Business Context and Reporting Period
Company: Costamare Inc. (NYSE: CMRE)
Filing Type: Form 6-K (Press Release)
Reporting Period: Third Quarter and Nine Months Ended September 30, 2010
Date of Filing: November 22, 2010
Costamare Inc. is a leading international owner of containerships. The filing reports unaudited financial results for the period ended September 30, 2010, coinciding with the company's recent Initial Public Offering (IPO) on November 9, 2010, which raised $159.6 million. The company operates a fleet of 43 vessels with a total capacity of 218,584 TEU.
Key Financial Metrics
| Metric (in millions USD) | 3 Months Ended Sept 30, 2010 | 9 Months Ended Sept 30, 2010 |
|---|---|---|
| Voyage Revenue | $88.6 | $267.5 |
| EBITDA | $63.4 | $181.1 |
| Net Income | $23.8 | $69.4 |
| Earnings Per Share (Basic & Diluted) | $0.51 | $1.48 |
| Adjusted EBITDA | $64.2 | $165.8 |
| Adjusted Net Income | $24.6 | $54.2 |
| Net Cash from Operating Activities | $32.9 | $89.0 |
| Total Cash Liquidity (as of Sept 30, 2010) | $152.8 (Cash/Equivalents/Investments: $78.6M + Undrawn Credit: $74.2M) |
Debt and Liquidity: As of September 30, 2010, the company held $1.1 billion in net debt. The balance sheet includes 13 vessels free of debt. On November 9, 2010, the company entered into a $120.0 million credit facility for growth purposes.
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenue decreased 8.8% ($8.6M) for the quarter and 12.3% ($37.5M) for the nine-month period compared to 2009. This was primarily driven by a reduction in the average fleet size (41.9 vessels in Q3 2010 vs. 45.6 in Q3 2009) and fewer operating days.
- Profitability: Net income decreased 1.2% for the quarter and 26.4% for the nine-month period. However, Adjusted Net Income increased 15.0% for the quarter ($24.6M vs. $21.4M) due to the exclusion of non-cash derivative losses and vessel sale gains/losses.
- Derivative Instruments: The company recorded a gain of $1.2M on derivative instruments for the quarter (vs. a $5.6M loss in 2009) but a loss of $9.0M for the nine-month period (vs. a $6.8M gain in 2009). As of September 30, 2010, the fair value of outstanding interest rate swaps represented a liability of $138.4 million.
- Operating Expenses: Vessels' operating expenses decreased 6.0% for the quarter and 12.7% for the nine-month period, aligning with the reduction in fleet operating days.
Guidance, Outlook, and Management Commentary
Management Outlook: CEO Konstantinos Konstantakopoulos stated that the company is in a strong position with $2 billion in contracted revenues and significant cash flexibility. Management believes market fundamentals are positive for the next two years and intends to avoid over-leveraging or back-loading debt repayments.
Strategic Initiatives:
- Fleet Expansion: Accepted delivery of two 3,351 TEU secondhand vessels. Finalized shipbuilding contracts for three 9,000 TEU newbuildings (subject to loan documentation completion).
- Capital Structure: The company maintains a managed portfolio approach to charters to ensure debt and dividend obligations are met while preserving upside potential.
- Dividends: Management indicated an ability to grow the company and the dividend, citing strong cash flow from operations.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers regarding market uncertainty. Specific contingencies include the completion of financing arrangements for the three newbuildings and the potential impact of interest rate fluctuations on derivative valuations.
Investor Verification Checklist
- Derivative Liability: Verify the impact of the $138.4 million fair value liability on interest rate swaps and the potential cash outflow if instruments are terminated.
- Newbuilding Financing: Confirm the status of the loan documentation required to finalize the three 9,000 TEU newbuilding contracts.
- Fleet Utilization: Monitor the impact of the reduced fleet size (41.9 average vessels in Q3) on future revenue stability versus the contracted $2 billion in revenue.
- Debt Maturity Profile: Review the specific maturity dates of the $1.1 billion net debt to assess refinancing risks, particularly given the company's stated policy against back-loading debt.
- Charter Expirations: Analyze the fleet list for vessels with short-term charters (e.g., MSC Navarino expiring Jan 2011) to evaluate re-chartering risks and rate volatility.