Business Context and Reporting Period
Company: Costamare Inc. (NYSE: CMRE)
Filing Type: Form 6-K (Press Release)
Reporting Period: Second Quarter and Six Months ended June 30, 2012
Date of Filing: July 24, 2012
Business Overview: Costamare is a leading owner and provider of containerships for charter. As of July 22, 2012, the fleet consisted of 57 containerships (approx. 327,000 TEU) including 10 newbuilds on order.
Key Financial Metrics
| Metric (in millions) | Q2 2012 | Q2 2011 | 6M 2012 | 6M 2011 |
|---|---|---|---|---|
| Voyage Revenue | $96.0 | $94.3 | $196.1 | $180.3 |
| Net Income (GAAP) | $21.1 | $26.2 | $45.7 | $44.1 |
| Adjusted Net Income | $21.6 | $26.9 | $46.8 | $49.3 |
| Adjusted EBITDA | $61.0 | $65.8 | $128.1 | $127.1 |
| Earnings Per Share (GAAP) | $0.31 | $0.43 | $0.71 | $0.73 |
| Adjusted EPS | $0.32 | $0.45 | $0.73 | $0.82 |
| Cash & Equivalents (Liquidity) | $296.0 million (as of June 30, 2012) |
Material Changes vs. Prior Period
- Revenue: Voyage revenue increased 1.8% in Q2 and 8.8% in the six-month period compared to 2011, driven by larger vessels chartered at higher average rates, despite a decrease in fleet ownership days.
- Profitability: GAAP Net Income decreased 19.5% in Q2 ($21.1M vs $26.2M) primarily due to a significant reduction in gains on the sale of vessels ($4.1M in 2012 vs $10.8M in 2011) and increased losses on derivative instruments.
- Operating Expenses: Vessels' operating expenses increased slightly (1.8% in Q2) due to delivery expenses for newly acquired vessels. General and administrative expenses decreased 7.7% in Q2 due to lower public-company related costs.
- Derivatives: The fair value of 28 interest rate derivative instruments resulted in an aggregate liability of $183.4 million as of June 30, 2012. Losses on these instruments impacted net income.
Guidance, Outlook, and Management Commentary
- Fleet Strategy: Management highlighted the replacement of older vessels (1984-built) with newer second-hand vessels (1998-built), extending asset useful life by 14 years for an incremental cost of ~$6 million per vessel.
- Re-chartering Risk: Management noted reduced re-chartering risk, with vessels coming out of employment in late 2012 and 2013 accounting for only 2% and 4% of contracted revenues, respectively.
- Dividends: Declared a quarterly dividend of $0.27 per share (7th consecutive), payable August 7, 2012. Management considers the dividend sustainable based on contracted cash flows and debt amortization.
- Capital Expenditures: Outstanding commitments for contracted newbuilds total $734.2 million. The company recently agreed to purchase the vessel Stadt Luebeck for $11.3 million, funded entirely by bank financing.
- Outlook: Management believes the company is well-positioned to pursue opportunities in a volatile market environment.
Investor Verification Checklist
- Derivative Liability: Verify the impact of the $183.4 million fair value liability on interest rate derivatives and potential future cash outflows if instruments are terminated.
- Gain on Sales: Confirm the sustainability of earnings given the sharp decline in gains from vessel sales ($4.1M in Q2 2012 vs $10.8M in Q2 2011).
- Debt Structure: Review the terms of the amended credit facility used to fund the acquisition of Stadt Luebeck and the broader agreement with the vessel's current lending bank.
- Cash Basis Revenue: Analyze the divergence between GAAP voyage revenue and cash-basis adjusted revenue, noting the decrease in accrued charter revenue.
- Newbuild Commitments: Assess the $734.2 million in outstanding capital commitments against current liquidity and financing capacity.