Costamare Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the Costa Marie, Inc. conference call on the second quarter 2023 financial results. We have with us Mr. Gregory Zekos, 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. And I will now pass the floor to your speaker today, Mr. Zicos. Please go ahead, sir.

Thank you, and 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 container ship sector, the charter market has been softening, although rates still remain at healthy levels. The order book, however, remains the 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 public 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. Finally, 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 slide 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 56 cents per share. Our liquidity stands at over $1 billion. On slide 4, 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 5. As far as CPI is concerned, we have chartered in 56 period vessels, with the majority of the fleet being on index-linked chartering agreements. Fifty-three 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 shifts 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 all our dry bulk purchases in the spot market, having entered into more than 50 chartering agreements since our last earnings release. On the contingency side, our revenue dates are essentially 100% fixed for 2023 and 87% fixed for 2024. while our contracted revenues are 2.9 billion, with the TU-weighted remaining time charted duration of about 3.9 years. Slide 7. We have sold one dry bulk vessel and have agreed to acquire two Cape-sized dry bulk ships. Both vessels will be purchased with cash on hand. In addition, we have concluded concurrent SAP transactions with your capital, for two container ship vessels while we have agreed to sell another container ship where we own a 49% equity interest. Moving to slide eight, the container ship charter market has been softening although rates remain at healthy levels. Tribal 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 9, 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. Chartered rates in the contingency market have softened, remaining though at healthy levels. Adult capacity remains at historically low levels of about 1%. And finally, on slide 11, you can see the recent dry bulk market trends in the spotting 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.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star 2. That's star 1 to ask a question. The first question comes from the line of Mr. Omar Nocta from Jefferies. Please go ahead.

Thank you. Hi, Greg. Good afternoon.

Yeah. Hi, Omar. Good morning.

Thank you. Good morning or afternoon. Sorry. Just wanted to check on how things are going operationally. You know, clearly, you know, custom area has shifted more so into dry bulk over the past couple of years with investments in the, you know, the midsize segments previously, you've now got the capes that are coming on and you'd also have, you know, CBI. The sector has 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 looks like it's eating somewhat into the container profits. In the release, you show the container business earning $127 million in the quarter. The dry bulk fleet lost just three, but the trading business, 24. I 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? Yeah.

Yeah, it's two things. First of all, regarding our participation and our investment in the dry bulk sector, we are there for the long term. So 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 in to, you know, 56 ships chartered in and 53 of those have been delivered. So I think two things. First, we need to allow the company some time in order to amortize the set-up costs. At the same time, we had a lot of deliveries which are, you know, from day one eating us without the ships having operated for a full period. So I would say that it's mainly... setup 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. So I think it's mainly setup cost and we are now at the initiation phase. We need to allow more time in order to see the result that this entity will be yielding. Also, we know that the dry bulk is a quite volatile environment, especially right now, but I think we have the right setup and the right people and the experience in order to capitalize on the market upside whenever that comes.

Okay. Thanks, Greg. That's helpful. And then just in terms of, you know, you mentioned giving it some time. Do you think you've got 53 of the 56 ships in-house now, so maybe the meatiest 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 going number or within that range here in the near term?

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 going to go to 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 market conditions. So most probably I would say that it's a question of like when rather than of whether we're going to be growing or not. But I think the growth needs to be on a healthy basis and step by step. So let's see. I cannot predict the growth rate simply because I cannot predict the market.

No, that's fair. That's a tough question, I guess. And then maybe just one final one. Clearly, you announced the buyback. You were very aggressive, putting $50 million to work. And 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 can we expect that remaining $40 million to be put to work quickly?

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 prospects, in terms of track record, however you look at it, it's undervalued and this is the reason we, you know, both 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 our plan for the remaining 40 million of the program or whether this program is going to be extended and 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 felt that buying back common stock at those levels, it definitely made sense.

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

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

Hey, good morning or good afternoon. It's actually Pranella on for Ben, but thank you for taking our question. Sure, sure. 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. But at the moment, do you see Kostamari as a better buyer or seller of each type?

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 the level where they reflect consensus about how the charter rates are going to be developing over the next quarters. So regarding the containerships, for the time being, we are not biased. 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 second-hand and for new buildings were elevated. So there we wait and see. But 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 Cape Scythes. of 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. So then we do wait and see. So 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. Opportunistically, we could be buying some assets here and there if, on a case-by-case, we feel it makes sense.

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

Perfect.

As a reminder, to ask a question, you may press star, then 1. Seeing no further questions, this concludes the question and answer session. I will now pass the floor back to Mr. Uzikos for his closing remarks.

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

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