Navios Maritime Partners LP (NMM) 2022 Q1 法說會逐字稿

Thank you for joining us for Navios Maritime Partners First Quarter 2022 Earnings Conference Call. With us today from the company are Chairwoman and CEO Ms. Angeliki Frangou; Chief Operating Officer, Mr. Stratos Desypris, Chief Financial Officer, Ms. Eri Tsironi; and Executive Vice President, Business Development, Mr. George Akhniotis.

As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of the 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 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 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 provide a Navios Partners operational and fleet update overview. Next, Ms. Tsironi will give an overview of Navios Partners' financial results. Then Mr. Akhniotis 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?

Thank you, Daniella, and good morning to all of you joining us on today's call. I am pleased with the results for the first quarter of 2022. During the first quarter, Navios Partners recorded revenue of $236.6 million, EBITDA of $126.1 million and net income of $85.7 million or $2.78 per common unit. Sadly, Ukraine has been ravaged by award in its third month with significant cost in human lives. The war is also having an impact on global seaborne commodity trade. Ukraine and Russia has significant exporters of grain and other mineral commodities.

Russia also exported oil, gas and coal. Sanctions in the war have resulted in the displacement of those exports by other commodities being transported over longer distances. Thereby adding to ton miles. The situation is fluid, and we have no crystal bond to understand how this will evolve. In the meantime, governments and companies are quick to act to satisfy their short-term needs as they consider long-term policy. Please turn to Slide 3. In 2021, we reimagined the public shipping company. Today, NMM is one of the leading U.S. publicly listed discipline companies with an asset base diversified across 15 vessel types in 3 segments, servicing more than 10 end markets, about 1/3 of our fleet operating needs drybulk, containership and target segments, and we believe that the structure offers a stronger, more resilient entity to our stakeholders with a continuous opportunity for a creative growth.

As previously announced, this quarter, we agreed to acquire 4 Aframax/LR2 tankers on the back of charter commitments from an investment-grade counterparty. Through this transaction, we had a new subsegment with reduced risk and excellent long-term prospects.

Slide 4 present some recent segment that NMM fleet of 150 vessels had an average age of 9.5 years and a loan-to-value of 28.5%. The fleet has $4.1 billion of net equity value. Moreover, we have $2.8 billion in contracted revenue over approximately 35,500 available days for the remaining 9 months of 2022, almost half are exposed to market rates. This provides upside through the ongoing recovery in charter rates in the dry and tanker market.

Slide 5 summarizes a few basic principles behind the diversified platform. Number one, we can optimize chartering. In segment offering attractive returns, we can enter into period charters, while in other segments, we can be patient. Second, segments have some counter cyclical (inaudible). This creates the opportunity of redeploying the strong cash flow earned from performing segments into asset purchases in underperforming segments, where we believe attractive acquisition opportunities exist.

Third, asset value themselves can be volatile. Leverage rates remain low. Only if asset values cooperate, we believe that by diversifying our asset base, the balance sheet impact of asset value volatility will be muted. Consequently, our balance sheet strength will be partially based on its diversity. I note that we are in a rising interest rate environment globally. As I will discuss in a moment, we have been working at securing fixed rate financing and reducing the margin of our debt from about 300 basis points to about 200 basis points.

We see that the cost of debt increasing, which provides yet another reason to be conservative with the amount of debt on our balance sheet. On Slide 6, we will drill down how we optimize our chartering. As you can see from the charter on the top right, the container segment is enjoying historically high charter rate. Not surprisingly, we have fixed our container fleet on long-term charters with almost 100% of our available containership days fixed for the remaining 9 months of 2022. This reduces market and residual risk for these vessels. We manage the credit risk of the long-term charter independently to ensure that we are not simply trading one risk for another.

In our dry bulk segment, we benefit from a market where rates are recovering to their historical 20-year averages. We have fixed only 24% of our available drybulk fleet days for the remaining 9 months of 2022, and we have opted to keep 76% of our available days exposed to market rates to capture any available upside. Our chartering strategy also allow us to fix a drybulk fleet on longer-term charters when the rates do improve. Lastly, we have 53% of our available tanker days fixed, many with favorable legacy charters.

We anticipate running this fleet on market rates until healthy rates allow us to consider period charters. We expect our tanker fleet will generate strong returns once the market recovers. As I mentioned, we not only have the luxury of waiting for the -- this recovery, but also extend into subsectors such as the Aframax/LR2, given the strength of other segments. Slide 7 details our approach to capturing segment opportunity and our approach towards bearing our S&P activity with sector fundamentals. NMM made $1.3 billion investment in 22 newbuilding vessels that will deliver to our fleet through the first quarter of 2025.

We leverage the strength of the container market. First result to 16-year-old vessels for $220 million. And second, we hedged a $620 million investment in 10 new 5,300 TEU containerships by entering into long-term credit [worthy] charters for these vessels. These 10 containerships will earn about $710 million in contracted revenue for 5.2 years duration of the related charters. And are currently worth about 20% more than our older prices.

We are also engaged in continuous management of our fleet age profile in the dry bulk and tanker space, 7 dry bulk and 5 tanker vessels were acquired at attractive prices. In our dry bulk segment, NMM made $332 million investment in 7 newbuildings order when vessel values were challenged in the first half of 2021. These vessels are also worth about 20% more today. Slide 8 reviews recent developments. In the first quarter 2022, NMM generated $236.6 million in revenue, $126.1 million in EBITDA and $85.7 million in net income.

During the quarter, we entered into a new tanker subsector when we agreed to acquire 4 newbuilding Aframax/LR2 vessels. These vessels are designed with the latest technology and can carry either crude or products. The base acquisition price was $58.5 million per vessel and we will also pay $4.2 million more for additional features and improvement. 2 of the vessels have been chartered out for 5 years at a net rate of $25,576 to an investment grade counterparty.

During the 5-year period, each of these charters will earn $30.3 million in aggregate EBITDA, representing a 10% annual year. Keeping scrap value in mind at the end of the charter, the residual value will be 31% of our purchase price, while the vessel will still have 20 years of useful life. For the remaining 2 vessels, the charter has an option to charter the vessels at the same terms and the option is exercisable by mid-October 2022.

The newbuilding VLCC acquired in 2020, delivering into our fleet in July 2022 was fixed on a 2-year bareboat charter to an investment-grade rated Japanese oil majors at a floating rate with a floor of $22,572 per day and a ceiling of $29,700 net per day.

NMM P&L is healthy and the balance sheet remains strong. As of March 31, 2022, we have about $108 million in cash. the size of our balance sheet cash has a number of considerations, including new vessel capital commitment and related working capital. Consequently, I would expect that we will call considerably more than our current cash balance, considering only our working capital of our own fleet size, we estimate an approximate cash balance that will be around $2 million per vessel. Leverage is 28.5% LTV as of March 31, 2022, and have a staggered debt maturity profile. NMM has a $2.8 billion in contracted revenue. For the remaining 9 months of 2022, our contracted revenue already exist, forecasted expenses by almost $70 million. Moreover, out of 35,500 available days, almost 16,000 of the days are exposed to market rates allowing for significant potential cash flow generation.

At this point, I would like to turn the call over to Mr. Stratos Desypris, our COO, who will walk you through the next few slides. Stratos?

Thank you, Angeliki, and good morning all. Navios Partners is differentiated by its industry-leading scale and diversified sector exposures and opportunity for continuous accretive growth. Slide 9 details our strong operating free cash flow potential for the remaining 9 months of 2022. We have contracted 55.4% of our about 35,500 available days at an average rate of $28,697 per day. Our contracted revenue exceeds total cash expenses by almost $70 million, and we still have 15,829 days with market exposure that will provide additional operating cash. The majority of our market exposure comes from our dry bulk vessels, where approximately 76% of our available days are open or contractable index-linked charters.

On Slide 10, you can see our fleet profile. We are engaged in a renewal process, which is a constant balancing effort. We'd like to be proactive and capture cyclical opportunities while allocating capital. As you can see at the bottom of the slide, we have 24 vessels that are over 15 years of age. While at the same time, we have 22 newbuilding vessels to be delivered from the third quarter of 2022 through the first quarter of 2025.

Moving to Slide 11. We continue to secure long-term employment for our fleet. As Angeliki mentioned, we recently entered 2 new tankers into a new tanker segment, Aframax/LR2. We chartered all 2 of these vessels commencing in 2024 for 5 years, at $25,576 net per day. This will generate approximately [$93] million of contracted revenue. As to our other chartering activity, we charter out the newbuilding VLCC delivering in July 2022 on a bareboat basis, for a period of approximately 2 years at the floating rate based on index with a floor of $22,572 and a ceiling of $29,700 net per day, adding operating expenses of approximately $10,000 per day, the vessels will earn a floor of $32,572, and a ceiling of $39,700 net per day on a time charter equivalent basis.

We chartered-out one 4,250 TEU containership for approximately 5.2 years at an average net rate of $40,743 per day, generating approximately [$76 million] of contract revenue. Following these recent fixtures, our contracted revenue amounts to $2.8 billion. 79% of our contracted revenue comes from our containerships with charters extending through 2030 with a diverse group of quality counterparties. Around 40% of this contracted revenue will be held through the end of 2023.

I now pass the call to Eri Tsironi, Navios Partners CFO, who will take you through the financial highlights. Eri?

Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the first quarter ended March 31, 2022. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. I would like to highlight that 2022 results are not comparable to 2021 as in 2021, NMM gradually merged with Navios Containers and Navios Partners, increasing its available days by 164% to 11,128 compared to 4,252 for the same quarter last year.

Moving to the earnings highlights on Slide 12. Total revenue for the first quarter of 2022 increased by $171.5 million or 263% to $236.6 million compared to $65.1 million for the same period in 2021. The increase in revenue was a result of the expansion of our available days and the increase in time charter equivalent rate. The fleet TCE rate increased by 37.4% to 20,386 per day compared to 14,836 per day for the same period in 2021. The average TCE achieved by sector was drybulk 19,849, containers 27,214 per day and tankers 15,345 per day.

For the 3-month period ended March 31, 2021, EBITDA was affected by [$124.9 million] of one-off noncash items. EBITDA for Q1 2022 increased by approximately $92.4 million to $126.1 million compared to $33.7 million adjusted EBITDA for the same period in 2021. The increase in EBITDA was primarily due to an increase in revenue, partially mitigated by a $50.2 million increase in vessel operating expenses, a $14.6 million increase in time charter and voyage's expenses and $9 million increase in general and administrative expenses and $4.9 million increase in direct vessel expenses excluding amortization of deferred drydock special survey costs and other capitalized items and a $0.9 million increase in other expense net.

The increase in expenses is mainly a result of the expansion of our fleet. Net income for the 3-month period ended March 31, 2022, amounted to $85.7 million as compared to $11.8 million adjusted net income for the same period last year. The increased net income was primarily due to a $92.4 million increase in adjusted EBITDA and a $21.8 million increase in amortization of unfavorable lease terms. The above increase was partially mitigated by a $29.8 million increase in depreciation and amortization expense, a $7.4 million increase in interest expense and finance cost, net and a $3 million increase in amortization of deferred drydock, special survey costs and other capitalized items.

Turning to Slide13. I will briefly discuss some key balance sheet data. As of March 31, 2022, cash and cash equivalents were $108 million. Our cash position has been mainly affected by the following items: $126.1 million EBITDA, $82.7 million working capital movement in accordance with the management agreement, mainly relating to our tanker fleet, $19 million payment for our newbuilding vessels, [54.5 million] net payments on our loan facilities and interest payments, [12.1 million] payments for drydocks' addition to vessels and 12.1 million payments relating to claims to be settled by insurances in future periods.

Long-term borrowings, including the current portion, net of deferred fees amounted to $1.32 billion. Net debt to book capitalization was at a comparable level of 38%.

Slide 14 highlights our balance sheet strength. Our debt is 4x covered by the value of our fleet based on (inaudible) . We have already arranged the financing for the 2022 maturities, while our remaining maturity profile is staggered with no significant volumes due in any single year. Approximately 50% of our debt, including operating lease liabilities have fixed interest rate, providing natural hedging against the foreseen rate increases. The strength of our balance sheet is also reflected in our latest financing activities. We continue to lower our margins in our new debt facilities.

In March 2022, we signed a $55 million facility at SOFR plus 2.25%. In April, we have agreed to enter a new facility of $25.2 million as SOFR plus credit adjustment spread plus 2.5%, refinancing existing facilities with an average margin of 3.3%. We have also received offers for the financing of our newbuilding program at even lower margin levels.

Turning to Slide 15, you can see our ESG initiatives. We aspire to have 0 emissions by 2050. In this process, we have been pioneering and are adopting certain environmental regulations up to 2 years in advance, aiming to be one of the first fleets to achieve full compliance. Navios is a socially conscious group whose core values include diversity, inclusion and safety. We have a very strong corporate governance and a clear code of ethics. Our Board is composed by majority independent directors and independent committees that oversee our management and operations.

Slide 16 details our company highlights. Navios Partners is a leading U.S. publicly listed company. Our diversification strategy creates resiliency and enables us to mitigate individual segment volatility. And diversification scale and financial strength should make NMM an attractive investment platform as we take advantage of global patents.

I now pass the call to George Akhniotis, Executive Vice President of Navios Partners. George?

Thank you, Eri. Please turn to Slide 18 for the review of the dry bulk industry. Despite the disruption in trade caused by the war in Ukraine, the [PDI] achieved the highest Q1 average since 2010. This was driven mostly by the strength of the [subcape] sectors. In fact, the Supramax sector posted the highest Q1 average since assessments began in 2017 on the back of strong minor pack demand and an overflow of container cargoes. Dry bulk trade in 2022 is projected to increase by 0.6%. Similar to last year, most of the increase is expected to happen in the second half of the year with an additional boost in ton miles as Ukrainian grain exports are expected to be significantly reduced, Russian grain and coal exports (inaudible) directed away from Europe.

New longer trade routes emerge on the back of stronger worldwide coal demand as the world seeks to cope with extraordinarily high natural gas prices. Turning to Slide 19. Demand for major and minor back cargoes remains in growth mode, despite China lockdowns and the invasion of Ukraine. Specifically, seaborne iron ore trade is expected to increase by 10.2% in the second half of '22 with normal seasonality project in Brazil and Australia increasing exports as China plans further infrastructure investments to maintain 2022 targeted GDP growth of 5.5%. High gas and oil prices and the Ukraine-Russian crisis should support increased coal imports.

The gas price surge has driven power plants to switch back to coal-fired power generation helping 2022 ton miles expand at an expected rate of 4%. Seaborne coal export imports for the second half of '22 will follow the same seasonal pattern as iron ore, as coal demand is expected to grow by 7.8% in the second half of '22. On the grain side, the global grain trade continues to be supported by an ever-increasing world population, rising protein demand worldwide and heightened food security issues initially driven by the pandemic and now by a war encroaching on the wheat and corn fields of Eastern Europe. Although global seaborne grain trade is expected to decrease in 2022 by 1.4% due to the Ukraine crisis, new trading patterns will result in ton mile decrease of only 0.4%.

Please turn to Slide 20. The current order book stands at 6.6% of the fleet, one of the lowest on record. Net fleet growth for '22 is expected at 2.2% and only 0.4% in '23 as owners remove tonnage that will be uneconomic as the IMO 2023 CO2 rules come into force. Vessels over 20 years of age are about 8.3% of the total fleet, which compares favorably with a historically low order book.

In concluding our dry bulk sector review, continuing positive demand for natural resources, war in sanction-related longer haul trades for coal and grain, combined with COVID-related fleeting efficiencies and a slowing pace of newbuilding deliveries will support healthy freight rates.

Please turn to Slide 22, focusing on the container industry. Demand for goods [over] services in the U.S. and Europe continue to be firm, supporting container trade. Recently, rates have moderated. However, rates are over 5x 10-year averages and long-term rates are at or near record levels, allowing owners loading long-term contracts at profitable levels. As you can see in the box on the lower right, increases in demand for goods, for congestion and restocking should further support containership demand with expected growth of 3% in '22.

Turning to Slide 23. Net fleet growth is expected at 3.5% for '22, close to the demand growth forecast. It should be noted that about 66% of the orderbook is for 13,000 TEU vessels or larger. In addition, 10.2% of the fleet is currently 20 years of age or older. In conclusion, the container trade remains robust in spite of recent geopolitical and macroeconomic headwinds. Supply and demand fundamentals remain balanced due to continuing demand for consumables, stock building and supply chain bottlenecks. Along with continued fleet and porting efficiencies, should continue to support the containerized shipping industry in '22.

Please turn now to Slide 25 for the review of the tanker industry. In spite of the Ukraine-Russia crisis, the IEA still projects an approximately 2% increase in well growing demand for '22. The expectation is that by Q4, oil demand will exceed pre-pandemic levels. Refining margins have increased substantially as strong demand for clean products continue to expand ahead of the summer travel season. The IEA projects a 17.3% increase in jet fuel demand in '22.

Both crude and clean products should benefit from boost in ton miles as Russian oil exports are redirected to new longer trade routes on the back of a phased-in European ban on Russian exports. Turning to Slide 26. VLCC net fleet growth is projected at only 2.9% for '22 and only 1.5% for '23. This decline can be partially attributed to owners hesitant to order expensive, long-lived assets in light of macroeconomic uncertainty and engine technology concerns due to upcoming CO2 restrictions. The current orderbook is only 6.2% of the fleet. Vessels over 20 years of age at 10.7% of the total fleet, which compares favorably with the low orderbook.

Finally, turning to Slide 27. Product tanker net fleet growth is projected at only 1.1% for '22 and only 1% for '23. The current product tanker orderbook is 4.9% of the fleet, one of the lowest on record and compares favorably with the 7.3% of the fleet, which is 20 years of age or older. We believe that the overall tanker order book and fleet are well balanced as the IMO 2023 and Ballast Water Management regulations will lead to some vessel retirements in the coming months.

In concluding, product tanker rates began to pick up in recent weeks. And they are currently at healthy levels, leading the way for the crude tanker recovery. The combination of global oil demand returned to pre-pandemic levels, OPEC+ increasing production, new longer trading routes for both crude and products as well as the lowest orderbook in 3 decades should provide for healthy tanker earnings going forward.

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

Angeliki?

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

(Operator Instructions) And we'll go first to Chris Robertson with Jefferies.

So the containership in dry bulk markets remain firm. Tanker rates are on the rise and NMM has $2.8 billion in contracted revenue. And yet at $0.05, the distribution was just 1.8% of quarterly EPU. With units trading well below [NAV], how are you thinking about returning capital to unitholders at this point?

Thank you for the question. I think it's a very fundamental question of what we are doing. I mean we have a diversified platform. What we are doing is basically we are allocating -- we have seen that we have been very nimble. We actually invested in a new sector, the Aframax/LR2 which is the opportunity when other companies that are in the sector could not [adhere] in the targets we were able because we are diversified to allocate resources and enter very opportunistically and very conservative in a sector where it can give us a great result, the Aframax/LR2.

On the other side, we are on a total return and what we provide to our shareholders, we are providing them now. We have a low LTV as of now, and we have the opportunity to save $1.3 billion on newbuildings that in the essence, we are able to basically replace our fleet. If you have seen it, we have 22 newbuildings, and we have about 24 vessels that are between 15 and 20. So this is basically an ongoing process that allow us to allocate opportunistically in the correct sector and -- because we are diversified. So we don't have to resolve containers, and we have reallocated money in gas, in tankers. And we are doing that constantly. We have been doing it across the board in the different segments, providing a total return to our investors.

Just in terms of the newbuilding program, I guess, is that -- do you think that's come to completion at this point because a substantial amount of your fleet will be replaced in coming years as those deliver. So how are you thinking about, I guess, an ongoing basis? Are you going to be more in cash harvesting mode now that the kind of firing on all 3 cylinders and that could potentially be used for more capital return to the unitholder? Or do you think there's more growth from here in terms of the fleet?

It actually is -- you have to see between the things that you have to manage it. You have the newbuilding program, which we have to fund. There is a low LTV, which is very, very important because we have seen that. Let's not forget, we look at the horrific background backlog this is, for to have a war in Ukraine. You have a rising interest rate. You have basically a 0profit policy in China. Yes, the news in shipping are good. You have -- because of government and companies trying to fulfill their immediate need, but there is uncertainty on the longer term. So we need to be prudent on -- because we are really in the crossroads of different events. So our priority is low levels that will allow us to have the flexibility and to act on the different opportunities.

We'll go next to (inaudible) with Fearnley Securities.

Congratulations on another great quarter. I have a question. Well, you already touched up it on Page 10 with balancing the aging vessels with newbuildings. How do you -- you commented on the growth just -- but my question is, what do you see as an ideal or optimal fleet size is about 150 vessels, a number that we should expect going forward as well? Or do you look for growth?

I think this is a good question,(inaudible). This is about creating value, creating [NAV] and creating additional value for all our stakeholders. So it's not about a particular number of vessels, but mostly about how you created most of the value for stakeholders. What we show on the deal that we recently did on entering the Aframax/LR2 will show an opportunity where other companies may not have been focused on, may not have stamina to go in there, we were able to step in, entering a new sector in a very flexible vessel that -- and also a very opportunistic where we are actually with a 5-year contract, we generate over $30 million of EBITDA. we have a 10% yield and then you come on a residual value risk after 5 years, taking consideration also the scrap value to about 30% residual value. So this is an attractive entry point. where it gives us the opportunity to build on that. And that is the kind of opportunities we see. So it's about creating value for our investors.

Okay. And also looking at operating cash flow, it looks like about $5 million trickled through from about $126 million of EBITDA for the quarter. I presume there are some working capital movements there. Can you provide some color or elaborate on those moments?

No. I think as we mentioned in the script, we have cleared the working capital required under the management agreement, mainly relating to the tanker fleet. And we also have some advances for the new buildings. So that has mainly affected our cash position.

And are any of those movements expected to be reversed over the next quarter or -- and I mean, what should we expect for movement for next quarter?

The management fees will be in line with what we have in our management agreement. There are no backlog. If that is your question.

And that concludes our Q&A session. I will now turn it back to Angeliki for any closing remarks.

Thank you. This completes our first quarter results. Thank you.

And this does conclude today's program. We appreciate your participation, and you may now disconnect.