Earnings Call: Q2 2019

Jul 25, 2019

Welcome to the Costamari Incorporated Conference Call on the Second Quarter 2019 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. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Thursday, July 25, 2019. 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. Zikos. Please go ahead, sir. Thank you, and good morning, ladies and gentlemen. During the Q2 of the year, the company delivered profitable results. Net income and earnings per share more than doubled compared to the same period of last year. Charter rates for the larger containerships continue to improve boosted by service upgrades and a reduction in supply due to scrapper fittings. We have chartered in total 18 vessels over the last months benefiting from a rising market in the larger asset classes. On the financing side, we arranged financing agreements for an aggregate amount of €460,000,000 proactively extending maturities relating to 10 vessels and arranging 100% financing for the scrubber installation on 5 ships. And now moving to the slide presentation. On Slide 3, you can see the highlights. The adjusted EPS is $0.23 Over the past quarter, we have signed new financings for a total amount of €460,000,000 proactively refinancing and extending various maturities and financing 100% of scrubbers to be installed on 5 vessels. We do maintain a strong balance sheet with approximately 43% leverage, and we have no off balance sheet financing. Over the last months, we have chartered in total 18 vessels. Regarding the market, charter rates for larger vessels have continued their upward momentum. The idle fleet has dropped to 1.6% and the fleet's net growth 19 is estimated at around 3%. On Slide 45, you can see a summary of our recent chartering activity. What's worth mentioning on Slide 4 is the increase in the charter rates for the larger vessels compared to last time. Over the next year, 16 post Panama's containerships are due for re chartering, which provide us with significant upside should the momentum continue. On Slide 5, you can see the forward fixing of the 58,800 TEU container ships, which has increased our contracted revenues by about $185,000,000 Moving on to Slide 6, you can see the new financings for the total amount of $460,000,000 All the refinancings have been concluded with the exception of the one involving the vessels Valor and Valeant, which is expected to be concluded within this month. Recent maturities have been extended by an average of 4 years. We do not have any substantial loans maturing over the next 2 years. On Slide 7, you can see our dividend payments as well as the sale of 1 vessel, which was co owned with York Capital. On Slide 8, we show our Q2 20 19 results. During the Q2 of this year, the company generated revenues of $117,000,000 and adjusted net income of 26,200,000 dollars The 2nd quarter adjusted EPS amounts to $0.23 Our adjusted figures take into consideration the following non cash items, the accrued charter revenues, accounting gains or losses from asset disposals, prepaid lease rent outs and non cash charges. On Slide 9, we are showing the revenue contribution for our fleet. Almost 100% of our On the last slide, we're discussing the market. Regarding charter rates, there has been a further strengthening in the market during Q2. The hydro fleet has fallen to a lower level of 1.6%. The order book has been steadily decreasing to 11%. As already mentioned, we are actively looking for new transactions in this market environment. This concludes our presentation and we can now take questions. Thank you. Operator, we can take questions now. Thank you, sir. And your first question will be from Chris Wetherbee with Citi. Please go ahead. Hi, guys. James on for Chris. I just wanted to ask a question about expense per day. It seems to have moved down sequentially and it was a bit lower than we were looking for. Just wanted to know what might have been driving that and if there's any special items we should be considering in there? Sorry, I could not hear very clearly your question. You mind repeating? Yes. Can you hear this? Yes. This is much better, yes. I wanted to ask a question about vessel OpEx per day, excluding D and A. It was down sequentially and a bit lower than we were expecting. Just wanted to know if there are any special items we should be considering in it and also sort of get your outlook for it moving forward? You're right. Yes. Look, daily operating expenses and these are pure operating expenses excluding G and A. In this quarter, it was close to $5,100 per day per vessel. This is by taking all the operating expenses and dividing by the ownership days, which is slightly lower compared to the last quarter or the quarter before. There are no specific items that sort of can be highlighted to say this is the main reason. I would say that I mean, I would say that generally we are trying to be conservative and also efficient in running the vessels. So there is nothing specific to highlight on that. But I mean, I would agree that $5,100 per day for a fleet, which is on average of a size of above 7,000 TEUs, I consider this to be quite competitive. Got it. Also wanted to get an update on sort of the interest that you're receiving in doing more scrubber deals and whether it's picking up or if it's essentially plateaued since the last quarter? I think since the last quarter, I think we have not received any new requests. Up to now, it's a total of 15 vessels including 5 new buildings where scrubbers will be installed. These are the 5 new buildings that we contracted last year with Yanming and 5 MSE vessels and 5 ships with Evergreen. All these are larger vessels with long term time charter coverage. Apart from those three instances, which we have already announced, we have not been receiving any new requests. The next question comes from Ben Nolan with Stifel. Please go ahead. Yes. Hi. This is Frank Galante on for Ben. I wanted to ask about any potential demand or competition for new buildings, new building contracts for miners, if you're seeing any additional demand for that? Look, there have been in the market some rumors about new building projects from liners. I cannot comment more on that. It's just what you also see in the market. But I mean but I have to say that compared to the competition that we faced years ago, either for newbuilding projects or and also for secondhand ships in the water, other sale in these bag structures. Today, the competition is definitely much less. There are less pure ship owners, tonnage providers like ourselves who do have access to debt or to equity and who can fund this CapEx type of CapEx intensive type of assets. So there's definitely less competition compared to years ago. It cannot be new building projects. Okay. Yes. That makes sense. And then just kind of a maybe quicker question. But it looks like accrued charter revenue moved from negative to positive this quarter. Is that your expectation going forward? Yes, I mean we have a specific schedule for the accrued charter revenues, which is a U. S. GAAP requirement. So if you have extensions in the charter rates with the same charter or like a charter rate that sort of goes up and down during the whole charter period, we have to get an average. And it's either positive or negative depending on the time where we are accounting for that revenue. Now it has turned positive. If you want, because we do have a schedule for the contracted revenues up to today, we can share it with you offline so that you can see how it is expected to be over the next quarters. Yes. That would be helpful. That's all I had. Thanks very much. Sure. Thank you. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Gregory Zikos for any closing remarks. Thank you for dialing in today. We are looking forward to speaking with you again during the next quarterly results call. Thank you. And thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect your lines.