Navios Maritime Partners LP (NMM) 2015 Q4 法說會逐字稿

Thank you for joining us for Navios Maritime Partners' Fourth Quarter 2015 Earnings Conference Call. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Stratos Desypris and Executive Vice President of Business Development, Mr. George Achniotis. As a reminder, this conference call is also being webcast. To access the webcast, please go to the Investors section of Navios Maritime 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 reference in today's earnings conference call will also be there. 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 her opening remarks. Next Mr. Desypris will give you the overview of Navios Partners' financial results. Finally Mr. Achniotis will provide an operational update and an industry overview. Lastly, we'll open the call to take your questions. Please note we need to complete this call prior to the market opening at 9:30 Eastern. Now I turn the call over to Navios Partners' Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

Thank you, Laura. And good morning to all of you joining us on today's call. For 2015, we reported $153 million of EBITDA and then $41.8 million of net income. Our net income per unit for the year was a strong $0.48. While Navios Partners is healthy, we announced a necessary but painful decision to eliminate distributions given our high cost of capital, the inability to know when markets will repair and the opportunity to acquire assets at attractive prices.

We did not take this decision lightly. Navios Holdings has also (inaudible) distributions for its investment in Navios Partners. I and other members of our management team are investors in NMM as well. Nevertheless, we believe that by eliminating distributions when Navios Partners does not have access to equity markets to grow is in the best local interest of our unitholders. While unitholders will forgo near-term cash flow, we believe that we are going to create meaningful distributable cash flow in the future whether through capital gains or a healthier charter market. Slide 4 outlines material development since the first quarter of 2015. The market that we participate in continue to deteriorate, the Alerian MLP index has declined by 17% since the third quarter of 2015 and 50% over the last 18 months. In addition, Marine MLP operating at yields that are at significant premium to the Alerian Index and usually low MLP has access to the equity or debt capital markets to fund growth CapEx. As of yesterday, Navios Partners was yielding over 38%, almost more than four times the Alerian Index yield of 9.7%. Our unit price has declined by 69% since September 30, 2015. While the MLP market decline is generally associated with a price decline in the energy market, the dry sector weakness (inaudible).

China's economy has underperformed most on a GDP and industrial production rates and there is slowing global trade with prices continuing to decline for most seaborne commodities and continued uncertainty relating to the outlook of seaborne volumes and ton miles reflecting the Baltic dry bulk index, the BDI, declined by almost 65% since the third quarter of 2015 and is currently trading at a record low, which I might add is 40% lower than 30-year low established in February of 2015.

Slide 5 and slide 6 demonstrates that despite the weakness surrounding the Company in the MLP, the dry sectors remain strong. We believe that this trend can be the basis of repositioning the Company as a unique platform for growth in the stress environment. Our strength is our balance sheet. The rating agency staff expressed their views by rating NMM at BB for S&P and Ba3 for Moody's, relatively strong ratings in the shipping sector. Our credit ratios are enhancing with net debt to book capitalization of 42.4% and interest coverage of 5.5 times and our rental price is valued relatively inexpensively as NMM trade would be a ratio of about 4.7 times and a EV to EBITDA of about five times.

In addition to enhancing credit metrics, we have not only growth CapEx required and our debt maturities are manageable with a Term Loan B maturing more than two years from now. We also have a balloon payment that is due in November of 2017, which we believe should be easily financed given the existing [MLP rate]. As one might expect, given the depressed market financing isn't available and many of our public peers are facing liquidity and solvency issues and in the time distressed market, where asset values and charter rates are depressed and capital is an available barter making for reliable transacting partners. And vessel owners are seeking liquidity from the second hand vessel market. We also have the ability to generate significant free cash flow. The table on slide 6 shows the potential cash generation for 2016. As you can see, even in a record low charter rate environment of today, we should be able generate about $80 million assuming steady operating cost in today's spot market rate for our are open days. Eliminating distribution, will reduce annual cash requirement by $72 million and allows to [reinvest and grow] cash accretively, whether in the fleet renewal program or otherwise. Through this effort, unit holders should be able to participate in future capital gains when asset values recover. In summary, by conserving cash, NMM can capitalize on market relocations to become a unique platform in the dry industry, positioned to acquire assets and create capital gains.

Slide 7, shows our liquidity. As of December 31, 2015, we had total cash of $34.5 million and total debt other of $598.1 million. We have a low net debt to book capitalization ratio of 42.4% and no significant debt maturities ending 2018.

And at this point, I would like to turn the call over to Mr. Stratos Desypris, Navios Partners CFO, who will take you through the results for the fourth quarter of 2015. Stratos?

Thank you, Angeliki and good morning all. I would briefly review our announced financial results for the fourth quarter and year ended December 31, 2015. The financial information is included in the press release and is summarized in the slide presentation on the Company website. Moving to the financial results, as shown in Slide 8, our revenue for Q4 2015 decreased by 10.2% to $53.3 million compared to $59.4 million for Q4 2014. The decrease was mainly due to the 11% decrease in the time charter equivalent achieved in Q4 to $18, 223 per day compared to $20,388 for Q4 of last year.

EBITDA for the fourth quarter of 2015 decreased by 9% to $55.7 million, primarily because of the decrease in revenue as discussed above as well as the $1 million increase in management fees due to our larger fleet. This was mitigated by the decrease in time charter and voyage expenses by $2.4 million due to the delivery of two chartering vessels. Net income for the fourth quarter of 2015 decreased by $5.7 million compared to the same period last year. Operating surplus for the fourth quarter of 2015 amounted to $25.2 million. Based on our price distribution, our common unit coverage for the quarter would have been 1.4 times. Replacement and maintenance CapEx reserve was $3.6 million. Fleet utilization for the fourth quarter of 2015 was almost 100%.

Moving to the 12-month operations, time charter and voyage revenue decreased by 1.6% and amounted to $223.7 million. Revenue has been negatively affected by the approximately $5.6 million effect of dry-docks performed in advance in the second and third quarter of the year. EBITDA and net income for 2014 has been positively affected by the $47.6 million income from an insurance settlement. Furthermore, net income for 2014 has been negatively affected by a $22 million loss from a non-cash write-off of an intangible asset.

Adjusted EBITDA for 2015 increased by $0.9 million to $153.3 million. Adjusted net income decreased by 15.2% to $41.8 million. Operating surplus for the year ended December 31, 2015 was $112.7 million.

Turning to slide nine, I will briefly discuss some key balance sheet data as of December 31, 2015. Cash and cash equivalents was $34.5 million. We also maintained a $60 million liquidity line from our sponsor. We do not have any immediate funding requirements for committed growth CapEx. Our long-term debt, including the current portion, increased by $22.1 million. This increase is due to the $79.8 million debt incurred for the acquisition of MSC Cristina earlier this year and was mitigated by the $57.7 million debt repayments made during 2015. Net debt to book capitalization was 42.4% at the end of the quarter.

Slide 10 shows the details of our fleet. We have a large, modern, diverse fleet with a total capacity of 3.3 million dead-weight ton. Our fleet is young with an average age of 8.6 years, below the respective industry averages. Our fleet consists of 31 vessels, eight Capesizes, 12 Panamaxes, three Ultra-Handymax and eight container vessels.

Slide 11 demonstrates our strong relationship with key participants in our industry. Our charters have an average remaining contract duration of 3.2 years. About 86% of our contracted revenue is from charters longer than three years. Our charters are spread among a diverse group of counterparties.

In slide 12, you can see the list of our fleet with the contracted rates and the respective expiration dates per vessel. Currently, we have fixed almost 80% of our available days for 2016 and we are 57% fixed for 2017. We do not have charter rate exposure to the container sector, as our vessels are fixed for an average remaining period of approximately seven years. The expiration dates are staggered and the charter durations extend to 2027.

As shown in slide 13, we are an efficient, low-cost operator. We are benefiting from the economies of scale of our sponsor and we have renewed the fixed operational costs for a 3% increase over two years until December 31, 2017. Our renewed OpEx is almost 17% below the industry average.

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

Thank you, Stratos, and good morning. Please turn to slide 15 and the dry bulk market fundamentals. Growth in world GDP in general coincides with growing raw material demand for steel and energy production, particularly as emerging markets, (inaudible) industrialize. According to the IMS, the rate of world GDP growth declined from 3.4% in 2014 to 3.1% in 2015. GDP growth is expected to increase to 3.4% in 2016 and 3.6% in 2017. Emerging and developing markets are expected to grow by 4.3% in 2016 and 4.7% in 2017.

Turning to slide 16, low cost Australian and Brazilian iron ore continues to displace more expensive lower quality domestic Chinese ore. In 2015, Chinese domestic iron ore production declined by over 8%. Steel production was slightly negative, but seaborne iron ore imports increased by almost 3%. However, a lot of tonnage [had trouble or] shortfall transpacific routes reducing ton miles.

Steel production in China continues at high levels as Chinese steel exports reached new highs. The Australians continue to take advantage of their favorable geographic position and low cost of production and increased exports in 2015. Forecast indicates that seaborne iron ore will remain flat in 2016, but Australia and Brazil will gain market share at the expense of producers from Africa and Latin America further reducing ton miles.

Moving to slide 17, coal is still the least expensive fuel for producing electricity particularly important to the emerging market region. The coal market in China is the largest in the world consuming about 4 billion tons annually. With the collapse of commodity prices worldwide, we have seen the Chinese authorities protect their domestic coal mining causing a significant reduction in coal imports of about 80 million tons.

While Libya looked as though it would make up for China's decline in coal imports at the beginning of 2015, record production by Coal India, their chief domestic supplier, quickly reduced their need for more coal imports. As a result, India is expected to only increase import by 5% in 2015.

The net reduction of Chinese and Indian imports of seaborne coal in 2015 is estimated at 14%. Over 2016, the forecast of our coal shipments will marginally grow led by Southeast Asian countries where new efficient coal-fired electricity generators are being built.

Please turn now to slide 18. The dry bulk market has continued to underperform reaching all time BDI lows in the last few weeks. In 2015, 42% of the expected new vessels did not deliver accelerating the part of non-delivery seen over the last several years. Preliminary data points to over 60% non-delivery from January driven by the [troubling] low market.

At the same time, scraping volumes for older, less fuel efficient vessels have dramatically increased. In 2015, over 30 million dead-weight ton was scrapped compared to 16 million in 2014. This includes 95 Capesize vessels compared to 24 Capes in 2014. High scrapping is continuing this year, as 5 million dead-weight tons have scrapped through the first four weeks compared to 2.9 million over the same period in 2015. If the current rate continues for the remainder of 2016, a record high both in terms of dead-weight and percentage of the fleet could be reached.

Net fleet growth for 2016 is projected to be flat to negative given historic non-deliveries in current rates of scrapping, troubled with all time low market levels. This could be the first year of negative fleet growth since 1999, when the fleet contracted by 0.3%.

Moving to slide 19, over the past 19 years container freight has expanded at 7.2% CAGR. As the rate of world GDP growth declined between 2014 and 2015, there was also a reduction in the rate of container trade growth to 2.5% in 2015, the lowest increase since 2009.

However, it is expected to increase by 4.2% in 2016. As demand growth is projected to be more than net fleet growth, charter rates should improve during the year. NMM's container vessels are fixed on long term charters, so they were not affected by this sluggishness in 2015. Turning to slide 20, at the beginning of 2016 the container fleet consisted of 5,225 vessels of almost 20 million TEU capacity. Vessels carrying 1.7 million TEU were delivered during 2015 vessels a projection of vessels carrying 1.9 million, giving a non-delivery rate of 12%. Scrapping during 2015 decreased over previous years as the rates improved in the second quarter. 90 vessels with a capacity of 193,000 TEU were demolished in 2015 compared to 171 vessels with a capacity of 384,000 TEU in 2014.

Going forward in the current marketing environment, we expect scrapping of older vessels to accelerate. Last year, TEU capacity increased by 8.1%, driven primarily by deliveries of larger 8,000 TEU and above container ships. Estimates are that TEU growth will be about 4% in 2016 about the same as 4.2% estimated increase in container demand.

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

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

(Operator Instructions) Noah Parquette, JPMorgan.

Thanks for taking my questions. I guess the first one points to dividend cut and the cash flow savings that you have, can you talk a little about what your preliminary plans to use that is? I mean, you have obviously the debt refinancing in 2018, but can you talk about your comfort level on refinancing a portion of that and maybe what you think your firepower is and whether you are going to be looking at the dry bulk or container side? Thanks.

Thank you, good morning, Noah. The one thing that you have to see that deteriorate end market from November, let's not forget that July last year we were about 1,200 BDI, in November we were [6,300]. So you have a materially different environment and what used to be a supply issue today you are seeing as a global growth issue. We are [40%] lower than the year low on the BDI. So one of the things we see that Navios Partners is a strong company. If you've seen the size, our cash flow generation can be $80 million even spot market meaning open day dry bulk, you fix them on the spot yesterday's market and you still generate $80 million. So our decision today is that we see that with this kind of a cash flow generation environment, we see banks trying to find entities where they can transact and that's where [Luzon] is looking for to sell vessels in the second hand market, we think this is the right time to reinvest this money to provide opportunities for our shareholders on a longer term.

So yes, we see the growth, some of it is today, but you will be able to pick up these vessels in the dry bulk, which is uniquely positioned and on the container segment. But today with the credit issues around the world, I wouldn't think that it will be a cash flow generating asset. It will be mostly that you can acquire assets at unique prices that will generate capital gains

Okay. And then just as a follow-up the vessels, the dry bulk vessels you have coming off charter this year obviously the spot market is terrible, you addressed that, what are your plans there? I mean, can you be expecting some of these older ships to be scrapped or just keep it short term in nature, maybe some insight there?

One of the things I want for you to see is that these vessels that are coming up is purely an optionality. If you use the rate (inaudible), we use a BDI of 8 mini Panamaxes at $2,260 and that means a spot rate, they are generating [8 million]. So that is an optionality. If you are seeing dry bulk, okay, today we are in a negative loop where financial reflects to the fiscal back and forth, but I think they are discovering [a new type], this is clearly an optionality for us.

Would you consider cold layoffs and is that on the table and what do you estimate the cost of - the rates are so low that -?

Any of the two, I mean, there is not really a big difference to be honest. Either you operate - and we have incorporated the cost, so if you lay them up you will actually, maybe make a couple of million more. We have all options. To be honest, you have a unique situation where you can think about and even wait and see what is your best option You are not in a hurry.

Amit Mehrotra, Deutsche Bank

Yes, thank you very much. I have a few quick questions with respect to, I guess, the $70 million plus cash that the partnership is going to save from the distribution cut elimination of the distribution, could NMM become an explicit liquidity provider to Navios Holdings either via acquisition of assets alone or maybe even preferred equity injection, could that happen?

I think this is not the [consideration] to this call. I mean, we're seeing that for NMM it's a very viable decision. I mean, you have a changing environment that made you take the decision not to distribute but to keep this cost for finding attractive transactions and providing in future deals that make sense on capital gains later on for the company. I think that is the way we view it and the Board viewed that decision as we realized that on the current environment that you don't have access on debt and equity, this cash is valuable and can provide the usual banks or rather loans.

Okay. May I ask just one or two more quick ones, in terms of your comment about turning NMM into a growth platform, I understand that dry bulk assets are cheap by historical standards, that's obvious, but in this environment they obviously burn cash on day one. So I'm just trying to think why it's the right strategy to buy assets when rates are below OpEx, when liquidity is clearly an issue or is the distribution cut really more of a strategy, so that when you are discussing with lenders, you can sort of show that you've taken difficult actions to sort of push out the enterprise to the long-term, is that how we should think about it?

First of all, I mean you can buy assets at attractive, of course, I mean today you're looking on a BDI 40% below 30-year low and if you don't have - I mean, if you realize that the market is not going to be or we are not going in global recession as it is the world will be [leading] tomorrow you have these assets and you can pick them up on something that is unique on prices. We do not have a liquidity issue and you can always buy vessels and even idle it if you want and have the capital appreciation. This is an opportunity that we may see. You may also do a package of vessels with one such mix assets meaning it can be different types as well as [those through] transactions. The reality is that the ability to transact, the ability and willingness to transact by having this $80 million of cash generation.

Yes. Yes, one last quick one if I may, maybe this one is for Stratos, but if you mark-to-market or take the current rates and extrapolate them I guess over the next 12 months and mark-to-market the 15 or so dry bulk re-charterings in 2016 or this year, what is the impact to the EBITDA following on the 4Q run rate? I mean we obviously calculate this, we think it's $35 million in terms of annual hit to EBITDA is that in the neighborhood of sort of the hit?

Actually if you see Amit in slide 5 we already calculated our revenue generation and EBITDA and cash generation of these vessels based in the current market. So we did it.

Sorry, I missed that. I apologize.

Yes, Amit you can see that, we expect to have around $9 million of free cash generation from these vessels, starting today for the next 12 months from today's environment.

Okay, great. All right guys, thank you very much. Good luck, appreciate it.

Michael Webber, Wells Fargo.

A number of my questions have already been touched on. I didn't want to come in and ask how you guys think about your exposure to HMM just given the fact that (inaudible) in terms of, I guess you called it a restructuring, but specifically looking at HMM and [augments] potentially [HMM] will extend their existing potential contracts. So any thoughts around how you guys would look at approaching something like that now and what conversations or contact you guys have had to date around that topic??

Good question. I think, the one thing we follow very closely HMM. We have sent - one of our teams was down in Seoul. We are monitoring closely. What we understand they are doing is they're not going on a formal rehabilitation process but what they're doing is they're selling assets in order to be in compliance. So they are not going for a formal reorganization. So up to now they have been paying us without even one day delay. And this is a large organization and this is what you have to really do, follow that process, which is easy and I think they will entail mostly sale of assets.

Great, yes, it seems as though augmenting container ship contracts is more of an issue for your creditors to look eventually up than refi and from our position and then extending, it wouldn't actually be the worst thing in the world depending on the terms. And I know you've seen this through other cycles in dry bulk, but can you draw any parallels to previous cycles where we are see either mines or larger commodity players look to augment current contracts, how much value will you extrapolate upfront, how much leverage do you have in that situation? In general, it seems you have a fair amount of negotiating leverage. And maybe just any commentary around that just sort of how we kind of think about the spectrum of how that comes here?

You have to see that they will need to remain somehow and [see a slew] of cargos out of Korea, I think that somehow you will be able to capture - there is a value on this contract. So I don't think that they can easily either them or whoever is the subsequent company they will need to use the vessels for the cargo flow. So that's why we had not - I mean it is something that we monitor very closely as you said and you may have different solutions through this period. I don't think that is something that will go to a reorganization where you lose value quickly. It is something to monitor very closely.

Right, yeah it might be - it certainly seems like it's a bit early in that process and this is something that would be down the line, but just curious since it's been in the news. There is one more from me and I'll turn it over. It is actually more around your debt, you know the dividend cut makes sense all things considered and it seems like you would also be relatively credit positive, I know - I believe your Term Loan B rolls in 2018, but can you refresh us on where you guys stand on your loan to value that fits around the Term Loan B being in and how you think about you access to refi in that market?

The Term Loan B is - we are in compliance as you know and is 80% loan to value. While our bank debt, which is the remaining part is at between 70% and 74% loan to value on our bank debt. So overall, the company is taking consideration where we are in the cycle. I think one is that you have to say that you are not in liquidity, you have plenty of liquidity, you have cash flows and you have a loan to value covenant.

Now, if you see where you are, I mean there is one maturity in November of 2017 of about $57 million, which is just a balloon of about 9 vessels and that's easily re-financeable, meaning that's why I give you that number. And then our Term Loan B is coming at mid 2018. If you realize your cash flow generation and see that you are today at 80% loan to value you can say that you will be able easily to re-finance even with conventional bank debt.

Chris Wetherbee, Citi.

Good morning. This is Prashant in for Chris. Lot of my questions have been touched upon already, but I guess, given that the move to preserve cash here is really to have dry powder to acquire assets with unique values and it seems like there is a certain amount of comfort around the ability to refi that debt in 2018. I'm just trying to get a sense of internally, how do you view the current trough in dry bulk as to how long it continues? Especially given high fixed years in 2016, 2017 a fair amount, is this something that you see as sort of continuing to trough in 2017 or do we see an inflection as we get towards 2018 and I'm thinking about this sort of in terms of cash flow generation as the debt refi comes up?

I think last year we were discussing more about the supply. So today you see that you have zero negative fleet growth from Capes and you have actually now we think Panamaxes to be zero fleet growth, negative. So in essence I think this is more of a demand issue meaning if we see market stabilizing or stop dropping, which is part of the front haul for rate and on this, you see a stabilization not meaning moving up but stabilization of commodities and in essence global trade. We have a kind of scrapping that is happening I think you will have a rebalance and so you will easily see the market coming out. Let's not forget that for 18 months we are in dropping oil prices that have an effect on freight and the BDI as is part of the front haul. So unless this is stabilized somewhere, and I think that we will be reaching at one point that level. We will be able to see market and freight recovering.

Okay, thanks. And just one quick follow up, although probably not a primary use of cash given the dividend cut are there any thoughts about maybe buying back a little bit of incremental equity to add value to unitholders while they wait for future cash flows from asset acquisitions?

Actually this is one of the considerations that I will be reviewing as an option.

Okay, should we expect this is something - sort of could you help us prioritize where this is sort of in the list of issues of uses of cash after asset acquisition and sort of debt considerations, what are the uses of cash?

I think is part of the considerations, we review with the Board and come to a decision, we come back with a decision.

Shawn Collins, Bank of America.

Great, thank you. Good morning and good afternoon, Angeliki, Stratos and [George]. I wanted to ask about the credit default insurance that Navios Partners has with Navios Holdings for $20 million, which comes into effect in the case of credit default by the charter out vessels, which is covered to 2016. Can you just talk about how this potentially works and if you expect to roll this over or enter into a similar type of agreement in 2017? Thank you.

This is not for container vessels. This is for some of the dry bulk. So I don't think there is any additional [loss], I think the agreement as it stands over the period of time would take, I think (inaudible).

Actually the agreement is ending December 31, 2016. However, before that happens, before the period is fully covered by this insurance with a $20 million cap.

Okay, understand. Got it, thank you. I have a question, a financial question possibly for you Stratos. In the fourth quarter replacement CapEx was I believe $3.6 million versus a reserve in the prior year of $6.2 million. Can you just talk about why the difference and is this due to lower asset values and the lower cost to replace ships or the delta just seems a little bit large to me, so I wanted to understand that? Thank you.

This is a decision that we've taken Shawn and this is a decision that we have throughout 2015 and as we positively state this, there is a calculation that it is approved by our Board and is based mainly on the replacement values of similar vessels. So you would expect it to sort of moving along with the values of the market, the vessels in the market.

Okay. Understand and then just a last question, I know you cite a balloon payment, a debt payment in 2017, I know I can find it in the 10-K, but could you just tell me how much is due in 2017?

Yes, the maturity for 2017 is $58 million that Angeliki mentioned earlier, which is covered by nine dry bulk vessels.

Okay, $58 million, got you, okay. That's helpful. That's all from me. Thank you for the time and the insight.

I'll turn the call to Ms. Angeliki Frangou for any additional or closing remarks.

Thank you. This completes our Q4 results.

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