Business context and reporting period
Castor Maritime Inc. is a Marshall Islands-incorporated dry-bulk shipping company. This Form 20-F is an audited annual report for the fiscal year ended December 31, 2019—not a standalone fourth-quarter report. The company changed its fiscal year-end from September 30 to December 31, so the year-on-year calendar 2018 comparison cited in management’s discussion is unaudited.
The fleet expanded from one to three Panamax carriers during 2019, with the Magic Sun acquired in September and the Magic Moon in October. The company reported 556 ownership days, 545 available days and 98% utilization for 2019.
Key financial metrics
| Metric | 2019 | 2018 comparison |
|---|---|---|
| Vessel revenue, net | $5.968 million | $4.405 million |
| Operating income | $1.283 million | $1.503 million |
| Net income | $1.088 million | $1.505 million |
| Basic and diluted earnings per common share | $0.31 | $(0.32) |
| EBITDA (non-GAAP) | $2.176 million | $2.203 million |
| Daily TCE rate (non-GAAP) | $10,471 | $11,991 |
| Operating cash flow | $2.312 million | $1.401 million |
Revenue rose 35.5%, principally because of the two vessel additions, but operating income fell 14.6% and net income fell 27.7%. Approximate operating and net margins were 21.5% and 18.2%, respectively, versus 34.1% for each in the 2018 comparison. These margins are calculated from the reported figures.
Operating expenses increased with fleet growth and vessel start-up repairs; daily vessel operating expense increased to $5,041 from $4,270. Daily general and administrative expense increased to $681 from $264. Net interest and finance costs were $190,574, compared with net interest income of $9,114 in 2018.
At December 31, 2019, cash and cash equivalents were $4.559 million, with another $0.500 million in restricted cash. Current assets were $6.221 million and current liabilities $2.983 million; reported working capital surplus was $3.2 million. Total assets were $30.421 million and shareholders’ equity $13.204 million. Gross debt was $16.0 million, including $11.0 million under the Alpha Bank facility and $5.0 million of related-party debt; balance-sheet debt net of deferred financing fees was $15.757 million. The company reported covenant compliance at year-end.
Investing cash outflow of $17.227 million primarily reflected vessel acquisitions; financing cash inflow was $18.087 million. The company reported no common dividends paid.
Material changes versus the prior comparable period
- Fleet growth lifted revenue and operating cash flow, while TCE declined 12.7% and utilization eased from 100% to 98%.
- Operating costs rose with the additional vessels, including crew, maintenance and repair costs; 2019 also included a $127,900 bunker loss, versus a bunker gain in 2018.
- Debt increased from none reported at December 31, 2018 to $16.0 million gross at December 31, 2019, primarily to fund fleet expansion.
- The company settled approximately $4.3 million of accumulated Series A preferred dividends by issuing 300,000 common shares and obtained a waiver of preferred dividend accruals through December 31, 2021.
Outlook, commentary and risks
Management said available funding and expected internally generated funds should cover fleet operations, normal working capital and debt service for at least 12 months from the report date. As of March 30, 2020, all three vessels were on time charters; disclosed gross daily hire rates included $7,000 for the Magic P, $12,000 for the Magic Sun and $13,000 for the Magic Moon. Contracted lease payments at December 31, 2019 were $4.2 million, all due within 12 months, excluding assumed off-hire.
The company cautioned that dry-bulk charter rates and vessel values are volatile, and that excess fleet capacity, charterer credit risk, financing availability, floating LIBOR-linked debt, restrictive loan covenants and vessel operating or regulatory costs could affect results. IMO low-sulfur fuel rules took effect in 2020; the company had no scrubbers and expected fuel costs and inventories to increase. Ballast-water system installations were planned alongside 2020 dry-dockings.
COVID-19 had not materially affected operations as of the report, but management said the eventual impact was uncertain and could be adverse. No material pending litigation was reported. The filing also highlights related-party management and financing arrangements, and the CEO’s control through Series B preferred voting rights.
Important facts for investors to verify
- Review the audited statements and notes for the distinction between $16.0 million gross debt, $15.757 million net balance-sheet debt and the $0.500 million restricted cash balance.
- Check charter expirations, renewal rates and customer concentration: one charterer represented 63% of 2019 revenue, and three others represented 13%, 12% and 12%.
- Assess related-party exposure, including the Magic Moon purchase from an entity in which a family member of the CEO had an interest, and related-party loans and management fees.
- Evaluate potential dilution: the filing reports 6,818,897 common shares outstanding as of March 30, 2020 and convertible debentures with market-linked conversion terms; it also describes an ATM equity program.
- Confirm the cost and timing of ballast-water installations, dry-dockings and compliant fuel, and monitor COVID-19 effects, debt covenants and floating-rate interest exposure.