Costamare - Q2 2023

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. conference call on the second quarter 2023 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, at which time, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today, Friday, July 28, 2023. 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. I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir.

Gregory Zikos (CFO)

Thank you. Good morning, ladies and gentlemen. During the second quarter of the year, the company generated net income of about $69 million. As of quarter end, liquidity was $1 billion. In the Containership sector, the charter market has been softening, although rates still remain at healthy levels. The order book, however, remains a principal threat to the market. On the Dry Bulk side, our own Dry Bulk Vessels continue to trade on a spot basis, while the trading platform has grown to a fleet of 56 ships. Having invested $200 million in the Dry Bulk operating platform, we have a long-term commitment to the sector, whose fundamentals we view positively.

Regarding Neptune Maritime Leasing, the platform has been steadily growing on a prudent basis, having concluded in total leasing transactions worth of $120 million, which are complemented by a healthy pipeline extending over the coming quarters. During the quarter, we proceeded with our share buyback program, and we have bought $50 million worth of common shares, highlighting our strong belief that the share price is heavily undervalued, considering both the company's performance and prospects. Moving now to the slides presentation. On slide three, you can see our second quarter results. Net income for the quarter was roughly $63 million, or $0.52 per share. Adjusted net income was around $69 million or $0.56 per share. Our liquidity stands at over $1 billion. On slide four, you can see an update on our share repurchase program.

Since the beginning of Q2, we purchased approximately 5.4 million common shares for $50 million worth. Slide five. As far as CBI is concerned, we have chartered-in 56 period vessels, with the majority of the fleet being on index-linked charter-in agreements. 53 of those vessels have been already delivered and are running. Regarding our leasing platform, we have already invested around $50 million. Since inception, NML has financed 12 ships through sale and leaseback transactions. Slide six. Our financing arrangements amounted roughly to $175 million without an increase in leverage. Those deals were coupled with extension of maturities and improvement on funding costs. We continue to charter on our Dry Bulk Vessels in the spot market, having entered into more than 50 charter-in agreements since our last earnings release.

On the Containership side, our revenue days are essentially 100% fixed for 2023 and 87% fixed for 2024, while our contracted revenues are $2.9 billion, with a TEU-weighted remaining time charter duration of about 3.9 years. Slide seven. We have sold one dry bulk vessels and have agreed to acquire two Capesize dry bulk ships. Both vessels will be purchased with cash on hand. In addition, we have concluded concurrent S&P transactions with York Capital for two Containerships vessels, while we have agreed to sell another Containership, where we own a 49% equity interest. Moving to slide eight. The Containership charter market has been softening, although rates remain at healthy levels.

Dry bulk market remains volatile, while for the remainder of 2023, the FFA market indicates signs of recovery in Q3 and further strengthening in Q4. Finally, we continue to have a long uninterrupted dividend track record, boosted by strong sponsor support. On slide nine, our liquidity has increased significantly over the year, starting at above $1 billion. This liquidity gives us the ability to look for opportunities to grow the company on a healthy basis. Moving to slide 10. Charter rates in the Containership market have softened, remaining at healthy levels. Adding capacity remains at historically low levels of about 1%. Finally, on slide 11, you can see the recent dry bulk market trends in the spot and forward market. Order book is at 7.4% of the total fleet.

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

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star two. That's star one to ask a question. The first question comes from the line of Mr. Omar Nokta from Jefferies. Please go ahead.

Omar Nokta (Managing Director and Senior Equity Analyst)

Thank you. Hi, Greg. Good afternoon.

Gregory Zikos (CFO)

Yeah. Hi, Omar. Good morning.

Omar Nokta (Managing Director and Senior Equity Analyst)

Thank you. Yeah, good morning, or afternoon. Sorry, just wanted to check on, on how things are, are, are going operationally. You know, clearly, you know, Costamare has shifted more so into Dry Bulk over the past couple of years, with investments in the, you know, the mid-size segments. Previously, you've now got the Capes that are coming on, and you've also had, you know, CBI. The sector's been obviously kind of soft here over the past few quarters, and just wanted to see kind of in terms of profitability in that, in that business, it, it looks like it's eating somewhat into the container profits. In the release you show, you know, the container business earning $127 million in the quarter, dry bulk, or the dry bulk fleet lost just $3 million, but the trading business $24 million.

Just wanted to ask about that $24 million. Would you say that is just simple, is that commercial performance, or is it more of just startup costs and building up, CBI?

Gregory Zikos (CFO)

Yeah, it's two things. First of all, regarding our, you know, participation in the, and our investment in the Dry Bulk sector, we are there for the long term. This is a long-term commitment of the company, as I think I have also stated in my commentary. Now, more specifically regarding CBI, the company started operations within the last six months, and has, you know, grown quite substantially, starting from zero ships chartered into, you know, 56 ships chartered-in, and 53 of those have been delivered. I think we... Two things. First, we need to allow the company some time in order to amortize the setup costs.

At the same time, we had a lot of deliveries, which are, are, you know, from day one, hitting us without the ships having operated for a full period. I would say that it's mainly a set up cost and the rollover of a new business. We have invested $200 million, and we are very happy with the way the company has grown over the last six months. At the same time, we are patient. I think it's mainly set up costs, and we are now at the, you know, initiation phase. We need to allow more time in order to see the results that this entity will be yielding.

We know that the dry bulk is a quite volatile environment, especially right now, but I think we have the right, the right, set up and the right people and the experience, in order to capitalize on the market upside whenever that comes.

Omar Nokta (Managing Director and Senior Equity Analyst)

Okay. Thanks, Greg. That, that's helpful. Then just in terms of, you know, you mentioned giving it some time. Do you think you've, you've got 53 of the 56 ships in-house now, so maybe the immediate part of the startup costs have taken place? Is that the case, or do you potentially look to maybe does that 56 ship fleet, is that going to be, are you aiming to get that to 75 or 100, or is 56 sort of the, the going number or within that range here in the near term?

Gregory Zikos (CFO)

It depends on market conditions. Our goal is to grow the company and to have a meaningful size within that sector as an operator. Now, whether we're gonna go to, you know, a bigger number of ships sooner or later, there's also a lot of commercial considerations. We have the equity, we have the capacity to grow, but we also need to look at the, you know, market conditions. Most probably, I would say that it's a question of like, when, rather than of whether we're gonna be growing or not. I think the growth needs to be on a healthy basis and step by step. Let's see. I, I cannot predict the growth rate simply because I cannot predict the market.

Omar Nokta (Managing Director and Senior Equity Analyst)

No, that, that's fair. That's a tough question, I guess. Then maybe just one, one final one. You know, clearly, you know, you announced the buyback. You were very aggressive, putting $50 million to work. You know, you paid roughly about $9 a share, a little above that. The stock is up a little bit from there. Do you still see the price today as attractive, and, and can we expect that remaining $40 million to be put to work quickly?

Gregory Zikos (CFO)

Look, regarding the first part of the question, I do consider that the stock is undervalued, whether someone looks in terms of NAV, in terms of profitability, in terms of the prospects, in terms of track record. However you look at it, it's undervalued, and this is the reason we've, you know, bought those common stock shares, $50 million worth over the last quarter. Now, I cannot predict, and also for legal reasons, I cannot tell you now, what's our plan for the remaining $40 million of the program, or like, whether this program is gonna be extended and, you know, add more capacity there.

I cannot predict this now, but I can tell you that we generally believe that the stock, is undervalued, and, we feel that, buying back the common stock at those level, it's definitely made sense.

Omar Nokta (Managing Director and Senior Equity Analyst)

Okay. That, that's clear. Thanks, Greg. I'll turn it over.

Gregory Zikos (CFO)

Thank you.

Operator (participant)

The next question comes from Mr. Ben Nolan with Stifel. Please go ahead.

Speaker 3

Hey, good morning, or good afternoon. It's actually Prunella on for Ben, but thank you for taking our question. I wanted to ask about, at the moment, both container and dry bulk asset prices have come down, although in each case, both are still historically elevated. At the moment, do you see Costamare as a better buyer or seller of each type?

Gregory Zikos (CFO)

I think, yes, you're right. I mean, asset values have come down, but not to a level where they reflect today's charter rates, and especially for the containers, not at a level where they reflect consensus about how the charter rates are going to be developing over the next quarters. Regarding the Containerships, for the time being, we are not buyers, and as you know, we haven't bought any Containerships over the last couple of years, and also, we didn't put any new building orders because we felt that the asset prices, both for secondhand and for new buildings, were elevated. There we wait and see.

I agree with you that although asset values have come down, still they are not at levels that, you know, they are so attractive, the way we like normally buying vessels. Now, regarding the dry bulk market, again, as you saw, we bought two Capesize of a middle age. You know, we felt the price made sense, but for the time being, we haven't seen a substantial correction in asset prices at levels close to levels we bought our dry bulk fleet a couple of years ago. It was actually two years ago. There we do wait and see. We have the equity, we have cash together with available liquidity of slightly above $1 billion.

We have access to commercial bank debt, so when we feel that the asset prices do make sense, also judging from a track record, we have the ability to buy and execute quite fast. For the time being, we are sitting and waiting and opportunistically, we could be buying some assets here and there if, on a case by case, we feel it makes sense.

Speaker 3

Awesome. Thank you so much. It's helpful.

Gregory Zikos (CFO)

Sure. Thank you.

Operator (participant)

As a reminder, to ask a question, you may press star, then one. Seeing no further questions, this concludes the question-and-answer session. I will now pass the floor back to Mr. Zikos for his closing remarks.

Gregory Zikos (CFO)

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

Operator (participant)

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