Navios Maritime Partners - Earnings Call - Q2 2021

Transcript

Speaker 0

Thank you for joining us for Navios Maritime Partners Second Quarter twenty twenty one Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou Chief Financial Officer, Mr. Starras Decibres and Executive Vice President of Business Development, Mr. George Acmeotis.

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.naviosnlp.com. You'll see the webcasting link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call can also be found there. I'll now review the safe harbor statement. 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 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. Fangoula for opening remarks next, Mr. Decibres will give an overview of Navios Partners' financial results then Ms. Drapaniolis will provide an operational update and 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 Fengus. Angeliki?

Speaker 1

Thank you, Laura, and good morning to all of you joining us on today's call. I am pleased with the results for the second quarter of twenty twenty one. During the second quarter, Navios Partners recorded revenue of $152,000,000 net income of $99,900,000 As you can see on Slide four, approximately 56% of our fleet are drybulk vessels and 44% of our fleet are containerships. Please turn to Slide five. Navios Partners is a top 10 U.

S. Publicly listed dry cargo fleet with 98 vessels, of which 55 are dry bulk vessels and 43 are container ships. Our diversified fleet should insulate us from industry cyclicality. You can already see the flexibility created by the different segments as we address open available days and financing. We have about $1,100,000,000 in contracted revenue for the second half of twenty twenty one is expected to exceed our total estimated fleet expenses for the same period by $47,800,000 This enables us to have about 36% of our available base either open or index linked.

We have a strong balance sheet with low leverage. Partially as a result of all these factors, our units have performed well in twenty twenty one year to date. Slide six reviews our recent developments. During Q2, NMM generated 90,400,000 in EBITDA, dollars 99,900,000.0 in net income and $4.32 earnings per unit. We continue to renew and expand our fleet.

We agreed to acquire 11 vessels with an average age of four point eight years for about five fifty two million dollars and agreed to sell two vessels with an average age of fifteen point seven years for $41,400,000 As a result of fleet renewal and expansion program year to date, we added a net of 44 vessels to our fleet and containership fleet increased by 330%, while average age reduced by 25%. Our drybulk fleet capacity increased by 37%, while its average age reduced by 18%. We at about $615,000,000 in new financing year to date, including $4.00 $5,000,000 to finance new acquisitions, dollars 124,300,000.0 to refinance 2021 maturities and $86,000,000 to refinance other loans. We have a strong cash flow potential for the second half of twenty twenty one. We have 15,743 available days with about 36% of our available days are still open or index linked.

Slide seven highlights our diversification advantage. Because we operate in both the drybulk and containership segments, we should be able to mitigate normal industry cyclicality, leverage fundamentals across both sectors and reduce our cost of capital. This has created optionality. For example, our chartering strategy optimized different sector fundamentals. With our containerships, we have fixed on medium to long term charters over 99% of our available days for the second half of twenty twenty one and seventy eight percent fixed for 2022.

However, our charter rates in the drybulk sector current strengthening the first half of twenty twenty one, we have maximized market exposure in the drybulk vessels. Over 63% of our available days in the second half of twenty twenty one and about 94 of our available days in 2022 are open or index linked. Through these diversified strategies, we have secured more than $1,100,000,000 in total contracted revenue. Slide eight describes our fleet renewal and expansion year to date. In 2021 year to date, our fleet increased by eight to 10% in terms of number of vessels, 44 net vessel additions.

We acquired 38 vessels on the water and an additional 13 new building vessels to be delivered into our fleet. We also agreed to sell seven vessels with an average age of thirteen point seven years for $108,000,000 in proceeds. Through these activities, we increased our container ship fleet by 330% and our dry bulk fleet capacity by 37%. Moreover, we have successfully reduced the average age of our fleet in both segments, 25% reduction in containerships and an 18% reduction in drybulk. Slide nine details our operating free cash flow for the second half of twenty twenty one.

About 64% of our available days are fixed at an average rate of 22,919 per day. Our contracted revenue exceeds total estimated fleet expenses by $47,800,000 The remaining 36.1% of our available days are either open or index linked, which provided market exposure. Slide shows our liquidity position. As of 06/30/2021, we had total cash of $232,900,000 and total borrowings $795,500,000 Our net debt to book capitalization is 27.3% and our debt maturities are staggered with no significant debt maturities until 2023. At this point, I would like to turn the call over to Mr.

Stratos Desypris, Navios Partners' CFO, who will take you through the financial results for the second quarter of twenty twenty one.

Speaker 2

Net income for the quarter amounted to $99,900,000 Fleet utilization for the second quarter of twenty twenty one was almost 100%. Moving to the six month operations. The six month operations. The of

Speaker 3

20

Speaker 2

increase was mainly due to the 66.8% increase in the times averaged rate equivalent achieved in the first half of twenty twenty one as well as a 41.4% increase in all available days. EBITDA and net income for the first half of twenty twenty one include 80.8 revaluation of our investment in Navios Containers as a result of the merger. I would like to point out here that in 2019, we have written down our investment by $42,600,000 Also included in EBITDA net income in the first half of twenty twenty one $124,100,000 compared to $33,400,000 in the same period of last year. Adjusted net income for the first half of twenty twenty one amounted to $111,700,000 Turning to Slide 12. I will briefly discuss some key balance sheet data as of 06/30/2021.

Cash and cash equivalents were 2 and $32,900,000 Long term borrowings, including the current portion, net of deferred fees, amounted to $795,500,000 Net debt to book capitalization reduced to 27.3 at the end of the quarter. Slide 17 shows the details of our fleet. Our fleet is in the top 10 U. S. Publicly listed dry cargo fleet, as measured by a number of vessels.

We have a large, modern, diverse fleet of 98 vessels with a total capacity of 9,300,000 deadweight tons. Our fleet consists of 55 drybulk vessels and 43 containerships. In Slide 14, you can see our ESG initiatives. Mild drybulk shipping is the most environmentally friendly means of transportation as it is the most carbon efficient mode of transport. We aspire to have zero emissions by 02/1950.

In this process, we have been pioneering and are adopting certain environmental regulations up to two years in advance, aiming to be one of the first fleet to achieve full compliance. 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'll now pass the call to George Agnotes, Executive Vice President of Business Development, to discuss the industry section.

Speaker 4

Thank you, Stratos. Please turn to Slide 16. The Baltic Exchange Dry Index reached 3,418 on June 29, the highest level since 2010, as earnings for sub Capesize vessels reached multiyear highs. At 2,793, the Q3 index average was more than double any Q2 quarterly average in the past decade. Rates in all asset classes have risen sharply, reflecting surging trade, driven by strong demand for both major and minor bulk commodities.

Supply and demand fundamentals going forward remain extremely positive, a strong demand for natural resources combined with COVID related logistical disruptions, which adds to fleet inefficiencies and a slowing pace of newbuilding deliveries, all support strong level of spot and future freight rates. The IMF projects global 2021 GDP growth at 6%, the highest in fifty years, led by an 8.6% expansion in China, India and developing Asia. Accordingly, 2021 drybulk trade is projected to increase by 4% and further increase by 1.7% in 2022. Turn to Slide 17. Demand is forecast to outpace net fleet growth in both 2021 and 2022.

The graph on the left shows that drybulk demand for the three major cargoes of iron ore, coal and grain for the second half of twenty twenty one is forecast to increase by 7% compared to the first half. The graph on the right highlights previously mentioned slowing fleet growth. Net fleet growth is forecast to be 3.3% this year and only 1.2% for 2022. Turning to Slide 18. Post pandemic stimulus measures in the advanced economies and increasing industrial production and economic growth in China have fueled demand for iron ore.

Global iron ore demand is expected to increase by 3.6% this year. Additional availability of iron ore shipments to China in the second half of twenty twenty one are expected to increase as steel mills replenish stockpiles, driving demand for Capesize vessels. Forecasts are also for growth in iron ore imports around the world as the effects of the pandemic recede. Europe's imports are expected to grow by 18% and Asia, excluding China, is expected to import 12% more iron ore in 2021 than in 2020. Please turn to Slide 19.

Asian coal imports, which account for over 80% of world seaborne coal trade, are expected to increase by 3.7% in 2021. According to the International Energy Agency, global coal fired electricity generation is expected to rise by nearly 5% this year and exceed pre pandemic levels before increasing a further 3% to an all time high in 2022. Turning to Slide 20. An ever increasing world population, food security issues driven by the pandemic as well as increasing protein demand worldwide continues to support the global grain trade. World grain production this year will reach a record according to the International Grains Council and the USDA.

Worldwide grain trade has been growing by 5% CAGR since 02/2008, mainly driven by Asian demand, which increased by point 5% in 2020 and is forecast to grow by a further 6.9% in 2021. Overall, total oil grain trade is expected to increase by 4.4% in 2021. Please turn to Slide 21. The current order book stands at a historically low 5.8% of the fleet. Contracting for all 2020 and year to date combined has been low, about equal to all contracting in 2019.

Accordingly, 2021 net fleet growth is expected at 3.3% and only 1.2 for 2020, below the projected increase in dry bulk demand for both years. Turning to Slide '22. Dessels over three years of age are about 8.7% of the total fleet, which compares favorably with the previously mentioned historically low order book. Scrapping totaled 15,800,000 tons in 2020 and year to date has totaled 4,700,000 tons, which is on page for a yearly total of 8,600,000 tons. Please turn to Slide 24, focusing on the container industry.

Stimulus measures have caused recovery of consumption in the advanced economies. This targeted stimulus has led to a historic turnaround in global container trade. As you can see on the chart on the lower right, freight rates for all main routes from China rose dramatically from mid year twenty twenty. Increases in consumer demand for goods, port congestion and restocking led to container ship demand growth of 6.3% in 2021 and three point eight percent in 2022. The increased demand is expected to exceed supply in both years.

Please turn to Slide '25. The recent rapid market recovery has caused extremely high demand for available tonnage, which has ensured supply across all segments. In particular, the extremely tight availability of panel access, combined with poor congestion, increasing trade and lack of new buildings has propelled period time charter rates to hit historic highs of $70,000 per day for periods up to a year. The SCFI ready deck has broken through the 4,000 level for the first time ever and stands approximately four times higher than the ten year average, spared by the earlier start of the Chinese economy and from continuing demand for consumables and pandemic related supplies worldwide. Turning to Slide '26.

Fleet growth is a manageable 4.5% this year and 2.6% for 2022. Even in this high demand environment, scrapping should continue as 10.5% of the fleet is currently twenty years of age or older. In conclusion, positive demand fundamentals, mainly due to the start of economic activity around the along with reduced fleet availability, should continue to support both the drybulk and containerized shipping industries in their continued effort to navigate through the easing of the mixed storm. This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments.

Angeliki?

Speaker 5

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

Speaker 3

And we will take our first question from Randy Giveans with Jefferies. Your line is now open.

Speaker 6

Howdy, team. Nadia, how's it going?

Speaker 5

Very well. Good morning.

Speaker 6

Good morning. Alright. So a few questions here. I guess, first, just looking at your chartering for the container ships. You recently booked five, four thousand five hundred or so TEU container ships on three year charters.

Clearly, very impressive rates above 40,000 a day. Two questions with that. How did you decide on the staggered or maybe step down annual rates structure for that? And then secondly, you have two container ships with charters expiring in December. When do you expect to book new charters on those two?

Speaker 5

Very good questions. I mean, let's really see what we have been doing. We are actually with all the repositioning we have done on the company, we are basically we have created a sizable fleet of 98 vessels and almost a 100. And then we are using the different industry fundamentals that we have to create the optionality on the balance sheet of the company. So we have 55% dry bulk, 45% containerships.

So what we are doing is we're creating cash flows, medium medium term cash flows on target possibilities. And and what we're creating with that, we give the optionality to the company to have spot drybulk vessels, which we cannot have long term, and create the up get the upside for that. So basic our goal is to create this long term durable cash flow with a conservative balance sheet. That is the outlook. And as the maturities as we see vessels coming close, we will do it in the a moment of strength.

That is always their way. I mean, let's all be very what is very important is that we are mindful of our structure and we're positioning the company for the long term.

Speaker 6

Sure. And I guess on those two charters expiring in four months, five months maybe, it seems like there's already a market for those. Are those being negotiated now, or are waiting till the the fall?

Speaker 5

You know, we are doing in a portfolio approach. We we always talking to everyone, and that is our job. And we will do it in the more appropriate on the on the line that has the biggest need. So we have done that in a, I think, in a very good way. And you have seen that last year I mean, you know, and you can see it on the way we have structured our entire portfolio.

We are able to create these cash flows because we were never we've been stepping very quickly, and we will do it, you know, as on the strengthening of the market, and we see strengthening of the market.

Speaker 6

Okay. Alright. And then I guess, secondly, you know, you don't mention the ATM results in the press release, but I do see that net cash provided by financing activities was up $258,000,000. So I guess with that, how much of both the 75,000,000 and then the 110,000,000 ATM programs have been used so far? Is there any remaining?

And then what is the current outstanding unit count just for our modeling purposes?

Speaker 7

Yeah. Hi, Andy. Good morning from you also. Hey. We will have all yeah.

We will have all the details on, like, you know, the number of the units that have been issued and the units outstanding as well as the status of the ATM program, in our 60 k filing that will come shortly. However, what I can share with you on this call is the fact that, you know, practically, the ATM's programs have been practically completed by now. So there is a very minimal amount left.

Speaker 6

Okay. And then assuming twenty five or so dollars a share, it seems like that'd be around 6 and a half, 7,000,000 shares. Is that fair on the new share count?

Speaker 7

You will have all the details in the filing. So let's let's be patient on that.

Speaker 6

Okay. I'll I'll wait on that. Two more questions. I guess, looking at your vessel fleet changes, you've been pretty active in acquiring vessels of late. Do you expect that to continue, or are you gonna focus more on maybe selling some older vessels, which you already have done a few here?

I'm just looking at kind of changes in your fleet going forward.

Speaker 5

Listen, there there is a this is an ongoing process, meaning we will always and we have been, I think, getting good prices on the order fleet. We have disposed of the vessel in a nice order. We have some that, you know, is an ongoing repositioning of the fleet. And also, have done some new buildings and and secondhand position in new buildings. And there's a real and I think that is a need that we have.

I mean, you can see our container ship fleet, for example, is older. So it's more upside. It's older. So if we show an opportunity, and we position ourselves to acquire vessels like the, you know, for that are very good for the point to point transportation, like the 5,200 TEUs. We show that that fleet is, something that the market needs.

There's no new orders. And we have been very successful, and we see that the pandemic economy has created a need for this point to point transportation. So that is an area where we stepped in. We saw good opportunities, good value, and we went in. Again, you know, we did, actually financing them, via balance sheet in the beginning and then getting the right finance as we go close.

Speaker 6

Got it. Okay. And the last question for me, we're about halfway through the second quarter. Can you provide maybe some quarter to date rates for your multiple dry bulk asset classes with spot exposure or, I guess, index linked exposure?

Speaker 5

I think you're a better expert than us. Everyone has collections, values, and I I will not even compete with you guys. You're very good on that, and you can find it. I think the one thing that I would like to say is that, you know, the company and and I think this is a it may an important issue. We are repositioning the company for the long term.

We went through nuclear wind. I mean, we show equity markets closed, debt markets been unavailable. I mean, we had it in 02/2019, we had the term loan b, and, basically, that was not available for the dry bulk. So we have seen Capesize rate last year being around 8,000, containership, maybe Panamax around 8,000. So, basically, the pandemic had a material effect on shipping.

So we have positioned well in the company. We saw opportunities. We stepped in. We acquired an MCI that has been nicely paid dividends for us. We have seen value you know, it was a nice transaction.

We saw over three and a half times value expansion. So our goal is to create a long term a company that has a long term durable cash flows and to position the company for the long term.

Speaker 6

Sure. Oh, yeah. It seems like second quarter was great. Clearly, the third quarter rate should be better than that. So, we will be looking forward to, the next quarter indeed.

Thanks so much.

Speaker 5

Yes. But I want to remind you last year. Pandemic is still here, and we all should be very mindful of where we are. Yes. Thank you.

Speaker 6

Thank you.

Speaker 3

And we will turn the program back over to Angeliki for any additional or closing remarks.

Speaker 5

Thank you. This completes our q two result.

Speaker 3

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.