Business Context and Reporting Period
Company: Costamare Inc. (NYSE: CMRE)
Filing Type: Form 6-K (Press Release)
Reporting Period: First Quarter ended March 31, 2011
Business Overview: Costamare is a leading owner and provider of containerships for charter. As of May 1, 2011, the fleet consisted of 58 vessels with a total capacity of approximately 320,000 TEU, including 10 newbuilds on order.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Voyage Revenue (GAAP) | $86.0 million | $89.0 million |
| Voyage Revenue (Cash Basis) | $94.0 million | $79.9 million |
| Net Income (GAAP) | $17.9 million ($0.30/share) | $24.7 million ($0.53/share) |
| Adjusted Net Income | $22.4 million ($0.37/share) | $14.5 million ($0.31/share) |
| Adjusted EBITDA | $61.3 million | $50.6 million |
| EBITDA (GAAP) | $56.9 million | $60.8 million |
| Operating Cash Flow | $39.4 million | $28.7 million |
| Cash and Cash Equivalents (End of Period) | $5.5 million | $18.1 million |
| Total Liquidity (Cash + Restricted) | $45.9 million | Filing text does not provide clear Q1 2010 total liquidity |
| Undrawn Credit Lines (May 1, 2011) | $120.0 million | Filing text does not provide clear Q1 2010 value |
Material Changes vs. Prior Period
- Revenue: GAAP voyage revenue decreased 3.4% to $86.0 million, primarily due to increased off-hire days for dry-docking. However, cash-basis voyage revenue increased 17.6% to $94.0 million, driven by escalating charter rates and increased fleet ownership days.
- Profitability: GAAP Net Income decreased 27.5% to $17.9 million, largely due to the absence of a $2.3 million gain on vessel sales recorded in Q1 2010. Adjusted Net Income increased 54.5% to $22.4 million, reflecting improved operational performance.
- Expenses: Vessel operating expenses rose 6.6% to $27.5 million due to increased fleet size and initial consumable purchases for eight newly acquired vessels. Depreciation increased 8.9% to $18.4 million.
- Derivatives: The company recorded a $4.7 million gain on derivative instruments in Q1 2011, compared to a $1.0 million loss in Q1 2010, resulting from favorable fair value changes in interest rate swaps.
- Cash Flow: Operating cash flow improved significantly to $39.4 million. Investing activities consumed $158.9 million, primarily for $96.4 million in newbuild advances and $74.9 million for second-hand vessel acquisitions.
Guidance, Outlook, and Management Commentary
- Strategic Growth: Management confirmed a return to a growth track, citing attractive cycle prices for both newbuilds and second-hand vessels. The company ordered five new 8,800 TEU containerships from Sungdong Shipbuilding, expected delivery between Q1 and Q3 2013, with long-term charters secured with the Evergreen Group.
- Market Outlook: Management expects the charter market to enter its normal peak season and does not anticipate deterioration, provided demand follows usual patterns.
- Financing: The newbuild acquisition is expected to be financed by cash from operations and new credit facilities. The company does not expect to use its currently committed credit line for these specific orders.
- Dividends: A quarterly dividend of $0.25 per share was declared and paid on May 12, 2011.
- Risks: The filing includes standard forward-looking statement disclaimers regarding uncertainties in future results, charter market conditions, and interest rate fluctuations.
Investor Verification Checklist
- Capital Expenditure Commitments: Verify the $858.5 million in outstanding commitments for contracted newbuilds and the company's ability to fund these via operations and new debt.
- Liquidity Position: Confirm the adequacy of the $45.9 million total cash liquidity and $120 million undrawn credit lines against upcoming debt maturities and capital calls.
- Derivative Exposure: Review the $95.7 million aggregate liability fair value of outstanding interest rate swaps and the impact of future rate changes on earnings.
- Charter Rate Escalations: Validate the timing and magnitude of charter rate escalations embedded in long-term contracts, which significantly boost cash-basis revenue versus GAAP revenue.
- Fleet Utilization: Monitor off-hire days related to dry-docking, which impacted Q1 2011 GAAP revenue, to ensure they do not persistently erode cash flow.