Navios Maritime Partners - Earnings Call - Q3 2020

Transcript

Speaker 0

Thank you for joining us for Navios Maritime Partners Third 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 Sivris 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 statement. This conference call will contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about 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. Faroo will offer opening remarks next, Mr. Decibis will give an overview on Navios Partners' financial results then Mr. Achniotis 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, Mrs.

Angeliki Frangou. Angeliki?

Speaker 1

Thank you, Doris, and good morning to all of you joining us on today's call. Given the difficulties associated with the pandemic, I am pleased with the results for the third quarter of twenty twenty. During the third quarter, Navios Partners reported revenue of $64,500,000 and adjusted EBITDA of $30,900,000 Although drybulk demand in the first half of twenty twenty was helped by the global shutdowns, fiscal stimulus and other policy measures helped global economies rebound in Q3 and continue to rebound in Q4. We believe that this improvement is attributable to the exit from quarantines, food security consideration and new purchasing patterns in the pandemic economy. Consequently, we are optimistic about the expected growth in demand throughout Q4 and twenty twenty one.

As you can see from Slide five, NMM's fleet is currently 55 vessels. NMM holds a 35.7% interest in Navios Maritime Containers. On Slide six, you can see why Navios Partners is a premium drybulk shipping platform. We maintain a strong balance sheet with low leverage. Our net debt to book capitalization is 39.2%.

We have staggered debt maturities and not committed growth CapEx requirements. We also have about four sixty five million in remaining contracted revenue and a low breakeven of $5,365 per open day for Q4 twenty twenty. Slide seven details the pandemic impact impact on global trade. Obviously, GDP for the first half of twenty twenty was weak given the global shutdown. However, the economic outlook for 2021 is favorable.

The IMF expects global GDP to grow by 5.2%, led mainly by China and an expected GDP growth of 8.2% next year. As a result of the disruption to economic activity during the first half of twenty twenty, drybulk trade is expected to contract by 2.7% in 2020. However, as economies continue to recover, drybulk trade is projected to increase by 3.9% in 2021. Slide eight shows our recent development during the third quarter of twenty twenty. For Q3, we generated $30,900,000 in adjusted EBITDA and an $8,800,000 in adjusted net income.

As to our fleet update, we continue to renew our fleet and improve its age profile. We acquired two drybulk vessels with an average age of six years for $51,000,000 We also agreed to sell two of our older vessels with an average age of twelve years for about $13,000,000 The acquisition of the two drybulk vessels was partially financed with a $33,000,000 loan from a commercial bank. The terms of the loan include a maturity in Q3 of twenty twenty five, amortization profile of nine point seven years and an interest rate of 3.25 above LIBOR. Our operating breakeven for the fourth quarter of twenty twenty remains low. About 70% of our available days are fixed at about $14,000 net per day, and the remaining 30% of our open and index linked days provide us with a low breakeven of $5,365 per open and index day, excluding distributions and CapEx.

Slide nine further details our Q4 operating breakeven. 69.6% of our available days are fixed at an average rate of $14,170 net per day. Our fourteen eighty one open plus index linked days provide us with flexibility and cash flow potential with a low breakeven estimated at $5,365 per day. Assuming one year time charter rate, we should be able to generate about $11,700,000 in free cash flow for the fourth quarter of twenty twenty. Slide 10 shows the liquidity.

As of 09/30/2020, we had a total cash of $30,600,000 at total borrowings of $505,700,000 Our net debt to book capitalization is 39.2%, and we have staggered debt maturities and no committed growth CapEx. At this point, I would like to turn the call over to Mr. Stratos de Cypris, Navios Partners' CFO, who will take you through the results of the third quarter of twenty twenty. Stratos?

Speaker 2

Thank you, Angeliki, and good morning all. I will briefly review our unaudited financial results for the third quarter and nine months ended 09/30/2020. 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 one off items listed in these slides.

Moving to the financial results, as shown on Slide 11. Our revenue for the third quarter of twenty twenty increased by $1,000,000 to $64,500,000 compared to $63,500,000 for Q3 of twenty nineteen. The increase was mainly due to the 39% increase in available days in 2020. The increase was mitigated by 27% decrease in the time charter equivalent rate achieved in the third quarter of twenty twenty. Adjusted EBITDA for the first quarter of twenty twenty was $30,900,000 compared to $41,300,000 in the third quarter of twenty

Speaker 3

nineteen. However, compared to

Speaker 2

the second quarter of twenty twenty, adjusted EBITDA increased by 116%, reflecting the significantly improved rate environment. Adjusted net income for the quarter amounted to $8,800,000 Operating sales growth for the third quarter of twenty twenty amounted to 16,000,000 replacement and maintenance CapEx reserve was $9,500,000 Fleet utilization for the third quarter of twenty twenty was over 99%. Moving to the nine month operations. Time charter revenue for the nine months of 2020 decreased by $600,000 to $157,500,000 compared to $158,100,000 in 2019. The decrease was mainly due to the 22% decrease in the time charter equivalent achieved in the nine months of 2020.

This decrease was partially mitigated by the 30% increase in our available days. Adjusted EBITDA for the nine months of 2020 amounted to $64,300,000 compared to $86,300,000 in the same period of last year, mainly due to the $600,000 decrease in revenues discussed above and $18,600,000 increase in vessel operating expenses due to our increased fleet and $1,000,000 decrease in equity net earnings of affiliated companies and $1,000,000 increase in net all other expenses. Adjusted net loss for the nine months of 2020 amounted to $2,900,000 Operating surplus for the nine months ended 09/30/2020, was 19,300,000.0 Turning to Slide 12. I will briefly discuss some key balance sheet data as of 09/30/2020. Cash and cash equivalents was $30,600,000 Long term borrowings, including the current portion, net of deferred fees, amounted to $505,700,000 Our cost of debt has been significantly eleven years.

Our fleet consists of 55 vessels, 15 cage sizes, 24 Panamaxes, 600 handmaps and 10 containerships. In Slide 15, you can see the list of our fleet with the contracted rates and the expected expiration dates per vessel. Currently, we have contracted 98.7% of our available days for 2020 and forty five point five percent 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 35.7% ownership interest in Navios Containers. I now pass the call to George Akinoutis, Executive Vice President of Business Development, to discuss the industry section.

Speaker 3

George? Thank you, Stratos. Please turn to Slide 18. Q3 saw a jump in the PTI with a quarterly average settling close to double Q2 at fifteen twenty two. The quarter started with a nine month high of the PTI in July before softening in August.

However, seasonality returned as the PTI reached a year to date high on October 6 at 2,097, led by Atlantic iron ore and grain exports primarily to China before correcting over the last few weeks. However, the Chinese economy, which accounts for approximately 40% of global drybulk trade, continued positive growth on the back of government stimulus, particularly aimed at infrastructure spending. China, according to the IMF, will be the only major economy to grow this year at 1.9%, with further growth of 8.2% expected in 2021. With the entire globe continuing to be affected by the pandemic, the IMF projected global GDP contraction of 4.4% for 2020, led by 5.8% contraction in advanced economies. Governments have put in place unprecedented emergency monetary and fiscal plans to support the economies.

In light of this, the IMF projects 5.2% global GDP growth in 2021. The 2020 updated forecast for drybulk trade is a contraction of 2.7% and growth of 3.9% in 2021. Turning to Slide 19. The graph on the left shows that for 2021, drybulk demand for the three major cargoes of iron ore, coal and grain, is forecast to outpace 2020. This increase is led by about 4.7% or 55,000,000 tons.

If you look at the graph on the right, net fleet growth is forecast to be 3.4% this year and only 1.3% for 2021. Net fuel growth is expected to remain low over the next few years as the order book is the lowest on record. Turning to Slide 20. Despite the pandemic, Chinese iron ore imports are expected to increase by 7.4% in 2020. Chinese steel mills have reduced their iron ore stockpiles by about 34,000,000 tons between June 2018 and October 2020.

China set a monthly record for iron ore imports in July at about 110,000,000 tons, with the second highest imports coming in September at 106,000,000 tons, as steel production continues to set new records. With additional availability of iron ore in Q4, shipments from Brazil and Australia to China are expected to match Q3 levels as steel mills 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 6.5%, but increased by 4.4% 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. Turn to Slide '22. Worldwide grain trade has been growing by approximately 5% CAGR since 02/2008, mainly driven by Asian demand. Overall, Asian grain imports are forecast to increase by 9.4% in 2020 and a further 3.3% in 'twenty one.

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. 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 6.3% of the fleet, which is the lowest on record. Newbuilding contracting has collapsed and year to date is down by about 65% compared to 2019.

With the order book being front loaded this year and scrapping expected to accelerate to phase out the Vale VLOCs, net fleet growth is expected to remain low at about 3.4% for 2020 and only 1.3% in 'twenty one. Turning to Slide '24. Vessels over 20 years of age are about 6.5% 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 13,400,000 tons year to date. This amount is almost 70% higher than the full year 2019 and is about 1.5% of the fleet.

In conclusion, positive demand fundamentals, mainly due to the restart of economic activity around the world, along with the reduced fleet availability, should provide support to the drybulk market in its continuing effort to navigate through the pandemic storm. And this concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?

Speaker 4

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

Speaker 5

Your first question comes from the line of Chris Wetherbee with Citi.

Speaker 6

Yeah. Hey, thanks for taking the question, Hope you're well. I guess I wanted to start, George, where you left off on the order book and maybe you get a better understanding of how we see this kind of playing out. So we're at the lowest level that we've seen, I guess, on record for the order book.

Speaker 3

It's just over 6%

Speaker 6

of the fleet. It seems that with uncertainty in the world, orders have been extraordinarily difficult to come by. As you go into 2021, how do you see this kind of playing out? What would you expect in terms of fleet growth for the dry bulk fleet in 'twenty one, number one? And then I guess maybe what the replenishment of the order book, if there is any, look like, number two?

Speaker 4

Chris, I think this is Angeliki. I think one of the things that makes us very optimistic on drybulk is that basically,

Speaker 2

we have the lowest order book of 6.3%

Speaker 4

with vessels that are over 20% about 6.5%. So basically, you have a very overall almost one of the lowest order books. But the most the reason that we're optimistic is because there are still periods where order books are low, but then we start having an increase orders around the world. I mean the difference today is because of the technological uncertainty. And this is not something like a scrubber where you have this kind of a solution from all of the places.

I think the technological issues, is there because of food security, because of our additional stockpile for infrastructure. So you have a condition that we haven't seen for a long time. And the technological uncertainty is something that will remain for some time because basically shipping is doing it for a solution. It's a long haul and it's a much more different. We don't have yet the solution on the anything of the correct something that will give the propulsion for this kind of movement.

So I think that this is a very positive issue, and that's why we'll not see anyone jumping into quickly.

Speaker 6

Okay. And if you had to I mean if you had to venture a guess, I think we're doing 3% plus in terms of fleet expansion in 2020. You'd expect that number to be lower is my guess in 2021?

Speaker 4

2021, we expect it to be just over 1%.

Speaker 6

Okay. Okay. That's helpful. Appreciate that. And then I guess I wanted to circle back to debt maturities in 2021, think I a little over €130,000,000 Can you talk a little bit about sort of what the plan is for that and go into a bit more detail on sort of how that is going to be addressed?

Speaker 4

I'll let refinancing risk with scrap balance, which vessels are not scrap, much more very valuable cash flows and everything. But they are very easily financeable transactions.

Speaker 2

The And just the EBITDA of these five vessels alone is covering almost 2x the whole gate service of this facility. So you understand, it's we feel very comfortable and very financially.

Speaker 6

Okay. Okay. That's helpful. Thanks very much for the time. I appreciate it.

Speaker 4

Thank you.

Speaker 5

Your next question comes from the line of Randy Giveans with Jefferies.

Speaker 7

Hi, this is Chris Robertson on for Randy. Thanks for taking our call. How are you Angeliki?

Speaker 4

Good morning. How are doing?

Speaker 7

Good, good. So I guess just on the our first question on the distribution cut. So guess now that the drybulk and containership markets have improved, how are you thinking about increasing the distribution going forward? And how will you balance that with unit repurchases as you're trading at a pretty big discount to NAV at the moment?

Speaker 4

This was a conservative posture. I mean you have to realize we're in the pandemic economy. And as that, I mean, we see positive effects, as I said, on we have a restricted supply, a strong demand because of food security, because of need of inventories to be ahead, but we have to be we have to have a conservative portion. And as we see, I mean, today, we are doing is basically we have with a low breakeven, low leverage, we are ready to get the cash flows that we see that are generated. On dividends, it's something that when we see more normalized period, then we see a dividend is far more clear.

We see that we give a temporary investment. We have other ways to do we can increase the buybacks in that way. But I think on the current conditions, with the uncertainty that is developing is due to have a more conservative option.

Speaker 7

Okay. That's fair. I guess following up on that then. So around the decision to purchase the two vessels in light of the discount to NAV in the unit price at the moment? Kind of what drove the decision to buy vessels now instead of maybe repurchasing some units?

Speaker 4

We're a different company at the moment. We have a portfolio of assets, and we need to deploy this asset and make sure that we have the right assets to have to generate the cash flow. So what we did is basically use about we bought two vessels that were six years old, a Cape Chive and a Panamax Japanese fleet, high quality and sold some vessels that were over twelve years old. So that is a replacement of assets. Our portfolio.

That is part of an ongoing process.

Speaker 7

Right. Yes, thanks for the clarity. That's it for us. Thank you.

Speaker 5

Thank you. I would now like to turn the call back over to Angeliki.

Speaker 4

Thank you. This concludes our Q3 results.

Speaker 5

Thank you. This concludes today's conference call. You may now disconnect.