Q2 2022 Navios Maritime Partners LP Earnings Call
We will provide an operational update and an industry overview and lastly, we'll open the call to take questions now I'll turn the call over to Navios Partners' chairwoman and CEO Ms. Angela <unk> Andrew.
<unk>.
Thank you Danielle and good morning to all of you joining us on today's call. We are pleased to report our results for the second quarter of 2022 in which we recorded $287 million of revenue and $118 $2 million of net income for the first six months of 2002.
92, net income is equal to $6 62.
Per unit we.
We're also pleased to discuss the transaction, we announced last night involving the acquisition.
36 vessels dry bulk fleet four $875 million to date NMM is the second largest U S listed my time company and the third largest U S listed dry bulk company.
Really we are just about died four sheqel, both by number of vessels.
Before we dive into the details I wanted to briefly review our business model that has allowed US much of these slide three shows the pro forma composition of our fleet by vessel type and segment.
We have about 15 different vessel types operating in three segments. The average age of our vessels in each segment is below the industry average, which matters as it relates to carbon efficiency and values fleet.
Turning to slide four we continue to leverage diversification, we believe that diversification allow us to optimize chartering by extending charters and well performing segments and keeping charted duration short in less well performing segments. In addition, we can make acquisitions.
That we hope will benefit from cyclical volatility such as the acquisition announced last night.
Slide five takes a look at our legacy segment data pro forma for the acquisition.
If you look at the asset and market value category, you will see the rebalancing of our portfolio as a result of this acquisition on a pro forma basis dry bulk shipping represent about $2 billion of exposure or 32, 5% of total fleet value.
This material increase should benefit us in the May do.
You will also notice as routers will address in a moment that although there has been some movement in the value of each sector net their navy has moved up in 2022 year to date.
In addition, I would like to mention that the ATV has moved up as a result of this transaction, but it is still reasonably low at 33, 8%. We will continue to focus on our target leverage ratio of 20% why we're really exceed these from time to time.
Based on market movements acquisition and another factors, we will use these as a guide and managing our financial affairs.
Please turn to slide six where I will discuss some of the details of this transaction.
We acquired 36 vessels dry bulk fleet.
$3 9 million deadweight tons capacity.
<unk> fleet has an average age of nine six years. Therefore, it has 26 owned vessels and chartering vessels all with purchase options.
This was a noncash transaction for a gross pressure rise of eight <unk>.
$175 million.
Of this purchase price $441 $6 million.
And the assumption of writers liabilities obligations.
<unk> $693 $4 million represents equity the purchase price is subject to customary debt and working capital adjustments, we anticipate that the first closing govs 15 vessels will tap into model.
The second and final closing 421 vessels.
By the end of August 2022.
I know that this transaction was unanimously approved by the conflicts committee of Navios partners and the full board of directors that the conflicts committee also retain each on legal and financial advisors.
Slide seven goes through there as well.
Of this transaction, we acquired a young known and block fleet of 36 vessels at an opportune time in the dry bulk market.
We need the recent weakness in demand in the market as a momentary pause, while China deals with the internal issues, but believe that by the end of Q4 much of these will have been resolved and China will return to the international <unk> stable in a more robust manner.
Our definition of vacation and low leverage allowed this transaction the.
Diversification provided the margin of safety as other sectors and walk away.
And that relatively low leverage and strong balance sheet and allows the acquisition with a minimal impact on our cash flow and balance sheet.
The acquisition itself provide scale and migration path to a younger more carbon efficient fleet.
We can afford uniquely say.
All of them older less carbon efficient versus post transaction that dry bulk and total fleet will increase by 67, 24% respectively.
We also believe that the expected financial returns based on the assumption, we said in that deck contains among.
Among the metrics, we shared in our deck I note that the cash return on equity is expected to be 20% in 2023.
Turning to slide eight we review.
Other recent developments during the quarter, we acquired two new buildings LNG.
<unk> thousand 700, Teu container ships for $241 $2 million delivery is expected late Q4, 'twenty 'twenty four.
At the same time, we hedged our position by entering into a 12 year charters that will generate about $370 million in revenue.
The average age is $42288 per day.
<unk> may extend existing charters to generate an additional <unk> <unk>.
$5 million to $10 million in Toyota.
In terms of refinancing update you will see that we entered into about $140 million of financing covering six vessels with a reasonably low ltvs.
The commercial activities, we fixed $3 billion contracted revenue much of this in the container space as a result, we have established an impairment.
Did you need to monitor credit quality of our Counterparties. So that with we are adequately prepare for any contingency for 2022 in the second half of the year, we have set in <unk>.
<unk> hundred 97 open index days there.
The good news is that contracted revenue exceed <unk>.
Cash expenses by $18 $7 million. So our revenue book has significant upside.
Finally, our board authorized a unit a unit repurchase program for the $100 million.
Current prices this program.
Approximately 15% of common units outstanding and 17% of the public float.
The timing of the purchases and the exact number of units to be purchased Sep is determined by the company based on market conditions and financed yet another considerations, including working capital and planned or anticipated growth opportunities.
We continue to believe that total return is the way to measure the success of our company.
And we will use this tool as a means of achieving this result for our unit holders.
At this point I would like to turn the call over to Mr. Stratos disabling.
<unk> operating officer Stratos.
Thank you Angeliki and good morning.
Slide nine details, our strong liquidity and free cash flow potential for the remaining six months.
Pro forma who've acquisition, the 56 vessel fleet these kind of brands.
We have fixed 51, 3% with an estimated 28300 available days.
Robert it's related to reduced sales momentum grew six six to $6 per day.
During the second quarter of 2020 with electric revenue exceeds total cash expenses by almost $19 million and 115997 availabilities with market exposure, providing additional liquidity crunch.
The majority of our market exposure to pension global solutions with approximately 78% of available days are open we'll continue to do an index linked charter.
Slide 10 demonstrates the basic principles of our diversified markets.
We benefited from segments.
The cyclicality this creates the opportunity to redeploy cash flow when performing segments and to asset purchases or other activities in underperforming segments.
Asset values alone can be volatile and a diversified asset base speeds the volatility demands.
For the first half of 2020 will complete their values have dropped by 4%. So anybody can think of admissions revenues have increased by 11 and 18% respectively.
From the mid <unk>.
So our fleet volume is an increase of approximately 3%.
Having multiple segments allows us to optimize our chartering activities in.
<unk> attractive returns, we can enter into video chocolates and other segments, we can be patient.
As you can see from the chart on the bottom the container segment as a joined historically high charter rates.
Surprisingly, we have fixed on continuously to Lincoln package with almost 100% <unk> level contingency days fixed for the remaining six months.
Yes.
This reduces market and the residual risk.
We manage the credit risk will be willing to talk us independently to ensure we're mid simply trading one that is kind of level.
In our global segment, we benefited from a market where rates are recovering to their historical crude to general managers we.
We have fixed 82% of available days.
For the remaining six months into 2022 and have opted to keep 78% of available days, excluding marketplace to capture anything available website.
Our goal would be to fix our global fleet will maintain charters win rates improve.
Lastly, within tankage current cap rates have been recently surpassed the 20 year average leverage.
We have increased <unk> Mohan a relevant tanker days to 62% taking advantage of an improving market.
We expect our tanker fleet will generate strong returns since the market continues to recover.
In Slide 11, you can see our fleet profile because typically the newer fleet to maintain a young profile benefiting from new technologies and more capable and efficient vessels.
<unk> partners, maybe one 4 billion investment and 22, new building vessels, which will deliver to our fleet through 2025.
And container ships, we have agreed to work with visits in the first deal we agreed to acquire the $5 and 300 Teu container ships for $630 million.
We then ship loan investment by entity to London created worthy charters generating about $710 million and contracted revenue with the $5 two year duration of the related tablets provided an expected unlevered yield of 17, 5%.
As <unk> mentioned earlier, we agreed with <unk> to 7700, <unk> June <unk> container ships for a purchase price of $241 2 million.
The vessels have been chartered for 12 years at an average rate of 42280 $8 million net per day.
Operating a page includes $370 million in revenue.
These vessels are expected to provide among liberty is about 35%.
We also leveraged the strength of the container market by selling two <unk> for an aggregate price of $200 million.
In the tanker space Winter Zama, two ophthalmic sub sector by ordering four vessels for a total price of $254 million.
Both divisions are chartered out for five years at an average net rate of $25576 per day.
<unk> revenues of approximately $93 million provided an expected unlevered return yield of about 10%.
The tribunal has the option to charter the other two vessels with symptoms.
Moving to slide 10, we continue to secure long term employment for our fleet.
Our contracted revenue amounts to $3 billion.
I need to 1% of our revenue comes from our container ships with charters extending through 2056 with a diverse group of quality counterparts.
Around 50% of this contracted revenue will be into the next year and a half years.
I will now pass the call to <unk>, our CFO will take you through the financial highlights.
<unk>.
Thank you Scott Good morning on I will briefly review our unaudited financial results for the second quarter and first half ended June 32020 to the financial information is included in the press release and is summarized in the slide presentation available on the company's website.
I would like to highlight that plenty plenty to results are not comparable to 2021 and in two.
2021, NMM gradually acquired two companies significantly expanding its current on the water fleet to 130 vessels.
Moving to the earnings highlights on Slide 15 total revenue for the second quarter of 2022 increased by 85% to $287 million compared to 152 million for the same period in 2021.
The increase in revenue was a result of a 56% increase in our available days for 11 1269 compared to 7242 for the same quarter last year and a 17% increase in the fleet DC operates today.
<unk> 3823 by day compared to 20296 per day for the same period in 2021.
The average TCE achieved by sector was down by 24721, five day containers 31600, <unk> by day and bankers 16391 Fine day.
EBITDA for Q2, 2022 increased by 81% to $163 five compared to $94 million for the same period last year net.
Net income for Q2, 2022 increased by 18% to $118 2 million compared to $99 9 million for the same period in 2021.
You only 19 income was $3.
$84. The increase in net income was due to the increase in EBITDA, partially mitigated by a $24 $4 million decrease in the amortization of unfavorable lease terms, mainly relating to the acquisition of van Mci container fashion.
$19 6 million increase in depreciation and amortization expense.
Interest expense and finance cost increased by $7 2 million to $14 $5 million in line with the additional debt following the expansion of our fleet.
Total revenue for the first half of 2022 increased by 138% to $517 3 million compared to $217 1 million for the same period in 2021.
The increase in revenue was a result of 96% increase in our available days to 22497 compared to 11494 for the same period in 2020.
And a 21% increase in the fleet time charter equivalent rate to $22107 a day compared to 18 $276 a day for the same period in 2021.
The average time charter equivalent rate achieved by sector was dry bulk <unk> 2000, 3011, five day containers 21417, five day and bankers 15864 per day.
EBITDA for Navios partners for the six month periods ended June 32021, why was adopted by a $125 million gain from one off noncash items.
Why there were no such adjustments for the first six months of 2022.
EBITDA for the first half of 2022 increased by 133% to $289 6 million compared to $124 1 million.
Adjusted EBITDA for the same period in 2021.
Net income for the six month period ended June 32022 increased by 82% to $238 million compared to $111 7 million adjusted net income for the same period last year.
Net income per unit or $6 $62.
The increase in net income was due to the increase in EBITDA, partially mitigated by $49 4 million increase in depreciation and amortization expense.
A $6 million increase in amortization of deferred drydock, especially on standby cost and other capitalized items and a $2 6 million decrease in the amortization of unfavorable lease terms, mainly relating to the acquisition of the Mci container vessels.
Interest expense and finance cost increased by $14 5 million to 27.
$7 million in line with the additional debt following the expansion of our fleet.
Turning to slide 14, I will briefly discuss some key balance sheet data as of June 32022, cash and cash equivalents were $174 6 million. During the first half of 'twenty proven to do we have made $55 6 million of pre delivery payments under our new building program.
Yeah.
Long term borrowings, including the current portion net of deferred fees amounted to $1 9 million.
Net debt to book capitalization improved to 34%.
Slide 15 highlights our debt profile pro forma for the acquisition of van fleet and the assumption of its liabilities are debt and lease liabilities have three times covered by the value of our fleet based on publicly available valuations. We continue to diversify our funding sources between bank debt and lease options.
While approximately 30% of our debt, including operating lease liabilities have fixed interest rate, providing a natural hedge against the forcing rate increases.
We have already announced refinancing of our 2022 debt maturities, while our remaining maturity profile. This package with no significant balloons view in managing Goodyear.
Slide 16 provides an update of our recent financing activities in June 2022, we signed a $55 million credit facility with a European Bank, a software plus 225%.
We are making good progress financing our new building program well ahead of the delivery of the vessels. We are currently in documentation phase four and $86 million facility with a European bank, which finances to containers. They are leaving in the second half of 2023 at an interest rate of sulfur plus 2%.
Turning to slide 17, you can see our ESG initiatives, we aspire to have zero emissions by 2050 in this process, we have been by our meeting and are adopting set that environment.
After two years in advance aiming to be one of the first fleet to achieve full compliance.
Navios is a socially conscious group, whose core values include diversity inclusion and safety.
Very strong corporate governance and clear code of ethics. Our board is composed by majority independent directors and independent committees that oversee our management and operations.
<unk> details our company highlights Navios partners is a leading U S publicly listed company, our Densification strategy creates resiliency and enables us to mitigate individual segment volatility.
Basically diversification scale and financial stance would make mmm and attractive investment platform as we take advantage of global trade patterns ill now pass the call to George <unk> Executive Vice President of Navios Partners George.
Thank you Mary Please turn to slide 20 for a review of the dry bulk industry.
The BVI started Q2 on a softer note before at Iceland, Capesize earnings to just above $38000 per day, which lifted the bts to a year to day high of 3369 by mid May.
The index then retreated by the end of Q2.
At close to 2200 <unk> averaged 2500.
30 in Q2, which was the second highest Q2 since 2010.
Similar to last year's pattern the world seaborne dry bulk trade for the second half of 'twenty toys projected to exceed the first half.
Seven 6% and solid demand for natural resources continues.
It's demand new longer haul trade routes emerge as worldwide demand increases on the bulk of higher natural gas and oil prices.
Additionally, an expansion of ton miles is projected as Brazilian iron ore exports seasonally increase in Russian coal exports get related to that way from Europe to destinations further afield.
Turning to slide 21, as previously mentioned high gas and oil prices and the Ukraine classes continued support to increase global coal imports, they're searching gas prices and uncertain supply from Russia has led European countries to reactivate coal fire power plants.
European seaborne coal imports are expected to increase by 7% and training tools.
Additionally, the ban on Russian coal will lead to shifts in trading patterns towards longer haul routes.
Chinese coal imports are projected to decrease by 11%.
The decrease in Chinese imports will be offset by unexpected 9% increase in Indian imports.
Overall seaborne coal trade is expected to increase by one 5% and 22 further boosted by an estimated two 4% growth in 10 months.
Turning to slide 20 to.
China's zero carbon policy significantly impacted <unk> production and iron ore demand in the first half of 2012.
Seaborne imports decreased by 4% and steel production fell 7% through June 22.
As covered the restrictions are lifted and infrastructure spending increases in the second half iron ore trade is expected to increase compared to the first half of the year.
The Chinese slowdown is expected to be offset by seaborne iron ore imports from the rest of the world with Europe up, 2% and Asia, excluding China, our 4% leading the increase.
Please turn to slide 23.
Global grain trade continues to be driven by heightened food security issues initially driven by the pandemic.
Now by war affecting the wheat and corn fields of eastern Europe .
Although global seaborne grain trade is expected to decrease in 2002 by two 8% due to the Ukraine crises, new trading patterns will result in a 10 mile decrease of only one 2%.
There isn't UN broker deal to allow black sea grain exports should lead to increased trade in the second half of the year.
For 2023 is expected to increase by continued four 2%.
Please turn to slide 24.
The current order book stands at seven 1% of the fleet one of the lowest on record.
Net fleet growth for 'twenty, two is expected to 7% and only <unk>, 7% in 'twenty three as owners of the move tonnage that will be an equal amount because value more 2020, 302 rooms come into force.
Vessels over 20 years of age are about eight 2% of the total fleet, which compares favorably with the historically low order book.
Concluding our dry bulk sector review continuing positive demand for natural resources, one infection related longer haul trades combined with a slowing pace of <unk> deliveries or support healthy freight rates going forward.
Please turn to slide 26, focusing on the container industry.
While macroeconomic.
Co economic headwinds have increased their charter outlook remains positive as demand remained solid and there is a persistent shortage of ships supporting container rates.
Recently rates have moderated down from Hite said earlier. This year, however data around five times 10 year averages in long term rates continue at near record levels, allowing owners to login contracts at profitable levels.
As you can see in the graph on the lower right. The U S inventory to sales ratio is soft there is low but still well below the long term average.
Continued demand keeps volumes well above takeaway capacity and the record poor congestion persists.
These together with stocking during the peak pre Christmas season through continued support containership demand with expected growth of <unk>, 7% in turning to two 7% and 23.
Turning to slide 27, net fleet growth is expected to be three 4% and 22.
It should be noted that about 64% of the order book is 413000 teu vessels or larger.
In addition, 10, 2% of the fleet is currently 20 years of age or older.
In concluding the container trade remains robust.
Supply and demand fundamentals remain balance due to the continuing demand for consumables stock building and supply chain bottlenecks.
Along with continued fleet important efficiencies should continue to support the container shipping industry in 'twenty two.
Please turn now to slide 29 for a review of the tanker industry.
Inspite of economic headwinds and the Ukraine crises.
Steel projects and one 8% increase in world oil demand for cleaning tool.
The expectation is that oil demand will grow by two 2% in 'twenty, three and exceeded 2019 pre pandemic levels.
Refining margins have increased substantially with strong demand for clean products continues to expand during the summer travel season.
Both crude and clean products should benefit from a boosting ton mice and rats.
<unk> oil exports or ebay elected two new longer trade routes on the back of a phased in European Bank in.
In fact product ton miles are expected to increase by 10% in 'twenty, two and six 1% in 'twenty three.
Turning to slide 32, VLCC net fleet growth is projected at three 7% for 'twenty, two and only one 3% for 'twenty three.
This decline can be primarily attributed to owners cancel them towards an expensive long live assets.
Right of macroeconomic uncertainty and engine technology concerns due to upcoming Kyoto restrictions.
The current order book is only four 6% of the fleet.
Vessels over 20 years of age Act and any 5% of the total fleet, which compares favorably with a low order book.
Finally, turning to slide 31 product tanker net fleet growth projected at only one 3% for cleaning tool and only one 5% for 2003.
The current product tanker order book is five 1% of the fleet one of the lowest on record and it compares favorably with the seven 2% of the fleet with 20 years of age or older.
We believe that the overall tanker order book and fleet are well balanced as they are more 2023 regulations will lead to some vessel retirements in the coming months.
In concluding product tanker rates continue at strong levels, leading the way for the crude tanker recovery there.
The combination of global oil demand returning to pre pandemic levels.
Plus increasing production new longer trading routes for both crude and products as well as the lowest order booking three decades should provide for CMT tanker earnings going forward.
And this concludes our presentation I would now like to turn the call over to <unk> for his final comments.
Yes.
Thank you George this completes our formal presentation and we open the call to questions.
Thank you at this time, if you would like to ask a question. Please press star and one on your Touchtone phone.
You may remove yourself from the queue at any time by pressing star and chip.
Once again that is star and one to ask a question, we'll pause for a moment to allow questions to queue.
Okay.
And we'll take our first question from Omar knocked out with Jefferies. Please go ahead Sir.
Thank you Hey, guys good morning.
Good morning, good afternoon.
Thanks for the thorough overview of the company in the different markets.
Obviously now close to completing the whole reorganization of the Navios groups shifting assets here on.
This one umbrella it's benign.
I guess, maybe two years and I'm, making that I'm sure from your side, it's been going on a bit longer but I wanted to ask now that you've gotten to this point with NMM does.
Does this now kind of change how you think about strategy.
In the near term and what I mean by that is there.
Is there anything that you've been waiting to do.
That you can now do not.
Now that you finally rolled everything up into out of them.
Okay.
I think you'll have seen that in the last couple of years, we've done a lot of work with change.
<unk> diversified portfolio.
And basically that gave us what.
What we did.
And the last transaction is basically.
Any balance of our portfolio, we have about I think.
To give you a lot of the information that we have about $6 5 billion in assets and basically the last acquisition was opportunistic and we actually any balance the portfolio of bringing that content.
It below 50% and increasing the drive out at about a little bit of a therapy.
And with that Don.
Good thing about 23%. So this is basically a balancing.
And asset portfolio.
Yes, we are in a good.
Yes.
Our size and we find that this is it.
And a company that way.
We see that the portfolio mix and says no you may have some time to buy a dime, we may rebalance the different sectors or that aspect or we may.
In USD, but basically we will have the size, we like by the way I wanted to say congratulations.
Thank you Joseph.
Thanks Angeliki.
Thank you very much I appreciate that.
Yeah. So obviously you guys have been very busy you've done a lot and I guess.
The.
<unk> been very active across all the sectors.
You've now announced a $100 million buyback, which obviously I think will be well received.
How do you think about that.
Utilizing it to the extent you can give some color.
Given as you show in the slide deck, there was a pretty compelling equity value story.
Do you see yourselves, putting that buyback to work fairly quickly.
I would say something about investing in Navios is about.
Yes.
This is number one and the format is a driver to your stock price and you have seen a solid solid quarter solid.
And great fix.
Six months, we have $6 62.
Net income per share.
And we are working on.
Our stock price.
He joined the Navy.
The one thing that they once a day on <unk> and that is something that we have been working to articulate and established I think did a good job is that we're trying to create a more duopolies and Macy's.
Basically.
And you will see that even though.
Yes.
Regardless of the containment went down this year and they represent over 50% of our Oh.
Asset values because of the strength of the tankers and a lesser degree the dry bulk we were able to actually increase at a navy. So basically we like to look.
The stock price without a doubt and and also create is to have all the navy, which will give you better visibility.
And basically that buyback is a tool to achieve that.
And that was it.
And we use it as a tool.
Got it thanks, thanks for that color.
And then one just one final follow up just on the transaction.
The.
35 acquisition price you have the $441 million of liabilities and the rest is cash that $3 94.
Is there how do you intend to.
To spend that 294 do you have a facility that youre looking to is there a facility that you put together that you can draw on do you have that excess cash are you looking to sell ships to make that.
Get that amount of capital just wondering where do you come up with that 394.
Basically.
Thank you Suzy, Dave discussing our balance sheet I want to remind you that we had Charlotte.
<unk> container vessels.
As part of that money out.
Got it that is using the reinvesting this amount and this is part of the diversification. We're using this amount at the garden and biologics to buy.
That is exactly.
The dry bulk fleet.
And the one thing I like to the floor.
It is.
This is about.
It was started.
<unk>.
Right.
Vessel dry bulk, which is basically call. It aggressive excellent lessons that we know at the weak point in the market right.
Dry bulk market.
Therefore, this because of our diversified platform.
Don't forget that <unk> provides these visibility of cash flows.
Hi, guys.
We are stronger and theyre coming back.
And basically.
And that is very simple.
China, the physical commodity bias.
We caution with that policy.
Isolation for the first half with a peak in the second quarter. This continues in the third quarter, but we see that after the national goals as we believe that.
That China will come back.
Strong kit in the Gulf.
In the transportation of the commodities.
This gives you a little bit why we did it and I think that there's real value.
Well.
<unk> more or less confident on that.
The funding actually if you see our balance sheet, we already have I don't know how about $75 million.
For the quarter.
We also saw the two container vessels, but we are expecting $20 million.
This is a sale the sale price and not sure you will have the cut in addition, during the quarter, which is again as we have seen in the last couple of quarters, maybe stronger than.
What can we expect the final David the customers. They added and we would expect that everything will be funded from Delek optimization.
Okay, Great. That's helpful, Yes that $2 20.
Obviously substantial not bad for two ships.
To use that.
To help bring in those 36 dry bulker.
Great well I appreciate the.
The color here and congrats on getting the obvious at this point looking forward to seeing how things develop there going forward I'll turn it over.
Thank you. Thank you. Thank you and that does conclude our question and answer session I will turn it back over to the presenters for any additional or closing remarks.
Thank you this completes our second quarter Anthony.
Okay.
Thank you that does conclude today's presentation. We thank you for your participation and you may disconnect at any time.
[music].