Navios Maritime Partners - Earnings Call - Q2 2020

Transcript

Speaker 0

Thank you for joining us for Navios Maritime Partners Second Quarter twenty twenty Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou Chief Financial Officer, Mr. Stratos de Sivres and Executive Vice President of Business Development, Mr. Georgi Agniotis.

As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.naviosmlp.com. You'll see the webcast link in the middle of the page and a copy of the presentation referenced in today's earnings conference call will also be found. There. Now I will review the Safe Harbor statements.

This conference call could contain forward looking statements within the meaning 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 not 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. Fangou will offer opening remarks. Next, Mr.

Decibres will give an overview of Navios Partners' financial results. Then Mr. Achnaudis will provide an operational update and an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners' Chairman and CEO, Ms.

Angeliki Franco. Angeliki?

Speaker 1

Thank you, Doris, and good morning to all of you joining us on today's call. While the pandemic has greatly affected business, countries and people all over the world, the Navios family continues to persevere. We take great pride in the safety of our employees, and we have adapted to this ever changing environment. Despite the pandemic, I am pleased with the results for the second quarter of twenty twenty. Navios Partners reported $46,500,000 in revenue and $14,300,000 in adjusted EBITDA.

Navios Partners also declared a quarterly distribution of $05 per unit, representing an annual distribution of $0.2 per unit. This distribution represents a reduction from the previous quarterly distribution. We choose to reduce distribution in light of the combination of challenges and opportunities from the ongoing pandemic. The pandemic negative effect on global economic activity can be seen in the duration of the downturn in charter rates. Year to date 2020, the Capesize 5TC rate is averaging around $9,700 per day.

Even with rates recovering in the past month as countries emerge from quarantine and return to normalized ways of doing business, the charter rate is still 50% less than the 2019 average of $18,000 As you can see from Slide five, NMM's fleet is currently 53 vessels. In December 2019, we liquidated Navios Europe I, and during the second quarter of twenty twenty, we liquidated Navios Europe two. NMM holds 33.5 interest in Navios Maritime Containers. On Slide six, you can see why Navios Partners is a premier drybulk shipping platform. We have a strong balance sheet with low leverage.

Our net debt to book capitalization is 38.7%. We have staggered maturities and not significant committed growth CapEx requirements. We have cash flow capability with about $500,000,000 in remaining contracted revenue. For the second half of twenty twenty, our approximately 39% open and index linked days, have a manageable breakeven of $8,801 per open day. Slide seven details the pandemic's impact on global trade.

The IMF projects 4.9% decrease in 2020 global GDP, mostly driven by the 8% decline in advanced economies. As a result of the disruption to world economic activity, drybulk trade is expected to contract by 4.5% in 2020. We may have felt much of this negative impact in the 2020 as countries observe extensive lockdowns. Looking forward, economies are projected to recover in the second half of twenty twenty, and drybulk trade is projected to increase by 4.6% in 2021. Moreover, global GDP is expected to increase by 5.4% in 2021, which we would expect to be positive for the drybulk trade.

Slide eight shows how NMM has weathered the storm during the ongoing market disruption. For the second quarter of twenty twenty, we generated $14,300,000 in adjusted EBITDA and earned a time charter equivalent rate of $11,202 per day. As to our chartering activities, the vessels we've reached long term provided us with protection against the ongoing market downturn. We have 61.2% of our days fixed for the 2020 at an average charter rate of 13,667 net per day, and the remaining open days provide us with a breakeven of 8,801 per open day. As to refinancing activities, we entered into approximately $50,000,000 of new commercial bank facilities, which included a $17,000,000 facility to refinance four containerships and $29,500,000 new loan to finance five drybulk vessels acquired from Navios Europe II.

We also completed the liquidation of Navios Europe II during the second quarter. Our net receivable of $17,300,000 was settled through at $2,700,000 in cash and net balance with a still value of five drybulk vessels, including assumption of loans and working capital. Slide nine details our cost structure. For the remaining six months of 2020, 61.2% of our variable days are fixed at an average rate of $13,667 net per day. Our 3,600 41 open class index linked days provide us with a breakeven of $8,801 per open day, but also allow us to generate $16,600,000 assuming current rate.

Slide 10 shows our liquidity. As of 06/30/2020, we have total cash of $29,800,000 and total borrowings of $488,200,000 Our net debt to book capitalization is 38.7%. We have staggered debt maturities and no committed growth CapEx. At this point, I would like to turn the call to Stratos Desypris, Navios Partners' CFO, who will take you through the results of the second quarter of twenty twenty.

Speaker 2

Thank you, Angeliki, and good morning all. I will briefly review our unaudited financial results for the second quarter ended 06/30/2020. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Before I start discussing our financial highlights, I would like to draw your attention to certain one off items that are listed in Slide 11. For simplicity, the discussion of the financial results below exclude the effect of the one off items listed in this slide.

Moving to Slide 11. Revenue for the 2020 decreased by 2.5% to $46,500,000 compared to $47,700,000 for Q2 of twenty nineteen. The decrease was mainly due to the 20.7% decrease in the time charter equivalent rate achieved in the second quarter of twenty twenty. This decrease was mitigated by the 25.8% increase in our available days. Adjusted EBITDA for the 2020 decreased to $14,300,000 compared to $22,300,000 in the second quarter of twenty nineteen, primarily due to a $5,400,000 increase in operating expenses due to our larger fleet and a 900,000 decrease in equity and earnings from Navios Containers.

Adjusted net loss for the quarter amounted to $7,800,000 During the second quarter of twenty twenty, we reported a negative operating surplus of $1,100,000 Replacement and maintenance CapEx reserve was $8,600,000 Fleet utilization for the second quarter was almost 99%. Moving to the six month operations. Time charter revenue for the six months decreased by $1,600,000 to $93,000,000 compared to $94,600,000 in the first half of twenty nineteen. The decrease was mainly due to the 19.8% decrease in the time charter equivalent rate achieved in the second half of twenty twenty. This decrease was mitigated by the 25.4% increase in our available days.

Adjusted EBITDA for the 2020 amounted to $33,400,000 compared to $45,000,000 in the same period of last year, primarily due to an $11,000,000 increase in operating expenses due to our larger fleet, which was partially mitigated by 800,000 increase in equity in earnings from Navios Containers. Adjusted net loss for the 2020 amounted to $11,700,000 Operating surplus for the six months ended 06/30/2020, was $3,300,000 Turning to Slide 12, I will briefly discuss some key balance sheet data as of 06/30/2020. Cash and equivalents was almost $30,000,000 Long term borrowings, including the current portion, net of deferred fees, amounted to $488,200,000 Our cost of debt has been significantly reduced as a result of the refinancing of the term loan billed last year as well as the decrease in LIBOR rates. This resulted in a reduction in fee interest expense for the 2020 of approximately $9,000,000 compared to the same period of 2019. Net debt to book capitalization was 38.7% at the end of the quarter.

Moving to Slide 13. We declared a cash distribution for the 2020 of $05 per unit, equivalent to $0.20 per unit on an annual basis. Our current annual distribution provides for an effective yield of approximately 2.5% based on yesterday's closing price. The record date is August 10 and the payment date is 08/13/2020. Total cash distributions for the quarter amount to 600,000 Slide 14 shows the details of our fleet.

We have a large modern diverse fleet with a total capacity of 5,300,000 deadweight ton and an average age of eleven years. Our fleet consists of 53 vessels, 14 Capesizes, 23 Panamaxes, six Ultra Handymax and 10 containerships. In Slide 15, you can see the list of our fleet with the contracted rates and the respective expiration dates per vessel. Our charters have an average remaining contract duration of approximately two years. Currently, we have contracted 95% of our available days for 2020 and 31.5% for 2021, including days contracted at index linked charters.

The expiration dates extend to 2028. In Slide 16, you can see the details of Navios Containers. Currently, it controls 29 containerships. Navios Partners has a 33.5 ownership interest in Navios Containers. I now pass the call to George Achinutis, Executive Vice President of Business Development, to discuss the industry section.

Speaker 3

Thank you, Stratos. Please turn to Slide 18. In the last few months, we have seen extraordinary volatility in the rates as first half cargo demand slammed on the back of the impact of the restrictions caused by the pandemic. However, the Chinese economy, which accounts for approximately 40% of global drybulk trade, returned to positive growth in Q2 on the back of government stimulus, particularly aimed at infrastructure spending. The PDI reflected this unusual seasonality by reaching a year to date low of $3.93 in mid May before turning around to reach a nine month high of $19.56 dollars in early July on the back of a strong recovery in demand led by Brazilian iron ore exports that helped Capesize rates reach close to $34,000 before correcting over the last few weeks.

With the entire globe continuing to be affected by the pandemic, the IMF projected global GDP contraction of 4.9% for 2020, led by an 8% contraction in advanced economies. Governments have put in place unprecedented emergency monetary and fiscal plans to support their economies. In light of this, the IMF projects 5.4% global GDP growth in 2021. As a result of the above, seaborne drybulk trade is projected to contract by 4.5 in 2020 and grow by 4.6% in 'twenty one. Turning to Slide '19.

The graph on the left shows that for the second half of the year, drybulk demand for the three major cargoes of iron ore, oil and grain is forecast to outpace the first half by about 8%. This increase is led by iron ore, which is expected to grow by about 12% or 85,000,000 tons, much of which will come from Brazil, adding to ton miles. If you look at the graph on the right, net fleet growth is forecast to be 3% this year. Second half deliveries are expected to be 44% lower than the first half, resulting in less than 1% expected net fleet growth in the second half. Turning to Slide 20.

Chinese iron ore imports were flat last year, but are expected to increase by 4.4% in 2020. Chinese steel mills have reduced their iron ore stockpiles by about 47,000,000 tons between June 2018 and July 2020. With additional availability of iron ore in the second half of twenty twenty, shipments from Brazil and Australia to China are expected to increase by about 40,000,000 tons per quarter as steel mills replenish stockpiles, driving demand for Capesize vessels. The Chinese fiscal stimulus and infrastructure spending should support steel production and in turn drybulk trade going forward. Moving to Slide 21.

The combination of the pandemic and the significant drop in the price of oil and gas has resulted in reduced coal trade. Asian coal imports, which account for over 80% of the world seaborne trade, are expected to decrease in 2020 by 6.4%, but increase by 5.2% in 'twenty one. This reduction has added pressure on the smaller sized vessels, which has been partially offset by increased demand for grains discussed on the following slide. Turning to Slide '22. Worldwide grain trade has been growing by approximately 5% CAGR since 02/2008, mainly driven by Asian demand.

Recently, China has been a major buyer of soybeans and corn as it seeks to rebuild its swine health. An ever increasing world population as well as increasing protein demand worldwide continues to support the global grain trade. With the pandemic disruptions causing minimal grain trade disruptions, the International Grain Council projects record shipments of wheat, corn and soybean for the 2020 crop year. Please turn to Slide '23. The current order book stands at only 7.4% of the fleet, which is the second lowest since the 7.2% recorded in April 2002.

Newbuilding contracting has collapsed and year to date is down by about 66% compared to 2019. With the order book being front loaded this year and scrapping expected to accelerate in the second half due to the phase out of the Vale VLOCs, net fleet growth is expected to remain low at about 3% in 2020. Turning to Slide '24. Vessels over 20 years of age are about 7% of the total fleet, which compares favorably with the previously mentioned low order book. Scrapping, which started slowly due to a combination of the pandemic lockdown and logistical crew change challenges, now stands at 9,600,000 tons year to date.

This amount already exceeds the total for the whole of 2019, and it is in excess of one percent of the fleet. In conclusion, positive demand fundamentals, mainly due to the easing of lockdowns around the world and the restart of economic activity, along with reduced fleet availability caused by the Vale phase out of its VLOC fleet should provide support to the drybulk market in its continuing effort to navigate through the pandemic storm. This concludes my presentation. I would now like to turn the call over to Angeliki for any final comments.

Speaker 1

Thank you, George. This completes our formal presentation. We open the call to questions.

Speaker 4

The floor is now open for questions. Our first question comes from the line of Randy Giveans of Jefferies.

Speaker 5

Howdy team Navios, how are you?

Speaker 1

Good morning.

Speaker 5

How are

Speaker 1

you doing?

Speaker 5

Good, good. All right. So yes, first question, obviously, on the distribution cut, why was that cut from $0.30 to let's say $05 Like how did you come up with that number? And then now that the drybulk market has materially improved and your presentation appears pretty bullish for the back half of the year, any chance the distribution gets increased next quarter or soon thereafter when we expect you to earn kind of positive income?

Speaker 1

Very good question. Let's start from one thing. I mean, we are still in the pandemic. I mean, there is a lot of volatility. Even with a healthy Capesize rate of high teens, you are still at 50% of what was the year to date rate of last year.

So basically, we are still in a volatile environment. And we are with this, we are actually having we'll provide more balance sheet flexibility. I mean, this actual drop was much deeper than we thought. I mean, in the last quarter, I mean, it was hindsight is always twenty twenty. But this has been a volatile environment.

And I think providing additional balance sheet flexibility, I think is a prudent decision.

Speaker 5

Okay. And was there any specific benchmark you looked at to cut it down to $05 instead of maybe $00 or $0

Speaker 1

I think what we would I mean now on the current level, we are having about a 3% yield in the share price. And what if and we are not shy if market recovers and you have a sustainable visibility of cash flows and we see that this very unique because the pandemic is not a cycle. It's not it's different than a business cycle. So basically, we really need to see a sustainable recovery on that.

Speaker 5

Okay. And then looking at Navios Europe II, it looks like you received $2,700,000 in cash. I guess what was the total equity value in the vessels you received net of debt? And then also on that, it looks like you raised a $29,500,000 loan for those vessels, but it matures in less than a year. So I guess what are the plans for those vessels and I guess that loan next year?

Speaker 1

We got a short facility. I mean, we can roll to a longer facility, but because we're doing we were working on different segments of our some of our packages. So we is done on a shorter term. But overall, I mean, if you see the maturities of the company, we have a very stagger debt maturities and whatever we have next year is basically covered by scrap. So the reason within mind is because we are looking on overall restructuring some of our other facilities, not restructuring, but creating a new packages.

So one thing I'd like to say here, I mean, you see NMM where we are today, we have a company with a very low breakeven, low leverage and staggered debt maturities. So we are able really to we are actually we can not only we can grow in any market environment as we see. And one thing that I'll say that, yes, the lockdowns created a really uncertain time for drybulk, but overall we see a positive effect for the second half. The thing that we need to see is that we surpassed the pandemic and we see a further longer term stronger market.

Speaker 3

Yes.

Speaker 5

And then could you give some context around the equity value of those five vessels net of the debt?

Speaker 2

If you see from our presentation, we had the net receivable of around 17,500,000.0 So against that receivable, we got around $2,700,000 in cash. So the rest was the net value of the vessels, because the vessels we had also associated loans and working capital. But as Angeliki just said, the facility that came with the vessels initially, we refinanced it. With this new facility, $29,500,000 that, as we said, is maturing next year. And this facility effectively is almost covered the balloon of this facility is almost covered by the scrap value of the vessel.

So it's a very comfortable position for us.

Speaker 5

Got it. All right. And then I guess a quick strategy question and then a modeling question. For looking at the unit price now, obviously trading at a pretty steep discount to NAV, you also have a lot of vessels over, call it, 15 years of age. So I guess what are your thoughts on those two selling vessels and repurchasing units either simultaneously or both separately?

Speaker 1

Actually, that's a very, very, very good question. And I think part of the strategy and the balance sheet flexibility is that you will reposition the company. I mean part of our ongoing process is some of the older vessels you will sell and you will substitute with younger vessels at opportune times. And this is this can be our goal is to keep our fleet young and this is an ongoing process that we will have. And we did that a lot a couple of years ago and this is an ongoing process that we will be looking on repositioning the fleet.

And it's part of our overall goals and strong driver on decisions.

Speaker 5

Sure. And then repurchasing units?

Speaker 1

This is part of I mean, this is part of we had and we returned capital to our investors through different methods. I think now right now we are in a process that if you are doing a replacement of assets, you will need to reposition your portfolio first.

Speaker 5

All right. And then I guess lastly, a quick modeling question. The miss in terms of our EPU estimate was driven by a pretty big jump in G and A that was partially offset by a drop in interest expense. So I guess what caused that G and A increase and what run rate should we use for these two expenses going forward, G and A and interest expense?

Speaker 2

I mean, and A in our model is directly linked, of course, with the number of the vessels that we have. So you have an increase of the vessels fleet by almost 25%. Of course, G and A did not increase by 25%, it increased by much lower than that. And that was also offset by some decreases in the rest of our G and A items. So overall, you see on the three month period, dollars $05,000,000 increase on G and As.

I think this is a good run rate going forward given, of course, the increased fleet that we have today.

Speaker 5

So the almost $7,000,000 because it was $4,000,000 first quarter, right? And then

Speaker 2

There is a seasonality on the G and A, if you see historically between the quarters.

Speaker 3

Yes. So

Speaker 2

I would say that for Q2 and Q4, this $7,000,000 is a good number. Of course, you have to take into account your knowledge. So Q2, Q1 and Q3, you have to expect it to be lower again in the lower levels.

Speaker 5

Yes. All right. Just to make sure of that. And then on the interest expense?

Speaker 2

Interest expense, I think this is a good run rate. I mean this is a combination of our efforts last year to refinance the Term Loan B. So we reduced significantly the interest cost of the company. But also it's a matter of the decrease in the LIBOR rates itself. So you have seen in the nine months, we have approximately EUR 9,000,000 decrease in the interest expense.

And I think this is something that you should keep considering for the future. I mean, just adding, of course, the new facilities that we have added. But as a run rate, I would say it should be pretty representative.

Speaker 5

Perfect. All right. Well, that's it for me. Thanks again. Thank you.

Thank you.

Speaker 4

I'm showing no further questions at this time. I'd like to turn the call back to Ms. Angeliki Frangou for any additional or closing remarks.

Speaker 1

Thank you. This completes our quarterly presentation and questions.

Speaker 4

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.