U.S. Markets open in 6 hrs 58 mins

Edited Transcript of NNA earnings conference call or presentation 7-Nov-19 1:30pm GMT

Q3 2019 Navios Maritime Acquisition Corp Earnings Call

Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Navios Maritime Acquisition Corp earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Angeliki N. Frangou

Navios Maritime Acquisition Corporation - Chairman & CEO

* Laura Yagerman

Navios Maritime Acquisition Corporation - VP of Corporate Communications

* Leonidas Korres

Navios Maritime Acquisition Corporation - CFO & Director

* Ted C. Petrone

Navios Maritime Acquisition Corporation - Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Laura Yagerman, Navios Maritime Acquisition Corporation - VP of Corporate Communications [1]

--------------------------------------------------------------------------------

Thank you for joining us for Navios Maritime Acquisition Corporation's Third Quarter 2019 Earnings Conference Call. With us today from the company are Chairman and CEO, Angeliki Frangou; Vice Chairman, Ted Petrone; and Chief Financial Officer, Leonidas Korres.

As a reminder, this conference call is being webcast. To access the webcast, please visit the Investors section of Navios Acquisition's website at www.navios-acquisition.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 can also be found there.

Now I'll review the safe harbor statement. This conference call could contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition's management and are subject to risks and uncertainties, which could cause the actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Acquisition's filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Acquisition 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 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 Acquisition's Chairman and CEO, Angeliki Frangou. Angeliki?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [2]

--------------------------------------------------------------------------------

Thank you, Laura, and good morning to all of you joining us on today's call. I'm pleased with the results for the third quarter of 2019. Navios Acquisition recorded revenue of $59 million and adjusted EBITDA of $23.9 million. These are increases of about 42% and 142%, respectively, over Q3 of 2018. We declared a quarterly distribution of $0.30 per share for Q3, reflecting a current yield of about 16%. In a robust tanker rate market, where we join the best of the worlds. We have significant cash flow visibility from $430 million in long-term contracted revenue. About 43% of our 2020's available days are fixed. Almost half of those days also have profit sharing. At the same time, we can capture upside as 61.7% of our 2020's available days are open or on a floating rate. Also, all our tankers are on the water-generating revenue as we have no tankers being fit with scrubbers.

Slide 4 presents some company highlights. NNA has a core fleet of 41 diverse tankers with an average age of 8.1 years. We also have maritime investment in entities that own 24 vessels, which as of the end of Q3, owe us about $83.9 million.

Slide 5 highlights our key developments. NNA reported strong financial results for the third quarter with $23.9 million in adjusted EBITDA. For the first 9 months of 2019, adjusted EBITDA was $87.3 million.

As I mentioned a moment ago, for 2020, we have a good mix of fixed revenue and exposure to the market. We have a unique growth pipeline that requires minimal capital. We are looking to dissolve Navios Europe I in Q4 of 2019. As of September 30, 2019, NNA had $32.3 million of receivable due from Navios Europe I.

We refinanced our Term Loan B by securing $184.8 million of new financing with maturities extended through 2027. Deleveraging remains our priority. We have reduced outstanding debt by $45.3 million or 4% so far this year. We also raised $15 million in equity in October of 2019. On the cost side, we extended our management agreement for 5 years. OpEx rates will be fixed through December 2021, with an increase of about 3% compared to current rates.

Slide 6 highlights the recent updates that we have led to a robust tanker market. Scrubber retrofitting, there is an OFAC sanction on COSCO Dalian VLCCs. And an increasing floating storage due to compliance with the upcoming IMO 2020 regulation have considerably reduced VLCCs available globally. Physical attacks on the Saudi Arabia oil processing facility and in-transit tankers, sanctions on Iran and deteriorating crude production and export from Venezuela and Libya has also impacted the market.

Finally, increased ton miles from U.S. oil exports have added to the effective demand side of the equation. VLCC and product tankers spot rate should continue to be strong in the near term. Compared to the beginning of the year, the VLCC 1-year time charter rate has increased by 91% to $46,750 per vessel per day, while the MR2 1-year time charter rates have increased by 19% to $16,125 per vessel per day.

Slide 7 illustrates our promising free cash flow potential. For 2020, our contracted revenue is expected to be $112.1 million. However, NNA also has 8,642 days that are open or on floating rate, giving us a breakeven rate of $18,489 per day. Assuming that current 1-year time charter rate, 2020 expected revenue from days open on a floating rate should be $216.4 million. Assuming the current spot rate, 2020 expected revenue from days open or on floating rate would be $282 million. With cost visibility, we believe we should generate free cash flow of $56.6 million or $122.3 million at current 1-year time charter rate and current spot rate, respectively.

Slide 8 goes through our accretive growth pipeline. We are in discussions about dissolving Navios Europe I by the end of Q4 of 2019. We believe that this will result in NNA taking possession of the 5 tanker vessels from that fleet.

Slide 9 highlights our proactive approach in repaying the Term Loan B, which we completed in October of 2019. The $196.8 million Term Loan B balance was repaid with $138 million of Chinese leases, $15 million in Japanese leasing and $31.8 million in bank finance and $12 million using cash from our balance sheet. In successfully refinancing the Term Loan B, we diversified and extended our debt maturities through 2027 and created 3.4 million in annual interest savings.

Slide 10 highlights our new management agreement effective January 1, 2020. Under the new terms, the manager will provide us with commercial and technical management services where OpEx will be fixed for 2 years through 2021 at rates highlighted in the table. The rate reflects a 3% increase from current rates. Under the new administrative service agreement, allocated G&A costs will be reimbursed. The agreement also includes a commercial and technical management fee of $50 per day per vessel.

No additional fees will be charged under the agreement either for sale or purchase transaction on or for origination of loans and other financing transactions.

Slide 11 shows our liquidity position. Pro forma for the TLB repayment, equity raise, senior notes repurchases, sale of Nave Electron, our cash is adjusted to $76.3 million as of September 30, 2019. Our pro forma net debt to book capitalization is 73.6%. We have fully funded our growth CapEx. Pro forma for the repayment of the Term Loan B, we do not have any significant debt maturities until Q4 2021.

Slide 12 details our 2020 construction. 42.7% of our 2020 available days are fixed at an average base rate of almost $21,000 per day. Our total cost, which includes operating expenses, general and administrative expense, interest expense and capital repayment, is estimated at $19,419 per day. Our 2020 contracted revenue is expected to be $112.1 million. We have 8,642 open days and days contracted on floating rates, giving us a breakeven of $18,489 per day. With current weighted average spot rate for our fleet of about $30,000 per day, we are well positioned for significant cash flow generation in 2020.

At this point, I would like to turn the call over to Mr. Ted Petrone.

--------------------------------------------------------------------------------

Ted C. Petrone, Navios Maritime Acquisition Corporation - Director [3]

--------------------------------------------------------------------------------

Thank you, Angeliki, and good morning, all. Please turn to Slide 14. Navios Acquisition's diversified fleet consists of 41 vessels, with an average age of 8.1 years totaling 5.5 million deadweight. The fleet consists of 13 VLCCs, 8 LR1 and 18 MR2 product tankers along with 2 chemical tankers. 3 of the VLCCs are bareboat newbuildings and are scheduled for delivery in 2020 and 2021.

Please turn to Slide 15. Slide 15 details our chartering strategy, which we use to balance market opportunity and credit risk. We seek protection from market volatility by obtaining charters of different durations in order to better manage market cyclicality. For 2020, about 38% of our fleet's available days are fixed at a base rate or at a base rate plus profit sharing and about 4% of fixed on floating rates. We continue to monitor this market and look to charter out, the circa 57% of our fleet that remains open for next year at these healthy rates. We seek charters that capture these improved levels through 3 methods: one, days with fixed rates; two, days with floating rates; or three, days with base rate plus profit sharing.

Please turn to Slide 16. Navios Acquisition continues its policy of locking in secure cash flow with creditworthy counterparties. Our fleet has secured about $430 million in long-term contracted revenue. Through the end of October, we have continued to extend the coverage of roughly -- via new fixtures, continuations and exercised optional periods at higher levels, in some cases, with profit sharing.

Please turn to Slide 17. Slide 17 shows in detail our current charters with their respective expected expiration dates. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diverse group of first-class charterers.

Please turn to Slide 19. The IMF projected global fleet GDP at 3% in 2019 and 3.4% in 2020, with emerging and developing markets growing at 3.9% in '19 and 4.6% in 2020. The main structural drivers going forward are moderate VLCC's fleet growth, increasing demand from the Asian economies, particularly China and India, and increasing supply from the Atlantic Basin. Time out of service for scrubber retrofits will continue to reduce effective VLCC supply in the near future.

Please turn to Slide 20. The August record of 12.4 million barrels per day solidifies the U.S. as the world's largest crude oil producer. U.S. crude exports have continually expanded since 2015, reaching a record 3.4 million barrels a day in October of this year, with -- from almost 0 in 2012. Additionally, about 1.4 million barrels of U.S. light crude oil pipeline capacity is expected to open before year-end. This should increase U.S. Gulf exports, which is positive for ton miles.

In terms of ton miles, the movement of crude from the Atlantic basin to China uses about as many VLCCs as the movement from the Arabian Gulf, even though the Arabian Gulf shipped about 2 more times oil to China. Increases in Atlantic basin crude going to the Far East will continue to create more demand for VLCCs as U.S. export capacity increases. U.S., Gulf, China trade issues get resolved, and Atlantic basin countries begin and expand exports over the next couple of years.

Please turn to Slide 21. Tanker fleet utilization is expected to reduce over the seasonally strong winter months due to scrubber retrofitting and associated yard delays. Assuming 75% of the contracted retrofits occur, 2.6% of the crude fleet tank -- tanker fleet and 1% of the product tanker fleet will be out of service during this period. Overall, 3.2% of the VLCC fleet is expected to be out of service due to retrofits. This should tighten vessel availability and support time charter rates.

Please turn to Slide 22. Net fleet growth through last week equaled 7.5%, with 18.6 million deadweight deliveries against 1.8 million deadweight removals. We note that while the order book shows 67 VLCCs as of last week, there are 120 VLCCs over 17 years of age. With the upcoming IMO 2020 and ballast water management regulations that will lead some vessels to retirement, we believe that the order book and fleet are well balanced.

Turning to Slide 24. According to the IEA, refinery capacity is expected to increase by 13.7 million barrels per day from 2019 to 2024, including all additions, expansions and upgrades. About 74% of that capacity will be added in Asia and the Middle East, with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 5.2 million barrels per day and 2.4 million barrels per day, respectively.

Please turn to Slide 25. U.S. crude production has risen about 130% since the end of 2008, reaching 12.4 million barrels per day in August of this year, the highest level of production since records started in 1920. The U.S. has increased its total product exports by about 500% to about 5.8 million barrels per day since 2004.

Please turn to Slide 26. Record refinery maintenance peaked in May at 7.4 million barrels per day, partly due to preparations for increasing product demand associated with IMO 2020. For the balance of the year, refinery capacity could rise up to 5 million barrels per day due to a combination of refinery additions and a significant reduction in refinery maintenance as refiners get ready for this historic fuel switch as a result of IMO 2020.

Please turn to Slide 27. Through September of 2019, the fleet grew 3.8% on deliveries of 6.7 million deadweight, less 600,000 deadweight of demolitions. About 5.7% of the product tanker fleet is 20 years of age or older. As of October 1, 2019, there are 191 product tankers on order and 358 which are 17 years of age or older. The total order book is much less than those ships that are 17 years of age or older, particularly given historic nondelivery rates, the coming ballast water and IMO 2020 rules and scrap prices that remained high. As a result, projected net fleet growth for 2019 is only 4.5%. Projected net fleet growth for 2020 is even lower at 2.4% as owners seek to have ships on the water this year in advance of the expected IMO 2020 disruptions and product trades.

Thank you. This concludes my review, and I would like to now turn the call over to Leonidas Korres for the Q3 financial results.

--------------------------------------------------------------------------------

Leonidas Korres, Navios Maritime Acquisition Corporation - CFO & Director [4]

--------------------------------------------------------------------------------

Thank you, Ted. I will discuss the financial results for the third quarter ended September 30, 2019. Please turn to Slide 29. Revenue for Q3 2019 increased by 41.8% to $59 million from $41.6 million in Q3 2018, reflecting the increased lead of Navios Acquisition following the measure with Navios mixing partners and the improved rate environment compared with the same period last year.

In Q3 2019, we had 99.4% fleet utilization. We achieved the time charter equivalent of $15,349 per day, improved from the $12,694 per day achieved in the third quarter of 2018. Time charter and voyage expenses of $5.4 million mainly reflect the expenses relating to our vessel spot voyage during the quarter. Operating expenses were $26.8 million and G&A expenses were $3.7 million.

Adjusted for the $7.3 million in permit loss relating to the sale of 1 VLCC in October 2019 and the $0.2 million stock-based compensation, EBITDA for Q3 2019 increased by more than 2x to $23.9 million from $9.9 million in Q3 2018. Other expenses include depreciation and amortization of $17.2 million and interest expense and finance costs of $22.8 million. Net loss of $16.2 million reported for the quarter has been further adjusted to exclude $32.7 million accelerated amortization of intangible assets relating to the termination of 2 charter contracts in October 2019.

Turning to the financial results for the 9-month period ended September 30, 2019. Revenue increased by 50.7% to $194.7 million from $129.2 million last year, reflecting a time charter equivalent of $16,888 per day and a 99.7% fleet utilization. Operating expenses were $81.2 million and G&A expenses were $15.7 million. Adjusted EBITDA for the 9 months of 2019 increased by more than 2x to $87.3 million from $35.9 million in 2018. Depreciation and amortization was $52.3 million and net interest expense and finance cost was $69.5 million. Adjusted net loss for the 9-month period was $34.2 million.

Slide 30 provides selected balance sheet data as of September 30, 2019. Cash and cash equivalents, including restricted cash, was $102.9 million. Vessels, net book value was $1.3 billion. Total assets amounted to $1.6 billion. Total debt as of September 30, 2019, was $1,225.3 million, resulting to a net debt to book capitalization ratio of 73.8%.

In Q3, $47.2 million of debt was drawn to finance 3 product tankers that were collateral to the Term Loan B. This amount was paid in October as part of the full repayment of the Term Loan B. Pro forma for the Term Loan B refinancing, the sale of Nave Electron VLCC, the equity offering and the senior note repurchases, cash is adjusted to $76.3 million and debt outstanding to $1,858.8 million. Year-to-date, Navios Acquisition has reduced its debt outstanding by 4% or $45.2 million.

Turning to Slide 31. As for return of capital to shareholders for the third quarter, we declared a dividend of $0.30 per share, equivalent to $1.20 on an annualized basis. The dividend will be paid on January 9, 2020, to shareholders on record as of December 17, 2019. We have also repurchased 0.7 million common shares to date through our share repurchase program, providing an additional 4.7% return to our stockholders.

And now I would like to pass the call to Angeliki for her final remarks. Angeliki?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [5]

--------------------------------------------------------------------------------

Thank you, Leo. This opens our call to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Chris Wetherbee of Citi.

--------------------------------------------------------------------------------

Unidentified Analyst, [2]

--------------------------------------------------------------------------------

This is Liam on for Chris. I just had a few questions about the Navios Europe dissolution. I'm just -- I know that you guys have a $32.3 million receivable out there. And if the entity is dissolved, would you receive all of this amount or like would it be immediate? Or is there a time line for receiving these proceeds?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [3]

--------------------------------------------------------------------------------

This is a very nice question. Think about -- this is about a $2 NAV that is in our balance sheet and is not valid. So we have 5 vessels, 2 LR1s, 3 MRs, and these vessels, circa around $80 million of value, will come and will translate it into $2 NAV, still NAV. So you can actually see it in -- really, in NAV. And number two, you will have a $15 million EBITDA per year. So you get a quite attractive situation.

--------------------------------------------------------------------------------

Unidentified Analyst, [4]

--------------------------------------------------------------------------------

Okay. So you're saying that those -- like those 5 vessels are basically worth $80 million, you said?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [5]

--------------------------------------------------------------------------------

Something around, yes, around. Give me a second. I mean you can see the vessels and these are approximate valuations.

--------------------------------------------------------------------------------

Unidentified Analyst, [6]

--------------------------------------------------------------------------------

If you were to kind of roll them into your fleet at that point, would you have to make -- would there be any cash outlays associated with doing that? Would you kind of effectively have to purchase them? Or would you -- like, are there no cash outlays with that? Just trying to understand how it works.

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [7]

--------------------------------------------------------------------------------

No. Because together -- it is very simple, because together with a loan you take and the receivable, you translate it in doing vessel. So you get the vessels in and $15 million of EBITDA. So something that is already in your balance sheet that is not valued, it will become $2 NAV.

--------------------------------------------------------------------------------

Unidentified Analyst, [8]

--------------------------------------------------------------------------------

Got it. So -- and it also kind of sounds like, just to be clear, that if you were to do -- if this were to take place, that all 5 vessels would come at the same time. Or would there be like a time line for the vessels coming into you like one by one?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [9]

--------------------------------------------------------------------------------

No, it will be always at the same time. It's the same way we bought, the same time we sail.

--------------------------------------------------------------------------------

Unidentified Analyst, [10]

--------------------------------------------------------------------------------

Got it. And how do you then think about the Navios, like, Europe II and, like, the receivables that you have outstanding for that? Is there -- would there be a similar process for that, that you guys would go through? And what...

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [11]

--------------------------------------------------------------------------------

Yes. But I have to remind you, Navios Europe II, we have a $51 million receivable. This is due for dissolvement in 2021, and this is approximately $3 NAV. So in that case, most probably are the -- is containers and dry bulk. This will not come as vessel but will become as cash.

--------------------------------------------------------------------------------

Unidentified Analyst, [12]

--------------------------------------------------------------------------------

Got it. All right. And also, just another point of clarification on the 5 tanker vessels for Navios Europe I with EBITDA. I understand, based on what the disclosures in that slide, that the $15 million is based on 1-year time charter rates as per Clarksons. But does that mean that all those vessels like will be off-charter when you could potentially receive them? Or do they currently have existing charters?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [13]

--------------------------------------------------------------------------------

No. But the 2 LR1s are going to reach that they actually generate even above what is the 1-year current NAV. And the others are on very much like market transactions.

--------------------------------------------------------------------------------

Unidentified Analyst, [14]

--------------------------------------------------------------------------------

Okay. Got it. And I guess just final question. When you're thinking about vessel values, I know that vessel values have been stepping up recently, particularly with some of the VLCCs that you guys own, even on that older, like second-hand values, where do you guys kind of see that going? Do you think that you could continue to look like you can translate that into like -- that they'll continue to increase going forward? Or what do you think are the main puts and takes when it comes to vessel values going forward?

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [15]

--------------------------------------------------------------------------------

We have seen that there is -- the reason the values drop is because we have seen some very robust earning capacity. I mean if you see -- don't forget that Q3, we didn't see the materialization of the increase in rate, but we saw a very strong Q4. And the foreseeable couple of quarters, they look very strong. Additionally, Navios does not have any scrubbers. So we do not have off-hire days on the -- on a period where earnings are quite strong. So I think the cash flow generation that we see translate into a much higher -- I mean it gives also the -- the values are going up. We saw like values overall going about 5% to 7% higher from where they are today. They used to be in Q2.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Thank you. And I'd like to turn the floor back over to Angeliki Frangou for any additional or closing remarks.

--------------------------------------------------------------------------------

Angeliki N. Frangou, Navios Maritime Acquisition Corporation - Chairman & CEO [17]

--------------------------------------------------------------------------------

Thank you. This completes our Q3 results.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

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