Q2 2023 Navios Maritime Partners LP Earnings Call
Chief Financial Officer, Mr. Tironi and Vice Chairman, Mr. Ted Petron.
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 will 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 Vitigation Reform Act of 1995 about Navier's partners.
Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navier's 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 Navius Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navius 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. Frango will offer opening remarks. Next, Ms. De Sipis will give an overview of Navios Partners' segment data. Next, Ms. Tironi will give an overview of Navios Partners' financial results. Then Mr. Petrone will provide an industry overview. And lastly, we'll open the call to take questions.
Now I turn the call over to Navios Partners Chairwoman and CEO , Ms Angeliki Franco. Angeliki? Good morning to all of you who joined us on today's call. I am pleased with the results for the second quarter of 2023 in which we reported revenue of $346.9 million.
a net income of $112.3 million. We are pleased to report a net earnings per common unit of $3.65 for the quarter.
Navios Partners is a leading public listed shipping company diversified in 15 asset classes in three sectors with an average vessel age of about 9.8 years. We have 175 vessels split roughly equally.
into three sectors based on a charter adjusted value. The macro environment is challenging. Trade patterns continue to be impacted by the war in Ukraine. China has experienced anemic economic growth since it exited the pandemic and currently appears to be addressing potential deflation.
container or tanker, there is a great deal of uncertainty about future prospects.
We continue to focus on things that we can control, such as reducing our leverage rate. Our stated goal is to reduce leverage so that our net LTV falls within the range of 20 to 25%. This past quarter net LTV ticked up slightly because of some...
As you can see, we have 270 million of cash on our balance sheet, an increase of approximately 57 million per last quarter. We are investing our net cash through our treasury function and earning about 5% on an annualized base in the second quarter of 2023. We secured 350 million of new financing in the second quarter of 2023. About 288 million was used to refinance 36 vessels at an average margin of 2.4%. The remaining 62 million was used to finance two additional MR2 new building vessels at an implied fixed interest rate of 7%. Overall, our current weighted average interest rate is 7%. This consists of 5.6% average interest on our fixed rate debt representing 36% of our debt and 7.8% average interest on floating rate debt representing 64% of our debt. As announced in the fourth quarter of 2022, we purchased two MR2 vessels for a total of $80 million. We expect to take
$3 million while having only 20% residual value exposure with 20 years of remaining useful life. During the Charter, we will enjoy 13% annual yield.
Fleet update in 2023, here today we saw 13 vessels generating an aggregate sales process of $242 million. We offset those sales with purchase of three vessels, including two additional MR2 new building vessels for $80.4 million.
For the remaining six months of 2023, our contracted revenue is expected to exceed total cash expense by $64.8 million. We have 8,146 open index days, so we expect to generate significant additional revenue camp in 2022.
formation in 2020, our financial performance has been strong. Our second quarter 2023 adjusted the beta is 17% higher than the second quarter of 2022 and 112% higher than the second quarter of 2022.
than 2021 and almost 570% higher than 2020. We believe that our diversified business model can continue to perform in difficult markets. I now turn the presentation over to Mr. Stratos Sipras, Navius Partners.
Listen to slide 9 which details our strong operating freecast flow for the second half of 2023.
We fixed 71% of available days at an average rate of $25,459 net per day. Our contract with revenue exceeds expected total cash expense for the remaining 6 months of 2023 by about $65 million. We have 8,146 open and index linked days.
that will provide additional profitability. Slide 10 demonstrates our diversified platform in action. We aim to benefit from counter cyclicality by redeploying cash flows from well-performing segments into assets in underperforming segments.
will be leveraged and diversified as a base, mutual at least on our financial statements.
You can see this dynamic playing itself out in our asset base. As of the second quarter of 2023, container values dropped by 4%, entry bulk and tanker values decreased by 1% respectively, compared to the fourth quarter values. In the meantime, the net change to our fleet value is a decrease of approximately 2%.
Multiple segments also allow us to optimize sautéing. In segments with attractive returns, we can enter into period sautéers. In other segments we can be patient.
Our containerships are 100% fixed at 38,200$ per day. Our tankers are 89% fixed at 26,088$ per day. And our dry bulk fleet is 66% fixed at 14,620$ per day.
As you can see from the chart on the bottom, overall we fixed 80% of our 13,779 total available days for the first quarter of 2023 at a net average rate of $24,543 net per day.
Please turn to slide 11. We are always renewing the fleet so that we maintain a YAG profile benefitting from newer technologies and more carbon efficient vessels.
We have 1.4 billion remaining investment in 22 new building vessels delivering to our fleet through 2027.
In container ships we acquire 12 vessels for a total of $860 million, which we hedged by entering into long-term credit-worth charters, generating about $1.1 billion in contracted revenue for about 6.5 years average duration with related charters.
In the tank space, we enter the LFR2 Aframach subsector by ordering six vessels for a total price of approximately 380 million.
These vessels have been chartered out for five years at an average net rate of $26,580 per day, generating revenues of approximately $290 million.
We also ordered four high spec MR2 vessels for about 160 million.
Two of the vessels have been shuttered out for five years at an average net daily rate of $22,959, generating revenues of approximately $85 million.
The dry bulk new building program of eight vessels was completed in June 2023 with a delivery of a cape size vessel.
We have also been active in opportunistically selling all the vessels based on segment fundamentals.
Here today we have sold 16 vessels with an average age of approximately 14.5 years for 242.2 million.
We sold seven tankers.
seven tanker vessels for about 160 million taking advantage of strong tanker market.
Also, we sold six drybalk vessels for a total price of 82.4 million.
Moving to slide 12, we continue to secure long-term employment for our fleet. As I mentioned earlier, in the second quarter we have created over $130 million additional contract revenue.
Approximately 85 million relates to five-year charges of $22,959 per day on two new buildingOTHER
and about 47 million relates to three existing tanker vessels.
Our total contracted revenue amounts to 3.3 billion, of which 0.9 billion relates to our tanker fleet, 0.3 billion relates to our dry bulk fleet, and 2.1 billion relates to our container ships.
The charters are extending through 2012-37.
with a diverse group of quality counterparts.
About 55% of our contracted revenue will be earned in the next two and a half years.
I will now pass the call to Eric Cironi, our CFO , who will take you through the financial highlights. Ready?
Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the second quarter and first half year ended June 30, 2023. The financial information is included in the press release and is summarized in the slide presentation available on the company's website.
Moving to the earnings highlights in slide 13, total revenue for the second quarter of 2023 increased by 24% to 346.9 million compared to 280.7 million for the same period in 2022.
Time chartered revenue for the period is understated by $7.5 million because US GAAP rules require the recognition of revenue for our charters with de-escalating rates on a straight line basis. Available dates increased by 20.4% to 13,572.
compared to 11,269 for the same quarter last year. Our average time charted equivalent rate was 23,900 per day in line with Q2 2022 levels. In terms of sector performance, both tankers and containers enjoyed improved rates compared to the same period last year. DC rates for our tankers increased by 89% to 30,947 and for our containers by 12%.
to 35,466 per day. In contracts, our drive-by TCE rate was 36% lower compared to the same period last year at 15,716 per day. EBITDA for Q2 2023 increased by 23% to 201.6 million compared to 160,000.
related to the sale of four vessels. Net income for Q2 2023 decreased by 5% to 112.3 million compared to 118.2 million in Q2 2022 mainly as a result of a 16.3 million increase in our net interest expense.
due to the increase in our debt levels and interest rate costs. Our average interest cost increased from 4.27% in Q2 2022 to 7.44% in Q2 2023.
In addition, net income has been negatively affected by a 15.4 million increase in depreciation on amortization expense and a 12.3 million reduction in the positive impact of the amortization of unfavorable leases. Earnings per common unit for Q2 2023 were $3.65.
Total revenue for the first half of 2023 increased by 27% to $656.5 million compared to $517.3 million for the same period in 2022. Time charted revenue for the period is understated by $20.5 million because US GAAP rules require the recognition of revenue for our chart as we...
available days to 27,480 compared to 22,497 for the same period in 2022. Our fleet time chart equivalent rate showed a slight improvement to 22,337 per day. In terms of sector performance, both tankers and containers enjoy the
In contrast, our dry bar TCE rate was 40% lower compared to the same period last year at 13,346 per day. EBITDA for the first half of 2023 increased by 35% to 390.4 million compared to 289.6 million for the second half of 2020.
12 vessels. Net income for the first half of 2023 increased by 4% to $211.5 million compared to $203.8 million for the same period last year. Our net income was negatively affected by a $37.1 million increase in our net interest expense.
first half of 2022 to 7.2% in the first half of 2023. In addition, net income has been negatively affected by a 29.5 million increase in depreciation and amortization expense and a 26.5 million reduction in the positive impact of the amortization of unfavorable leases.
discuss some key balancing data. As of June 30, 2023, cash and cash equivalents were $270.1 million.
In the first half of 23 we paid $113.6 million for pre-delivering installments and other capitalized expenses under a new building program and $70.6 million for vessel acquisitions and improvements. We sold 12 vessels for $215.8 million net adding 137 million cars.
after the repayment of their respective debt. Our other current assets decreased mainly due to the decrease in accounts receivable from charterers which were settled 40 years and while our other current liabilities decreased mainly following the payments made in accordance with the management agreement. Long term borrowings including the current net of the Fed fees slightly reduced to 1.92 billion.
We continue to diversify our funding sources between bank debt and leasing structures, while 36% of our debt has fixed interest at an average rate of 5.6%. We also try to mitigate part of the increased interest rate cost having reduced the average margin of floating rate debt by approximately 30%
the maturity profile is tagged with no significant allowed no remembrance rates called the 5 yrs
Slide 16 gives an update of the Q2 2023 debt developments. In terms of our new building program, approximately 95% of our new building financing is already concluded or in the documentation phase at an average margin of 1.8%. We have used the opportunity to expand our financing resources.
adding new banks and lessors, while we have also concluded our first export credit agency-backed facilities in China and South Korea. During the quarter, we have arranged a total of 350.2 million of new financings. 287.8 million relates to refinancing of existing facilities, where we managed to decrease respective margins and expand maturities.
and efficient virtual operations. NABIOS is a socially conscious group whose core values include diversity, inclusion and safety, with a 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.
World GDP is expected to grow 3% in both 2023 and 2024 based on the IMF's July forecast. There is an 85% correlation of world oil demand to global GDP growth. In spite of economic uncertainties and the Ukraine crisis, the IEA projects a 2.2 million barrels per day or 2.2% increase in world oil demand.
continued to rise, averaging 11.3 million barrels per day through July , a 12% increase over the same period last year, assisted by a record 12.7 million barrels per day imported in June . Applying a very strong Q1 across all asset classes, tanker rates softened only slightly in Q2, but remained well above long-term averages on the back.
The recent OPEC cut, although less than the headline numbers and seasonality, have put downward pressure on VLCC rates, particularly out of the Middle East Gulf.
Turn aside 21, as previously mentioned, both crude and product rates remain strong across the board due to previously mentioned supply and demand fundamentals. Product tankers are also aided by healthy refinery margin and discounted Russian crude exported to the Indian Ocean and the Far East returning to the Atlantic as clean product.
2023 crude and product ton-mile growth is expected to increase by 6.6% and 11.9% respectively with continued ton-mile growth in 2024.
Turn to slide 22. The LCC net fleet growth is projected at 2.2% for 2023 and negative fleet growth of 0.9% for 2024. This decline can be partially attributed to owners' hesitance to order expensive long-lived assets in light of macroeconomic uncertainty and engine technology concerns due to CO2 restrictions at full use.
will deliver during the balance of this year, one each in 24 and 25. Vessels over 20 years of age are about 14% of the fleet or 128 vessels, which is about seven times the order book. Turn to slide 23. Product anchor net fleet growth is projected at 2.1% for 2023.
on record and is approximately equal to the 9.8% of the fleet which is 20 years of age or older.
It concluded a tanker sector review. Tanker rates across the board continue at strong levels. A combination of below average global inventories, growth in global oil demand, new longer trading routes for both crude and products as well as the lowest order book in three decades, and the IMO 2023 regulations should provide for healthy tanker earnings going forward.
Please turn to slide 25 for the review of the dry bulk industry. Chinese dry bulk import volumes held up well in the first half. However, net fleet growth slightly outpaced trade growth. That and the unwinding of congestion continue to put a cap on rates. For Q2, the BDI averaged 1313 a 30% increase over Q1 with CAPES providing the majority of that...
It remains to be seen if the government will address these issues sufficiently to revive economic growth with past levels.
Going forward, supply and demand fundamentals remain intact. A normally seasonal stronger second half, the historically low order book, declining net fleet growth, softening US dollar, and tightening GHG emission regulations remain positive factors which are reflected in the FFA market.
Overall, dry bulk trade in the second half of 23 is projected to increase by about 3% over the first half of this year.
Please turn the slide 26. With regard to iron ore, China's GDP grew at 6.3% in Q2 of this year. Should China implement stimulus measures, this should maintain already healthy iron ore demand. Global iron ore trade is expected to increase by 3.6% in the second half of 2023 over the first half of this year. For more information, visit www.fema.gov
Coal trade continues to be impacted by the war in Ukraine as a ban on Russian coal shifted trading patterns towards longer haul routes.
Seaboard coal traders expect to decrease by 2.7% in the second half of this year over the first half of 2023.
As with coal, the global grain trade is also impacted by the war in Ukraine, shifting trading patterns toward longer haul routes.
Seaborne grain trade volume is expected to grow by 2.5% in 2023, aided by ton-mile growth of 3.7%.
Russia recently abandoned the Black Sea grain export deal. Additional grain volumes from Brazil, Europe , and Russia are expected to make up the shortfall and further add to ton miles. Please turn the slide 27. The current order book stands at 7.8% of the fleet, one of the lowest since the early 1980s. Net fleet growth for 2023 is expected at 2.9%, at only 1.9%.
Vessels over 20 years of age are about 8.5% of the total fleet, which compares favorably with the historically low order book.
Concluding the dry bulk sector review, continuing demand for natural resources, congestion at the Panama Canal, war and sanction related longer haul routes combined with a slowing pace of new building deliveries all support freight rates going forward.
Please turn to slide 29. Container rates, although well down from the first half of 2022 historic levels, continue to surprise in 2023 with the Shanghai Container Freight Index, or SCFI, currently at 1031.
which is only slightly lower than it opened the year at 1061. Overall, 2023 trade growth is projected to increase slightly at 0.3%. The outlook noticeably improved compared to the initial 2023 growth projection of negative 1.6%.
Global container trade is expected to remain challenging in 2023 for macroeconomic issues, including inflation, the war on Ukraine, and elevated deliveries. As you'll note in the graph on the lower right, the U.S. retail inventory to sales ratio is off the recent low, but still well below the long-term average. The graph on the lower left shows continuing growth in U.S. consumer purchases.
fleet growth is expected to be 7.3% for 2023 and 6.6% for 2024. The current order book stands at 28.5% against the 10.9% of the fleet 20 years of age or older. About 73% of the order book is for 10,000 TEU vessels or larger. Concluding
Chinese stimulus and world GDP growth at 3% for both 2023 and 2024 provide a counterpoint to a challenging 2023. This concludes our presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki? Hey Angeliki, good morning.
Thank you, Beth. This completes our formal presentation. We will open the call to questions. At this time, if you would like to ask a question, please press the star and one keys on your telephone keypad.
You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. And our first question will come from Omar Nakdov with Jeffries.
Thank you. Hi, good afternoon. Thanks for the update. Always very detailed across the business and the industry. I did want to ask just about kind of, you know, clearly you guys have been very active in terms of deploying your capital, I would say wisely.
You've been selling shifts on the older end and you've been investing in your new buildings. And I wanted to ask you, you highlighted and you've talked about this for several quarters, is the net LTV trying to get that down into the 20 to 25 percent range. Given you're a bit above that at the moment and we can see visibly the path to get there over the next couple of years.
In the interim, how are you thinking about deploying the capital today? You know, forgetting the new buildings that you've got and forgetting, say, selling ships. How are you thinking about deploying capital for secondhand ships on the water today? Do you see opportunities there given the pullback we've seen definitely in dry bulk and in containers? And as you mentioned, some uncertainty.
We see the challenges, and they can be from Ukraine, the continued war in Ukraine, the Chinese, the unexpected Chinese dynamic growth, and Western countries that are between inflation and recession. Nobody knows exactly if and when.
So we try to be conservative. We see on the container segment, we have done a renewal of our fleet, we're 100% fleet, so we are sitting in a position to watch the market. On the tanker segment, as you very well said, we are optimistic on the market. We see that the long-term miles.
about 25% of our fleet replaced it with high quality vessels, which we also charted out from quality counterparties providing a 12% return.
and basically limiting our residual value risk. This is on, and then, so this is a position where we continue and we charted out our vessels at very attractive rates. Now on the drive,
We have done a replacement of our fleet. We are opportunistically fixing our vessel on strength, and we are working. In any year, we will have 10% of our fleet replaced.
more or less, depending on the position and the replacement. Our guidelines on what we are trying to achieve, you can see very clearly from our actions.
Now, looking on our target, we have been articulating what is liquidity want to have, about 2 million dollars in our target LPV.
And this is two areas where I think it's fundamental to us. As we never know what will happen in next year, this is very fundamental on how we focus on this. Thanks, Angelique. Just the – you mentioned $2 million per vessel of cash on hand or liquidity is the target? Yes, yes. And this is something we have heard that previously from us is a very – it is basically calculated on your net LTV. So –
Okay. And then maybe just on a follow-up, you highlighted the MR new buildings. You ordered two late last year. You just ordered another two. You fixed the initial ones on a five-year charter where your residuals really come down – your residual risk is really low. And just in thinking about the latest two orders, do you think – is it the plan or the thought process to also secure those two new buildings similar to the first two on these five-year charters? And also, can you give a sense of whether the charter of the first two has given indications of interest on wanting more?
I mean we see quality counter parties, I mean we see top end users that they like this kind of vessels. We are talking about by replacing these, getting the older vessels up and getting these newer models you have substantially reduced carbon footprint, less consumption. So we see a high demand for quality devices and securing this specification, I mean we think that we will be able to...
same counterpart, but we are not eliminating that possibility.
Okay, got it. And then maybe just finally on just the overall, you have the new buildings in the container ships and in the tankers, you just took delivery of your final Cape new building. In terms of further new buildings as opportunities arise.
Do you think there's something to do in Drybulk or do you look maybe to perhaps balance out the portfolio that is where your biggest footprint is, at least in terms of vessel count? Or is Drybulk also an opportunity in new buildings if you see things that make sense? Do you not
Stratos always had this nice graph in the past where basically where new building practices are on dry bark and where hermits come for a period that don't really match at this point. We have, but we are always open on possibilities, on vessels, on vessels in the water. We are looking and we are doing our math all along on every segment.
We are trying to be disciplined by it. Don't forget we bought over 10 drive-by vessels, which we already have completed and put them on charters, five-year charters, and that was done, the last one was in this quarter, I think. So basically this is the position we already have taken and we did it, we had those vessels.
in 2020, so it was some time ago, 2021. Yep.
Okay, well very good. Yeah, definitely. Okay. Well, thanks Angeliki. I'll turn it over.
Thank you.
As a reminder that is star 1 to ask a question.
And our next question will come from Chris Weatherby with Citi.
And our next question will come from Chris Weatherby with Citi.
Good morning, good afternoon. It's Rob on for Chris this morning. Could you give us an update? We've seen a nice uptick in terms of the Freitas pricing mainland China to US West Coast in the past couple months. We've also seen a little bit of an improvement off some lows in terms of mainland China to Europe . Can you give us an update in terms of what you're seeing?
within your customer base as we think about peak and looking out to next year for the container market? Our view is a bit more macro. We're watching the different routes. It's a summer up, summer down. We can see the average from the SCFI that we talked about has been pretty good.
The US consumer continues to surprise a bit. Remember we're leasing out these ships to the other charters who are looking at the end users. We see a lot of, you know, there's some new building overhang, right? But on the lower side is below 13,000 dead weight. I think the order book is probably half of what it is, so that's about 28%.
So we're very confident going forward that the charterers will be looking at taking on ships. You know, it's like the housing market. Most of the ships have been taken. And if you're looking to get some, there's not much out there. So some of the time shutter rates have been gone up, and so is the duration, which is a very good sign for us. It's a challenging year for us and for the market, but I do think you'll see some surprise numbers.
And of course, you know, being 100% fixed, we can sit back and watch it objectively.
No, that makes sense. And as we're thinking about next year, kind of how fixed are you guys in the time chart? It can just kind of remind us, you know, where you are with regard to charters coming off in the next couple of years.
In the next year, we only have around 80 percent of our vessels contained and fixed. And we are starting to get also delivery of the new building vessels coming from the end of this year. So you have also the replacement of the customers of the vessels that are coming here. But I would say that we are pretty much covered for at least 24 in the containment sector. That's helpful. Obviously, there's been a lot of noise about climate change.
you're seeing from congestion and from low water levels as having just broader demand across the different vessels that you guys operate in. That's a very good and very topical. Ted will go through, but a big picture you should think of the following. We saw the pickup on the waiting for Panama Canal. I think that is basically a 50% increase from what usually was there.
And that is actually going to be affecting, it's like congestion, you know, it affects, it creates longer time at sea, longer term miles if they have to divert. That is one talking point and it is basically like congestion.
bigger ships as the barges go inland. There is the yin and the yang, also I think China was having rain in the wrong places, so every year you're going to be looking at different issues that affect, but I do, as Angeliki said, the Panama Canal is definitely a fresh water issue, which is related or not to climate change, but it's going to run through the winter. That could bring congestion for bulkers that are going with grain, the containers coming back, some of the caves coming back from the Pacific.
There's a lot of issues here, but really, the macroeconomics ones that we think are more instrumental in driving the market, but it's certainly an issue that we're all watching on the climate change side.