Navios Maritime Partners - Q1 2023

Transcript

Operator (participant)

Thank you for joining us for Navios Maritime Partners 1st quarter 2023 earnings conference call. With us today from the company are Chairwoman and CEO, Ms. Angeliki Frangou, Chief Operating Officer, Mr. Efratios Desypris, Chief Financial Officer, Ms. Eri Tsironi, and Vice Chairman, Mr. Ted Petrone. As a reminder, this conference call is being webcast. To access the webcast, please go to the investor section of Navios Partners website at www.navios-mlp.com. You'll see the webcast link in the middle of the page, a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call could contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts.

Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners management and are subject to risks and uncertainties which could cause actual results to differ materially from the forward-looking statements. Such risks are more fully discussed in Navios Partners filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners segment data. Next, Ms. Tsironi will give an overview of Navios Partners financial results. Mr. Petrone will provide an industry overview. Lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners Chairwoman and CEO, Ms. Angeliki Frangou.

Angeliki.

Angeliki Frangou (Chairwoman and CEO)

Good morning to all of you join us on today's call. I am pleased with the results for the first quarter of 2023, in which we reported revenue and net income of $309.5 million and $99.2 million respectively. We are also pleased to report net earnings per common unit of $3.22 for the quarter. Navios Partners is a leading publicly listed shipping company diversified in 15 asset classes in three sectors with an average vessel age of about 9.6 years. We have 173 vessels split roughly equally in three sectors based on a charter adjusted value.

In addition to diversification, we have been actively managing our portfolio to maintain a younger, more technologically advanced fleet as we believe the newer technologies are a competitive advantage both in terms of operating efficiencies and also for fuel emissions. We have rationalized our fleet by selling old vessels and acquiring new vessels. As I said last quarter, we are also focused on reducing leverage rates. Most recently, we reduced our Net LTV to about 42% in the first quarter of 2023 from about 45% in the fourth quarter of 2022, measured for vessels in the water. Our stated goal is to continue to reduce leverage so that our Net LTV falls within a range of 20%-25%. Please turn to slide seven. We continue to finance our new building program on attractive terms.

Since our last earnings, we secured $438.6 million of new financing at an average margin of 1.8%. $343.6 million of which financed six new building vessels. We have also refinanced $95 million for eight tanker vessels at the same average margin. We have also taken advantage of market conditions to secure $161 million of long-term contracted revenue and to sell vessels generating $242.2 million in gross sales proceeds. As to contracted revenue, we have secured $52.7 million for two tankers over 2.7 years and $107.8 million for seven container ships over two years.

For sales, we sold eight vessels for $160.3 million in the first quarter of 2023 and expected to close on the sale of the remaining five vessels for an additional $81.9 million in the second quarter of 2023. Our operating cash flow is strong. For the remaining nine months of 2023, our revenue is expected to exceed total cash cost by $70.2 million. With 15,469 open and index days, we would expect to generate significant additional cash in 2023. Please turn to slide eight. We implemented our diversified strategy in late 2020.

Since then, we have made three significant acquisitions: a container ship company with 29 vessels in the first quarter of 2021, a tanker company with 45 vessels in the third quarter of 2021, and a 36 vessel dry bulk fleet in the third quarter of 2022. As a result of this transformation, our financial performance has strengthened materially, which this slide demonstrate by referring to Adjusted EBITDA. A $155.4 million of Q1 2023 Adjusted EBITDA represents a 23.2% increase over the first quarter of 2022 and 361.1% increase over the first quarter of 2021. Our 2022 Adjusted EBITDA of $667.9 million represented a 56.6% increase compared to 2021 and a 569.2% increase compared to 2020.

I now turn the presentation over to Mr. Efstratios Desypris Navios Partners Chief Operating Officer. Efstratios?

Efstratios Desypris (COO)

Thank you, Angeliki, and good morning all. Please turn to slide 9, which details our strong operating free cash flow potential for 2023. We fixed 63% of available days at an average rate of $27,688 net per day. Our contracted revenue exceed expected total cash expense for the remaining nine months of 2023 by over $70 million. We have 15,469 open and index-linked days that will provide additional profitability once fixed. Slide 10 demonstrates the basic principles of our diversified platform in action. We aim to benefit from countercyclicality, which creates the opportunity to redeploy cash flows from well-performing segments into assets in underperforming segments. We believe a diversified asset base moves volatility on our financial statements. You can see this dynamic playing itself out in our asset base.

As of Q1, 2023, container values dropped by 4%, while dry bulk and tankers vessel values increased by 9% and 2% respectively. In sum, the net change to our fleet values an increase of approximately 3%. Multiple segments also allows us to optimize chartering. In segments with attractive returns, we can enter into period charters. In other segments, we can be patient. As you can see from the chart on the bottom of the slide, we have fixed 86% of our 13,602 total available days for the second quarter of 2023 at a net average rate of $25,654 per day.

Our containerships are 100% fixed at $38,615 net per day, our tankers 90% at $28,033 net per day. Our dry bulk fleet is 79% fixed at $17,458 net per day. In slide 11, you can see our fleet renewal activities. We are always renewing the fleet so that we maintain a young profile benefiting from newer technologies and more carbon efficient vessels. We have $1.4 billion remaining investment in 21 new building vessels that we deliver to our fleet through 2026. In our containerships, we are acquiring 12 vessels for a total of $860 million.

We hedge our investment by entering into long-term creditworthy charters, generating about $1.1 billion in contracted revenue for about six and a half years average duration of the related charters. In the tanker space, we entered the LR2 Aframax subsector by ordering six vessels for a total price of approximately $380 million. These vessels have been chartered out for five years at an average net rate of $26,580 net per day, generating revenues of approximately $290 million. We have also ordered two high-spec MR2 vessels for about $80 million. Finally, on the dry bulk fleet, we have one Capesize vessel on order that will be delivered in June 2023, which has been chartered out for five years at a net rate of almost $20,000 per day.

We have been also very active in opportunistically selling older vessels tailored to segment fundamentals. Year to date, we have sold a total of 13 vessels with an average age of approximately 14 and a half years for $242.2 million. We sold seven tanker vessels for a total consideration of about $160 million, taking advantage a strong tanker market and the corresponding increase in demand for secondhand tonnage. We sold six dry bulk vessels for a total price of $82.4 million. Moving to slide 12, we continue to secure long-term deployment for our fleet. As Angeliki mentioned earlier, in Q4, we have created over $160 million additional contracted revenue.

Approximately $110 million relates to seven containerships chartered for an average of two years at an average net rate of $21,296 net per day. We have contracted two tanker vessels for an average duration of 2.7 years at a net rate of $27,089 per day, expected to generate over $50 million in revenue. Our total contracted revenue amounts to $3.4 billion. $0.8 billion relates to our tanker fleet, $0.4 billion to our dry bulk fleet, while $2.2 billion of our contracted revenue comes from our containerships with charters extending through 2056 with a diverse group of quality counterparties. About 55% of this contracted revenue from containerships will be earned in the next two and a half years.

I now pass the call to Eri Tsironi, our CFO, which will take you through the financial highlights. Eri?

Eri Tsironi (CFO)

Thank you, Stratos. Good morning all. I will briefly review our unaudited financial results for the first quarter of 2023. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Moving to the earnings highlights in slide 13, total revenue for the first quarter of 2023 increased by 31% to $309.5 million, compared to $236.6 million for the same period in 2022. Time charter revenue for the period is understated by $13 million because U.S. GAAP rules require the recognition of revenue for our charters with de-escalating rates on a straight line basis.

Available days increased by 24% to 13,908 compared to 11,228 for the same quarter last year. Our average Time Charter Equivalent rate increased by 2% to $20,811 per day compared to $20,386 per day for the same period in 2022. In terms of sector performance, both tankers and containers enjoyed improved rates compared to the same period last year. TC re-rates for our tankers increased by 86% to $28,477, and for our containers by 29% to $34,987. In contrast, our dry fleet TCE rate was 45% lower compared to the same period last year at $10,998.

EBITDA for Q1 2023 increased by 50% to $188.8 million compared to $126.1 million for the same period last year. Time charter and voyage expenses increased by $22.7 million as a result of higher bunker expenses as a number of our vessels were employed on freight voyages and higher bareboat and charter in higher expenses following recent vessel acquisitions. Operating expenses and general administrative expenses increased mainly due to the expansion of our fleet. Net income for Q1 2023 increased by 16% to $99.2 million compared to $85.7 million in Q1 2022. Earnings per unit were $3.22.

Net income was negatively affected by a $22.3 million increase in interest expense, mainly as a result of the increase in our average interest rate cost from 3.7% in Q1 2022 to 7% in Q1 2023. Turning to slide 14, I will briefly discuss some key balance sheet data. As of March 31, 2023, cash and cash equivalents were $213.2 million. In Q1 2023, we paid $62.1 million of pre-delivery installments and other capitalized expenses under a new building program and $51.3 million for vessel acquisitions and improvements. We sold eight vessels for $157.7 million net, adding $100.8 million cash after the repayment of their respective debt.

Our other current assets decreased mainly due to the decrease in accounts receivable from charters which were settled post year-end. Our other current liabilities decreased following the payments made in accordance with the vessel management agreement. Long-term borrowings, including the current portion net of deferred fees, amounted to $1.87 billion. Net Debt to Book Capitalization decreased to 38.4%. Slide 15 highlights our debt profile. We continue to diversify our funding sources between bank debt and leasing structures, while 32% of our debt has fixed interest at an average rate of 5.6%. We also try to mitigate part of the increased interest rate cost, having reduced the average margin for our floating debt by 50 basis points to 2.6% from 3.1% in Q1 2022.

Our maturity profile is staggered with no significant balloons due in any single year. Slide 16 gives an update of the Q1 2023 debt developments. In terms of our new building program, approximately 75% of our new building debt is already concluded, or 91% if we include those in documentation phase at an average margin of 1.8%. We have used the opportunity to expand our financing resources, adding new banks and lessors, while we have also included our first Export Credit Agency backed facilities in China and South Korea. Finally, we have arranged $95 million of new financings for existing vessels at an average margin of 1.8%, representing an improvement of 171 basis points from the previous financings. Turning to slide 17, you can see our ESG initiatives.

We aspire to have net zero emissions by 2050. In this process, we have been pioneering by investing in new energy efficient vessels and reducing emissions through energy saving devices and efficient vessel operations. Navios is a socially conscious group whose core values include diversity, inclusion, and safety. We have very strong corporate governance and clear code of ethics. Our board is composed by majority independent directors and independent committees that oversee our management and operations. I now pass the call to Ted Petrone to take you through the industry section. Ted?

Ted Petrone (Vice Chairman)

Thank you, Eri. Please turn to slide 20 for the review of the tanker industry. World GDP is expected to grow at 2.8% in 2023 based on the IMF's April forecast and is forecast to be 3% in 2024. There is an 85% correlation of world oil demand to global GDP growth. In spite of economic uncertainties in the Ukraine crisis, the IEA projects a 2.2 million barrels per day or 2.2% increase in world demand for 2023 to 102 million barrels per day, exceeding 2019 pre-pandemic levels.

China in particular accounts for 60% of global oil demand growth in 2023, rising 1.3 million barrels per day or 8.8% over 2022 to average an all-time high of 16 million barrels per day. After a strong Q4 across all asset classes, firm tanker rates continued in 2023 on the back of strong supply and demand fundamentals, minimum fleet growth and shifting trading patterns resulting in longer-haul trade routes, especially for Suez and Aframax. Recent declines in U.S. crude exports and OPEC cuts, although less than the headline numbers, have put downward pressure on VLCC rates, particularly out of the MEG. Turn to slide 21.

Tanker rates across the board remain strong due to previously mentioned supply and demand fundamentals, combined with the invasion of Ukraine, which has shifted Russian crude and product exports to longer-haul routes out to India and China. Additionally, European refineries are replacing Russian crude with products with supply from the U.S., Brazil, and the Middle East, further increasing ton-miles and trade inefficiencies. Product tankers should also be aided by discounted Russian crude exported to the Indian Ocean and the Far East, returning to the Atlantic as clean product. This could add upward pressure on already strong rates. 2023 crude and product ton-mile growth is expected to increase 5.6% and 10.9% respectively, with continued ton-mile growth in 2024. Turn to slide 22.

VLCC net fleet growth is projected at 2.1% for 2023 and negative 1.5% for 2024. This decline can be partially attributed to owners' hesitance to order expensive, long-lived assets in light of macroeconomic uncertainty and engine technology concerns due to the CO2 restrictions enforced since the beginning of this year. The current record low order book is only 1.4% of the fleet or only 13 vessels, the lowest in 30 years. 11 VLCCs will deliver during the balance of this year, none in 2024 and none in 2025 and 2026. Vessels over 20 years of age are 14% of the total fleet or 127 vessels, which is about 10 times the order book. Turn to slide 23.

Product tanker net fleet growth is projected at 1.6% for 2023 and only 0.3% for 2024. The current product tanker order book is 8% of the fleet or 188 vessels, one of the lowest on record, and it compares favorably with the 9.9% of the fleet or 358 vessels which are 20 years of age or older. Concluding the tanker sector review, tanker rates across the board continue at strong levels. The combination of below-average global inventories, oil demand returning to pre-pandemic levels, new longer trade routes to both crude and products, as well as the lowest order book in 3 decades, and the IMO 2023 regulations should provide for healthy tanker earnings going forward. Please turn to slide 25 for the review of the dry bulk industry.

Normal seasonality in Q1 and slower-than-expected recovery in the Chinese economy put downward pressure across all asset classes, particularly Capesize. The Baltic Dry Index, the BDI, averaged only 1,011, a circa 50% reduction from the same period last year and the lowest quarterly average since Q2 of 2022. Overall, the Chinese reversal of its zero-COVID policy and the additional fiscal stimulus, combined with the weakening US dollar, point to stronger demand during the second half, as indicated by higher import numbers for iron ore coal, as well as higher futures on all asset classes. Overall, dry bulk trade in 2023 is projected to increase by about 2%. Going forward, long-term supply and demand fundamentals remain intact.

China's reopening economy, the historically low order book, declining net fleet growth during the latter part of this year and into 2024, softening US dollar, and tightening GHG emissions regulations remain positive factors. Please turn to slide 26. With regard to iron ore, following the reopening of the Chinese economy, China's GDP grew by 4.5% in Q1 of this year. China's fiscal stimulus focus on supporting the real estate sector should boost iron ore demand in the second half of 2023. Global iron ore trade is expected to increase by 0.6% in 2023, with trade increasing by 8.1% in the second half of 2023 over the first half of this year.

Concerning coal, global coal consumption reached a record 8.025 billion tons in 2022, that figure is expected to be surpassed in 2023. The Ukraine crisis continues to impact global coal imports as European supply concerns persist. The EU ban on Russian coal will lead to shifting trading patterns toward longer-haul routes. Overall, 2023 seaborne coal trade growth is expected to be supported by an estimated 4.4% growth in ton-miles. Additionally, coal trade is expected to increase 5.4% in the second half of 2023 over the first half of this year. On the grain side, global seaborne trade volume is negatively impacted by the war in Ukraine, is expected to increase by 3.2% this year. Trade route adjustments due to the war are shifting trading patterns toward longer-haul routes.

The global grain trade continues to be driven by heightened food security issues driven initially by the pandemic. ton-mile growth is expected to increase by 4% in 2023 due to the war and weather-related crop harvest issues. Please turn to slide 27. The current order book stands at 6.9% of the fleet, one of the lowest since the early 1980s. Net fleet growth for 2023 is expected at 2.4% and only 0.6% in 2024 as owners remove tonnage that has become uneconomic due to the IMO 2023 CO2 rules in force since the beginning of this year. Vessels over 20 years of age are about 8.8% of the total fleet, which compares favorably with the historically low order book.

In concluding our dry bulk sector review, continuing demand for natural resources, China's reopening, war and sanction-related longer-haul trades, combined with slowing pace of new building deliveries, all support freight rates going forward. Please turn to slide 29 for the review of the container industry. After three consecutive quarters of falling rates, the Shanghai Container Freight Index, SCFI, may have found the floor, at least temporarily, as the index bounced off a low of 907 in March and currently stands at 972, which is still higher above the historical pre-COVID averages. This is mainly due to China's reopening, its 4.5% GDP growth in Q1, and increasing exports and in turn, increasing box and time charter rates recently. Global container trade is expected to remain under pressure in 2023 for macroeconomic issues, including inflation, the war in Ukraine, and elevated deliveries.

As you'll note in the graph in the lower right, the US retail inventory to sales ratio is off the recent low but still well below the long-term average. The graph on the lower left shows a continuing growth in US consumer purchases of goods, which is still above pre-pandemic levels. Imports to the US have slowed, easing port takeaway bottlenecks and port congestion. Containership rates have tightened recently, surprising most analysts as imports continue and newbuilding deliveries are slow to hit the water. Overall, 2023 container trade is projected to decrease by 1.1% in 2023, but increase by 3.3% in 2024. Turn to slide 30. Net fleet growth is expected to be 6.9% for this year and 5.8% for 2024.

The current order book stands at 28.4% against 11.4% of the fleet 20 years in age or older. About 72% of the order book is for 10,000 TEU vessels or larger. In concluding the container sector review, although supply and demand fundamentals remain challenged due to economic and geopolitical uncertainties, the combination of China's reversal of its zero-COVID policy, additional fiscal stimulus, and the IMF's April revision to world GDP growth to 2.8% in 2023 and 3.0% in 2024 provide a counterpoint to a challenging 2023. This concludes our presentation. I'd like now to turn the call over to Angeliki for her final comments. Angeliki?

Angeliki Frangou (Chairwoman and CEO)

Thank you, Operator. This concludes our formal presentation. We open the call to questions.

Operator (participant)

Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. Our first question comes from Omar Nokta with Jefferies.

Omar Nokta (Managing Director)

Thank you. Hey, guys. Good afternoon. First, just wanted to maybe ask strategically about the business and obviously, you know, the balance sheet. You've gotten the Net LTV down to 42% from 45 last quarter. Your aim or target is to get it to that 20%-25% threshold. It looks like you're on pace to get there perhaps over the next couple of years. I wanted to ask, is there something you're looking to do strategically when you get to that point versus not being able to do that now? Is it just simply you're looking to delever to have that added flexibility down the line?

Angeliki Frangou (Chairwoman and CEO)

Good morning, Omar. I mean, this is. By the way, I think that you got it well. We are well positioned. We are generating the cash. I mean, our diversified model is performing well. Our $4.5 billion assets in the first quarter generated cash that brought our Net LTV from 40%-45% into 40%-42%. Basically, you have now three sectors. The containers that we were cautious, we saw that they are performing better than we thought. We did over $100 million of contracted revenue from 5 vessels and over the 2 years, and we are seeing. This is actually performing much better than we thought.

On the tankers, the other sector we are in, we see structural changes, strong ton-mile demand on crude, strong ton-mile demand on product, restricted supply and good cash flows. On the dry bulk, second half of the year, can be because of China, much healthier than the first half. With that background, and knowing that we cover all our expenses, and we have $40 million above our expenses for the remaining 9 months, you know that we have 16,000 days. You do your own calculation of what the rates will be, that every 10,000 will provide $160 million of free cash. This is about, at the end of the story, about total returns.

We bring in our Net LTV down to 20-25. It's about our total returns. By doing, we should be able to measure on this total return. I think we have done well. As I put a slide on that, if you look, since 2020 when we started this strategy, this diversified strategy. We hope that we will do well in the future. It's a patience, but also a very steady strategy we have articulated over the last quarters.

Omar Nokta (Managing Director)

Thanks, Angeliki. Yeah. No, it, that's clear. Just in general, in terms of how you are, you clearly we have the portfolio approach, you're diversified across three segments. You know, each market's moving in its own direction, presenting its own opportunities and risks perhaps. But just to as I kind of think about where you're positioned now, you sold some older ships, you brought in some of that cash, your new buildings, you've mostly locked away on longer term charters, so you derisk those.

In terms of kind of how we think about Navios and strategically with its, say, whether it's use of cash or just how it looks at its fleet or manages it, should we think Navios in the current environment is perhaps, one, a seller of older ships and then also a harvester of cash flows, and then three, not going to be as acquisitive on the acquisition front as it has been. Is that fair to say? You know, basically selling older ships, harvesting cash and not being acquisitive.

Angeliki Frangou (Chairwoman and CEO)

Listen, we are modernizing our fleet. That is a clear path. Getting more efficient vessels, it makes sense. And your investment, your return on your investment is quite significant. We are actually seeing that as a, we are there to do an acquisitions, depending on the opportunity. We are not, it is not. I think what we like about the diversified platform is that we can be able to capture every opportunity that comes to us without being restricted one way or the other. I mean, you remember when we were doing dry bulk in 2021, when we did our containers early on, we entered a new sector in the tankers. We expanded again on the tankers.

We can be very. We will seek the best, more attractive opportunity. Modernizing the fleet is something that will be always ongoing. I mean, I think that creates on every aspect on the being more, because, you know, more efficiency and efficiency is a driver in the market.

Omar Nokta (Managing Director)

Thank you. Maybe just one final one for me just about the containers, because clearly that's been a nice source of visibility and you paid off a lot of those ships significantly. Really the free cash is fairly significant from that stream of the business. Just wanted to ask about what we're seeing in the market today. Clearly we went from a very quiet time charter market at the beginning of the year to one that's become much more active. You know, you've been able to put away some ships that are on the water today on medium-term charters. Just wanted to ask, you know, you do have a few vessels that roll off contract here in the next several quarters. Not a tremendous amount, but you do have some that roll off.

What do those contract discussions look like? Maybe are you able to give us a sense of, you know, how far in advance of when those ships would be scheduled to roll off would you be able to secure them on new contracts today?

Angeliki Frangou (Chairwoman and CEO)

Actually, Omar, this is a very interesting. We were cautious about the sector, but we saw a very healthy levels. We have basically fixed everything and Stratos will take you through, but basically we fixed everything at a very good and attractive rate. What we see from the market is, you know, this is, you can actually secure nice cash flows and visibility from that.

Efstratios Desypris (COO)

Well, I mean, Omar, on the fixing front, I mean, the latest transactions that we did, which generated over $100 million of contracted revenue for the next 2.7 years. If you see also, you can see it in our presentation, we have nothing left opening in 2023. Okay, we have a vessel that, you know, the delivery period is between, let's say, the end of the year and the beginning of next year, but effectively there's nothing open. We have fully covered our position on this sector.

Omar Nokta (Managing Director)

Thanks, Stratos. I guess, you know, say for a vessel that's opening up in six or seven months, is it now the time that you're having dialogues or has that become much more of like an August, September time period?

Angeliki Frangou (Chairwoman and CEO)

We have fixed the container sector, basically. We don't have anything open.

Efstratios Desypris (COO)

Yeah, the ones that are coming next year, today it's too early to start thinking about that. I think this is a question that we will have towards going to the end of the next quarter. You know, at the later part of Q3, this is when we will start, you know, discussing on the market and seeing what is the availability.

Omar Nokta (Managing Director)

Got it. Okay. Well, thanks Stratos, and thanks Angeliki.

Angeliki Frangou (Chairwoman and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Chris Wetherbee with Citigroup.

Good morning, good afternoon. This is Rob on for Chris.

Angeliki Frangou (Chairwoman and CEO)

Good morning.

I guess just to piggyback on that last question with regard to the container ship, you know, market, could you give us a sense of, you know, what your expectations are for the back half of the year with regard to volume kind of across the broader industry? It sounds like we're starting to see a little bit of seasonality re-return to the container ship trade and, you know, and how that kind of fits into your time charter approach. You know, it'd be great to get a little bit of color there.

I think the good thing is that we are totally fixed for the container. We have only, one vessel at the end of the year. That will give you the container sector idea.

You see the, you know, use the SCFI as a, as a proxy, right? It's a box rate, but use it as a proxy for the industry, it's kind of bounced off the bottom. Maybe we found the bottom here. You see the chart we have on one of the slides, the U.S. consumer continues to buy goods at a healthy level.

Ted Petrone (Vice Chairman)

There will be some pressure on the rates. The good thing, obviously, we've already mentioned in the other question was, we're fixed out for the year. You know, for us, I think the market, the second half could show some pressure on the bigger rates. Remember, most of our ships are below 13,000 TEU. If you take the order book for the entire fleet, it's probably close to 30. For under 13%, it's probably around 13%-14%. That holds up well for our sector. I think that's why you've seen us be able to put out ships forward for period at some higher rates.

Yeah, no, that certainly has come across, and you've been able to secure the vessels over the past several quarters at some very good rates that are, that are adding to your contracted revenue as well as generating some nice free cash. I guess, you know, as you look forward with regard to the vessels, you know, kind of looking out a year, as some of those container ships come off charter, how do you think about kind of the redeployment? Would you prefer to have those under long-term charters as well? Or, if we're in a kind of a stronger demand environment, would you consider using some of those the way you're using your tanker fleet, kind of more on shorter-term charters?

The model we have is to put out vessels on a medium to longer term charter according to where we are in the cycle. When we get to the end of the year, if the cycle is different than we think, we may be putting out the ships on longer term. Let's see then where the cycle is for each sector, especially the containers. Maybe it surprises us like it did in Q1.

No, it makes sense. You guys clearly have taken advantage of that with regard to some vessel sales. I just kind of tie a bow on the leverage question, how should we be thinking about kind of the deleveraging? Are you hoping to kind of do additional vessel sales over the duration of 2023, or should we think about this as more using the free cash flow that you're generating from your fleet to de-lever and get closer to your target leverage ratio?

Angeliki Frangou (Chairwoman and CEO)

You know, we have, I think we have done a fair sale of the vessels that we had on our, is about 13 vessels that we already sold this year, and we're gonna be already delivered in the Q1 and Q2. You know, there may be a couple, but I think the majority of this has been completed. I think where we see the cash generation is in a very simple thing. We have contracted revenue that exceeds our total expense by $70 million for the remaining nine months. We have about almost 16,000 open and index days. I mean, if you see on page nine, you have the actual type of vessels in the open days. If you calculate on that, whatever you assume rate, this is your strong cash flow generation.

Every $10,000 is about over $150 million. That's basically how you can de-lever quite significantly with the cash flows of the company.

Makes sense. Appreciate the time.

Operator (participant)

Thank you. That concludes our question and answer session. I'll now turn the call back over to Angeliki for any additional or closing remarks.

Angeliki Frangou (Chairwoman and CEO)

Thank you. This completes our Q1 results. Thank you.

Operator (participant)

This concludes today's call. Thank you for your participation. You may disconnect at any time.