Q3 2021 Costamare Inc Earnings Call

Thank you for standing by ladies and gentlemen.

The results are always Inc conference call on the third quarter 2021 financial results.

We have with US Mr. Gregory <unk>, 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 I wished to have as you wish to ask a question. Please press Star then one on your telephone keypad and wait for your name to be announced.

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.

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. Xie goes. Please go ahead Sir.

Sure.

Thank you Ed good morning, gentlemen.

The container market rebound that began in the second half of last year is continuing there.

Today from favorable supply and demand dynamics.

But the aggregate of container ships in the margin at <unk> due to higher cargo volumes and strong demand.

Has been exacerbated by poor congestion and all that I'm sure that's a equipment.

All our container ships are there during the quarter have been fixed at increasingly high levels of high.

Well the dry bulk side, we took delivery of <unk> vessels, bringing the number of dry bulk vessels that have been delivered to us to 34.

The remaining three ships are expected to be the EBIT by unit.

Although dry bulk vessels are employed in our sports marketing using very cursory cash.

Contracted revenues have reached $4 8 billion and the average time charter duration for a higher percentage of fleet stands at more than four years, we have Diana container ships coming off target by the end of next year and 37 dry bulk vessels operating in the spot market failure of repositioning our company should the current strong market conditions.

Continue.

Moving now to the slide presentation.

On slide three you can see the highlights of a very profitable first quarter net income for the quarter as Carlos everything we're doing in the <unk> 87 cents, an increase of over 500% year over year.

Does it maintain companies $81 million up more than 200% compared to the third quarter of last year, and so thats, a <unk> 66 assets we.

We have now taken delivery of 34 out of 37 vessels.

The remaining ships are expected to be delivered by year end.

We have also selectively sold shuttled out of all the container ships at attractive levels, we can cut that again, so $36 million.

On slide four as you can see our liquidity a new financing arrangements.

We have concluded another having license financing whats kind of the $50 million that gives us additional firepower on our container ships in dry bulk parcels as 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 on the average of 32% and no meaningful debt maturities until 2025.

Yes.

On slide five we discuss our chartering arrangements, we have entered into or extended the charters for five vessels at much higher levels.

Finishing the charges were fixed at a rate of 2.2 times higher with a much longer duration.

Our most recent fixture of the Glen Canyon is it for what fixture commencing in Q2 2022.

It was done at six 2000 and $5000 per day for three and a half years.

Moving to slide six.

On slide six you can see that starting the final client basis without targeting totaled 18 snapshot shouldn't scenarios you can see a sample of shuttle.

It features which have been concluded during the quarter.

Moving to slide seven the containership charter market has continued to outperform on the back of positive supply and demand fundamentals.

Adding fleet was 46% in October, indicating a full nickel fully employed market.

The dry bulk market has reached levels not seen since 2008 as demand for Komatsu continues and supply constraints remain to drive the market. We have also paid a reported third dividends in August and we will pay our 44th consecutive dividend in November.

Slide eight.

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.

Basically above the third quarter adjusted EPS is <unk> 66 cents up 200% year over here.

These figures take into consideration the falling one cost items. The afternoon charter revenues accounting gains or losses from asset disposals prepaid lease rentals and other noncash charges and changes in the fair value Okay with securities.

On slide nine as you can see a recap of taxes, our leverage has gone up about 32% based on current market values.

As you can see from the slide our market value of its assets assets is equal to $7 $6 billion.

Slide 10.

On this slide you see the revenue contribution for our containership fleet and our contractual savings, but having just come from top charters like Maersk MSC Evergreen Cosco Yang Ming Xu you must have a new York, we have $3 3 billion contracted stampings and remaining where its time charter duration of about four points to yes.

Yeah.

Well, then exercise we discussed the containership market.

<unk> tight supply.

Charter rates continue to significantly improve our COO.

Gross all vessel sizes up over 900% since the end of June 2021.

Box rates have increased by over 210% in a yearly basis.

And why is there was a slight dip during the Chinese call two weeks rates continue to remain adhere to next.

Moving onto slide 12.

The idle fleet is that 0.6% or full commercial utilization from a high of 12% one year ago.

Order book has risen to 23% that's new ordering has accelerated over the past quarters.

Would it be noted however that takes notes to two years, we've been taking vessels and the majority of operating pressures that have been orders 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 ASIC values have been trending upward since late 2020, they have lagged the increase in charter rates.

On the last night, you can see that the expectations for demand growth continuing 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 the diversity and fleet growth is expected to decline over the next several years, which creates a favorable factor for the market. This concludes our presentation and we can now take questions. Thank you operator, we can take questions now.

Thank you.

Monitor if she would like to ask a question. Please press Star then one on your telephone keypad and wait for your name to be announced if.

If you wish to cancel your request. Please press Star then two.

Once again Thats Star one wanted to ask a question.

And your first question today comes from Chris Wetherbee of Citi. Please go ahead.

Hi, guys. This is ely sitting in for Chris. Thanks for taking the question here. So I just want to start off with with the current rates are you guys shifting to a short term view to capitalize on that on the higher rates. Now are you guys still are plenty of a long term market in terms of duration.

You are referring to the containership vessels I guess also the dry bulk on the containership side yet.

On the containership side, Dave will go along with the extended regard obviously for the highest grade available in the market I assume you've got the numbers.

Walk a webinar.

The longest data available.

And the.

The example of the Glen Canyon 5600 Teu vessel.

Which we chartered for a period of 36 Oh.

So the 9% to 42 months.

Starting from Q2 2020 to 62500.

At that level.

We would prefer to go for the longest available duration.

Got it that makes sense and we see that you have longer duration, most likely for some of your larger ships, but are you seeing duration increase for the smaller ships as well.

Yes, we have seen a trend that generally duration of charter parties has been increasing now for the larger vessels.

And the last.

Our recent fixture sales simply because most of them are fixed for period. So there are no seats available in the market. However, generally speaking guys. We've seen a trend in <unk>.

Good market.

Vital meant that the average time charter durations become a longer and longer and this definitely applies for the smaller ships as well up to three days or like the smaller vessels thousand Teu.

Or like 2000 Teu is yes.

Also in that segment, because we also have some.

<unk> of that size.

We normally ought to go for the longest period available of course, our children.

If the numbers make sense.

That makes sense. Thank you and then let's turn to our to the new builds we know that the trend of of ESG focus in terms of new builds and fuel usage is something that is being thought about right. Now in terms of what ships people are turning to to order or are you guys focusing on more fuel efficiency in terms of your new builds are holding off new builds and <unk>.

Just to wait for some of the technology technology to evolve.

No look we do focus on fuel efficiency and this is one of our priorities at the same time regarding new buildings.

If it is a new building order, which will be placed on the back to back basis.

With a long term charter.

Of course, the CPA specification it is something that needs to be agreed upon with the charterer as well.

Sure.

This is a priority at the same time, we will also cater to the needs are off the charts.

Uh huh.

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

Look I think.

It's common knowledge that.

The condition is quite quite quite expensive extensive.

Especially.

In the West coast of the U S and I think.

There have been a lot.

Jason we haven't seen it yet.

This is not something that I can't predict how it's going on.

Go over the next months.

But this is definitely something that the liner companies as well as.

The states are big.

Take attention often they want to lease, but I'm not sure whether this is something that can be.

Easily fixed.

Within weeks.

What are within months.

I'm afraid I cannot predict how long this is going to is going to last but we definitely have seen that all the vessels of course 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 increasing congestion across the board at the higher rate.

No look our customers are the liner companies.

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.

Uh huh.

The demand is there and we know that there is substantial demand.

We see 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 like that.

It is us.

Fundamentals are.

We are in a very tight market. There today. This is pretty much it liner companies. They are still chartering in vessels. They have also been buying seems for themselves. So I think it is the same line of communication with nothing has changed.

Thanks, Greg I appreciate it congrats on the quarter.

Thank you thanks a lot.

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

Thanks.

So I got a couple for you Greg.

I'll start with the Drybulk side.

You have this new hunting license, but you haven't acquired any additional dry bulk vessels.

Since we are a junior so.

How are you thinking about the market the asset prices and the attractiveness of adding to that fleet here or is it or are you kind of waiting for things to normalize a bit.

Look we put this kind of new license.

So I mean, we have announced is now but this is something we were discussing with the lender for quite some time. So this is $450 million for.

For dry bulk vessels.

We have it in place.

We will use it only when do we think that the asset prices makes sense, so I cannot predict how the dry bulk.

It is going to evolve or like what's gonna be the prize for 10 or 15 year old Panamax, So stupid IMAX.

But we have it in place that I think it's good to have it in place because.

When we felt that the market conditions justify it.

237 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.

When I look at prices, we're going to look at Aeronautics and how we think.

I'm going to play out.

Great I cannot predict the market or not.

I'm serious.

Should we are thrilled that the numbers make sense, we'd have the equity.

We have added to commercial bank debt with this facility in any case, we've got package too.

Bank debt.

And if it makes sense. We're gonna proceed with them, but I'm afraid I cannot be more specific I cannot predict whether this situation will be over the next months or quarters.

I'm not asking you to predict it I'm just saying do you think they are right now.

Asset prices are attractive enough for you guys to buy or are they too expensive for you to buy.

Since we started our acquisition in May.

Prices have moved up.

And however, there may still be some opportunities.

But.

But definitely today asset values for the five or 10 year old.

But the places we have been buying.

Those sizes.

Yes.

And that should put up much in terms of Max definitely pricing Scott Maw, Scott since we bought those ships. So it's not exactly the same.

And environment, but it doesn't mean that there may not be some opportunities in the future.

Okay.

All right.

My next question you still have a pretty.

Pretty decent position it's not.

I life altering for for the company, but a pretty decent position and as EM equity can you maybe talk through a little bit about sort of what the.

The strategy is there and.

If that too long, if you view that as a long term position or not.

Not.

Yeah, Youre right, we have a we have a 1.2 million shares of Zim.

Based on the latest price if I recall correctly, it should be about 60 million.

Dollars.

So.

This is something we are currently evaluating we received the latest dividend without Ta can overstate.

So this is Scott.

Evaluating.

We're announcing a high too.

We take our time.

So.

It depends on our view about the market that the liner companies market going forward over the next couple of quarters, but you're right. This is a sizable amount I mean still 60 million.

Dollars as equity this is something that.

It cannot be ignored so that we take our time.

Evaluating.

Internally I'm afraid I cannot say much more at this point you saw in our latest results.

We're still which is a.

Yeah.

Alright, and then.

And then lastly, he was something that we've heard some about.

Is the potential for especially smaller like handy size vessels being used to.

To carry containers or more often freight that would've ordinarily gone into containers I'm curious.

For your vessels and you know and your customers that are primarily using them in the spot market are you seeing any of that or people people.

Trying to find ways to put containers on those ships or are you you're carrying things that ordinarily would be not in a dry bulk ship.

Yes, you're right.

First of all in our ships I can tell you that.

We are using as those ships as opposed to Peters and did it.

And not for containers.

Now of course, we've got a lot of discussions.

Uh huh.

About the using dry bulk prices in order to guide a concern is this is not something we have done.

Internally now I cannot exclude that this is happening.

Some ship owners.

So if they have them.

Yeah.

They may have commissioned some studies.

Steve I don't think that this is something that is going to change the supply and demand dynamics for container ships at all.

So.

I'm afraid there's not much more to say about that I can tell you that promoters side. This is not something that you know.

So we kept that in any case.

The ship is like a 50 or 52000 deadweight, we don't have any capes.

So I don't know, but I agree with you there have been a lot of discussion there is a social has been some press about those issues, but I don't think that it changes the fundamentals.

At least for container shipping today, whether magazines.

Perfect well.

Slip one more in you got three more dry bulk ships to take delivery of it probably is not going to take a whole lot of capital after that.

There are no new buildings that you have guys have you you you really should have been 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 from where you sit today again I appreciate that you can't predict the market or whatever but where we where would you envision.

The cash flow.

Going as it comes in.

Yeah, you're right yes.

Because you see the containership charter rates.

The rates today.

Lots of short term in nature.

In the dry bulk fleet.

And our Capex commitments for the remaining three vessels to be delivered for the remaining three.

But it's actually we deliver and we used to have one more container ships to be delivered a secondhand ship in total our equity commitments because the funding is already in place is the region of like 11% to $12 million. So this is pretty minimal for the size of the company. So the question is what's going to be happening with the extensive customers.

First of all this is.

A good topic to discuss now the Capex allocations.

We may be looking at additional dry bulk vessels, assuming as mentioned earlier that we're still in the field.

The prices make sense I wouldnt exclude again subject to you know the numbers to look at new buildings.

For container ships for second hand transactions in container ships.

Again, assuming that we find something.

We feel it makes sense and it also makes sense.

Uh huh.

From from a price perspective, and from a chartering perspective.

Then.

I mean other ways to use our das.

Obviously, it's debt repayment or local level.

No.

In the future.

We will discuss our share buybacks, we would discuss dividend increases.

We will discuss redeeming some of the preferreds, which are as you know a more expansive social source of capital. Although they are at the same time very flexible so we do have alternatives.

All of those are being discussed.

Agreed upon at the board level.

So this is not something that they can come with now and most of those issues.

Have been discussed there is no conclusion, yet how we're going to proceed.

We still have some ships.

Container ships coming off charter. These are 6500 to your vessels coming off towards the end of 2022, although I understand that it's more than a year from now.

It would have long term, sometimes discuss emotional those vessels this is something.

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.

Yes.

Let's see.

Asset prices go both for new buildings containing this end for second hand vessels in both sectors.

<unk>.

And then we'll see but at that time.

The agenda.

As we speak we look at a lot of things.

Both sectors.

Alright.

Okay perfect I appreciate the time.

Thank you and thanks a lot.

Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one at this time well pause.

Momentarily to assemble our rod.

And ladies and gentlemen. This concludes the question and answer session I'd like to turn the conference back over to Gregory Zika was for any closing remarks.

Thank you for dialing in today.

We're looking forward to speaking with you again at our next.

The quarterly results call. Thank you.

Thank you. This concludes today's conference calls we thank you all for attending today's presentation you may now disconnect.