Business Context and Reporting Period
Company: Costamare Inc. (NYSE: CMRE)
Filing Type: Form 6-K (Press Release)
Reporting Period: Third Quarter and Nine Months ended September 30, 2011
Date of Filing: October 26, 2011
Business Overview: Costamare is a leading owner and provider of containerships for charter. As of October 20, 2011, the fleet consisted of 60 containerships with a capacity of approximately 333,000 TEU, including 10 newbuilds on order.
Key Financial Metrics
| Metric | Q3 2011 (3 Months) | Q3 2010 (3 Months) | 9M 2011 (9 Months) | 9M 2010 (9 Months) |
|---|---|---|---|---|
| Voyage Revenue | $99.9 million | $88.6 million | $280.2 million | $267.5 million |
| Voyage Revenue (Cash Basis) | $107.7 million | $92.4 million | $303.4 million | $252.9 million |
| Adjusted EBITDA | $72.9 million | $64.7 million | $200.0 million | $167.4 million |
| Net Income (GAAP) | $17.4 million ($0.29/share) | $23.8 million ($0.51/share) | $61.5 million ($1.02/share) | $69.4 million ($1.48/share) |
| Adjusted Net Income | $30.9 million ($0.51/share) | $25.1 million ($0.53/share) | $80.2 million ($1.33/share) | $55.7 million ($1.19/share) |
| Operating Cash Flow | $51.3 million | $32.9 million | $134.4 million | $89.0 million |
| Cash & Equivalents (Sep 30, 2011) | $114.1 million (including restricted cash) | |||
| Undrawn Credit Facilities (Oct 20, 2011) | $159.5 million |
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenue increased 12.8% in Q3 and 4.7% in the nine-month period compared to the prior year, driven primarily by an increased average fleet size (48.5 vessels in Q3 2011 vs. 41.9 in Q3 2010) and escalating charter rates.
- Net Income Decline: GAAP Net Income decreased 26.9% in Q3 and 11.4% in the nine-month period. This was largely due to a $6.5 million loss on derivative instruments in Q3 2011 (vs. a $1.2 million gain in Q3 2010) and the absence of vessel sale gains in Q3 2011 (vs. $1.7 million gain in Q3 2010).
- Adjusted Performance: Adjusted Net Income increased 23.3% in Q3 and 43.9% in the nine-month period, reflecting underlying operational strength excluding non-cash derivative adjustments and vessel sale volatility.
- Expense Increases: General and administrative expenses rose significantly (1,000% in Q3) due to costs associated with being a public company (legal, audit, insurance) compared to the prior year when the company was private.
Guidance, Outlook, Risks, and Unusual Items
Business Developments
- Acquisitions: Acquired the MSC Methoni (6,724 TEU) for $60.0 million, chartered to MSC for 10 years at $29,000/day. Agreed to acquire MSC Ulsan (4,132 TEU) for $30.0 million, to be chartered to MSC for ~63 months at $16,500/day.
- Charter Extensions: Extended time charters for six existing vessels with MSC, securing rates ranging from $10,000 to $13,500+ per day through 2015-2018.
- Disposals: Agreed to sell MSC Tuscany and MSC Fado for demolition for approximately $8.8 million, expecting a capital gain of $5 million.
- Financing: Finalized financing for all five newbuild vessels ordered from Sungdong Shipbuilding. Concluded a new $120 million loan facility for general corporate purposes.
Dividend
The Board approved an 8% dividend increase, declaring a Q3 2011 dividend of $0.27 per share (up from $0.25), payable November 7, 2011.
Risks and Contingencies
- Vessel Incident (Rena): On October 5, 2011, the container vessel Rena ran aground off New Zealand. It was declared a Constructive Total Loss on October 19, 2011. The company states it has full insurance coverage (Swedish Club) for pollution, salvage, and hull damage, and expects the financial impact to be limited.
- Derivative Liability: As of September 30, 2011, the fair value of 28 interest rate derivative instruments resulted in an aggregate liability of $173.3 million. A loss of $6.5 million was recognized in the income statement for Q3 2011.
- Capital Commitments: Outstanding commitments for contracted newbuilds total $810.7 million, plus $30.0 million for the MSC Ulsan acquisition.
Investor Verification Checklist
- Insurance Coverage for Rena: Verify the extent of coverage under the Swedish Club policy regarding the constructive total loss and potential third-party claims.
- Derivative Valuation: Review the $173.3 million liability on interest rate swaps and the impact of rising interest rates on future cash flows.
- Charter Rate Escalation: Confirm the specific escalation clauses in the fleet list that contributed to the 16.6% increase in cash-basis voyage revenue.
- Capital Expenditure Schedule: Assess the timing of the $810.7 million in newbuild commitments against the company's $159.5 million in undrawn credit facilities and cash reserves.
- Adjusted vs. GAAP Reconciliation: Analyze the $13.5 million difference between GAAP Net Income and Adjusted Net Income in Q3 2011 to understand the impact of non-cash items.