Navios Maritime Partners LP (NMM) 2020 Q4 法說會逐字稿

Thank you for joining us for Navios Maritime Partners' Fourth Quarter and Full Year 2020 Earnings Conference Call. With us today from the company are Chairman and CEO, Angeliki Frangou; Chief Financial Officer, Mr. Stratos Desypris; and Executive Vice President of Business Development, Mr. Georgios Achniotis.

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-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 and are described in 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, Mr. Frangou will offer opening remarks. Next, Mr. Desypris, will give an overview of Navios Partner's financial results. Then, Mr. Achniotis will provide an operational update and the industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners' Chairman and CEO, Mr. Angeliki Frangou. Angeliki?

Thank you, Doris, and good morning to all of you joining us on today's call. I am pleased with the results for the full year and fourth quarter of 2020. For the full year of 2020, Navios Partners reported revenue of $226.8 million and adjusted EBITDA of $99.8 million. For the fourth quarter, Navios Partners reported revenue of $69.2 million and adjusted EBITDA of $35.5 million. Our merger with Navios Maritime Containers was approved and is expected to close on March 31, 2021. This will be a transformative transaction for Navios Partners and will carry the significant benefits of diversification. As you can see on Slide 4, pro forma for the merger, NMM will have 85 vessels. Approximately half of the fleet will be drived by vessels, and the other half will be container ships when measured by the number of vessels. The benefits of diversification are reflected in recent market activity. The container segment began strengthening in the third quarter of 2020, while the dry bulk market become turning in 2021. The transaction based scale through a larger diversified asset base with an increased earning capacity. The large entity will benefit from a simplified capital and an organizational structure, thereby, reducing costs.

The entity will have an enhanced credit profile through increased cash flow supporting deleveraging as well as growth. Moreover, the large asset base will provide the entity a significant parcel of collateral value. The financial potency of this combination can be measured through the pro forma combined results of 2020. Had the merger been effective for 2020, the pro forma revenue would have been $354 million. Even this metric somewhat understates the opportunity as the underlying rate market for year-to-date in 2021 is materially higher than it was on the average for 2020. And NMM already has more than that contracted for 2021.

Please turn to Slide 5. Pro forma for the merger, our company will be 1 of the 10 largest public listed dry cargo fleet. We are a premier dry cargo shipping platform with about $900 million of contracted revenue. For 2021 contracted revenue is expected to generate $12.6 million in excess of total fleet expense. On a combined basis, about 1/3 of our available days are open or interest team providing market exposure to capture market upside.

Lastly, we have a strong balance sheet with low leverage. Our combined net debt to book capitalization is 43.5%, about 90% of our debt is covered by the scrap value of our vessels alone. Building us a significant base of collateral value.

Slide 6 goes through recent developments. The approved merger with Navios Container is expected to close on March 31. Post-merger NMM will have approximately 19.7 million units outstanding. For the fourth quarter, we generated $35.5 million in adjusted EBITDA.

$12.8 million is adjusted net income and $1.12 is adjusted earnings per unit. We continue to renew our fleet and improve average profile. We agreed to acquire 6 dry bulk vessels with an average age of about 2 years and sold 4 vessels with an average of about 13 years. As to our balance sheet update, we are in advanced discussions to finalize a $116 million loan to refinance in upcoming months and upcoming maturities in the third quarter of 2021. The new loan will have an interest of 3% above LIBOR and amortization profile of about 5 years and maturity in the second quarter of 2025.

We have finalized an additional $58 million loan, which will be used to finance the acquisition of 2 vessels and refinance an existing facility. The terms of the loan includes an interest rate of 3% above LIBOR and depreciation profile of about 9 years and maturity in the first quarter of 2026.

Slide 7 sets forth key strength of the compliance entity. NMM has an enhanced base to generate free cash flow. Our 2021 contracted revenue exceeded our total fleet expenses by $12.6 million, with more than 1/3 of our available base open and index linked, there is an ample opportunity to provide further free cash flow.

NMM has a strong balance sheet with low leverage, 43.5% in combined net-debt-to-book capitalization and man has diversification and scale with an 85 vessel fleet we ranked in the top-10 among the publicly incited cargo fleet, about 66% of our available base assets at an average charter rate of $18,612 net per day and 34% of our fleet available days are open or the index link.

The diversification allows us to balance a chartered strategy across different business segments, optimizing the profit potential with cash flow certainty. NMM is well positioned to benefit from the different sector fundamentals. We have 89.4% of our available container base fixed to capitalize on market strength with 53.5% of our available dry bulk vessel base exposed to market rate for 2021.

On Slide 8, we lay out global GDP growth since 1970. As you can see from the top graph on the space, the IMF expects global GDP to grow by 5.5% in 2021. This will be the highest digital rate in the past 50 years. Importantly, the precent of decrease perhaps understates the impact.

The nominal GDP today is exponentially higher than compared to the nominal GDP of 50 years ago. For example, global GDP in 2019 equals $88 trillion, almost 30x the global GDP of $2 trillion in 1970. Consequently, they see magnitudes of today's global GDP made to (inaudible) the economic impact of a particular percentage point growth when compared to 1970.

Slide 9 details our operating cash flow potential for 2021, 66% of our available base as fixed -- at an average rate of $18,612 net per day. The remaining 34% of available base that are open all on indexing chargers provided with more upside. Our contracted revenue alone exceeds our total fleet expenses by $12.6 million. Using the client market average time charter rate of $23,549 per day, we believe NMM is well positioned for a strong 2021.

Slide 10 shows our combined liquidity as of December 31, 2020, we had total cash of $38.3 million and total borrowings of $719 million. Our net debt to capitalization is 43.5%, and our debt maturities are targeted through 2030.

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 Fourth Quarter and Full Year of 2020.

Thank you, Angeliki, and good morning. I will briefly review Navios' financial results for the Fourth Quarter and Year Ended December 31, 2020. The financial information is included in the press release and is summarized in the slide presentation on the company's website.

Before I start discussing our financial highlights, I would like to draw your attention to see one-off items that are listed in Slide 11. For simplicity, the discussion of the financial results below exclude the effect of the one-off items listed in this slide. Included in this adjustment is a $42.6 million impairment on our investment in Navios Containers, bringing its book values to approximately $25 million.

Notwithstanding this accounting in (inaudible), economically, our investment has significantly increased in value. Based on yesterday's closing price of Navios Containers units, our investment amounts to over $110 million. As Angeliki mentioned earlier, today, the Navios Containers unitholders approved the measure of Navios Partners. The net book is expected to close on March 31, 2021. The full results of operation of Navios Containers will be included in Navios Partners comments commencing April 1, 2021. Moving to the financial results, as shown on Slide 11, Q4 revenue increased by $7.9 million to $69.2 million compared to $61.3 million for Q4 2019. The increase was mainly due to the 39.3% increase in available days in Q4 2020. The increase were mitigated by a 17.4% decrease in the time charter equivalent rate achieved in the fourth quarter of 2020. Adjusted EBITDA for the fourth quarter of 2020 increased to $35.5 million compared to $33.7 million for Q4 of 2019, mainly due to the increase in earnings discussed above. Adjusted net income for the quarter amounted to $12.8 million. Fleet utilization for the fourth quarter of 2020 was almost 100%. Moving to the 12-month operations. Time charter revenue for the year increased to $226.8 million compared to $219.4 million in 2019. The increase was mainly due to the 32.3% increase in available days of 2020. The increase was mitigated by 20.9% decrease in the Time Charter Equivalent rate achieved in 2020. Adjusted EBITDA for 2020 amounted to approximately $100 million compared to $120 million 2019. The decrease is primarily due to a $25.5 million increase in vessel operating expenses, mainly due to the increased split, a $3 million increase in general revenue of tax expenses, mainly due to the increased fleet and a $1.4 million decrease in equity net earnings of affiliate companies. The above increase was partially -- the above decrease was partially mitigated by the $7.4 million increased revenues discussed above and $1.3 million decrease in Time Charter and volume expenses and a $1.1 million increase in net other income. Adjusted net income for 2020 amounted to $12.8 million. Turning to Slide 12. I will briefly discuss on key balance sheet data as of December 31, 2020. Cash and cash equivalents was $30.7 million. Long-term borrowings, including the current portion, net of deferred fees amounted to $486.9 million. Our cost of debt has been significantly reduced as a result of the refinancing with the term loyalty as well as the decrease in LIBOR rates. This resulted in a reduction of interest expense for 2020 by approximately $15 million compared to 2019. Net debt to book capitalization was 40% at the end of the year. Slide 13 shows the details of our combined fleet, giving effect of the merger of Navios Containers. Our fleet is in the top-10 publicly listed dry cargo fleet globally, as measured by a number of vessels. We have a large modern diverse fleet of 85 vessels with a total capacity of 7.8 million deadweight tons.

Our fleet consists of 49 dry bulk vessels and 56 Containerships. In Slide 14, you can see the latest update on our fleet. We actively renew and expand our fleet. We agreed to acquire 6 dry bulk vessels with an average age of approximately 2 years. We are going to acquire 3 Janpanese fleet mid-sized vessels contracted under 15 gigabits of instruction. The structure provides for an effective purchase price of $41.5 million and an effective interest rate fixed for a festive period of 4.4%. Navios has deescalating (inaudible) options on the vessels starting in year 4 before the charter generation. All vessels are expected to be delivered in the second half of 2022. We agreed to acquire 2 2012 bill oil gas vessels or approximately $59.3 million. Also, we agreed to acquire a new building Capesize vessel for $31.6 million. The vessel we expected to be delivered in the second half of 2022. We also agreed to sell for vessels having an average age of 13 years for a total sales price of $42.8 million. In Slide 15, you can see our target strategy for 2021. We are focusing on taking advantage of the different fundamentals across the sector we operate to maximize profitability.

We have currently fixed 66% of our 29,526 available days for 2021. We have capitalized on the strength of the Container Ship market and fixed almost 90% of our available container days for 2021, enjoying healthy rates. Additionally, we are positioning our dry bulk fleet for what we hope will be a strong balance of 2021. And we have market exposure of 53.5% of our days for this year. On Slide 16, you can see with our ESG initiatives. When talking about ESG, I think it's important to remind people that Transocean exiting is the most environmentally friendly means of transportation as it is the most carbon efficient mobile transport. However, we do not take that for granted. We aspire to have zero emissions by 2050. In this process, we have been pioneering and are adopting certain environmental regulations up to 2 years in advance. I'm also proud to be working with the social countries group whose core values include diversity in (inaudible) and safety. Finally, we have very strong corporate covenants at corded efforts. We have majority independent directors and independent committees, not to say our management operations. I'll now pass the call to George Achniotis, Executive Vice President of Navios Development, to discuss the (inaudible).

Thank you, Stratos. Please turn to Slide 18. With the help of a strong second half 2020 ended the year with a BDI averaging 1,066. Today, the BDI stands at 2,271 with a year-to-date average more than double its level at the start of 2020, and the highest it has been in 11 years. Governments having put in place emergency monitor and fiscal plans to support the economies have kick-started faster than expected the recovery in the world economy. This has led the IMF to increase its 2021 GDP growth projection to 5.5%, the highest in 50 years and 4.2% in '22. Demand and restocking is expected to prove demand growth well above net fleet growth, supporting the recent dramatic rising rates. In just the last month, sub trade time charter rates have hit 10-year highs in what is normally a seasonal low period. This increase reflects surging trades, driven by strong demand for both major and minor bulk commodities. 2021 dry bulk trade is projected to increase by 3.7%, and further increased by 2.2% in '22. Turning to Slide 19. Demand is forecast to outpace net sales growth in both 2021 and '22. The graph on the left shows that for '21, we have to demand for the 3 major cargoes of iron ore, coal and grain is focused on increased by over 3% compared to 2020. If you look at the graph on the right, net fleet growth is focused to be 2.6% this year and only 0.7% for '22. Net fleet growth is expected to remain low over the next 3 years, as the order book is the lowest or effort. Turning to Slide 20. Despite the pandemic, China set another year record for iron ore imports in 2020 at about 1.15 billion tons which is an increase of 9.4% over '19. Chinese steel production surpassed the 1-billion tons mark in 2020. Global iron ore demand is expected to increase by 2.7% in this year and the additional availability of iron ore shipments to China are expected to increase as still masterplan stockpile, driving demand for Capesize vessels. Focus are also for growth in iron ore imports around the world as the effects of the pandemic received. Europe's imports are expected to grow at 15% on and Asia, excluding China, is expected to import 9% more iron ore in '21 than in 2020. Please turn to Slide 21. Asian coal imports, which account for over 80% of the world's imports trade, are expected to increase by 4.3% in 2021, following a decline of 6.8% in 2020. The 2020 decrease is mainly attributable to Indian and Chinese imports declining by 13.8%, respectively. Vietnam and other Southeast Asian countries, increased coal imports by 13%. Turning to Slide 22. Worldwide grain trade has been growing by over 5% CAGR since 2008 mainly driven by Asian demand, which increased by 15% in 2020 and is expected to increase a further 2.9% in '21. Overall, world grain sales increased by 7.7% in 2020 is expected to increase by about 2% in '21. Another increase in world population, food security issues driven by the pandemic as well as increasing protein demand worldwide continue to support the global grain trade. All grain production this year will reach a record according to the international gains counting and the USDA. Please turn to Slide 23. The current order book stands at a record low of 5.7% of the fleet. You building contracting was down 56% in 2020 compared to '19. Through mid-March 2020 21, contracted is down by about 62% compared to the same period last year. Accordingly, 2021, net fleet growth is expected at 2.6% and only 0.7% for '22.

Turning to Slide 25. Vessels over 20 years of age are about 7.6% of the total fleet, which compares favorably with the previously mentioned record low order book. Scrapping totaled 16 million tons in 2020, almost doubles the 2019 total. Year-to-date scrapping has totaled 3.4 million tons, which is on pace for March 2020. Please turn to Slide 26, focusing on the container industry. As previously mentioned, stimulus measures have caused recovery of consumption in the advanced economies. At the same time, but there is increasing industrial production and economic growth in China. This factor stimulus has led to historic turnaround in global container trade. own rates rose dramatically from midyear 2020, led by the China to the U.S. West Coast and China to Europe freight rates as depicted on the chart on the lower rides. Containership demand growth of 5.7% in 2021 and 3.7% in '22 is expected to exceed supply a pent-up demand for congestion, restocking and increases in consumer demand for goods all support increasing Connie volumes. Please turn to Slide 27. The recently rapid market recovery has caused extremely high demand for available tonnage, which is in short supply across all segments. In particular, the extremely tight availability of Panamaxes, combined with poor congestion, increasing trade and lack of new buildings has proper period time charter rates to keep 13-year highs of $37,000 per day for periods after a year. As CFI box rates have climbed 222% from April 2020 to March '21, spread by the earlier start of the Chinese equality and from continuing demand for consumables and pandemic related supplies worldwide. In conclusion, positive demand fundamentals, mainly due to the start of economic activity around the world, along with reduced fleet availability, should continue to support both the dry bulk and containerized shipping industries in their continuing effort to mitigate through raising pandemic stall. 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 open the call to questions.

The floor is now open for questions. (Operator Instructions). We have question from the line of Randall Giveans of Jefferies.

Excellent. A couple of questions. I guess, first, for the vessel sales and purchases, it seems like you're obviously adding some dry bulk exposure while shedding some containership exposure. Is this a view on those respective markets? Or is this purely a fleet renewal play? And then going forward, which subsector would you maybe look to grow?

Actually, what we are doing is repositioning a fleet. We show some vessels that were older and smaller to more commercially attractive vessels. Basically, I mean, we see a lot of value on both segments.

We see that it is a different set of fundamentals important. Purely from a point of of the market, I'll say that today, you may have some more opportunities to pick up attractive dry bulk vessels because you still have some recovery. Let's not forget that the containership sector has been -- the container sector has recovered from second half of last year versus dry bulk as more this year that we are experiencing a much a different potential.

Got it. Sure. That makes sense. And then now that, obviously, the dry bulk and containership markets are both extremely strong. Your balance sheets in great shape. The merger is a week away now, right, so congrats on that. What will it take to increase the distribution? And how will you balance that with maybe unit repurchases as you're still trading at a pretty massive discount to NAV.

The realities we see our service as a growth platform that we're in the right part of the cycle, meaning we see great upside potential with our fleet. But also, would like to also use the excess in deleveraging. I think that will give us a long-term view on the right. Shipping is always very, very profitable. It is a matter of level, and I want to remind that, and this is something in the back of our mind. So what you should expect from us is a replacement of assets, the new and of fleet, which is part of our ongoing process and strong cash generation with a deleveraging effect.

Sure. Okay. And then lastly, just quickly, can you provide any quarter-to-date rates for the first quarter now that we're a week away from that being concluded for the dry bulk vessels?

Yes, we have put out some details also in our press release today. So you will see that we are almost 100% fixed on both sides, both in the dry bulk but also the container side.

On average, we are approximately just over $15,000 chartered on the dry side and around $17,000 on the containerships. Just to remind you, for your modeling purpose, so just to remind you that Navios containers the full results will be included in our results from first April as the measure is expected to close on March 31. So you will see the effect of the results in April 1 and going forward.

At this time, I'm showing no further questions. I'd like to turn the floor back over to Angeliki Frangou for any closing remarks.

Thank you. This complete our Q4 results. Thank you.

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