Navios Maritime Partners LP (NMM) 2020 Q3 法說會逐字稿

Thank you for joining us for Navios Maritime Partners' Third Quarter 2020 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 being webcast. To the access the webcast, please go to the Investors section of Navios Partners' website at www.navios-nlt.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 fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in like 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. Firstly, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners' financial results. Then, Mr. Achniotis will provide an operational update and an industry overview. And lastly, we'll open the call to take questions.

Now I turn the call over to Navios Partners' Chairman and CEO, Mrs. Angeliki Frangou. Angeliki?

Thank you, Doris, and good morning to all of you joining us on today's call.

Given the difficulties associated with the pandemic, I am pleased with the results for the third quarter of 2020. During the third quarter, Navios Partners reported revenue of $64.5 million and adjusted EBITDA of $30.9 million. Although dry bulk demand in the first half of 2020 was hurt by the global shutdowns, fiscal stimulus and other policy measures helped global economies rebound in Q3 and continue to rebound in Q4. We believe that this improvement is attributable to the exit from quarantines, food security consideration and new purchasing patterns in the pandemic economy. Consequently, we are optimistic about expected growth in demand throughout Q4 and 2021.

As you can see from Slide 5, NMM's fleet is currently 55 vessels. NMM holds a 35.7% interest in Navios Maritime containers.

On Slide 6, you can see why Navios Partners is a premium dry bulk shipping platform. We maintained a strong balance sheet with low leverage. Our net debt-to-book capitalization is 39.2%. We have staggered the maturities and have committed growth CapEx requirements. We also have about $465 million in remaining contracted revenue and a low breakeven of $5,365 barrel per day for Q4 2020.

Slide 7 details the pandemic impact on global trade. Obviously, visibility for the first half of 2020 was weak given the global shutdown. However, the economic outlook for 2021 is favorable. The IMF expects global GDP to grow by 5.2%, led mainly by China and an expected GDP growth of 8.2% next year. As a result of the disruption to economic activity during the first half of 2020, dry bulk trade is expected to contract by 2.7% in 2020. However, as economies continue to recover, dry bulk trade is projected to increase by 3.9% in 2021.

Slide 8 shows a recent development during the third quarter of 2020. For Q3, we generated $30.9 million in adjusted EBITDA and an $8.8 million in adjusted net income. As to our fleet update, we continue to renew our fleet and improve its age profile. We acquired 2 dry bulk vessels with an average age of 6 years for $51 million. We also agreed to sell 2 of our older vessels with an average age of 12 years for about $13 million. The acquisition of the 2 dry bulk vessels was partially financed with a $33 million loan from a commercial bank. The terms of the loan included maturity in Q3 of 2025, amortization profile of 9.7 years and an interest rate of 3.25% above LIBOR.

Our operating breakeven for the fourth quarter of 2020 remains low, about 70% of our available base, average at about $14,000 net per day and the remaining 30% of our open and index days provide us with a low breakeven of $5,365 per open and index day, excluding distributions and CapEx.

Slide 9 further details our Q4 operating breakeven. 69.6% of our available days fixed at an average rate of $14,170 net per day. At $1,491 open/plus index in days provide us with flexibility and cash flow potential with a low breakeven estimated at $5,365 per day. Assuming 1-year time charter rate, we should be able to generate about $11.7 million in free cash flow for the fourth quarter of 2020.

Slide 10 shows our liquidity. As of September 30, 2020, we had a total cash of $30.6 million and total borrowings of $505.7 million. Our net debt-to-book capitalization is 39.2%, and we have targeted maturities and no committed growth CapEx.

At this point, I would like to turn the call over to Mr. Stratos Desypris, Navios Partners' CFO, who will take you through the results of the third quarter of 2020. Stratos?

Thank you, Angeliki. Good morning. I will briefly review our unaudited financial results for the third quarter and 9 months ended September 30, 2020. The financial information is included in the press release and is summarized in the slide presentation available on the company's website.

Before I start discussing our financial highlights, I would like to draw your attention to certain one-off items that are listed in Slide 11. For simplicity, the discussion of the financial results below exclude the effect of one-off items listed in the slides.

Moving to the financial results. As shown on Slide 11, our revenue for the third quarter of 2020 increased by $1 million to $64.5 million compared to $63.5 million for Q3 of 2019. The increase was mainly due to the 39% increase in available days in '20, 2020. The increase was mitigated by 27. -- 27% decrease in the times at equivalent rate achieved in the third quarter of 2020.

Adjusted EBITDA for the third quarter of 2020 was $30.9 million compared to $41.3 million in the third quarter of 2019. However, compared to the second quarter of 2020, adjusted EBITDA increased by 116%, reflecting the significantly improved rate environment.

Adjusted net income for the quarter amounted to $8.8 million. Operating surplus for the third quarter of 2020 amounted to $16 million and replacement and maintenance CapEx reserve was $9.5 million. Fleet utilization for the third quarter of 2020 was over 99%.

Moving to the 9-month operations. Time charter revenue for the 9 months 2020 decreased by $0.6 million to $157.5 million compared to $158.1 million in 2019. The decrease was mainly due to the 22% decrease in the time charter equivalent achieved in the 9 months of 2020. This decrease was partially mitigated by the 30% increase in our available days.

Adjusted EBITDA for the 9 months of 2020 amounted to $64.3 million compared to $86.3 million in the same period of last year, mainly due to the $0.6 million decrease in revenue discussed above and $18.6 million increase in vessel operating expenses due out increased fleet, a $1 million decrease in equity in net terms of affiliated companies and $1 million increase in net dollar and expenses. Adjusted net loss for the 9 months of 2020 amounted to $2.9 million. Operating surplus for the 9 months ended September 30, 2020, was $19.3 million.

Turning to Slide 12. I will briefly discuss some key balance sheet data as of September 30, 2020. Cash and cash equivalents were -- was $30.6 million. Long-term borrowings, including the current portion, net of deferred fees, amounted to $505.7 million. Our cost of debt has been significantly reduced as a result of the financing return loan (inaudible) last year as well as the decrease in LIBOR rates. This resulted in the reduction of interest expense in finance cost for the first 9 months of 2020 by approximately $16.6 million compared to (inaudible) of 2019. Net debt-to-book capitalization was 39.2% at the end of the quarter.

Moving to Slide 13. We [display] the cash distribution for third quarter 2020 or $0.05 per unit, equivalent to $0.20 per unit on an annual basis. Our current [LIBOR] integration provides (inaudible) net activity of approximately [3.2%] based on U.S. [administrative] closing price. Record date is November 9, and the payment date in November 13, 2020. Total cash distributions for the quarter amounted to $0.6 million.

Slide 14 shows the details of our fleet. We have a large (inaudible) diverse fleet with total capacity of 5.5 million deadweight ton and an average age of 11 years. Our fleet consist of 55 vessels, 15 Capesizes, 24 Panamaxes, 6 Ultra-Handymaxes and 10 containerships.

In Slide 15, you can see the list of our fleet with the contracted rates and the respective expiration dates per vessel. Currently, we have contracted 98.7% of our available days for 2020 and 45.5% for 2021, including the contracted at index-linked charters. The expiration dates extend to 2028.

In Slide 16, you can see the details of Navios Containers. Currently, it controls 29 containerships. Navios Partners has a 35.7% ownership -- or ownership interest in Navios Containers.

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

Thank you, Stratos. Please turn to Slide 18. Q3 saw a jump in BDI with the quarterly average [steadily] close to double Q2 at $1,522. The quarter started with a 9-month high of the BDI in July before softening in August. However, seasonality returned as the BDI reached a year-to-date high on October 6 at $2,097, led by Atlantic iron ore and grain exports, primarily into China before correcting over the last few weeks. However, the Chinese economy, which accounts for approximately 40% of global dry bulk trade, continued positive growth on the back of government stimulus, particularly aimed at infrastructure spending.

China, according to the IMF, will be the only major economy to grow this year at 1.9%, with further growth of 8.2% expected in 2021.

With the current entire globe continuing to be affected by the pandemic, the IMF projected global GP contraction of 4.4% for 2020, led by 5.8% contraction in advanced economies. Governments have put in place unprecedented emergency monetary and fiscal plans to support the economies. In light of this, the IMF projects 5.2% global GDP growth in 2021. The 2020 updated forecast for dry bulk trade is a contraction of 2.7% and growth of 3.9% in 2021.

Turning to Slide 19. The graph on the left shows that for 2021, dry bulk demand for the 3 major cargoes of iron ore, coal and grain is focused to outpace 2020. This increase is led by coal, which is expected to grow by about 4.7% or 55 million tons.

If you look at graph on the right, net fleet growth is forecast to be 3.4% this year and only 1.3% for 2021. Net fleet growth is expected to remain low over the next 3 years as the order book is the lowest on record.

Turning to Slide 20. Despite the pandemic, Chinese iron ore imports are expected to increase by 7.4% in 2020. Chinese steel mills have reduced their iron stockpiles by about 34 million tons between June 2019 and October 2020. China set a monthly record for iron ore imports in July at about 110 million tons, with the second highest imports coming in September at 106 million tons, as steel production continues to set new records. With additional availability of iron ore in Q4, shipments from Brazil and Australia to China are expected to match Q3 levels as steel mills -- steel mill-replenished stockpiles driving demand for Capesize vessels.

The Chinese fiscal stimulus and infrastructure spending should support steel production and in turn, dry bulk trade going forward.

Moving to Slide 21. The combination of the pandemic and the significant drop in the price of oil and gas has resulted in reduced coal trade. Asian coal imports, which account for up over 80% of the world's seaborne trade are expected to decrease in 2020 by 6.5%, but increase by 4.4% in '21. This reduction has added pressure on the smaller-sized vessels, which has been partially offset by increased demand for grains, discussed on the following slide.

Turning to Slide 22. Worldwide grain trade has been growing by approximately 5% CAGR since 2008, mainly driven by Asian demand. Overall, Asian grain imports are forecast to increase by 9.4% in 2020 and a further 3.3% in '21. An ever-increasing world population, food security issues driven by the pandemic as well as increasing protein demand worldwide continues to support the global grain trade. With the pandemic disruptions causing minimal grain trade disruptions, the International Grain Council projects record shipments of wheat, corn and soya bean for the 2020 crop year.

Please turn to Slide 23. The current order book stands at only 6.3% of the fleet, which is the lowest on record. Newbuilding contracting has collapsed, and year-to-date is down by about 65% compared to 2019. With the order book being front-loaded this year and scrapping expected to accelerate brings out the Vale [deal losses], net fleet growth is expected to remain below at about 3.4% for 2020 and only 1.3% in '21.

Turning to Slide 24. Vessels over 20 years of age are about 6.5% of the product fleet, which compares favorably with the previously mentioned low order book.

Scrapping. We started slowly future combination of the pandemic lockdown and logistical crew change challenges now stands at 13.4 million tons year-to-date. This amount is almost 70% higher than the full year 2019 and is about 1.5% of the fleet.

In conclusion, positive demand fundamentals, mainly due to the restart of economic activity around the world, along with reduced fleet availability, should provide support to the dry bulk market and is continuing the effort to navigate through the pandemic storm.

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

Thank you, George. So this completes our formal presentation, and we open the call to questions.

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

I guess, I wanted to start, George, where you left off on the order book and maybe get a better understanding of how we see this kind of playing out. So we're at the lowest level that we've seen, I guess, on record for the order book. It's just over 6% of the fleet.

It seems that with uncertainty in the world, orders have been extraordinarily difficult to come by. As you go into 2021, how do you see this kind of playing out? What would you expect in terms of fleet growth for the dry bulk fleet in '21, #1? And then I guess, maybe what the replenishment of the order book, if there is any, look like, #2?

Chris, I think -- this is Angeliki. I think one of the things that makes us very optimistic on dry bulk is that basically, we have the lowest order book of 6.3%, with vessels that are over 20 about 6.5%. So basically, you have a very -- overall, almost one of the lowest order books. But the most -- the reason that we're optimistic is because there are still periods where order books are low, but then they start having an increase all the around the world.

I mean, the different date is because of the technological uncertainty, and this is not something like a scrapper where you have this kind of a solution to all the other places. I think the technological issues, what will be the end and what technology? This uncertainty, we need to -- order book across shopping, and we know for some time. That gives you a runway where we see that demand is there because of food security, because of our additional stockpiles for infrastructure.

So you have a condition that we haven't seen for a long time. And the technological uncertainty is something that will remain for some time because basically shipping is in the need for solution into the long-haul and then they're in a much more different -- we don't have yet the solution on the engine or the correct -- something that will give the propulsion for these kinds of movement. So I think that this is a very positive issue, and that's why we'll not see any (inaudible) in the fleet.

Okay. And if you had to -- I mean, if you had to venture a guess, I think we're doing 3% plus in terms of fleet expansion in 2020. You'd expect that number to be lower, as my guess, in 2021?

2021, we expect it to be just over 1%.

Okay. Okay. That's helpful. I appreciate that. And I guess I wanted to circle back to debt maturities in 2021, I think, a little over $130 million. Can you talk a little bit about sort of what the plan is for that and go into a bit more detail on sort of how that is going to be addressed.

I'll let Stratos, but this picture is, as we said, we (inaudible) that we are below at around 50%, and all of them are very low levels that the larger one is basically recovered the entire refinancing initiatives, scrap values, which definitely our (inaudible) job, and much more very valuable cash flows and everything, but its' -- they are very easily financing these transaction.

Just to add to what Angeliki has been saying. I mean, the 3 facilities, as we said, 2 of them are below 50% of our obligation and fund was very reasonably [3 months ago]. And the third one, you have 2 elements that you need to take into account.

The first one, but the scrap value almost entirely covered the refinancing amount. But on the second item that you have take into account is that this facility includes the 5 HMM vessels. And just the TEU, these 5 vessels alone is coming almost 2x the whole gate service of these facilities. So, yes, the funds, it's -- we feel very confident in the refinancing of this.

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

This is Chris Robertson on for Randy. So I guess just on the -- our first question on the distribution cut. So I guess, now that the dry bulk and containership markets have improved, how are you thinking about increasing the distribution going forward? And how will you balance that with unit repurchases as you're trading at a pretty big discount to NAV at the moment?

This was a conservative posture. I mean, you have to realize we're in the pandemic economy. And as that, I mean, you see positive effects, as I said on -- we have a steady supply and strong demand because of food security, because of need of inventories to be ahead, but we have to be -- we have to have a conservative posture. And as in net -- as we see, I mean, today, what we're doing is basically we have -- with a low breakeven, no levers. We are ready to get the cash flows that we see that are generated.

On dividends is something that we're going to more normalized, at least we see visibility far more clear. Then we see that we give a temporary investments. We have other ways to increase with buybacks, with other [rates]. But I think on the current conditions with an uncertainty that is developing, we need to have more conservative [approach].

Okay. That's fair. I guess following up on that then. So around the decision to purchase the 2 vessels, in light of the discount to NAV in the -- and unit price at the moment, kind of what drove the decision to buy vessels now instead of maybe repurchasing some units?

We're a different company after all, and we have a portfolio of assets that are unique, and the plan is absolute and we make sure that we have the right assets to have -- to generate the cash flow. So what we did is basically, it is about, we bought 2 vessels that are over 6 years old and Capesize and Panamax Japanese fleet, high quality, as well as some vessels that over 12 years old.

So that is a replacement of asset. That makes sense. And it is an ongoing part of our business, buying larger vessels, younger vessels, to keep our end capacity, to grow our end capacity and this is -- and this reflects our portfolio. That is part of an ongoing process.

Thank you. I would now like to turn the call back over to Angeliki.

Thank you. This concludes our Q3 results.

Thank you. This concludes today's conference call. You may now disconnect.