Navios Maritime Partners L.P. (NYSE:NMM) Q3 2023 Earnings Call Transcript

Navios Maritime Partners L.P. (NYSE:NMM) Q3 2023 Earnings Call Transcript November 4, 2023

Operator: Thank you for joining us for Navios Maritime Partners Third Quarter 2020 Earnings Conference Call. With us today from the Company are Chairwoman and CEO, Ms. Angeliki Frangou; Chief Operating Officer, Mr. Efstratios Desypris; Chief Financial Officer, Ms. Erifili Tsironi; and Vice Chairman, Mr. Ted Petrone. 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, I will review the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners.

Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners management and are subject to risks and uncertainties, which could cause actual results to differ materially from the forward-looking statements. Such risks are more fully discussed in Navios Partners filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows: first, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners segment data.

Next, Ms. Tsironi will give an overview of Navios Partners financial results. Then Mr. Petrone will provide an industry overview. And lastly, we'll open the call to take questions. Now, I turn the call over to Navios Partners Chairwoman and CEO, Ms. Angeliki Frangou. Angeliki?

Angeliki Frangou: Good morning and thank you all for joining us on today's call. I am pleased with the results of the third quarter of 2023, in which we reported revenue of $323 million and net income of about $90 million. We are also pleased to report net earnings per common unit of $2.92 for the quarter. Before I provide some comments on the Company, I would like to share my views regarding economic sentiment. The U.S. economy is generally healthy, but there are clouds on the horizon. The U.S. has high government debt levels and the highest pastime fiscal deficit. The Fed is engaged in the computative tightening, and there is a risk of interest rates rising further from their current relatively elevated levels. China, the world's largest consumer of commodities, is not firing on all cylinders.

These factors, along the wars in Ukraine and Israel, are contributing to making this one of the most dangerous times in memory. Despite these clouds, the TCE market is robust and healthy. Our company is doing well and positioned for all weather. We'll continue to focus on things that we can control, such as reducing levels, being eco-friendly by keeping a modern energy-efficient fleet and expanding into areas which we will promote our long-term prospects, such as the recent tanker build we entered into with various or majors. Navios Partners is a leading publicly listed shipment company, diversified in site asset classes in three sectors with an average vessel age of about 9.6 years. We have 180 vessels split roughly equally into three sectors based on a charter-adjusted value.

Please turn to Slide 7. We have about $270 million of cash on our balance sheet. In the third quarter, we had about 5.3% on an annualized basis on our cash balances. In addition, we are positioned well for the fourth quarter as we have $52 million of contracted revenue in excess of cash expenses and 2,304 open index days. In the third quarter, we entered into the transhipment business. We modified a Navios Vega, Ultra-Handymax vessels to have the equipment necessary to provide transshipment operations and entered into a five-year charter with Navios South American Logistics. The vessel is expected to commence its operation in the fourth quarter and generate about $30 million of EBITDA over the course of its charter. The vessel itself in this trade should have an extended useful life of about 30 years.

Please turn to Slide 8. We provide an S&P update year-to-date. 2023, we generated $255.2 million gross proceeds from the sale of 14 vessels. In the first nine months of the year, we received $242 million, and we received $13 million balance in the fourth quarter of 2023. In terms of acquisition, we spent $421.6 million for four newbuildings, scrubber-fitted Aframax LR2 vessels and four Japanese newbuildings MR2 vessels. We also spent $28 million to acquire a 2019 Kamsarmax vessel that we previously chartered in. We continue to work on obtaining long-term contracted revenue. In the third quarter, we created $257.9 million of contracted revenue. Of this amount, we expect to receive $171.9 million from five tankers with an average charter period of 3.8 years.

In addition, we expect to receive $47.1 million from the vessel we placed into the transhipment business. Finally, we expect to generate $38.9 million from three 4,250 TEU containerships. Average about 18,300 net per day for 1.9 years. This year, we were approached by certain counterparties to enter into a menu that would relieve them of certain liabilities. We facilitated this transaction at an estimated $10.2 million net present value benefit to Navios. $3.5 million of this value is attributable to a $52.5 million prepayment of charter hire for two containerships, and $6.7 million of this value is [indiscernible] to charter amendment and extension for two containerships. Please turn to Slide 9. Since our transformation in 2020, our financial performance has been strong.

Our nine months 2023 adjusted EBITDA is 11.4% higher than nine months 2022. Looking backwards, 2022 was 57% higher than 2021 and almost 570% higher than 2020. We believe that our diversified business model can continue to perform in difficult markets. I'll now turn the presentation over to Mr.

Efstratios Desypris: Thank you, Angeliki, and good morning all. Please turn to Slide 10, which details our strong operating free cash flow potential for the fourth quarter of 2023. We fixed 83% of our available days at an average rate of $23,610 net per day. Our contracted revenue exceeds expected total cash expense for Q4 '23 by about $52 million. We have 2,304 opening index-linked days that will provide additional profitability. Please turn to Slide 11. We are always renewing the fleet so that we maintain a young profile. It is part of our strategy to reduce our carbon footprint by modernizing our fleet, benefiting from new technologies and eco vessels with greener characteristics. We have $1.7 billion remaining investment in 28 building vessels delivering partly through 2027, for which most of the financing has already been in place.

In containerships, we acquired 12 vessels for a total of about $860 million, which we hedged by entering to long-term credit bore charges, generating about $1 billion in contracted revenue for about 6.5 years average duration of the related charters. In the tanker space, we acquired 16 vessels for a total price of approximately $885 million. We have already chartered out 10 of these vessels for another period of five years, generating revenues of about $0.5 billion. The dry bulk program of eight vessels were completed in June 2023 with the delivery of the last Capesize vessel. We have also been active in opportunistically selling other vessels based on segment fundamentals. Year-to-date, we have sold 14 vessels with an average age of approximately 15 years for $255.2 million.

We sold seven tanker vessels for about $160 million to take advantage of the strong tanker market. Also, we sold seven dry bulk vessels for a total price of $95.4 million. Our last sale was a 19.3 years old Capesize vessel, which we sold within Q3 for $13 million. Moving to Slide 12. We continue to secure lot unemployment for our fleet. As Angeliki mentioned earlier, in Q3, we have created about $260 million additional contracted revenue. Approximately $172 million comes from our tanker fleet, and about $40 million comes from our containerships. Additionally, we agreed a five-year contract with Navios Logistics for Navios Vega, one Handymax vessel that was modified to perform transshipment operations, which is expected to provide about $50 million in revenue.

The vessel is expected to be delivered within the fourth quarter. Additionally, we amended charters for four of our containerships. For two of the vessels, we agreed a prepayment of higher for $52.5 million and the assumption of the subcharter that the vessels are currently on. This repayment was received in October and resulted in the net present value benefit of approximately $3.5 million. For the remaining two vessels, we have agreed on the current charter rate and extended duration of the charters for an additional 2.4 years at an implied rate of $18,000 per day, creating $31.7 million additional revenue and resulting in a net present value benefit of approximately $6.7 million. In Slide 13, you can see our total contracted revenue, which amounts to $3.3 billion.

$1 billion relates to our tanker fleet, $0.4 billion relates to our bulk fleet, and $1.9 billion relates to our containerships. Charters are extended through 2037 with a diverse group of quality counterparties. About 50% of our contracted revenue will be in the next two years. I now pass the call to Eri Tsironi, our CFO, which will take you through the financial highlights. Eri?

Eri Tsironi: Thank you, Efstratos, and good morning all. I will briefly review our unaudited financial results for the third quarter and nine months ended September 30, 2023. The financial information is included in the press release and summarized in the slide presentation available on the Company's website. Moving to the end highlights on Slide 14. Total revenue for the third quarter of 2023 slightly increased to $323.2 million compared to $322.4 million for the same period in 2022. Time charter revenue for the period is understated by $9.7 million because U.S. GAAP rules require the recognition of revenue for our charters with the escalating rates on a straight-line basis. Available days increased by 6.7% to 13,759 compared to 12,897 for the same quarter last year.

Our average combined time charter equivalent rate for the third quarter of 2023 was 22,052 per day, 7.3% lower than Q3 2022 levels. In terms of sector performance, both tankers and containers enjoyed improved rates compared to the same period last year. TCE rates for the third quarter of 2023 for own tankers increased by 26.8% to $27,688 per day and for our containers by 5.4% to $34,350 per day. In contrast, our dry TCE rate was 29.5% lower compared to the same period last year at $14,139 per day. EBITDA, net income and EPU were adjusted due to the following gains from sale of vessels. For Q3 2023, €7.2 million; for the first nine months of 2023, $50.8 million; and for Q3 and first nine months 2022, $143.8 million. Excluding these items, adjusted EBITDA for Q3 '23 decreased by 2.3% to $173.7 million compared to $177.7 million for the same period last year.

A large tanker vessel navigating through the open sea, its destination a distant port.

Adjusted net income for Q3 2023 decreased by 27% to $82.6 million compared to $113.4 million in Q3 2022 mainly due to the negative effect of a $21.3 million reduction in the positive income of the amortization of unfavorable leases and a $6.3 million increase in our interest expense net of interest income due to the increase in our debt leverage and interest rate costs. Adjusted earnings per common unit for Q3 2023 were $2.68. Total revenue for the first nine months of 2023 increased by 16.7% to $979.6 million compared to $839.7 million for the same period in 2022. Time charter revenue for the period is understated by $30.2 million because U.S. GAAP rules require the recognition of revenue for our charters with the escalating rates on a straight-line basis.

The increase in revenue was mainly a result of a 16.5% increase in available days to 41,239 compared to 35,394 for the same period since 2022. Our combined time charter rate for the first nine months of 2023 was slightly lower at $22,242 per day compared to the same period last year. In terms of sector performance, both tankers and containers enjoyed improved rates compared to the same period last year. Time charter equivalent rate for the first nine months of 2023 for our tankers increased by 62.7% to $29,014 per day and for our containers by 14.6% to $34,930 per day. In contrast, our dry Freight TCE rate was 36.3% lower compared to the same period last year at $13,630 per day. Excluding the items mentioned earlier, adjusted EBITDA for the first nine months of 2023 increased by 11.4% to $520.5 million compared to $467.3 million for the same period in 2022.Adjusted net income for the first nine months of 2023 decreased by 21% to $250.5 million compared to $317.2 million for the same period last year.

Our net income was negatively affected by $47.8 million reduction in the positive impact of the amortization of favorable leases and a $43.4 million increase in our interest expense net of interest income due to the increase in our debt levels and interest rate costs. Adjusted earnings per common unit for the first nine months of 2023 were $18.13. Turning to Slide 15. I will briefly discuss some key balance sheet data. As of September 30, 2023, cash and cash equivalents were $269.2 million. In the first nine months of '23, we paid $225.9 million of predelivery installments and other capitalized expenses under our building program and $83.9 million for vessel acquisitions and improvements. We sold 13 vessels for $237.4 million, net adding $153 million cash after the repayment of the respective debt.

Long-term volumes, including the current portion net of deferred fees, slightly reduced to $1.93 billion. Net debt to book capitalization decreased to 36.4%. Slide 16 highlights our debt profile. We continue to diversify our funding resources between bank debt and leasing structures, while 36% of our debt has fixed interest at an average rate of 5.6%. We also try to mitigate part of the increased interest rate costs, having reduced the average margin for our floating debt by approximately 40 basis points to 2.3% from 2.7% at 2022 year-end. A maturity profile this target with no significant volumes due in any single year. In terms of our newbuilding program, 82% of our new premium financing is already concluded or in documentation phase at an average margin of 1.8%.

During the quarter, we arranged a total of $92.3 million to refinance the existing leasing facilities where we manage to decrease respective margins and extend maturities. Turning to Slide 17, you can see our ESG initiatives. We continue to invest in new energy-efficient vessels and reduce emissions through energy-saving devices and efficient vessel operations. Navios is a socially conscious group whose core values include diversity, inclusion and safety. We have strong corporate governance and clear code of ethics, while our Board is composed by majority independent directors. I'll now pass the call to Ted Petrone to take you through the industry section. Ted?

Ted Petrone: Thank you, Eri. Please turn to Slide 20 for the review of the tanker industry. World GDP is expected to grow at 3% in 2023 and 2.9% in 2024 based on the IMF's October forecast. There's an 85% correlation of world oil demand to global GDP growth. In spite of economic and geopolitical uncertainties, the IEA projects a 2.3 million barrels per day increase in world oil demand for 2023 to 101.9 million barrels per day and a 0.9 million barrels for the increase in 2024. Chinese crude imports continue to rise, averaging 11.4 million barrels per day through September, a 14.6% increase over the same period last year. Following a very strong first half, tanker rates softened slightly as Q3 seasonality played out, accentuated by reduced exports, refinery maintenance and inventory drawdowns.

Recently, rates have risen on the back of rising demand and increased refinery throughput as the auto maintenance season finishes. The recent Saudi and Russian crude export cuts have been somewhat mitigated by increased Atlantic exports, which have elevated volatility for the larger vessels. Turning to Slide 21. As previously mentioned, both food and product rates remain strong across the board due to healthy supply and demand fundamentals, minimal fleet growth and shifting trading patterns. Product tankers are also aided by a healthy refinery margins and discounted Russian crude exported to the Indian Ocean and the Far East returning to the Atlantic as clean product. Crude ton mile growth is expected to increase by 6.2% in '23 and a further 4.9% in 2024.

Similarly, product ton miles anticipated increases stand at 11.3% and 6.1% for 2023 and 2024, respectively. Turning to Slide 22. The OCC net fleet growth is projected at 2.3% for 2023 and a negative fleet growth of 0.9% for 2024. This decline can be partially attributed to owners hesitant to own expensive long-lived assets in light of macroeconomic uncertainty and technology concerns due to CO2 restrictions in force since the beginning of this year. The current low order book is only 2.7% of the fleet or only 24 vessels, the lowest in 30 years. Vessels over 20 years of age are 14.1% of the total fleet or 129 vessels, which is over 5x the oil book. Turning to Slide 23. Product tanker net fleet growth is projected at 2.1% for '23 and only 1.1% for 2024.

The current product tanker order book is 10.2% of the fleet, where the lowest on record and is approximately equal to the 9.8% of the fleet, which is 20 years of age or older. In concluding the tanker sector review, tanker rates across the board continued its strong levels. The combination of below-average global inventories, growth in global oil demand, new longer trade routes for both crude and products as well as the lowest order book in three decades and the IMO 2023 regulations should provide for healthy tanker earnings going forward. Please turn to Slide 25, a review of the dry bulk industry. For the majority of Q3, normal seasonality played out, assisted by unwinding congestion and soft demand outside China. However, Chinese raw material demand continued to increase on the back of sustained economic stimulus and pre-winter stockpiling, especially for coal and iron ore.

This led the BDI to more than double from 962 on July 25 to 2,105 on October 18. After a recent retracement, the BDI currently stands at about 1,400.With regard to iron ore and coal, Chinese continuing stimulus measures and relent destocking should assist imports through the year-end. The global grain trade is impacted by the war in Ukraine, shifting trading patterns towards longer-haul routes. Seaborne grain trade volume is expected to grow by 2.7% in '24, added by ton mile growth of 3.6%. Going forward, supply and demand fundamentals remain intact. A normal seasonally stronger Q4, the historically low order book, declining net fleet growth and tightening GHG emissions regulations remain positive factors, which are reflected in the time charter and S&P markets.

Please turn to Slide 26. The current order book stands at 8% of the fleet, one of the lowest since the early 1980s. Net fleet growth for '23 is expected at 2.9% and only 2.2% in 2024 as owners remove tonnage that has been uneconomic due to IMO '23 CO2 in force since the beginning of the year and the emissions trading system starting in Europe at the beginning of next year. Vessels over 20 years of age are about 8.3% of the total fleet, which compares favorably with the historically low order book, and concluding our dry bulk sector review. Continuing demand for natural resources congestion at the Panama Canal, war and sanction-related longer-haul routes, combined with a slowing pace of new deliveries, all support freight rates going forward.

Please turn to Slide 28. Container rates, although still above pre-pandemic levels, continue to soften on the back of elevated deliveries and lower imports by Western consumers, partially attributed to the end of stimulus fuel spending and other macroeconomic issues, including inflation. A loan trade is expected to grow by 3.8% in 2024. Newbuilding deliveries in '24 and '25 will be equivalent to approximately 20% of the fleet after a record net fleet growth of 7.7% this year. This has continued to pressure rates for some time. The Shanghai Container Freight Index, or SCFI, currently at 1,013, which is 5% lower than opening the year at 1,061. As you note the graph on the lower right, the U.S. retail inventory-to-sales ratio is off the recent low but still well below the long-term average.

The graph on the lower left, a recent slowdown of U.S. consumer purchases and goods, although still above pre-pandemic levels, lower imports have eased port takeaway bottlenecks and port congestion. Turning to Slide 29. Net fleet growth is expected at 7.7% for '23 and 6.8% for 2024. The current order book stands at 26.7% against 10.7% of the fleet 20 years of age or older. About 72% of the order book is for 10,000 TEU vessels or larger. In concluding the container sector review, supply and demand fundamentals remain challenged due to economic and geopolitical uncertainties and an elevated order book. Over the prospect of Chinese stimulus and world GDP growth of 3% for '23 and 2.9% in '24 provide a counterpoint for a challenging '23. This concludes our presentation.

I would now like to turn the call over to Angeliki for her final comments. Angeliki?

Angeliki Frangou: Thank you, Ted. This is a conclusion of formal presentation. We'll open the call to questions.

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