Business context and reporting period
Costamare Inc. filed this Form 20-F for the fiscal year ended December 31, 2022, prepared under U.S. GAAP. It owns and operates containerships and dry bulk vessels, chartering primarily to liner companies and other shipping customers. The filing is an annual report; it does not provide a standalone 2022 fourth-quarter income statement.
During 2022, the average fleet increased to 116.7 vessels from 83.6 in 2021, reflecting the expansion of the dry bulk fleet. A dry bulk chartering platform began operating in the fourth quarter of 2022. Fleet and charter details elsewhere in the filing are generally stated as of March 21, 2023.
Financial and operating performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Voyage revenue | $1,113.9 million | $793.6 million | +40.4% |
| Operating income | $662.2 million | $441.4 million | +50.1% |
| Net income | $554.7 million | $435.1 million | +27.5% |
| Net income available to common stockholders | $523.9 million | $404.1 million | +29.7% |
| Basic and diluted EPS | $4.26 | $3.28 | +$0.98 |
| Operating cash flow | $581.6 million | $466.5 million | +$115.1 million |
| Investing cash flow | $42.5 million | ($787.5) million | Improved |
| Financing cash flow | ($166.1) million | $482.6 million | Lower inflow / net outflow |
Approximate operating margin was 59.5% in 2022 versus 55.6% in 2021; approximate net margin was 49.8% versus 54.8%, respectively. These ratios are calculated from reported revenue and income. 2022 operating income included a $126.3 million net gain on vessel sales, compared with $45.9 million in 2021. Net income also benefited from a $2.7 million gain on derivative instruments; interest and finance costs rose 41.9% to $122.2 million.
Voyage revenue on a cash basis, a non-GAAP measure that adjusts for accrued charter revenue, was $1,111.5 million, up 42.2%. Fleet utilization was 98.4% overall in 2022, including 99.3% for containerships and 96.8% for dry bulk vessels. Daily vessel operating expenses rose to $6,321 from $5,896, which management attributed mainly to higher crew costs related to COVID-19 measures.
At year-end, total assets were $4.90 billion and total stockholders’ equity was $2.16 billion. Total debt before deferred financing costs was approximately $2.61 billion, up from $2.47 billion; the balance sheet reported debt net of financing costs of $2.58 billion. Cash and cash equivalents were $718.0 million, with restricted cash of $93.5 million and short-term U.S. Treasury investments of $120.0 million. Total cash, cash equivalents and restricted cash were $811.6 million. Working capital was positive $591.5 million, compared with $56.1 million in 2021. The company reported $37.1 million of undrawn credit availability.
Vessel sales generated $220.3 million of net proceeds in 2022, helping produce positive investing cash flow. Financing cash outflow included $60.1 million of common-share repurchases and dividends. Common dividends were $0.115 per share per quarter in 2022, plus a $0.50-per-share special dividend. Preferred dividends were also paid. The board’s dividend policy remains discretionary and subject to cash needs, covenants and applicable law.
Material changes versus the prior comparable period
- Revenue and operating income rose substantially, supported by the larger fleet, acquired vessels and higher charter rates on certain containerships. The dry bulk fleet contributed for a full year in 2022, versus only part of 2021.
- Net income increased more slowly than operating income, in part as interest and finance costs increased by $36.2 million and equity-method investment income fell to $2.3 million from $12.9 million. The prior year also included a $60.2 million gain on the sale of ZIM equity securities; there was no comparable gain in 2022.
- Operating cash flow increased, while investing activity shifted from substantial acquisition-related outflows in 2021 to a net inflow in 2022, reflecting vessel-sale proceeds and Treasury bill activity.
- Containership charter markets weakened sharply: the reported time-charter rate index fell 71% from December 2021 to December 2022. Dry bulk time-charter rates for the cited vessel categories fell about 50% year over year.
- The company repurchased 4.7 million common shares for $60.1 million. Average shares outstanding were slightly lower than in 2021.
Outlook, risks and unusual items
No company-specific numerical earnings or revenue guidance is provided. Management said it expects internally generated cash flow and financing to meet liquidity needs, while cautioning that future financing may not be available on acceptable terms. The filing cites Clarkson Research’s February 2023 estimate that seaborne container trade demand would decline 1.6% in 2023. Management also describes a large containership orderbook and weak or volatile shipping markets as risks; dry bulk demand and rates softened in 2022.
- Debt, rates and covenants: Most bank debt has floating-rate exposure. A 100-basis-point increase in reference rates was estimated to reduce 2022 net income and cash flow by approximately $10.8 million. The company had $606.4 million of LIBOR-based secured debt with maturities beyond June 2023 and expected transition to SOFR or another benchmark. Covenants include minimum liquidity and net-worth requirements; the company reported no credit-facility default.
- Charter and customer concentration: Six major liner groups represented 85% of containership revenue in 2022. Charterer defaults, expiring charters, falling rates or customer consolidation could pressure revenue and liquidity.
- Impairment and vessel values: A $1.7 million impairment was recorded for four dry bulk vessels. Management’s internal analysis indicated that estimated market values were below carrying values for some vessels, but this did not result in additional recorded impairment. Vessel-value assumptions and charter-rate forecasts are judgmental.
- Shipyard arbitration: Costamare terminated eight newbuild contracts in 2022 after alleged shipyard default and is in arbitration. No newbuilds or secondhand acquisitions were under contract as of March 21, 2023.
- Related parties and new businesses: Managers and service providers are affiliated with the CEO; the dry bulk platform’s agencies are also related parties. The company invested $100 million in the platform and agreed to invest up to a further $100 million subject to conditions. In March 2023 it acquired control of Neptune Maritime Leasing and agreed to invest up to $200 million; this is a subsequent-period development, not a 2022 operating result.
- Litigation: A subsidiary and Costamare Shipping faced claims relating to the 2021 California pipeline oil spill. Settlements of certain claims were reached in February 2023, without admission of liability; management expects payments under those settlements to be covered by insurance. Other claims remained outstanding, which the company said it was defending and believed adequately insured.
- Other risks: Environmental rules, including EEXI/CII and prospective EU emissions trading requirements, may require operating changes or capital spending. The company also cites geopolitical conflict, sanctions, COVID-19 disruption, fuel and foreign-exchange movements, insurance limits and the absence of loss-of-hire insurance.
Auditors issued an unqualified opinion on the financial statements and on internal control over financial reporting as of December 31, 2022. Vessel impairment was identified as a critical audit matter because forecasting charter rates for uncontracted days requires significant judgment.
Important facts for investors to verify
- How much 2022 operating performance depended on vessel-sale gains, and how underlying cash earnings compare with reported net income.
- Debt maturities, floating-rate exposure, hedge coverage, SOFR transition progress and covenant headroom, including the availability and restrictions on reported liquidity.
- Charter coverage, renewal rates and customer credit quality as containership and dry bulk markets adjust to weaker conditions.
- Whether vessel carrying values remain recoverable under lower charter-rate or vessel-value scenarios, and the potential cost of environmental compliance and dry-docking.
- Progress and outcomes of the shipyard arbitration and remaining oil-spill claims, including insurance recoveries and any uninsured exposure.
- Returns, capital requirements and related-party terms for the dry bulk operating platform and Neptune leasing investment.