Costamare Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the Costa Mayor Incorporated conference call on the second quarter 2022 financial results. We have with us Mr. Gregory Zico, 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 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, Thursday, July 28th, 2022. 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. And I will now pass the floor to your speaker today, Mr. Zico. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen. During the second quarter, revenues reached approximately $290 million, and adjusted net income more than doubled to $119 million, compared to $58 million for the same period of last year. As of quarter end, cash balance stood at around $700 million, and total liquidity, including undrawn credit lines, was above $850 million. Over the last months, we executed on our previously announced share buyback program by $60 million worth of common shares. At the same time, we did conclude a five-year syndicated loan facility of half a billion, proactively refinancing the indebtedness of 16 vessels and significantly reducing our cost of funding at competitive terms. Regarding the market, congestion and pressure supply chains remain challenging as we enter the second half of the year. On the container market, asset values and charter rates remain at healthy and historically high levels, as also evidenced by our latest fixtures. On the dry bulk market, rates have recently been under pressure but still remain at profitable levels, especially for owners who entered the market the year before. We view any potential softening of asset values as a compelling buying opportunity as we feel comfortable with the long-term supply and demand dynamics of the sector. On the part of our increased liquidity, we are actively evaluating new investment opportunities in the shipping sector that have the potential to provide enhanced returns at acceptable risk levels. Turning now to the slide presentation. On slide three, you can see our second quarter results, which was the best Q2 on record since our listing. For the quarter, net income was $114 million, or $0.92 per share. Adopted net income was around $119 million, or $0.95 per share. And our liquidity is up almost $300 million year over year to $854 million. On slide four, you can see an update on our refinancing arrangements. We closed a half a billion facility refinancing 17 vessels with 12 U.S., European, and Asian financing institutions. The new facility increased our liquidity by $200 million, reduced our cost of funding significantly, and extended the maturity of almost all the refinanced vessels while maintaining our corporate leverage at a very low 24%. We also repurchased 4.1 million shares for around $60 million. Slide 5. Our revenue days are 100% fixed for 2022 and over 95% fixed for 2023. We also forward fixed to contemporary vessels at $58,500 per day per vessel for a period of three years, starting in the first half of 2023. We continue to fix on our dry mark vessels in the spot market, fixing 27 vessels since our last release. Finally, we sold on dry bulk version, the standard, for a capital gain of around $3.5 million. Slide six. The container ship charter market remains at very strong levels. The dry bulk market is still at healthy levels, and the order book remains low, as carry rates are well above historical average. Finally, we continue to have a long uninterrupted dividend track record, boosted by strong support. Looking at our leverage and liquidity, our liquidity has increased significantly while our leverage continues to drain down. This liquidity gives us the ability to look for opportunities to grow the company without risking our balance sheet. Slide 8. You can see that our cryptocurrency fleet has a current backlog of 3.3 billion with a duration of four years. We are fully fixed for 2022, 95% fixed for 2023, and 84% for 2020. Revenues come from a diversified list of first-class charters like Maresk MSC, Evergreen, Zim, Costco, Young Wing, and Hapaclone. On slide 9, you can see the second quarter 2022 snapshot. We had an average of 118 vessels during Q2, up 65% year-over-year, and our adjustment income was $119 million, or $0.95 per share. The adjusted figures take into consideration non-cash items like the accrued charter revenues, accounting gains from massive disposals, and other non-recurring items. Turning to slide 10 and the contingency market overview, rates for vessels above 2,500 EU continue to remain at historically high levels. The commercial contingency fleet also remains fully employed. Slide 11. Here we're discussing the dry bulk market, where rates have come up slightly from the seasonal strong first quarter, but do remain well above cash break-even levels. Finally, the dry bulk order book is 7.2%, a very low figure historically, which translates into moderate growth for at least the next two years. With that, we conclude our presentation, and we can now take questions. Thank you. Operator, we can take questions now.

Thank you. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star then two. That's star then one to ask a question. Your first question today comes from Omar Nopza with Jofrit. Please go ahead.

Thank you. Hi, Greg. Good afternoon. Hi, Omar. Thanks for the overview. I just wanted to ask, you know, just about the container shift market and, you know, how things have been developing there recently. And maybe just first off, just on the new buildings that you had that were canceled earlier this month, those six shifts, can you give a bit of color as to what happened causing you guys to go ahead and terminate those contracts altogether?

Okay, we talk about eight container ships. This is what we discussed that we had ordered. Four 13,000 de-use and four 15,000 de-use that had like charter coverage upon delivery of the vessels. We did cancel them, but for legal reasons for the time being, I cannot say anything more. Over and above what we mentioned in our 6K filings, we did terminate the contracts because the shipyard has been in default. But apart from that, I cannot say anything more at this stage, at least.

Okay. That's fair. And I guess, you know, those ships were secured, right, with some long-term charters.

Yes, yes. Those ships, each one of them upon delivery had a 15-year charter cover with a major liner.

Okay. And do you think there's an opportunity or chance to replace those? Have you had those discussions with the customer? Is that something you'd like to do to find a different way to –

No, this is a fair question. This is something we would consider. For the time being, where asset values are for the new buildings, this is something we would think twice. I mean, normally we don't like ordering at the peak of the market, or we don't like over-ordering and bring the market up. So where today new building prices are, in today's environment, I think this is something that doesn't make sense for us at least. In the future, of course, if there's some softening in the market, the new building prices is something we would consider, again, on the back of a time charter, which is good enough in order to amortize our investment. Yeah, so definitely no speculative ordering, only against the... No, but even if a new building project today not on a speculative basis, but on the back of long term charges where asset values are, this is something we wouldn't do today. Because even if you have a 7 or 10 or 15 year charter, you are still ordering at the peak of the market and we try to be counter cyclical. So this is the reason we have not ordered new buildings at this point.

Okay. Thanks for that. And maybe just one final one just on the dry bulk investment. It's clearly proven, I think, beneficial and profitable. Any updated thoughts on where the dry bulk fleet sits long-term? Do you see any thoughts that you can give us on maybe a spinoff potentially or a gradual sell-down of that fleet, or do you think that becomes a permanent part of Customari going forward?

I think, look, those like ships, they were bought last year at prices which are much lower compared to today's market, as you rightly pointed out. It's around 46 vessels. We sold one for a capital gain of 3.5 million. But from a strategic point of view, this is a long-term investment, those dry bag ships. So, and I think those complement quite well the containers we have. So, starting from the point that at the peak of the market, that's an inflated market level, we didn't want to continue investing in containers. The dry bulk investment last year proved to be quite the right call. but we're here to stay in the dry part business. And depending on market conditions, this is something we would examine to also grow the dry part business. But it's up to market condition. It's up to asset prices. That's pretty much it. There's nothing else that's holding us back.

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

Thank you, Omar. Thank you.

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

Hey, Greg. How's it going? I had a couple maybe capital allocation type questions. You guys look to have been pretty busy in the quarter on buybacks. You know, it was a three something million shares quite a lot. Although, first of all, just Maybe to help me out, the share count didn't really move much. Did you buy them all at the end of the quarter or something? Is there a reason why that didn't change the share count?

Yes, I mean, I think most of them were bought at the quarter end, and as per accounting standards, we take the average during the quarter. But what we can do is that we can send you the sort of share count schedule, So you can see exactly how we come up with this account figure right now.

Okay. Do you have just any quick number as to how we should model it for 3Q?

For Q3, yes. I mean, in total, look, we have bought like I think 0.8% in total of our shares outstanding. I think we haven't bought the last couple of weeks. So, I mean, for Q3, it should be the same count as of June 30th, but let us get back to you with a very detailed schedule. Okay.

That's helpful. I appreciate it. And then as it relates to the capital, you know, obviously you're buying back shares. You don't at this point have any CapEx. You're generating lots and lots of cash flow and leverage is pretty reasonable. You did pay a special dividend a little bit earlier this year. A year ago, you increased the dividend a little bit. Are you thinking about the sort of normalized run rate differently, or do you think that the company can permanently support a higher dividend payout than where we're currently at?

Look, from a pure cash perspective, we can support a higher dividend. You saw that we have a cash balance of 700 million, right? And contracted cash flows of north of 3 billion. And all the drivers, this from the containers and all the drivers in today's environment are all highly profitable because they have low cash break even. We bought them last year at much better prices. So from a cash perspective, we are more than capable of raising the dividend. As you mentioned, we paid in one of special dividends. We did raise a dividend before that, and we have bought back shares. Whether, you know, we're going to be buying more shares back, we have a program of $150 million. We used like $60 million worth for the time being. The program is still there. We'll see. This has to do with whether we find... acquisition opportunities or new projects in the market. Our main goal is to continue investing our excessive cash from operations in new business, which in turn are going to be producing more dividends in the future. So it remains to be seen what we find in the market. As I mentioned in my commentary, we are quite actively looking at a lot of opportunities. So first let's see what happens there. And then this is something to consider as well. But I think that we have increased the dividend. We had a payment of one of the dividends. We bought back shares. We've done quite a part of it. Let's see how we're going to continue investing accretively the cash flow operations.

Okay. And then that leads sort of to my last question. You said that you would be opportunistic with respect to adding to the dry bulk fleet if prices were better. That said, lately, in the last, I don't know, three quarters or so, you have sold a number of the container ships, even sold one of the dry bulk ships. And I'm sure that you have you know, gains in all of those dry bulk ships at the moment and all of the container ships. Any thoughts of continuing to do that, or are you pretty much done what you'd wanted to do on the sales side?

For the containers, we're pretty much done. We sold what we felt it made sense to sell. For instance, we sold ships at 2,000 bills, 6,500 a year, and we sold them at a price of like 75 million or more each. So I think in that respect, we are pretty much done. Of course, subject to market conditions, you can never predict the market. But based on what we know today, I think on the contingency fleet, we are pretty much done with the disposers. On the dry bulk, we sold one vessel for capital gain. But I think for the dry bulk, we're here to stay. So it was not like any one of the investments which we're going to dispose of soon. Actually, should we see some softening in the market in terms of fastest values, if we feel that it does make sense from a capital allocation perspective, we would be more than willing to expand our footprint in the dry bulk business. It's also subject to market conditions, but disposal of ventures, I think for the time being, also in the dry bulk, there may be a couple of exceptions, a couple of smaller ventures we may decide to sell for a profit or something. But generally, the tribal click is here to stay and subject to market conditions, our wish would be to expand it further rather than to shrink it.

All right. Very clear. Appreciate it. Thanks, Greg.

Thank you. Thanks, Greg.

The next question comes from Clement Mollins with the Value Investors Edge. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions. You have started to use the share purchase authorization, buying back around 3.8% of the outstanding, which seems like an optimal capital allocation call, given the discount your shares are trading at. Is there any interest to initiate a tender or to take out large blocks?

No, for the time being, we have a share purchase program of up to 150 million. We haven't used half of it yet. So, I mean, we'll see. I think should we decide to buy back more shares, this is something we would go through the program, I guess, for the time being. Now, of course, if down the road we think if we wish to continue with our share buyback and there are some more efficient ways to do it, we're going to consider them. But for the time being, we did it on a plain vanilla basis through this authorized by the board program.

That's helpful. Thank you. And your preferred series have been trading above par. And I was wondering if there is any appetite to call any of those series. How do you view the preferred on your present capital structure?

So the preferred shares, if I understood the correction correctly, in our capital structure today, in our balance sheet, they are being treated as equity. because they are truly perpetual, without any step-ups, and we can redeem them any time we want, partly or in total, after a long, whole five-year period. So they are treated as equities today, if that's the question. Now, they are trading all above par, above the $25.00. we have authorized a preferred share buyback program of up to 150 million, which obviously, where they are trading today, we have not utilized it. In the past, we bought back a small amount of preferred shares. Today, where they are trading, it doesn't make sense to buy them back. We'll see.

Indeed. Thank you. That's all from me. That's all from me.

Okay.

As a reminder, if you would like to ask a question, please press star, then 1 to be joined to the question queue. This concludes our question and answer session. I would like to turn the conference back over to Mr. Zico for any closing remarks.

Thank you for dialing in and for being with us today. We look forward to speaking with you again during our Q3 results call. Thank you.

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