Earnings Call Transcript - NMM Q2 2021

Operator, Operator

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 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.

Angeliki Frangou, CEO

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 and 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. 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 insulate us from industry cyclicality. You can already see the flexibility created by the different segments as we address open available days and financing. We have about $1.1 billion in 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 enables us to have about 36% of our available days either open or index linked. We have a strong balance sheet with low leverage. Partially as a result of all these factors, our units have performed well in 2021 year-to-date. During Q2, NMM gained $90.4 million in EBITDA, $99.9 million in net income, and $4.32 earnings per unit. We will 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 two vessels with an average age of 15.7 years for $41.4 million. As a result of fleet renewal and expansion program year-to-date, we added a net of 44 vessels to our fleet and the containership fleet increased by 330%, while the average age reduced by 25%. Our dry bulk fleet capacity increased by 37%, while its average age reduced by 18%. We raised about $615 million in new financing year-to-date, including $405 million for the acquisition, $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 are operating both dry bulk and containership segments, we can mitigate normal industry cyclicality. This has created optionality, for example, our chartering strategy optimizes different sector fundamentals. With our 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. We have maximized market exposure in the dry bulk vessels, with over 63% of our available days in the second half of 2020 and about 94% of 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, our fleet increased by 81% in terms of the number of vessels, with 44 net vessel additions. We acquired 38 vessels on the water and an additional 13 newbuilding vessels are to be delivered into our fleet. We also agreed to sell seven vessels with an average age of 30.7 years for $108 million in process. Through these activities, we increased our containership fleet by 330% and our dry bulk fleet capacity by 37%. Moreover, we have successfully reduced the average age of our fleet in both segments, with a 25% reduction in containership and an 18% reduction in dry bulk. Slide 9 details our operating free cash flow for the second half of 2021, with about 64% of our available days at an average rate of $22,919 per day. Our contracted revenue exceeds total estimated fleet expenses by $47.8 million, while the remaining 36.1% of our available days are either open or index linked, providing market exposure. Slide 10 shows our liquidity position. As of June 30, 2021, we have total cash of $232.9 million and total borrowings of $795.5 million. Our net debt to book capitalization is 27.3% and our debt maturities are staggered 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 financing results for the second quarter of 2021.

Efstratios Desypris, CFO

Thank you, Angeliki. Good morning, everyone. I will briefly review Navios’ financial results for the second quarter and first half ended June 30, 2021. The financial information is included in the press release and summarizing the slide presentation available on the company’s website. Before I discuss the results, I would like to remind you that the merger in large containers was completed on March 31. Consequently, the results from the first half of 2021 include the results of Navios Containers currently for the second quarter. Moving to the earning highlights in Slide 11, the 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, along with an 81% increase in the Time Charter Equivalent achieved 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. These increases were mitigated by a $19.8 million increase in vessel operating expenses and a $3.3 million increase in G&A due to our increased fleet, and a $6.2 million increase in net other expenses. Net income for the quarter amounted to $99.9 million. Fleet utilization for the second quarter of 2021 was almost 100%. Turning to the six-month operations. As mentioned earlier, the discussion below excludes the results of Navios Containers for Q1 of 2021 as the merger was completed on March 31. For the first quarter of 2021, Navios Containers recorded $43.8 million of revenue and $22.8 million of EBITDA. Time charter revenue for the six 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 rate equivalent achieved in the first half of 2021 and a 41.4% increase in our available days. EBITDA and net income for the first half of 2021 include $80.8 million of gain from the revaluation of our investment in Navios Containers as a result of the merger. I would like to point out here that in 2019, we wrote 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 asset 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 key balance sheet data as of June 30, 2021. Cash and cash equivalents were $252.9 million. Long-term borrowings, including the current portion, net of deferred fees, 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, modern, diverse 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 means of 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 certain environmental regulations up to two years in advance, aiming to be one of the first fleets to achieve full compliance. Navios is a socially conscious group whose core values include diversity, inclusion, and safety. We have very strong corporate governance and a clear code of ethics. Our Board is composed of a majority of independent directors and independent committees that oversee our management operations.

George Achniotis, Executive President of Business Development

Thank you, Efstratios. Please turn to Slide 16. The Baltic Exchange Dry Index reached 3,418 on June 29, the highest level since 2010 as earnings from sub-Capesize vessels reached multi-year highs. A 2,793 Q3 index average was more than double any Q2 quarterly average in the past decade. Rates in all asset classes have risen sharply reflecting surging trade driven by strong demand for both major and minor bulk commodities. Supply and demand fundamentals going forward remain extremely positive, with strong demand for natural resources combined with COVID-related logistical disruptions that add to fleet inefficiencies and the slowing pace of newbuilding deliveries, all supporting strong 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 2022. Demand is forecast to outpace net fleet growth in both 2021 and 2022. The graph on the left shows that dry bulk demand for the three major cargoes of iron ore, coal, and grain for the second half of 2021 is forecasted 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 2022. 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 2021 are expected to increase as steel mills replenish stockpiles, driving demand for Capesize vessels. Forecasts are also for growth in iron ore imports worldwide as the effects of the pandemic recede. Europe's imports are expected to grow by 18%. In Asia, excluding China, they are expected to import 12% more iron ore in 2021 than in 2020. Asian coal imports, which account for over 80% of the world seaborne coal trade, are expected to increase by 3.7% in 2021. According to the International Energy Agency, global coal-fired 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 2022. An ever-increasing world population and food security issues driven by the pandemic, as well as increasing protein demand worldwide, continue to support the global grain trade. While grain production this year will reach a record according to the International Grains Council and the USDA. Worldwide grain trade has been growing by a 5% CAGR since 2008, mainly driven by Asian demand, which increased by 15.5% in 2020 and is forecasted to grow by a further 6.9% in 2021. The current order book stands at a historically low 5.8% of the fleet. Contracting for all of 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 2022, below the projected increase in dry bulk demand for both years. Vessels over 20 years of age are about 8.7% of the total fleet, which compares favorably with the previously mentioned historically low order book. Scrapping totaled 15.8 million tons in 2020, and year-to-date has totaled 4.7 million tons, which is on pace for a yearly total of 8.6 million tons. Focusing on the container industry, stimulus measures have caused a recovery of consumption in the advanced economies. This targeted stimulus has led to a historic turnaround in global container trade. Increases in consumer demand for goods, port congestion, and restocking led to containership demand growth of 6.3% in 2021 and 3.8% in 2022. The increased demand is expected to exceed supply in both years. 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 port congestion, increased trade, and lack of newbuildings has propelled periods of time charter rates to hit historic highs of $70,000 per day for periods of up to a year. The SCFI box rate index has broken through the 4,000 level for the first time ever and stands approximately four times higher than the 10-year average, driven by the earlier start of the Chinese economy and from continuing demand for consumables and pandemic-related supplies worldwide. Fleet growth is manageable at 4.5% this year and 2.6% for 2022. Even in this high-demand environment, scrapping should continue as 10.5% of the fleet is currently 20 years of age or older. 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 navigate through the easing pandemic storm. This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments.

Angeliki Frangou, CEO

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

Operator, Operator

And we'll take our first question from Randy Giveans from Jefferies. Your line is now open.

Randy Giveans, Analyst

Hi, team Navios. How's it going?

Angeliki Frangou, CEO

Hey, Randy. Good morning.

Randy Giveans, Analyst

Good morning. All right. So a few questions here. I guess, first, just looking at your chartering for the containerships, you recently booked five 4,500 or so TEU containerships on three-year charters. Clearly, very impressive rates of about $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?

Angeliki Frangou, CEO

Very good questions. I mean, literally see what we have been doing. We are actually, with all the repositioning that we have done in the company, we have created a sizable fleet of 98 vessels. 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 and 45% containerships. Our goal is to create this long-term durable cash flow with a conservative balance sheet. That is the outlook. As the maturities approach, we will act at the moment of strength. We are always mindful of our structure and we’re positioning the company for the long-term.

Randy Giveans, Analyst

Sure. And I guess on those two charters expiring in four months, it seems like there's already a market for those. Are those being negotiated now or are you waiting till the fall?

Angeliki Frangou, CEO

We are taking a portfolio approach. We are always talking to everyone, and we will do it at the most appropriate time for the line that has the biggest need. We have structured our entire portfolio to create these cash flows tactfully as we see the market strengthening.

Randy Giveans, Analyst

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?

Efstratios Desypris, CFO

Hi, Randy, good morning from me also.

Randy Giveans, Analyst

Hi.

Efstratios Desypris, CFO

Yes, we will have all the details on the number of units issued and the units outstanding, as well as the status of the ATM program, in our 6K and 8K filing that will come shortly. However, what I can share with you on this call is that the ATM programs have been practically completed by now, so very minimal amounts are left.

Randy Giveans, Analyst

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

Efstratios Desypris, CFO

You will have all the details in the filings, so let's be patient on that.

Randy Giveans, Analyst

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?

Angeliki Frangou, CEO

This is an ongoing process meaning we will always be evaluating our fleet. We have been successfully disposing of vessels at attractive prices. We continue to see good opportunities to acquire vessels, especially those that fulfill market needs with no new orders expected in the near term. Our goal remains to create long-term, sustainable cash flow.

Randy Giveans, Analyst

Got it. Okay. And the last question from 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 index-linked exposure?

Angeliki Frangou, CEO

I think you are a better expert than us. Everyone has collections, values, and I will not even compete with you in that regard. I think the company is positioning itself for the long term with ample opportunities ahead. We've strategically acquired valuable assets that we expect to yield positive results in the coming periods.

Randy Giveans, Analyst

Sure. Yes, it seems like the second quarter was great. Clearly, the third quarter rates should be better than that. So, we will be looking forward to the next quarter indeed. Thanks so much.

Angeliki Frangou, CEO

Yes, but I want to remind you that the pandemic is still prevalent, and we all should be very mindful of where we are.

Randy Giveans, Analyst

Yes.

Angeliki Frangou, CEO

Thank you.

Operator, Operator

This completes our Q2 results. This does conclude today's program. Thank you for your participation. You may disconnect at any time. Have a wonderful day.