Costamare Inc. — FY 2018 Form 20-F
Reporting period: Year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not provided in the supplied filing text. Financial statements are prepared under U.S. GAAP and amounts are in U.S. dollars.
Business context
Costamare owns and charters containerships, principally to liner companies under time charters. The filing reports an average of 55.8 vessels during 2018, up from 52.7 in 2017. As of February 27, 2019, the fleet comprised 73 vessels in the water and five newbuilds on order; 11 vessels were held through joint ventures with York.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Voyage revenue | $380.4 million | $412.4 million |
| Operating income | $117.2 million | $137.0 million |
| Net income | $67.2 million | $72.9 million |
| Net income available to common stockholders | $36.7 million | $51.8 million |
| Basic and diluted EPS | $0.33 | $0.52 |
| Net cash from operating activities | $140.8 million | $191.8 million |
| Net cash used in investing activities | $112.6 million | $43.4 million |
| Net cash used in financing activities | $80.5 million | $140.0 million |
Operating margin was approximately 30.8% of revenue in 2018, versus 33.2% in 2017; net margin was approximately 17.7% in both years. Cash, cash equivalents and restricted cash totaled $166.5 million at year-end, including $113.7 million unrestricted cash and cash equivalents. Working capital was negative $53.9 million, compared with negative $50.1 million in 2017.
Total assets were $3.05 billion and stockholders’ equity was $1.36 billion at December 31, 2018. Reported long-term debt, including its current portion, was $1.317 billion; total indebtedness including capital leases and other financing arrangements was approximately $1.66 billion. The company also guaranteed $193.8 million of joint-venture debt. The weighted average interest rate on long-term debt was 5.3% at year-end; a 100-basis-point LIBOR increase was estimated to reduce 2018 net income and cash flow by about $4.4 million.
The common dividend was $0.10 per share per quarter. The four preferred series carry annual dividend rates of 7.625% to 8.875%. Dividends and distributions paid in 2018 totaled $49.1 million in cash-flow reporting; additional common dividends were reinvested in shares.
Changes versus 2017
- Revenue fell 7.8% to $380.4 million, despite higher average fleet size. Management cited lower charter rates, more off-hire days, vessel sales, and additions from acquisitions as contributing factors. Cash-basis revenue, a non-GAAP measure, declined 7.0% to $373.1 million.
- Operating income declined 14.5%, and net income fell 7.7%. Net income available to common stockholders declined 29.1%, reflecting higher preferred-stock earnings allocations, including Series E issuance; EPS decreased from $0.52 to $0.33.
- Operating cash flow declined 26.6%, principally reflecting lower cash from operations, higher special-survey costs and an unfavorable working-capital movement, partly offset by lower interest payments.
- Vessel operating expenses rose 6.6% to $110.6 million; 17 vessels completed special surveys, versus seven in 2017. Interest and finance costs fell 8.3% to $64.0 million.
- Investing outflows rose with vessel acquisitions and the purchase of York’s interests in five jointly owned vessel companies. The company recorded a $12.1 million equity gain on investments, compared with $3.4 million in 2017. No vessel impairment was recorded in 2018, versus $18.0 million in 2017.
- Year-end total assets rose to $3.05 billion from $2.49 billion, and total indebtedness including lease and other financing obligations rose to approximately $1.66 billion from approximately $0.85 billion.
Outlook, risks and notable items
- No specific earnings or revenue guidance is provided. Management described the containership market as weak and volatile. In 2018, trade demand grew 4.3%, while fleet supply grew 5.6%; the order book was 13% of existing capacity, with about 70% of ordered capacity above 12,000 TEU.
- At December 31, 2018, fixed-term charters represented approximately $1.846 billion of contracted revenue under the stated assumptions, excluding vessels acquired under the Framework Deed. The filing’s February 2019 fleet discussion gives approximately $2.3 billion, including the company’s share of joint-venture revenue and reflecting different assumptions; figures are not directly comparable.
- As of February 27, 2019, 33 of the 73 vessels in the water had charters expiring before the end of 2019. Re-chartering at lower rates, idle time and charterer creditworthiness are key risks. Five newbuilds, each about 12,690 TEU, were expected for delivery from Q2 2020 to Q2 2021, with ten-year charters upon delivery.
- The IMO global 0.5% sulphur cap was due to take effect January 1, 2020. The company was arranging scrubber installations on ten vessels; disclosed remaining capital commitments included $13.4 million for five scrubbers as of February 27, 2019.
- Newbuild equity commitments were approximately $31.4 million, with about $0.4 billion financed through a financial institution. The filing also reports substantial debt maturities and balloon payments, restrictive covenants and potential dividend limits. The company stated it was not in default under its credit facilities.
- Liquidity and earnings are exposed to charter-market oversupply, customer concentration, interest-rate and currency movements, vessel values, refinancing access, environmental compliance and counterparty performance. The five largest customers represented 91% of 2018 revenue. The filing also identifies related-party arrangements with managers and a charter broker affiliated with the CEO.
- Two vessels were sold in 2018 at an aggregate net loss of $3.1 million. The company classified MSC Pylos as held for sale at year-end. It recorded no vessel impairment, although its internal discounted-cash-flow analysis indicated that 32 vessels’ estimated market values were below carrying values; management expected to recover carrying values through operations over their useful lives.
- Management and the auditor reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification points
- Reconcile the $1.317 billion reported long-term-debt balance with approximately $1.66 billion total indebtedness, including capital leases and other financing arrangements, and review maturity and balloon schedules.
- Review charter expirations, renewal rates and counterparty exposure, particularly the substantial 2019 expirations and customer concentration.
- Assess cash conversion and liquidity: operating cash flow fell materially, unrestricted cash was $113.7 million, and working capital was negative.
- Confirm the costs, financing and delivery status of the five newbuilds and scrubber program, and the financial implications of the 2020 emissions rules.
- Evaluate vessel valuation and impairment assumptions, including the gap between carrying values and estimated market values for certain vessels.
- Review preferred-dividend obligations, common-dividend sustainability, debt covenant headroom, and the potential dilution from the York share-settlement option and dividend reinvestment plan.
- Assess related-party fees, governance safeguards and the company’s guarantees of joint-venture debt.