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Edited Transcript of NMM earnings conference call or presentation 10-Feb-20 1:30pm GMT

Q4 2019 Navios Maritime Partners LP Earnings Call

Monaco Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Navios Maritime Partners LP earnings conference call or presentation Monday, February 10, 2020 at 1:30:00pm 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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* Christian F. Wetherbee

Citigroup Inc, Research Division - VP

* Randall Giveans

Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping

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Presentation

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Operator [1]

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Thank you for joining us for Navios Maritime Partners' Fourth Quarter and Full Year 2019 Earnings Conference Call.

With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Stratos Desypris; Executive Vice President of Business Development, Mr. Georgios 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 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 we'll 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 subject to numerous material 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, including the company's most recent 20-F.

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: First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris 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'll turn the call over to Navios Partners' Chairman and CEO, Mrs. Angeliki Frangou. Angeliki?

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

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Thank you, Doris, and good morning to all of you joining us on today's call. I am pleased with the results for the fourth quarter and full year of 2019.

For the quarter, Navios Partners reported $33.7 million of adjusted EBITDA and $12.2 million in adjusted net income, and $1.11 in adjusted earnings per unit.

For the full year of 2019, Navios Partners reported $120 million in adjusted EBITDA, $26.9 million in adjusted net income and $2.43 in adjusted earnings per unit.

Charter rates in the drybulk sector have recently collected significantly with a Capesize 5TC rate currently around $3,000 per day versus the 2019 average of $18,000 per day. The drybulk market has been adversely affected by the Chinese New Year, and this year an uncertainty caused by the global coronavirus outbreak. Because the situation is too fluid, we are unable to provide any meaningful indication of the effect on the 2020 activity, but we are closely monitoring the event.

Navios Partners had a TCE rate of $16,981 per day for the fourth quarter and declared a quarterly distribution of $0.30 per unit, representing a current yield of approximately 10%.

As you can see from Slide 5, NMM's fleet has grown to 48 vessels. In December 2019, we liquidated Navios Europe I and took ownership of 5 containerships.

NMM owns 33.5% of Navios Maritime Containers and has a 5% interest in Navios Europe II, which owns 14 vessels.

Slide 6 sets forth the reasons we believe Navios Partners is a premier drybulk shipping platform. We have significant cash flow capability with about $520 million in remaining contracted revenue. We also expect to generate strong cash flow in 2020, equating to about $47 million based on current rates and about $155 million should rates recover to their 20-year averages. Additionally, we continue to reward unitholders with an annual $1.20 per unit distribution, representing a 10% return.

Slide 7 details our recent developments. NMM has a strong Q4 with $33.7 million in adjusted EBITDA, and $12.2 million in adjusted net income and $1.11 in adjusted EPU. We strengthened our balance sheet by successfully refinancing our Term Loan B in October 2019. We have succeeded in reducing our debt by about $25 million or 5% since year-end 2018. As a result of these efforts, we have a modest net-debt-to-book capitalization at the end of Q4 of 36.5%, and a favorable debt profile with not debt maturing until 2021. Our fleet is well positioned to generate operating cash flow for 2020 of about $47 million at current rates, and about $155 million, if rates recover to 20-year averages. On the S&P front, we expanded our fleet by 11 vessels, 9 of which have delivered to our fleet.

Slide 8 shows our operating cash flow capability. For 2020, we have 9,679 open days, plus days on index-linked charters, which not only provide us with a low breakeven of $7,722 per day -- per open day, but also an extraordinary opportunity to generate healthy cash flow. NMM should generate about $47 million in free cash flow at current rates and about $155 million in free cash flow, if rates recover to 20-year averages at 230% potential upside.

Slide 9 shows our liquidity. As of December 31, 2019, we had a total cash of $30.5 million and total borrowings of $489 million. Our net-debt-to-book capitalization is a modest 36.5%. Moreover, we have no debt maturities until Q4 of 2021 and no committed growth CapEx. 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 fourth 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 unaudited financial results for the fourth quarter and year ended December 31, 2019. 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, turn your attention to certain one-off items that are listed on Slide 10. For simplicity, the discussion of the financial results below exclude the effect of one-off items listed in this slide.

Moving to the financial results, as shown on Slide 10. Revenue for the fourth quarter of 2019 increased by $3.7 million to $61.3 million compared to $57.5 million for Q4 2018. The increase was mainly due to the 8.6% increase in the time charter equivalent rate achieved in the fourth quarter of 2019. Adjusted EBITDA for the fourth quarter of 2019 increased to $33.7 million compared to $31 million for Q4 2018, mainly due to the increase in the revenues discussed above. Adjusted net income for the quarter amounted $12.2 million. Operating surplus for the quarter was $21.1 million, and fleet utilization from the fourth quarter of 2019 was almost 100%.

Moving to the 12-month operations. Time charter revenue for the year decreased by 5.2% to $219.4 million compared to $231.4 million in 2018. The decrease was mainly due to the 4% decrease in the time charter equivalent achieved in 2019 as well as 278 fewer available days in the year. Adjusted EBITDA for 2019 amounted to $120 million compared to $139.1 million last year, primarily due to a decrease in revenue. Adjusted net income for 2019 amounted to $26.9 million. Operating surplus for the year ended December 31, 2019, was $58.8 million.

Turning to Slide 11. I will briefly discuss on key balance sheet data as of December 31, 2019. Cash and cash equivalent was $30.4 million. Long-term debt, including the current portion, was $489 million. Net-debt-to-book capitalization was 36.5% at the end of the year. During 2019, we have completed the refinancing of our Term Loan B, and we have reduced our gross debt by $24.7 million, despite $60.5 million new debt we concluded in December for the acquisition of 9 vessels.

Moving to Slide 12. We declared the cash distribution for the fourth 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 10% based on Friday's closing price. The record date is February 11, and the payment date is February 13, 2020. Total cash distributions for the quarter amounted $3.4 million. Our common unit coverage for the quarter is 6.4x.

Slide 13 shows the details of our fleet. We have a large modern, diverse fleet with a total capacity of 4.9 million deadweight tons and an average age of 11 years. Our fleet consists of 48 vessels, 14 Capesizes, 20 Panamaxes, 4 Ultra-Handymax vessels and 10 containerships.

In Slide 14, you can see the list of our fleet with the contracted rates and the expected expiration dates per vessel. Our charters have an average remaining contract duration of approximately 2 years. Currently, we have contracted 77.1% of our available days for 2020, including days contracted at index-linked charters. The expiration dates extended to 2028.

In Slide 15, you can see the details of Navios Containers. Recently it was listed in NASDAQ in December 2018, currently controls 29 containerships. Navios Partners have a 33.5% ownership interest in Navios Containers.

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

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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 3.3% for 2020 and 3.4% in '21. The emerging and developing Asian markets, which drive drybulk demand are expected to grow at a healthy 5.8% in 2020 and 5.9% in '21. The drybulk market experienced an extremely volatile 2019 with earnings falling to near historical lows in Q1 followed by a 9-year high in Q3. In the end, the average annual BDI average of 1,353 was identical to 2018.

Although scrubber retrofitting tightened tonnage supplied in Q4, slowing Brazilian iron ore exports and year-end coal import restrictions in the Far East, contributed to the Q4 BDI average underperforming Q3 for the second year in a row.

While it's too early to gauge the full impact of the coronavirus on world drybulk trade, economic indicators continue positive. Initial industry reports remained relatively unaffected on the back of the initial response by both China and international community to this latest outbreak.

Other than the current effects of the coronavirus, Q1 2020 rates have been affected by government-imposed trade restrictions, which occurred in December and January, heavy rains in Brazil, milder weather in China and an early and prolonged Chinese New Year. China's central and local governments have promised it's credit and liquidity injections to stabilize the economy as it fights the virus.

Please turn to Slide 18. Phase 1 of the new U.S.-China trade deal was signed on January 15. China agreed to buy an additional $200 billion of U.S. goods and services over the next 2 years compared to a 2017 baseline. Under this deal, China would double U.S. agricultural imports from their 2017 base by buying at least an additional $12.5 billion in 2020 and then $19.5 billion in '21. Additional purchases of U.S. steel, wood and wood products as well as coal are listed within the manufactured goods and energy categories in this agreement.

Turning to Slide 19. For 2020, world drybulk demand for the 3 major cargoes of iron ore, coal and grain is forecast to outpace 2019 by almost 2% or about 64 million tons. This increase is led by iron ore, which is expected to grow by 2.6% or 38 million tons, much of which will come from Brazil, adding to ton miles. At the same time, the supply of vessels is expected to reduce as vessels are retrofitted with scrubbers, slow steaming continues and some of the older VLOCs come out of service. About 6.5% of the Capesize fleet is expected to be out of service in 2020, before taking into account scrapping. Given current supply and demand forecast, the fundamentals going forward remained positive.

Turning to Slide 20. Chinese steel production growth was up 8% in 2019. Chinese steel exports continue to be strong due to large infrastructure projects outside China. The Belt 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 their economy with large infrastructure projects, resulting in a 9% increase in internal steel consumption through 2019. Chinese steel mills have reduced their iron ore stockpiles by about 35 million tons between June 2018 and mid-January 2020. With additional availability of iron ore in the second half of 2019, shipments to China held steady year-on-year, and stockpiles have been increasing since July. The replenishment of the stockpiles is expected to continue through 2020, driving demand for Capesize vessels.

Please turn to Slide 21. Demand for coal in Asia remains strong. India is expected to surpass China as the largest importer of coal in 2020. Coal imports to India are expected to be up 7% in 2019. Indian domestic coal struggles to overcome logistics issues and thus, coal imports are expected to remain strong. Chinese seaborne coal imports increased by 8% in 2019. Chinese coal import quotas severely restricted December imports. This, however, has increased estimates for the first half 2020 imports.

Turning to Slide 22. 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 flow of grains in 2019 as the Chinese turned to South America for additional imports. However, as previously mentioned, the Phase 1 trade deal is encouraging for U.S. grain exports and drybulk shipping overall. Forecast for large grain harvest in South America, Russia and Ukraine, will promote export sales going forward. The South American crops this year have been plentiful, and farmers continue to export in large quantities.

Moving to Slide 23. Net fleet growth was 3.9% in 2019. The current order book is 9.1% of the fleet, which is historically low. New building contracting was done in 2019 by about 50% of 2018 levels. Accordingly, net fleet growth is expected to remain low going forward.

Turning to Slide 24. Vessels over 20 years of age are about 8% of the total fleet, which compares favorably with a previously mentioned record low order book. Total 2019 scrapping was 7.9 million tons, about 70% higher than 2018. The added cost of complying with IMO regulations for ballast water treatment systems and fuel regulations are expected to result in higher scrapping going forward. The fleet of VLOCs are also expected to remove from the fleet this year as their contracts end.

Additionally, fleet efficiency is expected to reduce as vessels are retrofitted with scrubbers. Assuming the remaining retrofits occur in 2020, about 0.7% of the total fleet and approximately 1.4% of the Capesize fleet is expected to be out of service. A further reduction in capacity of about 3% of the fleet, current speed restrictions continue throughout the rest of the year.

In conclusion, positive supply and demand fundamentals, along with reduced fleet efficiency caused by IMO 2020 and the VLOC phaseout, should provide significant support to the drybulk market going forward.

This concludes my presentation. I would now like to turn the call over to Angeliki for the final comments.

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

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Thank you, George. This completes our formal presentation, and we'll 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 Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [2]

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I want to maybe first start on the balance sheet and maybe understand what we think the opportunity is for 2020 in terms of deleveraging. Is there meaningful opportunity there? Is that going to be the first call on cash as we move through this year?

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

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I think the -- as you see, there was a real -- a huge effort that was done in 2019, that made us well positioned for 2020. I mean, we took a huge liability of $420 million of Term Loan B, which we refinanced. We prepaid about $85 million last year, reducing our debt. Overall, we ended up at about 5% gross reduction because we acquired some vessels. And the big issue that we have actually done now, the maturities are going to 2030. There is no single maturity that is critical for the company.

And the second thing that this provides us is a low breakeven. We are now at $7,700 per open day. That gives us and operating cash flow generation in today's environment of 1 year at about $47 million. If we're looking at the 20-year rate, you're talking about $150 million. I'm not giving you -- what you have is maturities that have now extended to 2030, no single maturity that is important and a low breakeven. So I think we are well positioned. Of course, we are mindful of where the market is today. I mean, we can say that overall, on the drybulk, if you didn't have the coronavirus, that is really creating a lot of uncertainty. You would have had a good demand of growth of about 2%, with a net fleet growth of about 3.9% with a lot of additional positive effects that will restrict supply of vessels, like scrubbers -- about 4.5%, which is like scrubber fitting, VLOCs that are old over 25 years, and with the slow steaming.

So on the drybulk because of the U.S. trade agreement, we had doubled demand growth in a good supply side. Now if we take in consideration the coronavirus, I think, in a little bit of -- if we take a part from the initial of -- negative effect should the drybulk be a positive event, meaning there will be restocking of grains and food stuff, coal and iron ore. So if we take the initial reaction, that will be restricting of trade, the overall reaction should be further to be -- to really accelerate the restocking of grains, coal and iron ore.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [4]

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Okay. Do you -- I want to make sure I understood what you meant by that last comment. Do you expect that after we get some clarity around coronavirus? Or is that something that can happen even, sort of, in the midst of maybe some of the uncertainty lingering around this? I just want to make sure I understand -- I get the idea of maybe -- probably some pent-up demand here. That something that can be executed on in the relative near term? Or do we need to wait for more clarity?

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

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I mean, I will tell you one thing, because they are drybulk commodities, you definitely will need to restock on grains. And I think that should be as we move to March, April, I think that will happen automatically as well as on coal and iron ore, because they will need it. So like more finished product, I think that the idea that they will need to restock on food stuff, I think it's totally logical and quite imminent -- irrelevant of the conditions.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [6]

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Okay. And then last question, I just wanted to get a sense from a fleet perspective. Is there anything you feel like you need to do any major priorities for 2020 in terms of -- are there assets that may be you'd like to try to monetize? Or do you think it's probably better to potentially look for opportunities, like you said, you don't have the maturities until -- you have one next year and then it spread out beyond that, but nothing huge. There's some cash flow generation of the fleet right now. Do you think -- are you a buyer or a seller at this point? Or you just sort of wait and see?

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

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I think that we will always in reposition. We always -- we sell some vessels, reposition our portfolio. This is an active process. We are never going to stop on that. And if we find opportunities, we will add to our portfolio, but we are not going to say that we will double up fleet or -- but there is a constant renewal of fleet that is happening. That is part of the way we are doing our business. What I will say that I -- we find very important that we have low leverage, basically. I mean, if you see it from an NAV point of view, it's low leverage, no maturities, no breakeven. That give us a lot of optionality because, Chris, you have to admit that drybulk and shipping is a unique business. We can have 2 years in a row, black swans. Like last year, we had Vale. This year, we have the coronavirus. So I think in this kind of an environment, you need to have flexibility.

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Operator [8]

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

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [9]

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I guess a quick question. You mentioned a little bit -- a few minutes ago, but now as the Term Loan B, obviously, that refinancing is complete, your balance sheet is in good shape, any appetite for unit repurchases as they are trading at a massive discount to NAV and yielding more than 10% currently?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [10]

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We are always watching that. I mean, we have a steady dividend policy, and we are looking out at the correct opportunities. But we, of course, see also the uncertainty on the environment in front of us. So we are mindful of returning to our shareholders, and you see that we have a good return dividend policy. But of course, we need to really see how this major event of the virus stabilizes and how the cash generation is progressing.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [11]

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Sure. And then with that kind of uncertainty, you have some vessels coming off of charter here, February, April, some of the drybulk vessels. Are you looking to just recharter those at 1-plus years and just kind of continue to roll time charters or operate those in the spot market for a while?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [12]

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We are using a mix. Some of them we are going for a 1 year age, some of them we're doing index-based deals and then we can fix it on a forward basis. There is a combination of -- I mean, sometimes you do it here because it's better to do it here than do a spot market. So depending on the position, especially when you are in a very soft environment, you prefer to do it here than lock it on a very spot market.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [13]

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Right. All right. And then I guess last question for me. What are your plans for the containerships? You purchased 5 from Navios Europe I. So obviously, you now own 10, 5 medium-sized and 5 smaller ones. Do you plan on keeping these longer term? Or is the plan to just sell them to NMCI once they have enough capital to buy them, maybe later this year?

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [14]

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Listen, the 5 long term, the ones that they have long-term cash flow, which is part of our -- of the company's cash generation that we have. Now the ones we just got from Navios Europe I is not strategic to the company. So we will find the opportunity either to sell it in the market or it's not the part of the strategic mixture of our fleet.

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Operator [15]

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At this time, I would like to turn the floor back to Angeliki Frangou for any additional or closing remarks.

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Angeliki N. Frangou, Navios Maritime Partners L.P. - Chairman & CEO [16]

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Thank you. This completes our quarterly results.

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Operator [17]

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Thank you for participating in today's conference call. You may now disconnect your lines at this time.