values have come to a level, either newbuildings or secondhand vessels, where like an investment today would make sense. Probably in the future, in the containers, there will be opportunities, but this is not something we see today. And it may take some time until the box rates and charter rates find their way to asset values.

Now for the dry bulk vessels, yes, last year, I think the timing of our acquisition, depending on the high side, I think it was good. Those sort of -- our acquisitions do make sense and those were acquired with lower leverage and have low cash breakeven levels. So today, they are profitable and they have been profitable since buying them. Now also for the dry bulk vessels, for dry vessels, we have not seen asset values at levels close to those of summer of last year, where we made our acquisitions.

So based on that, I think the proper thing to do is to sit and wait. We don't have to grow. We have close to 120 vessels today. Like in the past, whatever acquisition we do, we -- it's going to be on the [marriage] and not for the sake of growing. So asset values in the dry bulk sector, we still consider them to be relatively high or we haven't seen something that does makes sense. So in that respect, we continue to sit and wait.

The same applies for the containers for the newbuildings. We didn't put any newbuildings over the last couple of years, as you mentioned. The main reason was that newbuilding prices were extremely high, and we would be ordering at the peak of the market which is something we try to avoid. So we have those vessels now, containers and dry bulk vessels, they are all profitable. We fixed-forward as many containers as we can. And we received the yield on the dry bulk vessels, the acquisition of which, I think, considering where the market is, this was well timed.

Yes. Maybe just on the newbuilding. Prices have been very high, but I wanted to just maybe get your sense in dealing with -- in talking with the shipyards, is there any sense that values are going to start to come off a bit now that steel prices have been correcting? Or are they still fairly firm at these high levels?

Well, for the time being, what we've seen, the prices are high and there are still newbuilding orders being put, especially by liners. So in this environment, of course, there could also be some exceptions and opportunities, which like we haven't seen. So in this environment, if you look at it from a historical perspective, still it is a very high asset value environment, which, in that, we don't want to put any orders. Even if we have charter or not, still this is something we would avoid ordering at a peak prices, sort of close to peak prices.

Yes, okay. Got it. And then just final one -- and you get this question every quarter, basically. And it is, how do you think about the company going forward? You've got the dry bulk, you've got the containers together, do you like that diversity within the same platform? Or do you still -- or do you ultimately think about just a split at some point down the line?

Look, for the time being, there are no immediate plans to have a spin-off to have a separate company, where like we would have a dry bulk platform and also a containership platform. The containers, they provide us today with the contracted cash flows, which are close to $3.5 billion. We have a solid charter average over the next years. The dry bulk vessels, at the same time, they are more opportunistic but have started from a low cost base. So we don't see any reason today to have a spin-off. Of course, in the future, circumstances might change and it might make sense. But today, there is no -- there are no immediate plans to have the dry bulk vessels spun off under a different entity.

SP1 The next question comes from Benjamin Nolan with Stifel.

This is Macalla Rogers on for Ben today. First one, we just kind of wanted to get some color on how you're thinking about maintenance CapEx for vessels moving forward. With the container market softening, would you expect to maybe retire assets once they come off contract? Or any insight into kind of how you're thinking about the future?

Yes. Look, it's -- today, we don't have any scrap candidates. We have some older ships in our fleet. We have some ships 1996 built. But as we mentioned, those ships have a medium to long-term charter. And we have recently refinanced them. Although they are 26 years old, we have refinanced them for 4 years forward. So those are not scrap candidates because they do have charter. Nothing we are targeting to scrap today.

In the future, of course, it's a matter of timing and of market conditions. We wouldn't have a problem to scrap a vessel. If you can use this equity in order to renew the fleet or like the funds released from the scrapping, they could be used in some accretive investments. But today, there are no plans for scrapping based on our fleet portfolio, both for the containers and, obviously, for the parties as well.

That's very helpful. And just one quick one. Given some of the preferreds are trading below or close to par, would you consider using some liquidity to call in the future? Or any color around what you guys are thinking there?

Yes. It's a question of -- it's more about the generic capital allocation. We have a buyback program for the preferred of $150 million, which we have not utilized. We have utilized part of our buyback program for common shares. And some of the preferred, they are callable as well because 5 years have lapsed since like they were offered. So it's a matter of where we think we're going to be allocating our excessive liquidity, whether it's going to be buying back stock, as we did in common stock, I mean, like we did in the past, or some preferred, also to some other type of investments.

These are discussed at the Board levels. These are all options which each one of them makes sense. However, I'm not in a position today to tell you exactly what will happen. There are discussions. We know the preferred. We know the buyback of the stock. We like it. We think it's trading at below NAV, and so we'll see. It's good to have those options, but nothing has been determined today as we speak.

(Operator Instructions) The next question comes from Climent Molins with Value Investor's Edge.

Following up in the share repurchases alongside Q2 results, you disclosed you had repurchased $60 million of shares, but no additional buybacks have been pursued since then. Was there a driver behind this decision? And looking ahead, how should we think about the appetite for additional share repurchases given the discount to NAV you're trading at?

Yes. We bought $60 million of common stock back. We have a program of $150 million for the common, so it's $90 million more available under this program. And we also have a program for the preferred. So I cannot predict also the -- I cannot tell you what we're going to be doing because it is something we're discussing internally. Of course, we have the option to buy back more shares, especially considering where the stock is trading today, also where the stock has been trading over the last weeks. At the same time, we have the option for the preferred as well.

So this is something that we are considering. But I'm afraid I cannot tell you that we have decided to buy back so much common stock or so much preferred at this price under those conditions within the next quarter or so. These are discussed at Board level. So I'm not -- I don't have anything more to say on that question right now.

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

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