Business Context and Reporting Period
Company: Costamare Inc. (NYSE: CMRE)
Filing Type: Form 6-K (Press Release)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2010
Business Overview: Costamare is a leading international owner of containerships. As of February 16, 2011, the fleet consisted of 53 vessels with a total capacity of 275,728 TEU. The company completed its Initial Public Offering (IPO) on November 4, 2010.
Key Financial Metrics
| Metric (in millions, except per share) | Q4 2010 | Q4 2009 | Full Year 2010 | Full Year 2009 |
|---|---|---|---|---|
| Voyage Revenue | $85.7 | $94.9 | $353.2 | $399.9 |
| Net Income (GAAP) | $11.8 ($0.21/share) | $22.6 ($0.48/share) | $81.2 ($1.65/share) | $116.9 ($2.49/share) |
| Adjusted Net Income | $18.0 ($0.33/share) | $11.5 ($0.25/share) | $73.8 ($1.50/share) | $81.1 ($1.73/share) |
| Adjusted EBITDA | $56.2 | $51.7 | $223.6 | $244.4 |
| Operating Cash Flow | $39.0 | $43.5 | $128.0 | $161.9 |
| Cash & Equivalents (Year End) | $159.8 million | |||
| Total Liquidity (Cash + Undrawn Lines) | $402.0 million ($207.8M cash + $194.2M lines) |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenue decreased 9.7% in Q4 and 11.7% for the full year 2010 compared to 2009. This was primarily driven by a reduction in the average number of vessels in the fleet (42.0 in Q4 2010 vs. 44.4 in Q4 2009) and fewer operating days.
- Net Income Volatility: GAAP Net Income dropped 47.8% in Q4 2010 due to a one-time $9.5 million charter agreement early termination fee and a $4.5 million loss on derivative instruments. However, Adjusted Net Income increased 56.2% in Q4 2010, reflecting underlying operational strength.
- Cost Management: Vessels' operating expenses decreased 1.9% in Q4 and 10.3% for the full year, largely due to fewer operating days. General and administrative expenses fell 60.0% in Q4 due to reduced legal and advisory fees.
- Derivative Impact: The company recorded a $4.5 million gain on derivative instruments in Q4 2010 (vs. a $1.1 million loss in Q4 2009), though the fair value of outstanding interest rate swaps represented a liability of $107.9 million as of year-end.
Guidance, Outlook, and Management Commentary
- Fleet Expansion Strategy: Management finalized financing for five newbuilding contracts (9,000 TEU each) to be delivered between late 2012 and early 2014. All are chartered to MSC for 10 years at $43,000/day, generating over $760 million in contracted revenue.
- Second-Hand Acquisitions: The company agreed to purchase 10 second-hand vessels for approximately $570 million total value. Three vessels were acquired in Q4 2010, with others scheduled for delivery in early 2011. These acquisitions are funded by cash on hand and new credit facilities.
- Dividend: Declared and paid a $0.25 per share dividend for Q4 2010, the first cash dividend since the IPO.
- Liquidity Position: Management highlighted a strong balance sheet with $208 million in cash, $194 million in undrawn credit lines, and 19 debt-free vessels, positioning the company for further growth.
- Market Outlook: Management expects the charter market to continue rising but remains cautious on committing second-hand vessels to long-term charters, preferring to fix rates closer to delivery.
Investor Verification Checklist
- Derivative Liability: Verify the impact of the $107.9 million fair value liability on interest rate swaps and potential future cash outflows if rates shift.
- Charter Rate Escalation: Review the specific escalation clauses in the fleet list (e.g., COSCO HELLAS, MAERSK KOBE) to understand future revenue stability.
- Debt-Free Vessel Utilization: Confirm the charter status and rates of the 19 unencumbered vessels to assess immediate cash flow generation.
- Newbuilding Financing: Monitor the finalization of the loan agreement for the two 9,000 TEU vessels with Sungdong Shipbuilding, as capital commitments are contingent on this.
- Accrued Charter Revenue: Analyze the $22.4 million accrued charter revenue on the balance sheet to understand the timing difference between revenue recognition and cash collection.