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Edited Transcript of NMM earnings conference call or presentation 31-Jul-19 12:30pm GMT

Q2 2019 Navios Maritime Partners LP Earnings Call

Monaco Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Navios Maritime Partners LP earnings conference call or presentation Wednesday, July 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angeliki N. Frangou

Navios Maritime Partners L.P. - Chairman & CEO

* Efstratios Desypris

Navios Maritime Partners L.P. - CFO

* Georgios Achniotis

Navios Maritime Partners L.P. - Executive VP of Business Development & Director

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Conference Call Participants

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* Randall Giveans

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Thank you for joining us for Navios Maritime Partners Second Quarter 2019 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Stratos Desypris; and Executive Vice President of Business Development, Mr. George Achniotis.

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.navios-mlp.com. You'll see the webcasting link in the middle of the page, and a copy of the presentation referencing today's earnings conference call can also be found there.

Now I'll 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 subject to risks and uncertainties, which would 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 discussed on this call 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: we'll begin this morning's conference call with formal remarks from the management team; and after, we'll open the call to take questions.

Now I turn the call over to Navios Partners Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [2]

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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 2019, during which Navios Partners reported $47.7 million of revenue and $22.3 million of adjusted EBITDA. Charter rate in the drybulk sector have recovered after the tragic dam collapse in Brazil in January of this year. The Capesize [miles t/c] rate is currently at around $27,000 per day and is about [2.5x] the average Capesize miles t/c rate for the month of February, March and April.

NMM and a time charter equivalent of $14,130 per day for its fleet for the second quarter of 2019 and declared a quarterly distribution of $0.30 per unit, representing a current yield of approximately 7%.

As you can see from Slide 5, NMM owns 37 vessels. In addition, NMM owns 33.5% of NMCI after the 2018 distribution of 2.5% of the outstanding equity of NMCI to our unitholders. In sum, NMM has a strong balance sheet and competitive position in a recovering market in the drybulk and container market.

Slide 6. Stats for the regions. We believe that Navios Partners is a premier drybulk shipping platform. We have about $635 million in remaining contracted revenue. Based on the current charter rates, Navios Partners should generate about $60 million of free cash flow for 2019. We reward our unitholders with a $13.6 million in annual cash distribution equal to $1.20 per unit annually.

We also have announced a 50 million unit repurchase program, under which we have repurchased 0.3 million units year-to-date, representing approximately 3% of the all units outstanding. We have reduced our current debt by 8% compared to year-end 2018 and have a modest net debt-to-book capitalization at the end of the second quarter of 2019 of 36.4%. Moreover, we will have no debt maturities until 2021 pro forma for the Term Loan B refinancing.

Slide 7 highlights our proactive approach to refinancing the Term Loan B, which we expect to be completed by year-end. Recently, we added $140 million bank facility for financing 8 drybulk vessels and 5 containerships. The facility has an amortization profile of 6.5 years in a 2-year term with interest at LIBOR plus 320 basis points. This facility completes $360 million of new financing, that includes $310 million of bank financing and $49.5 million in sale and lease back transactions.

Since the end of 2018, we have repaid $113.2 million of our Term Loan B.

Slide 8 shows a significant cash flow potential. For 2019, our contracted revenue is expected not only to cover all our expenses but also to generate free cash flow for NMM. At 3,022 open days plus days on index charges should enable NMM to generate significant additional free cash flow at current rate.

Slide 9 shows our liquidity. As of June 30, 2019, we had total cash of $35.2 million and total volumes of $485.1 million, and net debt-to-book capitalization is a modest 36.4%. Moreover, our debt maturities are expected to significantly reduce pro forma for the refinancing of our Term Loan B, as discussed earlier. We have no debt maturities until 2021.

And at this point, I would like to turn the call over to Mr. Stratos Desypris, Navios Partners' CFO, who will take you through the results of the second quarter of 2019.

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Efstratios Desypris, Navios Maritime Partners L.P. - CFO [3]

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Thank you, Angeliki, and good morning, all. I will briefly review our [unaudit] financial results for the second quarter that ended June 30, 2019. The financial information is included in the press release and is summarized in the slide presentation on the company's website.

Please note, for simplicity, the discussion of the financial results below exclude the effect of one-off items listed in Slide 10.

Moving to the financial results. As shown on Slide 10, our revenue for the second quarter of 2019 decreased by 18% to $47.7 million compared to $58.2 million for the second quarter of 2018. The decrease was mainly due to the 14.2% decrease in the time charter equivalent rate exchange in the second quarter of 2019 as well as a 4.8% decrease in our available days.

Adjusted EBITDA for the second quarter of 2019 decreased at $22.3 million compared to $34.7 million in the second quarter of 2018, primarily due to the decrease in the revenue discussed as well as a $1.4 million decrease in equity and earnings from leverage containments.

Adjusted net loss for the quarter amounted to $1.4 million. Operating surplus for the second quarter of 2019 amounted to $6.2 million. Replacement and maintenance CapEx reserve was $7.3 million. Fleet utilization for the first quarter of 2019 was almost 100%.

Moving to the 6-month operations. Time charter revenue for the 6 months decreased by [16%] to $94.6 million compared to $111.2 million in the first half of 2018. The decrease was mainly due to the 16.2% decrease in the time charter equivalent rate achieved in the first half of 2019.

Adjusted EBITDA for the first half of 2019 amounted to $45 million compared to $66.2 million in the same period of last year, primarily due to the decrease in revenue.

Adjusted net loss for the first half of 2019 amounted to $3.6 million. Operating surplus for the 6 months ended June 30, 2019, was $11.9 million.

Turning to Slide 11. I will briefly discuss on key balance sheet data as of June 30, 2019. Cash and cash equivalents was $35.2 million. In 2019 year-to-date, we have reduced our debt by $38 million. Long-term borrowings, including the current portion, net of deferred fees and discount amounted $485.1 million. Net debt to book capitalization was 36.4% at the end of the quarter.

As Angeliki mentioned earlier, year-to-date in 2019, we've repaid $113.2 million to our Term Loan B. The prepayment was made using $32.7 million of cash on our balance sheet and $80.5 million drawn on already agreed debt facilities and sale and leaseback transactions.

Moving to Slide 12. We declared the cash distribution for the first -- for the second quarter of 2019 of $0.30 per unit, equivalent to $1.20 per unit on an annual basis.

Our current annual distribution provides for an effective yield of approximately 7% based on yesterday's closing price. The record date is August 6, 2019, and the payment date is August 9, 2019.

Total cash distributions for the quarter amount to $3.4 million. Our common unit coverage for the quarter is 1.8x.

Slide 13 shows the details of our fleet. We have a large modern divest fleet with a total capacity of 4.3 million deadweight tons and an average age of 10.3 years.

Our fleet consist of 37 vessels; 14 Capesizes; 15 Panamaxes; 3 Ultra-Handymax; and 5 container ships.

In Slide 14, you can see the list of our fleet with the contracted rates and their respective expiration dates per vessel. Our charters have an average remaining contract duration of approximately 2 years. Currently, we have contracted 93.9% of our available days for 2019, including days contracted at index-linked charters. The expiration dates extend to 2028.

In Slide 17, you can see the details of Navios Containers. This entity was listed in NASDAQ in December 2018. Currently, it controls 29 containerships. Navios Partners has a 33.5% ownership interest in the Navios Containers.

I now pass the call to George Achniotis, Executive Vice President of Business Development, to discuss the industry section.

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Georgios Achniotis, Navios Maritime Partners L.P. - Executive VP of Business Development & Director [4]

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Thank you, Stratos. Please turn to Slide 17. The IMF forecast world GDP growth at 3.2% for 2019 and 3.5% in 2020. In spite of the continued U.S.-China tariff issues, emerging and developing Asian markets with drybulk demand are expected to grow at a healthy 6.2% in '19 and '20.

Due to the disruptions in the supply of iron ore in the beginning of the year caused by the Vale mine accident in Brazil and weather issues in Australia, the BDI reached a low of 595 in mid-February. As iron ore shipments from both Australia and Brazil return to normal, Capesize rates have dramatically improved, reaching a level not seen since 2014. The BDI crossed the 2,100 mark last week for the first time since 2013.

Moving to Slide 18. With iron ore prices at about $120 per ton and Chinese stock prices drawn down by over 40 million tons in the year to the end of July, iron ore miners have brought additional production online with Vale and other Brazilian miners increasing exports. Forecasts show an increase of about 70 million tons in global iron ore exports between the first and second half of 2019, 37 million tons of which will come from Brazil. These Atlantic-based exports will drive ton mines going forward.

Coal and grain exports are also forecast to increase between the first and second half of '19 by about 20 million tons. At the same time, the drybulk demand is expected to increase, the supply of vessels is expected to reduce during the second half of the year as versus are retrofitted with scrubbers. About 3% of the Capesize and above fleet is expected to be out of service in the second half of the year.

Turning to Slide 19. Chinese steel production growth is an impressive 10% through June 2019. Chinese steel exports continue to be high due to a -- large infrastructure projects outside China. The build and road initiative remains the cornerstone of Chinese economic plans for the next few years, supporting steel and power demand domestically and abroad. The Chinese government continues to stimulate the economy with large infrastructure projects, resulting in a 10.5% increase in internal steel consumption through May 2019.

During the Q1 and Q2 iron ore supply disruptions, Chinese steel mills have eaten through their stockpiles, which have reduced by about 43 million tons between June '18 and the end of July '19. With additional availability of iron ore in the second half of the year, the stock prices are expected to be replenished before year-end, further driving demand for Capesize vessels.

Please turn to Slide 20. Demand for coal in Asia remains strong. Chinese seaborne coal imports increased by 6% through June 2019. India is expected to surpass China as the largest importer of coal in Asia in 2019. Coal imports to India are up 21% through April. Indian domestic coal cycles to overcome logistics issues, and therefore, coal imports are expected to remain strong.

Turning to Slide 21. Worldwide grain trade has been growing by 5.2% CAGR since 2008, mainly driven by Asian demand. The trade war between the U.S. and China affected the strong brands in 2018 as the Chinese turn to South America for additional imports and reduce imports from the U.S.A. Forecast for large grain harvest in South America, Russia and Ukraine, we promote export sales going forward. The South American crops this year have been very good in soya beans, wheat and maize, and we continue to export in large quantities, taking advantage of the disruption in China, U.S. stable relations.

Moving to Slide 22. Net fleet growth is forecast to be about 2.5% 2019. The current order book before nondeliveries is about 11% of the fleet, which is one of the lowest on record. New building contracting is down about 60% from 2018 levels. Therefore, net fleet growth is expected to remain low over the next few years.

Turning to Slide 23. Vessels over 20 years of age are about 7% of the total fleet, which compares favorably with the 11% order book before nondeliveries. Scrapping so far in 2019 has already surpassed the total scrapping for '18. The added cost of complying with IMO regulations for balanced water treatment systems and fuel regulations are expected to result in enhanced scrapping going forward.

The disruption caused by the IMO 2020 fuel regulation changes should provide support to the drybulk market through the balance of 2019 and into 2020. Tonnage supply [when] tied in is about 440 vessels from Supramax to VLOCs and expected to [hear] to drydock for extended periods to retrofit scrubbers during the balance of 2019.

In addition, as discussed earlier, about 90 million additional tons of the 3 major commodities are expected to be shipped in the second half of the year compared to the first.

And this concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [5]

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Thank you, George. We open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Randy Giveans of Jefferies.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [2]

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First question. So obviously, NMM, robust cash balance, minimal debt and more, as you've kind of alluded to, pretty significant free cash going forward. And obviously, a pretty massive distribution coverage ratio. So with all that, how do you view the current distribution? Should we expect any increases possibly this year now that drybulk rates have improved so drastically?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [3]

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The company, as you very well said, is in a very strong position, but we need to complete. As you saw, we announced the completion of our last piece for bank finance of $140 million, that will complete our refinancing of the Term Loan B before year-end. And we have now low levels. We're about LPVs, including all our assets, of about 50%. And we did all this, and we used a lot of our cash. We used $60 million from our balance sheet, cash from the balance sheet, while we already have provided about -- distribution of about -- dividends of about $13.6 million to our investors annualized and about $5 million of a buyback. So we did a massive restructuring of our balance sheet to bring the leverage down, create a company with no -- I mean we don't have any maturities until the end of 2021, and that is about a value that is based on scrub value by $100 million. And we have done all this while we gave $20 million back to our investors.

So I think we -- first, we need to complete this, and I think we need to drive -- we have to realize the lesson that we have to learn is to drive leverage down. What makes it a strong company is that you have a low leverage and the ability to really navigate, while we, of course, provide return to our investors. I mean we provided $20 million this year.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [4]

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Okay. Well, good segue there. On the last call, you said you basically had until 3Q '20 to complete the Term Loan B refinancing. Now you're guiding to a kind of refinancing before the year-end. So what has changed in recent months? And have the terms improved that much that you're now pretty comfortable with it happening in the next few months as opposed to slipping into 2020?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [5]

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Basically, we have completed the last piece. So we will do it in -- by September, October, and we always complete the [entire] financing. We did -- if you see in Page 7, we announced a new facility of $140 million. That was the last piece that we're missing on completing. There's a -- if you see there, there's a bridge where you -- we have done $130 million already refinancing on our Term Loan B from year-end with the remaining $305 million being completed within the next couple of months until the beginning of Q4.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [6]

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Sure, sure. Okay. Well, it seems like you're making good progress there. And then I guess, lastly, for the vessels with charters expiring in the coming months. Still, the strategy is kind of keeping the smaller tonnage in the spot market but possibly looking to lock away some of the bigger Capesizes all in term contracts?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [7]

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Opportunistically, we have fixed vessels at rates over 22,000. I mean as you have seen. But -- or 18,500, 19,000 for the Fantastiks for 5 years on this. We are opportunistic trying to find the -- if it's in the high -- in the cage side, it's something that we see on the high teens, 20s is a good rate. On the rest of the vessels, what we're trying also to do is create this with index and the valuation of our vessels, that a lot of times is above index with the profitability. That gives us the possibility to contract whenever we like, and that is a far more flexible structure. So this is something that we will continue to do, plan to maximize the return for and flexibility for our investors.

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Operator [8]

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I'll now return the call to Ms. Angeliki Frangou for closing comments.

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [9]

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Thank you. This completes the second quarter numbers.

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Operator [10]

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Thank you for participating in today's conference call. You may now disconnect.