Navios Maritime Partners LP (NMM) 2021 Q2 法說會逐字稿

Thank you for joining us for Navios Maritime Partners Second Quarter 2021 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Efstratios Desypris; and Executive Vice President of Business Development, Mr. George 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-mlp.com. You'll see the webcast and link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call can also be found there.

I'll now review the safe harbor statements. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties, which could cause actual results to differ materially from the forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call.

The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners' financial results. Then Mr. Achniotis will provide an operational update and 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, Laura, and good morning to all of you joining us on today's call. I am pleased with the results for the second quarter of 2021. During the second quarter, Navios Partners recorded revenue of $152 million, net income of $99.9 million. As you can see on Slide 4, approximately 56% of our fleet are dry bulk vessels and 44% of our fleet are containerships.

Please turn to Slide 5. Navios Partners is a top 10 U.S. publicly listed dry cargo fleet with 98 vessels, of which 55 are dry bulk vessels and 43 are containerships. Our diversified fleet should issue later from in the (inaudible) society. You can already see the flexibility (inaudible) by different segments as we address open available days and financing. We have about $1.1 billion contracted revenue. Contracted revenue for the second half of 2021 is expected to exceed the total estimated fleet expenses for the same period by $47.8 million. This enable us to have about 36% of our available base, either open or index linked. We have a strong balance sheet to low leverage, partially as a result of all these factors, our units have performed well in 2021 year-to-date.

Slide 6 previews our recent developments. During Q2, NMM generated $90.4 million in EBITDA, $99.9 million in net income and $4.32 earnings per unit. We continue to renew and expand our fleet. We agreed to acquire 11 vessels with an average age of 4.8 years for about $552 million, and agreed to sell 2 vessels with an average age of 15.7 years for $41.4 million. As a result, our fleet renewal and expansion program year-to-date, we added a net of 44 vessels to our fleet, and containership fleet increased by 330%, while average age reduced by 25%. The dry bulk fleet capacity increased by 37%, while it's average age reduced by 18%. We arranged about $615 million in new finance year-to-date, including $405 million to finance new acquisitions; $124.3 million to refinance 2021 maturities; and $86 million to refinance other loans. We have a strong cash flow potential for the second half of 2021. We have 15,743 available days, with about 36% of our available days still open or index linked.

Slide 7 highlights the diversification advantage. Because we operate in both the dry bulk and containership segments, we should be able to mitigate normal industry cyclicality, leverage fundamentals across both sectors and reduce our cost of capital. This has created optionality. For example, our chartering strategy optimize different sector fundamentals. With the containerships, we have fixed on medium to long-term charters over 99% of our available days for the second half of 2021, and 78% fixed for 2022. However, as (inaudible) in the dry bulk sector commence, strengthening the first half of 2021. We have maximized market exposure in the dry bulk vessels. Over 63% of our available days in the second half of 2020 and about 94% of our available days in 2022 are open or index linked. Through these diversified strategies, we have secured more than $1.1 billion in total contracted revenue.

Slide 8 describes our fleet renewal and expansion year-to-date. In 2021 year-to-date, our increased by 81% in terms of number of vessels, 44 net vessel additions. We acquired 38 vessels on the water and an additional 13 newbuilding vessels to be delivered into our fleet. We also agreed to sell 7 vessels with an average age of 13.7 years for $108 million in profit. Through these activities, we increased our containership fleet by 330% and our dry bulk fleet capacity by 37%. Moreover, we have successfully reduced in the average age of our fleet in both segments: 25% reduction in containerships and an 18% reduction in dry bulk.

Slide 9, we take operating free cash flow for the second half of 2021. About 64% of our available days are fixed at an average rate of $22,919 per day. Our contracted revenue exceeds total estimated fleet expenses by $47.8 million. The remaining 36.1% of our available days are either open or index linked, which provided market exposure.

Slide 10 shows a liquidity position. As of June 30, 2021, we had total cash of $232.9 million and total borrowings $795.5 million. Our net debt to capitalization is 27.3%. And our debt maturities are as target with no significant debt maturities until 2023.

At this point, I would like to turn the call over to Mr. Efstratios Desypris, Navios Partners CFO, who will take you through the financial results for the second quarter of 2021. Stratos?

Thank you, Angeliki, and good morning, everyone. I will briefly give you our financial results for the second quarter and first half ended June 30, 2021. The financial information is included in the press release and summarized in the slide presentation available on the company's website. Before I discuss the results, I would like to remind you that the merger with Navios Containers was completed in March 31. Consequently, the results from the first half of 2021 includes the results of Navios Containers quoted for the second quarter.

Moving to the earnings highlights in Slide 11, revenue for the second quarter of 2021 increased by 227% to $152 million compared to $46.5 million for the second quarter of 2020. The increase was mainly due to the following reasons: a 90% increase in available days of the quarter, following the merger with Navios Containers and the expansion of our fleet; and also an 81% increase in the time charter equivalent listed in the quarter compared to the same period last year. Adjusted EBITDA for the second quarter of 2021 increased to $90.4 million compared to $14.3 million in the second quarter of 2020, primarily due to the increase in revenues discussed above. This increase was mitigated by $19.8 million increase in special operating expenses and a $3.3 million increase in G&A due to our increased fleet and a $6.2 million increase in net account expenses. Net income for the quarter amounted to $99.9 million. Fleet utilization for the second quarter of 2021 was almost 100%.

Moving to the 6-month operations. As mentioned earlier, the discussion below exclude the results of Navios Containers for Q1 of 2021 after the merger was completed on March 31. For the first quarter of 2021, Navios Containers recorded $42.8 million of revenue and $22.8 million of EBITDA. Time Charter revenue for the 6 months increased by $124.1 million to $217.1 million compared to $93 million in the first half of 2020. The increase was mainly due to the 66.8% increase in the Time Charter Equivalent achieved in the first half of 2021 as well as for to 1.4% increase in our available days.

EBITDA and net income for the first half of 2021 include $8.8 million of gains on the revaluation of our investment in Navios Containers as a result of the merger. And we'd like to point out here that in 2019, we have (inaudible) down our investment by $42.6 million. Also, included in EBITDA and net income in the first half of 2021 is a $44.1 million gain from the completion of the merger and the purchase price allocation to the assets and liabilities of Navios Containers. Excluding these items, adjusted EBITDA for the first half of 2021 amounted to $124.1 million compared to $33.4 million in the same period of last year. Adjusted net income for the first half of 2021 amounted to $111.7 million.

Turning to Slide 12. I will briefly discuss on key balance sheet data as of June 30, 2021. Cash and cash equivalents were $232.9 million. Long-term borrowings, including the current portion, net of the (inaudible), amounted to $795.5 million. Net debt to book capitalization reduced to 27.3% at the end of the quarter.

Slide 13 shows the details of our fleet. Our fleet is in the top 10 U.S. publicly listed dry cargo fleet, as measured by number of vessels. We have a large model divest fleet of 98 vessels with a total capacity of 9.3 million deadweight tons. Our fleet consists of 55 dry bulk vessels and 43 containerships.

In Slide 14, you can see our ESG initiatives. Maritime shipping is the most environmentally friendly mode if transportation as it is the most carbon efficient mode of transport. We aspire to have zero emissions by 2050. In this process, we have been pioneering and are adopting central environmental regulations after 2 years in advance bunch, aiming to be one of the first fleet to achieve full compliance.

Navios is a socially conscious group, who is scored by group diversity, inclusion and safety. We have very strong corporate governance and clear Code of Ethics. Our Board is composed by majority of independent directors and independent committees (inaudible) management and operations.

I'll now pass the call to Georgios Achniotis, Executive Vice President of Business Development, to discuss the Industry overview.

Thank you, Stratos. Please turn to Slide 16. The Baltic Exchange Dry Index reached 3,418 on June 29, the highest level since 2010, turning from sub king-sized vessels reached multiyear highs. At 2,793, the Q3 index average was more than double in Q2 quarterly average in the past decade. Rates in all asset classes have risen sharply, reflecting certain rates driven by strong demand for both major and minor bulk commodities. Supply and demand fundamentals going forward remain extremely positive. The strong demand for natural resources combined with COVID-related logistical disruptions, which (inaudible) efficiencies and a slow increase of newbuilding deliveries, all support strong levels of spot in future freight rates. The IMF projects global 2021 GDP growth at 6%, the highest in 50 years, led by an 8.6% expansion in China, India and developing Asia. Accordingly, 2021 dry bulk trade is projected to increase by 4% and further increase by 1.7% in '22.

Turning to Slide 17. Demand is forecast throughout business fleet growth in both '21 and '22. The graph on the left shows the dry bulk demand for the 3 major cargoes of iron ore, coal and grain for the second half of '21, is forecast to increase by 7% compared to the first half. The graph on the right highlights the previously mentioned slowing fleet growth. Net fleet growth is forecast to be 3.3% this year and only 1.2% for '22.

Turning to Slide 18. Post-pandemic stimulus measures in the advanced economies and increasing industrial production and economic growth in China have fueled demand for iron ore. Global iron ore demand is expected to increase by 3.6% this year. Additional availability of iron ore shipments to China in the second half of '21 are expected to increase steel mills replenished stockpiles, driving demand for capesize vessels. Forecasts are also for growth in iron ore imports around the world as the effects of the pandemic receive. Europe's imports are expected to grow by 18%; in Asia, excluding China, is expected to import 12% more iron ore in '21 than in 2020.

Please turn to Slide 19. Asian coal imports, which accounts for over 80% of world seaborne coal trade, are expected to increase by 3.7% in '21. According to the International Energy Agency, global coal fire electricity generation is expected to rise by nearly 5% this year and exceed pre-pandemic levels, before increasing a further 3% to an all-time high in '22.

Turning to Slide 20. An ever-increasing world population, food security issues driven by the part as well as increase in proving demand worldwide continues to support the global grain trade. World grain production this year will reach a record according International Grains Council and the USDA. Worldwide grain trade has been growing by 5% CAGR since 2008, mainly driven by Asian demand, which increased by 15.5% in 2020, is forecasted to grow by a further 6.9% in '21. Overall, total whole grain trade is expected to increase by 4.4% in '21.

Please turn to Slide 21. The current order book stands at a historically low 5.8% of the fleet. Contracting for all 2020 and year-to-date combined has been low, about equal to all contracting in 2019. Accordingly, 2021 net fleet growth is expected at 3.3% and only 1.2% for 2020, below the projected increase in dry bulk demand for both years.

Turning to Slide 22. The vessels over 20 years of age at about 8.7% of the total fleet, which compares favorably with the previously mentioned historically low orderbook. Scrapping total 15.8 million tonnes in 2020 and year-to-date has totaled 4.7 million tonnes, which is on pace for a yearly total of 8.6 million tonnes.

Please turn to Slide 24, focusing on the container industry. Stimulus measures have caused recovery of consumption in the advanced economies. This targeted stimulus has led to a historic turnaround in global container trade. As you can see on the chart on the lower-right, freight rates for all main routes from China rose dramatically from midyear 2020. Increases in consumer demand for goods, port congestion and restocking led to containership demand growth of 6.3% in 2021 and 3.8% in '22. The increased demand is expected to exceed supply in both years.

Please turn to Slide 25. The recent 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 4 congestions, increasing trade and a lack of newbuildings has propelled period time charter rates to hit historic heights of $70,000 per day for periods up to a year. The SCFI box rate intake has broken through the 4,000 level for the first time ever and stands approximately 4x higher than the 10-year average, (inaudible) by the earlier start of the Chinese economy and from continuing demand for consumables and pandemic-related supplies worldwide.

Turn to Slide 26. Fleet growth is a manageable 4.5% this year and 2.6% for 2022. Even in this high demand environment, scrapping should continue at 10.5% of the ships currently 20 years of age or older.

In conclusion, positive demand fundamentals, mainly due the start of economic activity around the world, along with reduced fleet availability should continue support both the dry bulk and containerized ship industries and their continued effort to navigate through the easing pandemic store. 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.

(Operator Instructions) And we will take our first question from Randy Giveans with Jefferies.

All right. So a few questions here. I guess, first, just looking at your chartering for the containerships, you recently booked 5 4,500 or so TEU container ships and 3-year charters, Clearly, very impressive rates above $40,000 a day. Two questions with that. How did you decide on the staggered or maybe step down annual rates structure for that? And then secondly, you have two containerships with charters expiring in December. When do you expect to book new charters on those two?

Very good questions. I mean, let me really see what we have been doing. We are actually with all the repositioning have done on the company, we are basically -- we have created a sizable fleet of 98 vessels, almost 100. And then, we are using the different industry fundamentals that we have to create the optionality on the balance sheet of the company. So we have 55% dry bulk, 45% containerships. So what we are doing is we're paving cash flows, medium-term cash flows on target possibilities. And what we're creating with that will give optionality to the company to have spot dry bulk vessels, which we cannot have long term, and create the upside for that.

So our goal is to create this long-term durable cash flow with a conservative balance sheet. That is the outlook. And as the maturities, as we see rest is coming close, we will do it in the moment of strength. That is always the way. I mean, let's all be very -- what is very important is that we are mindful of our structure, and we're positioning the company for the long term.

Sure. I guess, on those 2 charters expiring in 4 months, 5 months, maybe it seems like there's already a market for those. Are those being negotiated now, or you waiting until the fall?

We are doing a portfolio approach. We're always talking to everyone, and that is our job. And we will do it in the more appropriate on the line that has the biggest need. So we have done that in a -- I think, in a very good way. And you have seen that last year, I mean -- and you can see it on the way we have structured our entire portfolio. We are able to increase these cash flows because we will never -- we've been stepping very quickly. And we will do it on the strengthening of the market, and we see strengthening of the market.

Okay. All right. And then I guess, secondly, you don't mention the ATM results in the press release, but I do see that net cash provided by financing activities was up $258 million. So I guess with that, how much of both the $75 million and then the $110 million ATM programs have been used so far? Is there any remaining? And then, what is the current outstanding unit count, just for our modeling purposes?

Hi, Randy. We will have all the details on the number of the units that have been issued and the units outstanding as well as the status of the ATM program in our 6-K filing that will come shortly. However, what I can share with you on this call is the fact that, practically, the ATMs program have been practically completed by now. So there is a very minimal amount level.

Okay. And then assuming $25 or so a share, it seems like that'd be around 6.5 million, 7 million shares. Is that fair on the new share count?

You will have all the details in the filing. So let's be patient on that.

Okay. I'll wait on that.

Two more questions, I guess, looking at your vessel fleet changes, you've been pretty active in acquiring vessels of late. Do you expect that to continue, or are you going to focus more on maybe selling some older vessels, which you already have done a few here, just looking at kind of changes in your fleet going forward?

Listen, this is an ongoing process, meaning we will always -- and we have been, I think, getting good prices on the older fleet. We have disposal of the vessel in the nice quarter. We have some press that this is an ongoing repositioning of the fleet. And also, we have done some newbuildings and -- secondhand acquisition and new buildings. And there is really -- and I think that is needed. We have -- I mean, you can see our containership fleet, for example, with older, so it's more upside in order.

So if we saw an opportunity and we position ourselves to acquire vessels like the -- that are very good for the point-to-point transportation, like the 5,200 use. We saw that, that fleet is something that the market needs. There's no new orders. And we have been very successful, and we see that the pandemic economy has created a need for this point-to-point transportation. So that is an area where we stepped in. We saw good opportunities, good value and we went in. Again, we'll be actually financing them via balance sheet in the beginning and then getting the right finance as we go close.

Got it. Okay. And last question for me. We're about halfway through the second quarter. Can you provide maybe some quarter-to-date rates for your multiple dry bulk asset classes with spot exposure or, I guess, index-linked exposure?

I think you are a better expert than us. Everyone has collections, values, and I will not even compete with you guys. You're very good on that, and you can find. I think the one thing that I would like to say is that the company, and I think this is an important issue. We are positioning the company for the long term. we went through a nuclear greener. I mean, we saw a good market close. That market been unavailable. I mean, we had it in 2019, we had the term loan B and basically that was not available for the dry bulk.

So we have safe side rates last year being around $8,000 containership, maybe Panamaxes around $8,000. So basically, the pandemic had a material effect on CPEC. So we have positioned well in the company. We saw opportunities with Stein. We acquired an MCI that has been nicely paid dividends for us. We have seen -- it was a nice transaction. We saw over a 3.5x value expansion. So our goal is to create a long-term a company that has a long-term durable cash flows and to position the company for the long term.

Sure. Yes. It seems like second quarter was great. Clearly, the third quarter rate should be better than that. So we will be looking forward to the next quarter indeed.

Yes. But I want to remind you last year, pandemic is still here, and we all should be very mindful of where we are.

And we will turn the program back over to Angeliki for any additional or closing remarks.

Thank you. This completes our Q2 results.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.