Costamare Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 6 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Costumer, Inc. Conference Call on the Third 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.

Operator

There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Wednesday, November 1, 2023. 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.

Operator

Zikos. Please go ahead, sir.

Speaker 1

Thank you, and good morning, ladies and gentlemen. During the Q3 of the year, the company generated Net income of about $53,000,000 As of quarter end, liquidity was close to $1,000,000,000 In the containership sector, larger ships continue to enjoy Market wise, smaller versus experienced deteriorating conditions. Overall, the market outlook looks uncertain due to the large order book and the insufficient demolition. On the drybulk side, as part of our strategy to renew the fleet and increase its average size, we acquired 2 Capesize and 2 our Ultramax vessel. And at the same time, we disposed off 2 older Supramax ships.

Speaker 1

Our own drybulk vessels continue to trade on basis, while the trading platform has grown to a fleet of 59 vessels. Having invested €200,000,000 in the drybulk operating platform, we are long term committed to the sector Husqvarna mentors review positively. Regarding NetSu Maritime Leasing, the platform has been steadily growing on On the basis, having concluded these transactions for 17 ships in total, which are complemented by a healthy pipeline extending over the coming quarters. Finally, during the quarter, we continued our share repurchase program and we bought $10,000,000 worth of common shares, highlighting our strong belief that the share price is heavily Moving now to the slide presentation. On Slide 3, you can see our 3rd quarter results.

Speaker 1

Net income for the quarter was roughly $53,000,000 or $0.45 per share. Adjusted net income was around $54,000,000 or $0.46 per share. Our liquidity stands at roughly $1,000,000,000 Slide 4, you can see an update on our share repurchase program. Since our Q2 earnings release, We purchased approximately 900,000 common shares for $10,000,000 worth. In addition, we continue to have a long uninterrupted dividend track record We'll start by strong sponsor support.

Speaker 1

Slide 5, regarding CBI, we have chartered in 59 period vessels with the majority of On our leasing platform, we have already invested around $74,000,000 Since inception, NML has financed 17 vessels through sale and leaseback Transactions and has a very healthy pipeline. Turning to slide 6. We have acquired 2 Capesize and 2 Ang Ultramax Drybulk vessel, while we have agreed to sell 2 Supramax Drybulk ships. In addition, we have concluded the sale of a 2000 built containership along with the sale of our 49% equity interest on another 1998 built containership vessel. Slide 7.

Speaker 1

During the quarter, we have finalized the acquisition of 2 drybulk vessels through an We have roughly available €144,000,000 for the financing of Brazil acquisitions. We continue to charter all our drybulk prices in the spot market, having entered into more than 50 chartering agreements since our last earnings release. On the core Tencent side, our revenue days are essentially 100% fixed for this year, 87% for 2024 and 73% for 2025, While our contracted revenues are $2,700,000,000 with a TEU weighted remaining time duration of 3.7 years. Slide 8, our liquidity stands at roughly €1,000,000,000 This liquidity gives us the ability to look for opportunities to grow the company on a prudent Slide 9. Charter rates in the contingency market have softened mainly for the smaller sizes, Remaining though at above pre COVID levels, the added capacity remains at low levels of 1.7%.

Speaker 1

On Slide 10, you can see the recent drybulk market trends in the spot and forward markets. Charter rates have strengthened since Q2, although remaining volatile. The order book is at 8.1 percent of the total fleet. With that, we can conclude our presentation, and we can now take questions. Thank you.

Speaker 1

Operator, we can take questions now.

Operator

Thank you very much. And your first question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

Speaker 2

Hey, thanks guys. Thanks for taking the question. I guess maybe I wanted to start on the container side and Just get maybe a general sense of your view of, I guess, demand in the market for any term. So I guess I'm just trying to get in the sense of We understand the weakness that's out there and obviously the capacity that is entering the market. But as you think about the opportunities For employment, can you sort of talk us through what you're seeing in the market and what your thoughts are on activity in the recharting side?

Speaker 1

Yes. We've seen that, I mean, in general, if you compare tenure of previous fixtures A year ago. And now I think on average you can say that we have shorter term fixes for the containerships. And the charter rates have been going down, which is something expected. And to some extent, you can argue that it's here because you cannot have a market going up every single year after COVID.

Speaker 1

So for example, the Panamax vessel is Now for the year, the traditional Panamax is now at around between $17,000 to $19,000 Today, prior to that, it was between 2020 to 2022. And also the fixes we've seen now, they are for a year or so. In the past, we could at higher levels for longer periods. Especially for the smaller vessels, you can see the trend that the tenure of the charter party agreements, They tend to become shorter and shorter. Having said that, however, still I think We need to note that the market is holding up relatively well and much better than people thought 6 months ago, although we can see a downward Trend, still the charter rate levels, they are at very healthy levels.

Speaker 1

So they are very healthy and we can See that especially for the larger ships, market rates are still quite profitable. So we do have a large order book that needs to be absorbed. It's highly questionable whether demand is going to be there in order to digest all the quarter book. And at the same time, the demolition levels are quite low. So going forward, I think Where the market will be heading, I don't think that the supply and demand dynamics we experienced during COVID I'm going to be there.

Speaker 1

Quite the opposite, I would say. We do see a downward trend, which is something expected. At the same time, this means more opportunities when sort of asset prices Together with charter levels and also new printing prices come at, Let's say more logical levels. This is a time when we as customer would be ready to enter the market again. As you know, we didn't put any bidding orders at the peak The market over the last years.

Speaker 1

So we do expect for the market to find its average Rate levels and then this may become more interesting.

Speaker 2

Okay. Okay, that's helpful. I appreciate that color. And then On the drybulk platform, if you could give us a sense of maybe how you think Q4 or maybe early first half looks in terms of Vessels you plan to charter in, obviously, this is a little bit of a difficult one for us to model, one to get a sense of how you're thinking about Your capacity in that, so we can get a better sense of how revenue and profitability could look either at the very least in the next quarter, but maybe a little bit further beyond that.

Speaker 1

Yes, you're right about it. This is a very difficult business to model, I would say, because it's volatile and because it's chartering In vessels entering into voyage charters, entering into vessel relays, cargo relays, And we also have an FFA book in order to complement our exposure. First of all, on the modeling side, we can have an offline discussion, then we can Now The company has grown quite substantially since it started the beginning of the year. It's a 59 ships charter in. We're going to grow depending on market conditions.

Speaker 1

We have put the whole infrastructure in place. This company runs with 0 debt. It's 100% equity funded because it's levered by itself. And we don't need to grow this. But If we take the view that market conditions justify growing further, we will push the accelerator.

Speaker 1

In general, to have a healthy operator, this operator needs also to have size, and I don't think that we have Yes, reached the desired size levels, but the timing, it will also be dictated by market conditions. So overall, we are long term committed to that business. Our goal is to grow this further and we will. But the timing, I'm afraid we need to have a better view of market and we're going to be Evaluate them on a quarter by quarter basis. Okay.

Speaker 1

All

Speaker 2

right. No, I appreciate we can take some of those stuff offline and get into a little bit more detail. Thanks for the time. Appreciate it.

Speaker 1

Sure. Thank you.

Operator

The next question comes from Omar Nochta with Jefferies. Please go ahead.

Speaker 3

Thank you. Hi, Greg. Good afternoon.

Speaker 1

Hi, good afternoon. Good morning.

Speaker 3

Thank you. Yes, good morning. I just wanted to follow-up on Chris's question, just about the dry bulk platform. And it sounds like you're maybe in your response here just now, it was kind of talking about maybe the CBI portion of it. Yes, I wanted to just ask, obviously, you have the nearly $1,000,000,000 of liquidity, you have the $2,700,000,000 backlog.

Speaker 3

You did You continue to build out the fleet, the owned fleet with the latest Capes and the Ultramax. I wanted to ask, how do you see that going Forward, are you looking to continue building it out from here, the actual asset ownership side? And is it case that you would be focused on further? Or is it just simply you're looking to renew bringing in some bigger ships and selling some of the older smaller ones? Kind of how do we think about The fleet expansion from here?

Speaker 1

Sure. What like our strategy now is, first of all, To grow the drybulk owned platform. And what we have been doing, we have been Selling smaller and on average older ships, the last ones we sold, they were 2,006 built. And we have been buying larger vessels, Capes and 1 Ultramax, younger versus, let's say, 2011 bit. So going forward, Of course, assuming that this makes sense and that the numbers work out well, our strategy would be to Increase the average size of the drybulk owned fleet first and also break down the average age.

Speaker 1

It's those 2 things. And we have started with buying those Capes and selling the smaller vessels. Going forward, assuming that we find transactions that make sense, this is what we're going to be doing. So the goal ideally would be to, In a reasonable amount of time to dispose of the smaller Handys And replace them with younger and larger ships as mostly Ultramax and Capes. Of course, again, I have to put a caveat here depending on market conditions and depending on asset prices.

Speaker 3

Got it. Thanks for that. And just in sort of thinking about that and how you look to build out the owned fleet, How do you see that business working with the trading platform? I think I

Speaker 2

may have asked you this in

Speaker 3

the past, but are they complementing each other At the moment or are they still kind of completely separate businesses?

Speaker 1

First, I mean, They are being run by different management teams, which is something that makes sense. So there are 2 stand alone businesses, all Both under the Costa Amare Inc. Umbrella with the shareholder. At the same time, you can argue that they complement It's harder, a lot. But they are being run by different people, different management teams.

Speaker 1

In the First business, we are 100 percent owners. The CBI in the platform, we are charterers. We also do re lets. We will do cargo re lets. We have an FFA book.

Speaker 1

It's a different business, but they definitely complement each other. Now What's going to be happening in the future? I cannot predict. Again, it depends on market conditions. But for the time being, I think It works out relatively well.

Speaker 1

So we leave it as it is. And there are a lot of synergies and complements, correct.

Speaker 3

Got it. Okay. And then maybe just one final one. And I know you mentioned in the release you committed the $200,000,000 To CBI, if I recall, the business was loss making in the first half, just the trading side of it. You mentioned that rates have been in the quarter, we've obviously seen this quarter to date average in the Q4 relative to what we've seen this year.

Speaker 3

Just in general, any color you can give on how the platform performed in the Q3 and maybe how it's sort of looking here in the 4th?

Speaker 1

Yes. Look, the platform is fixed in the 1st 6 months, there have been a lot of initial setup costs. And it is a company that started operating from 0 reaching 60 vessels within a short amount of time In order to put all the systems in place, hire people and have the whole infrastructure supporting the business. So it's something Normal to be sort of losing money the 1st 6 months, and we didn't expect to enter into this business within the first Sounds like a year to be highly profitable. So I think This is more or less the case in all similar platforms.

Speaker 1

Now going forward regarding Q3, we're going to be Releasing the numbers with our 6 ks filings pretty soon. For year end, I don't know How the platform is going to be performing. But I can tell you that this is not a short term or even a medium term Dil here. We talk about the long term commitment to the sector, which is complementing, as we mentioned, the drybulk owned fleet. So we're not going to be taking a shortsighted view that it is doing well in the first half of the year or that After the company was set up the 1st year or like the 1st 6 months, it has not been highly profitable.

Speaker 1

We take a long term view and I think this is how it should be viewed because we need to have a minimum size. We need to have a minimum size of the book in terms of cargo book as well. And based on that, we're going to be trading. So the long term view, this is sort of this remains to

Speaker 4

be seen,

Speaker 1

but the company has been very well capitalized. We are supporting it and we will continue supporting it. And as I mentioned earlier, it has no debt. So it's all equity in order

Speaker 3

Perfect. Okay. Thanks, Greg.

Speaker 5

Very helpful.

Speaker 1

I'll turn it over. Thanks, Rich. Thanks.

Operator

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

Speaker 5

Thanks. So just to follow-up on the CBI stuff, I'm just just as I'm trying to get my head around what causes things to move, Greg, maybe if you could in September and in the first Part of October, we saw a real sharp turn up and the Capesize rates have subsequently come down. Can you maybe frame in What that kind of a move does to the profitability, if anything, or just trying to see where the sensitivities are With respect to rate movements and profitability?

Speaker 1

Look, it's difficult to say. I mean, it's There's also some commercial restrictions here. We have an FFA book on Capes and we Also have front haul voyages on Capes as well. So since we charter in and then we enter So regarding the volatility in Capes, we do try to take advantage of it Both with the EBITDA book and with the positioning of the vessels and it's 37 of those. I'm afraid I cannot get into more on that because it's like telling you how like we run our Capes business during Q4, which it's difficult for me To explain now in an open call.

Speaker 1

But I can tell you that the first, like, priority is to monitor downside And then opportunistically capitalize on this Capes volatility, especially the last 2 to 3 weeks Charter rates in the Capes market has been very volatile and the same applies for the FFAs and we try to take advantage of it. The Panamax market at the same time, it's much more stable. So it doesn't offer a lot of Volatility driven opportunities, but I'm afraid I cannot get into more detail on that. It's like revealing what we do and what our long position on Capes and Panamax is now, which is difficult for me to enter into.

Speaker 5

Okay. Well, and I appreciate the commercial sensitivities around that. Maybe just from a broader perspective as we're thinking about how Again, what the drivers for profitability are? Is it fair to assume that there'll be long periods of I'm aware there aren't any major shifts in profitability and then small episodes Of substantial upside, is that how we should think about what the revenue and profitability format would look like?

Speaker 1

Yes. Look, if you are referring to CBI because this is the most Yes. In our sort of business portfolios, I can tell you that based on the backlog of our Contain the contracted revenues, dollars 2,700,000,000 contracted revenues at sort of very healthy rates. Based on the Low breakeven cost of the drybulk owned vessels, which we bought at a very good time, and they have a very low leverage. And based on the predictability and profitability, although at lower levels of like the Neptune Maritime Leasing, which is a very stable business, I think any sort of short term volatility in terms of profitability at the CBI level Can be very easily absorbed by the whole company.

Speaker 1

Otherwise, we wouldn't be doing this. So I mean, In a nutshell, I think we can digest any short term downturn of the market, which is something that is part of the business. You cannot avoid it. However, the upside, it's very substantial. So the downside based on the rest of the business we hold, it's something manageable.

Speaker 1

So otherwise, we would enter into that business if we didn't have the containership backlog, etcetera. And there is A lot of upside. So this is how we look at it. At the same time, this is a business that it is complementing our drybulk owned vessels, Which makes sense for us. So it is a calculated risk, if I say that based on the backlog of contracted revenues, low levels at the Costamare Inc.

Speaker 1

Level, High liquidity, attractive long term charters in the containership sector, Very stable business, the leasing business. So I mean this is how we view it.

Speaker 5

Yes, understood. And I was just speaking on a CBI level on a standalone basis, just trying to think through What a normal path to profitability looks like, just sort of stable ish at You know kind of modest levels and then every once in a while you see big moves. That's how you frame it.

Speaker 1

Okay. You can have like bigger moves Which does not translate into cash in the mark to market of the FFAs, like unrealized Losses or gains, which, however, do not have a cash impact, but it is profitability in brackets affecting EPS. There may be moves there from the pure operation of the business charter in, charter out, enter into voyage charters, etcetera, and settlements of For FFAs, leaving aside unrealized exposure, for the whole size of cost analytically, This is not something that could change the fundamentals of our profitability.

Speaker 5

Sure. Yes. No, and I appreciate that. And the last question for me is, Just on the buybacks, obviously, see the common buybacks. And curious, I mean, first of all, it's been exclusive to the common and not to the preferred.

Speaker 5

So I know it can be either. Curious how you're thinking about that. And In terms of the common buybacks, I mean, is this the $10,000,000 is this sort of what you think is a good run rate Per quarter?

Speaker 1

Yes. Look, I cannot predict the future. I cannot tell you like whether we're going to be doing any more buybacks Q4 or if we do what's going to be the size of it, etcetera. It depends. But we bought back a common as you rightly Not like preferred because we think that the common is definitely undervalued.

Speaker 1

However, you look at it in terms of NAV, in terms of stability, however you look at it. We did some buybacks of preferred in the past when it was trading at $15, $16 Now it's trading at par or slightly slightly above par. We have €150,000,000 there to buy back. But we have been focusing on the common up to now, which does make sense. However, I cannot predict what life we're going to be doing the next We put back in total $60,000,000 worth of common shares.

Speaker 1

We have a program For 30 more, but this program can be easily extended. We'll see. We'll take it Quarter by quarter.

Speaker 3

Got it. All right.

Speaker 5

I appreciate it. Thank you.

Speaker 1

Thank you. Thank you, Ben.

Operator

The next question comes from Clement Mullen with Value Investor's Edge. Please go ahead.

Speaker 4

Good morning. Thank you for taking my questions. I would like to start by asking about the change in reporting. You previously provided a breakdown on a segment by segment basis, Which was really helpful, but the aforementioned breakdown was not provided for this quarter. Should we expect this change to be permanent?

Speaker 1

The breakdown we had in the previous quarter was of no use at all because In any case, you can find the numbers in the 6 ks filing. So I'm afraid I would have to refer you to the 6 ks filing where like you're going to be Able to see the breakdown. It didn't provide with any value. It just made the press release longer. This is the reason we took it out.

Speaker 4

Right, makes sense. Chris, Ben and Omar already asked about CBI, but could you provide some additional insight On how your owned drybulk vessels performed during the quarter, for example, the TCE you realized on that side of the fleet?

Speaker 1

Look, the profitability of the drybulk vessel is going to be again part of our 6 ks filing. We have a mixed number of since we have Hyannis, we have now a couple of Capes, we have Panamaxes. I think Overall, based on the fleet we have, it has performed fine, Well, but I don't want to go into more detail what was the DC of the Hyattis, XYZ and then what was the rating of every vessel, etcetera. Most of the vessels or like all of them actually with some with very few exceptions, they are trading on the spot market. So we do follow the index.

Speaker 4

Makes sense. Thanks for the color. That's all for me.

Speaker 1

Thank you

Speaker 4

for taking my questions.

Operator

Thank you. This concludes our question and answer session. I would now like to pass the floor to Mr. Zikos for his closing remarks.

Speaker 1

Thank you very much for dialing in today's call. We are looking forward to speaking with you again

Operator

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

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Earnings Conference Call
Costamare Q3 2023
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