Costamare Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 15, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Costumer, Inc. Conference Call on the Q1 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. And one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today, Monday, May 15, 2023. We would like to remind you that this conference contains forward looking statements. Please take a moment to read Slide number 2 of the presentation, which contains the forward looking statements.

Operator

And now I will pass the floor to your speaker today, Mr. Zikos. Please go ahead

Speaker 1

sir. Thank you and good morning ladies and gentlemen. During the Q1 of the year the company generated net income of 142,000,000. As As of quarter end liquidity was above $1,000,000,000 In the Potenasheet market charter rates are on a rising trend with high demand across the board while fixed periods Our increasing integration. The order book however remains a principal threat to the market.

Speaker 1

We have covered nearly 100% of our containership open days for 2023 and we have proactively arranged long term employment on a forward basis for a number of containerships coming off charter between 2023 2025 having secured for our fleet contracted revenues of $3,100,000,000 and the TEU weighted duration of about 4 years. On the drybulk side our old drybulk vessels continue to trade in the spot market while the trading platform has been growing with a fleet of above 50 ships already fixed under period charters. Having agreed to invest up to $200,000,000 our goal is to grow the drybulk operating platform business on a prudent basis And also realize healthy returns for our shareholders. Finally during the quarter we became the leading investor in Neptune Maritime Leasing, a growth oriented maritime leasing platform having agreed to invest up to $200,000,000 Considering current asset values, We do believe that Neptune Leasing Investment is a favorable deployment of the company's increased liquidity. This new venture is to the existing ship owning platform and is expected to further enhance the strong relationships built over the last decade with ship owners and commercial lenders in the ship financing sector.

Speaker 1

Moving now to the slide presentation. On Slide 3 you can see our Q1 results. Net income for the quarter was roughly 142,000,000 or $1.60 per share. Adjusted net income was $46,500,000 or $0.38 per share. Our liquidity is up over $400,000,000 year over year to more than $1,000,000,000 Slide 4, The Q1 of 2023 was the 1st full operational quarter of CPI.

Speaker 1

We have fixed 51 period vessels with The majority of the fleet being got index linked charter in agreement. 39 of the period vessels have been already delivered in Taranis. Slide 5. We have become the leading investor in Neptune Maritime Leasing having agreed to invest up to $200,000,000 Neptune is a favorable opportunity for the deployment of the company's excess capital. In this slide you can also see an update on our Financing arrangements which amounted to roughly $95,000,000 without any material increase in leverage.

Speaker 1

Those deals Having coupled with extension of maturities and an improvement of our funding costs. Slide 6, we We continue to charter all our drybulk vessels in the spot market having entered into more than 60 chartering agreements since our last earnings release. On the Codenyship side our revenues days are essentially 100% fixed for 2023 and 86% fixed for 2024 With our contracted revenues are roughly $3,100,000,000 with a TEU weighted remaining duration of 4.1 years. Turning into Slide 7, during the Q1 of 2023 the estimated combined net capital from S and P activity Stood at approximately €85,000,000 gain. We sold and have agreed to sell in total 2 containerships and 3 drybulk vessels.

Speaker 1

Following the conclusion of the transactions with your capital, the company will own 100% of 1 vessel versus initial combined ownership of 98% on 2 vessels. Turning to Slide 8, because the NSX charter market has shown an upward trend with high demand across the board While fixture periods are increasing in duration the drybulk market remains volatile while for the remainder of 2023 the FFA market indicates Strengthening on the segments where we own vessels. Finally, we continue to have a long uninterrupted dividend track record boosted by strong support. Slide 9, our liquidity has increased significantly year over year starting at about $1,000,000,000 This liquidity gives us the ability to look for opportunity to grow the company on a healthy basis. Slide 10.

Speaker 1

Charter rates in the containerships are on a rising trend with high demand across the board. The latest containership fixtures have been for longer periods. The idle capacity is at a level of 1.4%. Slide 11 which is the final slide. Here you can see the recent dry bulk market trends in the spotter forward market.

Speaker 1

The order book starts at 6.9% of the total fleet And new order, Inc. Continues to remain subdued. With that, we can conclude our presentation and we can now take questions. Thank you. Operator, we can take questions now.

Operator

And your first question today comes from Chris Wetherbee with Citigroup. Please go ahead.

Speaker 2

Wanted to touch base on the leasing activity that you guys have undertaken in the platform there. So maybe you could help us a little bit with sort of how to think about What the revenue profile of this business might look like over the course of the year? Just give us some help of sort of how that might play out in terms of how you want to expand it and what maybe the vessel Exposure might look like as you grow through the rest of the year?

Speaker 1

Yes sure. No this is the right question. Look This is a leading platform that was already established with some transactions already in place although of a smaller scale. So we have agreed to invest of course subject to deals being done and approved up to 200,000,000 Dollars of our equity gradually as I said depending on the deals that we see in the Pipeline and we feel that it makes sense to invest. Now we have invested as already mentioned around $21,000,000 And the goal there is to have a healthy return on our Investment, this could be containership, drybulk, vessel tankers, offshore, whatever has to do with shipping.

Speaker 1

I mean we're not confined to containerships for instance. We would fund through this leasing platform at levels which we feel it would make sense at Levels at which we might as well be an owner of that asset. So if it's a 60%, 70%, 80% level Depending on the specific assets. So the goal is to have a steady and We are actively secured a healthy return on our investment as we move forward. At the same time If necessary we have the platform in place we manage our own 140 investors today plus like we The trading platform show the platform is in place for the If we have in the future to have a technical or commercial management of those vessels although this is not the purpose But the goal initially would be to have a steady and healthy return on our investment in a sector we feel comfortable with.

Speaker 2

Okay. And then just maybe a little bit more help in terms of how to think about As we're thinking about modeling this business and whether you want to think about on EBITDA or some form of profitability, are there certain targets that you have that you'd like to be able to hit Either on a margin basis or absolute dollars, whether it be this year or maybe on a run rate once you get capital fully deployed?

Speaker 1

Yes. I mean, First of all in order to have the full 200,000,000 deployed I'm not saying that's going to take long but most probably It's going to take more than a couple of quarters right until we file the deals, until we negotiate, we agree, we document and then We sort of draw and deploy the funds. So it's going to take it's not going to be the next quarter although it would be growing. So and the way we look at it, we don't look at it from the terms of like EBITDA EPS accretion, we look at it in terms of cash on cash return. So there we would Try to maximize our sort of equity investment, cash on cash return, which is according to What the leasing platform say, how big yielding?

Speaker 1

Now I cannot give you an exact figure right now. We started with 2 transactions. But if you assume adjusted returns normally achieved by shipping leasing platforms, I think You're going to be close to that. Of course, as we progress over the next quarters and then we have more deals, we can be more specific and Also show EBITDA, also the revenues, EBITDA profitability on a segment basis also including the leasing business. It is okay with you?

Speaker 2

Yes. No, that's helpful. I appreciate

Speaker 3

the color. Thanks very much.

Operator

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

Speaker 3

Thank you. Hey, Greg. Good afternoon. Thanks for the update. Yes, I just wanted to check-in On the drybulk trading platform, obviously, you've built it up very aggressively to 50 plus shifts.

Speaker 3

You've taken delivery, I think you said 39 thus far. But yes, how much bigger are you envisioning this getting to in terms of fleet size? And then do you feel or What risk management protocol do you have in place given the trading nature of the business?

Speaker 1

Yes, a A couple of things, first of all yes it has grown to it's actually started in 51 vessels and 39 of Those have been delivered. So considering that this started like some months ago, yes, I would say that this is quite A fast growth level up to now, but Now it is a business where we do manage from a risk perspective. I think we manage it properly. First of all we look at our liquidity because it is a cash intensive business. We look on our And then you may have exposure in a couple of funnels.

Speaker 1

First of all, you have exposure on derivatives because you have to utilize It is a necessary tool. You have exposure on ships that you may charter in for a short period At fixed rate and then you may also have exposure if you do like a cargo relays Well like you pay fixed rate and then you charge floating rate. And generally you don't have a lot of market risk for ships Chartered in on index and as you will notice we mentioned that most of the ships have been chartered in I have been chartered on an interclick basis which means that the commercial risk or the market risk there It's minimized. So we look at our exposure in the physical market, we look at our In the paper market in the FFAs we do run sensitivities. We look at our liquidity today And how this is going to evolve over the next quarters.

Speaker 1

At the same time we look at the operational side of the business. There is also exposure in the bankers where we take a position in the bankers we hedge it And we have in place bank exchange lines. So it is a business which has a lot of potential. I mean potential not only to grow but in terms of returns simply because it is volatile and it has to be volatile in order to produce those returns. At At the same time I agree with you that you need to have a tight risk management structure which is what I think we have put in place up to now.

Speaker 3

Okay, thank you. And then maybe it seems that The trading platform is a bit more top heavy with a lot of CapEx exposure and then your own platform is more midsized dry bulk assets. How are those two businesses related? Are those functioning together? Are they separate?

Speaker 3

Any kind of synergies that can be realized between both?

Speaker 1

Yes, you're right. I mean in the trading platform it's mainly Capes and Panamaxes. Normally You have Capes there because Capes are much more volatile by nature. And in the Verdi platform you need to have some volatility Because this is the nature of the business. At the same time if you look at the Costamaria Inc.

Speaker 1

Drybulk owned Vessels which are vessels we own 100 percent which have been in place prior to starting the trading business. Yes there are handy Supramaxes our sort of average Size there is close to 56,000, 57,000 deadweight and ultimately I think it's mainly Handys Which is completely different segment that the driver owned vessel and the trading Each one of them is run by different people and by different management teams. At the same time Of course there are synergies, those people talk to each other. We have a full view of the whole market. We have Research which is utilized within the whole company.

Speaker 1

So there are a lot of synergies. However, it's 2 different teams of People managing each business and I think this is how it should be and the trading platform catalog of Capes which as a Shipowner we don't own, initially we didn't buy capes because we didn't like this volatility however in the trading platform capes have to be there because they are by Both a more volatile asset.

Speaker 3

Got it. Makes sense. I'll turn it over. Thanks, Greg.

Speaker 1

Okay. Thank you.

Operator

And one to answer the question queue. Your next question comes from Ben Nolan with Stifel. Please go ahead. Thanks.

Speaker 4

Hey, Greg. I wanted to touch on both the leasing and the drybulk platform, but maybe starting with the drybulk platform. It seems like in the near term here, it has been Well, unequivocally, it has been a cost to the company. I mean, your earnings would have been twice as high had it not been there. The is there is it part of the ramp up process?

Speaker 4

I know even on a rate basis, it was substantially, You can kind of back into the numbers, it would have been substantially lower than market level. So is this just part of the ramp up basis? And on a go forward Fully built platform, how should we think about what you expect the profitability of that business to look like?

Speaker 1

Yes, it's 2 things. First of all the drybulk platform, the trading platform, CPI, Costa Mare, Barco's team where we like to have all those charter in vessels. This is practically a startup we started some months ago. So initially every startup you have increased the liquidity needs And as you ramp up, as you rightly pointed out, initially you don't expect to have Extreme profit but you build the platform for the future and of course you have some setup And startup costs, that's one thing. Now regarding the drybulk owned vessels which I think what you are referring to, In that case the result was affected because we did a lot of repositioning In the Q1 due to market conditions.

Speaker 1

So this is not something that I think in general it is something that we would To take place in the next quarters as well although I can never predict the market but normally we don't sort of during the same quarter. So normally this is not something that should be happening over the next quarter or Some of that happened in the quarters before. I would normally treat it as a one off item, those are the positioning costs. Now in our adjusted EPS we didn't adjust for it, we have treated it from an accounting and like Presentation perspective, as like some of which is not extraordinary but practically I wouldn't expect this to be a A recurring item over the next quarters. Normally because the dry bulk on versus they are trading on spot so we follow the spot market And of course we try to be as efficient and as profitable as possible.

Speaker 4

Okay. And with respect to the leasing platform, I mean, I sort of understand the rationale behind it. But As I think through the capital allocation, you guys haven't been buying back shares, although the share price has been under some pressure here. Can you maybe talk through the capital deployment strategy from a return basis? I mean, Would seem to me that the shares would be a pretty compelling investment opportunity maybe relative to leasing platform?

Speaker 1

Yes. Look, it's a couple of things regarding capital allocation. You'll disappoint that has been discussed internally and We'll also be discussed internally soon. You see that we have cash on balance sheet of like close to $1,000,000,000 We We have the means to buy back shares. We have a share buyback program in place with 90,000,000 Dollar share value still available and at the same time we could also gradually increase the dividend on a quarterly basis or Even if I have a one off big dividend payment or both.

Speaker 1

This is something that the dividend policy If it's part of the capital allocation, it is being discussed internally. We still have the ability to do it irrespective of Trading platform and also of the capital assigned to the leasing business. The leasing business is up to 2 100,000,000 gradually over the following quarters and they do provide or they are expected to provide and this is our goal to To have a healthy return, which in shipping compared to other sectors can be Can be quite competitive. And that's our goal. So the one does not exclude the other.

Speaker 1

It's not that Our capital allocation, ability to pay more dividends or to buy back services in any way restricted by either the leasing business or Costa Maria Balquez Inc. I want to make this clear. We just feel that we normally deploy our capital in either bank ships. Containerships now are too expensive still. We didn't put any new bidding orders because we felt the market was too high.

Speaker 1

The same applies For the dry bulk secondhand ship today it's not at levels that we feel it will be interesting for us. So cost of money bulk leasing and NetSuite and Leasing, these are alternative methods to deploy capital which we think it's going to be On an accretive basis, buyback shares and dividend increases potentially, it's something that it is Discuss separately and we are discussing this at the Board level but the one does not exclude the other. Okay.

Speaker 4

All right. I appreciate it. Thanks, Greg.

Speaker 1

Okay. Thank you.

Operator

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

Speaker 1

Thank you very much for dialing in today and for Your interest in Costa Marlin, Inc. We look forward to speaking to you again during our next quarterly results call. Thank you.

Operator

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

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Earnings Conference Call
Costamare Q1 2023
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