Navios Maritime Partners L.P. (NMM) Earnings Call Transcript & Summary

Thank you for joining us for Navios Maritime Partners Second Quarter 2024 earnings conference call. With us today from the company are Chairwoman and CEO; Ms. Angeliki Frangou, Chief Operating Officer, Mr. Stratos Desypris, Chief Financial Officer, Ms. Erifili Tsironi, and Vice Chairman, Mr. Ted Petrone. 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 webcasting link in the middle of the page and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties and which could cause actual results to differ materially from the forward-looking statements. Such risks more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth hearing 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 on Navios Partners segment data. Next, Ms. Tsironi 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 Frangou. Angeliki?

Good morning to all of you, and thank you for joining us on today's call. I am pleased with the results for the second quarter of 2024. We reported revenue of $342.2 million and net income of $101.5 million for the quarter. Earnings per common unit was $3.30. In the second quarter, regional conflicts, particularly in the Red Sea continue to impact mining transportation. The net result has been [ longer from mild ] for the similar volume of goods as people are avoiding the Red Sea and taking the route around Africa. It seems that the global inflation, we all experience post pandemic is subsiding, and while the U.S. and European economies are generally healthy China's economy is challenged by a troubled real estate sector and saving domestic consumption. We are working carefully to determine whether China's economic [indiscernible] weaken its otherwise voracious appetite for commodities. As you can imagine, with China's economic stalling, we have a cautious view, but we are also cautious because of geopolitical considerations. The conflict in Ukraine continues with no resolution in sight. The Middle East is on the edge and things can go bad quickly if some sort of new equilibrium is not established. Accordingly, we continue to execute on our strategic initiatives by focusing on things that we can control, such as reducing leverage and modernizing our energy efficient fleet. Please turn to Slide 7. Navios Partners is a leading publicly listed shipping company with 179 vessels diversified in 15 asset classes in 3 sectors. We have $318.4 million of cash on our balance sheet. I mentioned last quarter that we believe that we are in a gliding path to our target net leverage range of 20%, 25%. As you can see, our net LTV as of the end of the second quarter was 31.6%. Consequently, we turned some of our focus to returning capital to our unitholders. Under our dividend program, we paid a $0.20 dividend per unit annually. In addition, we have 100 million unit repurchase program under this program versus around 200,000 units through August 12 for approximately $10 million. In total, so far in 2024, we have returned around $13 million of capital to our unitholders through dividends and unit repurchases. I would also mention that the repurchase of our unit was created the estimated NAV of our unit based on our analyst average estimate is around $140 per unit. Our paid unit repurchase price average at about $50. Thus, we captured an $18 million discount to NAV, which represents a net creation of $0.59 per unit. We have around $90 million of availability under the unit repurchase program. The volume and timing of further repurchase will be subject to general market and business conditions, working capital requirements and other investment opportunities among other factors. Please turn to Slide 8. We showed 3 vessels with an average age of 16.4 years in our effort at keeping a modern fleet the sales two MR2 tankers, one post-Panamax generated $64.6 million in gross proceeds and are expected to be completed in the second half of 2024. In terms of acquisition, we invested around $500 million in the following seven vessels, four newbuilding scrubber-fitted Aframax/LR2 tankers, two newbuildings, methanol-ready, scubber-fitted 7,900 TEU container ships, one Japanese-built, ultra-handymax previously chartered-in. We also took delivery of four previously announced new building vessels, three 5,300 TEU containerships fixed at an average rate of $37,050 net per day for 5.2 years and one Aframax/LR2 tanker fixed at $26,366 net per day for 5 years. We continue to add to our contracted revenue, which today is around $3.7 billion. In the second quarter and third quarter, quarter-to-date 2024, we added $561 million contracted revenue, of which $307.3 million was from six newbuilding Aframax/LR2 tankers fixed at an average rate of $28,067 net per day for 5 years, $125.6 million was from two newbuildings 7,900 TEU containerships fixed at a rate of $43,000 net per day for 4 years and $128.1 million from six 4,250 TEU container fixed at an average rate of $28,116 net per day for 2.1 years. Our operating cash flow remained strong. For the second half of 2024, contracted revenue exceeds total cash expense by $87 million plus we have 7,395 remaining open/index days of 27% of available days for this period. Please turn to Slide 9. We provide an overview of the evolution of our fleet through selected metrics which are important. As you can see, our fleet is only slightly large than it was in the year-end 2022 after a significant modernization program. As we trade we made about the same. We maximize energy efficiency by maintaining a fleet of useful vessels with the latest technology, while we patiently await the development of more carbon-neutral technologies. In addition, as you can see from vessels values, the steel value our fleet has improved by about 27% since the end of 2023. I would like to point out that much of this improvement has been from volatility in the containership segment which dropped significantly post-pandemic and has recovered in 2024 as a primary beneficiary of the [indiscernible] conflict and longer ton miles. I would also note that these still values do not give any consideration to our contracted revenue, which today is about $3.7 billion. With a stable and performing fleet our financial metrics are strong. Our adjusted EBITDA is up 2% over first half of 2023 and 22% of first half of 2022. Our cash balance is approaching the reserve we have identified. Our current net leverage is 31.6% and material improvement since the end of 2023 and a path to our target net LTV of 20%, 25%. I'm also pleased to report that we have negotiated new management and many strategic arrangements to our fleet with our existing manager. Stratos will take you through these details. I now turn the presentation over to Mr. Stratos Desypris, Navios Partners' Chief Operating Officer. Stratos.

Thank you, Angeliki, and good morning, all. Please turn to Slide 10. In August, Navios Partners renew its management and administrative services agreements with Navios Shipmanagement Inc. management. The current agreements were lastly renewed in 2019 and are expiring at the end of 2024. Based on the new agreements, Navios Shipmanagement will continue to provide administrative services based on allocable costs with no new extra fees. Additionally, Navios Shipmanagement will provide technical, commercial and other services based on the following structure. $950 per day technical management fee per owned vessels, 1.25% commercial on gross revenues, S&P of 1% on purchase or sale price and fees for other specialized services, for example, supervision of new building vessels. The new management and administrative services agreements will commence on January 1, 2025, for a term of 10 years renewing annually and is subject to a termination or change of contract. The agreements were negotiated and approved by the Conflicts Committee of the Board of Directors of Navios Partners. The Conflicts Committee used Watson Farley & Williams LLP as their legal advisers and KPMG as their financial advisers who is in the fairness opinion. Please turn to Slide 11, which details our operating free cash flow potential for the second half of 2024. We fixed 73% of available days at a net average rate of $26,245 per day. In short, contracted revenue exceeds total cash expense by $87 million. And we have 7,395 remaining open/index days that should provide substantial additional free cash flow. On the right side of the slide, we provide our 27,878 available days by vessel time so that you can perform their own sensitivity analysis. Please turn to Slide 12. We are always renewing the fleet so that we maintain the same profile, it is to our strategy to reduce our carbon footprint by modernizing our fleet, benefiting from newer technologies and [indiscernible] with given characteristics. In 2Q and Q3 today, we took delivery of 4 vessels, three 5,300 TEU containerships, all set out for an average of 5.2 years at an average net daily rate of $37,050 per day. One on the Aframax vessel, which has been chartered for 5 years at $26,366 net per day. Following these deliveries, we have 28 additional newbuilding vessels delivered to our fleet through 2028, representing $1.8 billion of total acquisition price. In container ships, we have 8 vessels to be delivered with a total acquisition price of about $0.7 billion. We have mitigated this risk with long-term credit long-term charters generating about $0.8 billion in revenue, over a 6.7-year average charter duration. In the tanker space, we have 20 vessels to be delivered for a total price of approximately $1.1 billion. With that around 16 of these vessels for an average period of 5 years, generating aggregate contracted revenue of about $0.8 billion. We have also been opportunistically placedholder vessels. In 2024, we have sold 7 vessels with an average age of 17.1 years for $157.2 million. At the same time, we exercised the purchase options on five chartered-in Japanese-built vessels with an average age of 8 years for a total price of $142 million. Moving to Slide 13. We continue to secure long-term employment for our fleet in Q2 and Q3 to date, we have created about $560 million additional contracted revenue. About $305 million comes from our Tanker fleet and about $255 million from our containerships. Our total contracted revenue amounts to $3.7 billion, $1.4 billion relates to our tanker fleet, $0.4 billion related to our dry-bulk fleet and $1.9 billion relates to our containerships. Charters are extended through 2037 with a diverse group of quality counterparties. About 50% of our contracted revenue is expected to be in the next 2 years. I now pass the call to Eri Tsironi, our CFO, which will take you through the financial highlights. Eli?

Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the second quarter and first half of 2024. The financial information is included in the press release is summarized in the slide presentation available on the company's website. Moving to the earnings highlights on Slide 14. Total revenue for the second quarter of 2024 slightly decreased to $342 million compared to $347 million for the same period in 2023 due to lower combined time charter equivalent rate and available days. Our combined time charter equivalent rate for the second quarter of 2024 stood at $23,384 per day. In terms of sector performance, the TCE for our dry-bulk fleet increased by 14% to $17,959 per day compared to the same period in 2023. In contrast, our container tank TCE rates were approximately 15% and 10% lower, respectively. TCE rate for our containers stood at $30,239 per day, and for our tankers at $27,816 per day for the second quarter of 2024. EBITDA, net income and EPU were adjusted as explained in the slide footnote. Excluding these amounts, adjusted EBITDA for Q2 2024 decreased by $1.7 million to $190 million compared to Q2 2023. Adjusted net income for Q2 2024 decreased by $8 million to $94 million compared to Q2 2023. The decrease was primarily new to the decrease in adjusted EBITDA and the $10.6 million negative effect from depreciation and amortization despite the $4.3 million positive effect from the reduction in interest rate expense and the increase in interest income. Total revenue for the first half of 2024 increased by $4.2 million to $661 million compared to the same period in 2023. The increase in revenue was mainly a result of higher combined TCE rate despite lower available base. Our combined TCE rate for the first half of 2024 was $22,448 per day. In terms of sector performance, TCE rate for our dry bulk fleet increased by 21% to $16,090 per day, compared to the same period in 2023. In contrast, our container and tank TCE rates were approximately 15% and 6% lower, respectively. TCE rates for our containers stood at $30,037 per day and for our tankers at $27,952 per day for the first half of 2024. Adjusted EBITDA for the first half of 2024 increased by $7 million to $354 million compared to the same period last year. Adjusted net income for the first half of 2024 decreased by $2 million to $166 million. Despite the increase in adjusted EBITDA, our net income was negatively affected by $11.5 million increase in amortization of deferred dry bulk special sales costs and other capitalized items. A $6.6 million decrease in the positive impact of the amortization of unfavorable lease terms and a $3.6 million increase in the depreciation and amortization of intangible assets. The above decrease was partially mitigated by a $9.4 million decrease in interest expense and a $2.9 million increase in interest income. Adjusted earnings per common unit for the first half of 2024 were $5.38. As mentioned earlier, we have agreed to renew our management agreement expiring at the end of the year. Based on preliminary budgets for 2025 operating expenses, we don't expect a material financial impact from the terms of a new management agreement compared to the prior agreement. Turning to Slide 16, I will briefly discuss some key balance sheet data. As of June 30, 2024, cash and cash equivalents, including restricted cash, and time deposits in excess of 3 months were $318 million. During the first half of 2024, we paid $145.5 million net of related debt of predelivery installments and capitalized expenses under our newbuilding program. We concluded the sale of 4 vessels for $91.4 million, net adding about $6.7 million cash after the repayment of the respected debt. Total long-term borrowings, including the current portion, net of deferred fees, increased $1.97 billion, mainly as a result of the delivery of 5 new braking vessels, for which the expected delivery installments were paid with debt. Net debt to book capitalization decreased to 33.6%. Slide 16 highlights our debt profile. We continue to diversify our funding resources between bank debt and lease instructions, while 34% of our debt as fixed interest at an average rate of 5.6%. We also try to mitigate part of the increased interest rate costs, having reduced the average margin for our floating rate debt to 2.2% while the average margin for the floating rate debt of our new business program is 1.8%. Our maturity profile is target with no significant value due in any single year. In June 2024, we entered into a new reducing revolving facility with a commercial bank for up to $95 million in order to refinance the existing indebtedness of 2 vessels and to finance part of the acquisition cost of 4 dry bulk vessels. The credit facility has 5 years term and bears interest at Compounded SOFR + 1.75 basis points per annum. Turning to Slide 17, you can see our ESG initiatives. We continue to invest in new energy system vessels and reduce emissions through energy-saving devices and efficient vessel operations. In February 2024, Navios in collaboration with Lloyd's Register founded the global Maritime Emission Reduction Centre that will focus on optimizing the existing global fleet efficiency. Navios is a socially conscious group whose core values include diversity, inclusion and safety. With our strong corporate governance and clear code of ethics, while our Board is composed by majority independent directors. I'll now pass the call to Ted Petrone to take you through the industry section. Ted?

Thank you, Eri. Please turn to Slide 19 for a review of current trade disruptions. The Red Sea entrance leading to the Suez Canal, a strategic maritime transfer point continues to operate at restricted transit levels. Red Sea disruptions have caused a rerouting of shifts via the Cape of Good Hope, increasing cost and ton miles. Since first half of December, transits have reduced 61% for containers, 60% for Dry Bulk vessels and 53% for Tankers. [indiscernible] Canal daily transit restrictions continue to ease on the back of returning seasonal rains with transit anticipated to be near normal by month end. Please turn to Slide 21 for review of the tanker industry. While GDP expected to grow by 3.2% in 2024 based on the IMF's July forecast. The IEA projects 0.9 million barrels per day increase in world oil demand for '24 and a 1 million-barrel per day increase in 2025. Chinese crude imports continue at healthy levels averaging about 11.1 million barrels per day in Q2, although imports are down about 5% from the same period last year. After a seasonally strong Q1, rates moderated slightly in Q2 but remain above long-term averages with product tankers showing the most resilience. The OPEC crude exports cuts have been somewhat mitigated by increased Atlantic Far East exports, causing high volatility to VLCC rates in Q2. Turning to Slide 22. As previously mentioned, both crude and product rates remain strong across the board due to healthy supply and demand fundamentals and shifting trading patterns. Crude ton miles are expected to grow by 3.3% in '24 and a further 2.2% in '25. Product tanker ton mile is expected to grow by 7.5% in '24, but are expected to decline by 2.4% in '25. These percentages increases in corporate continued canal restrictions in 2024. Turning to Slide 23. VLCC net fleet growth is projected to be negative for both '24 and '25 and 0.1% negative and 1.7% negative respectively. This decline can be partially attributed to owners hesitant to order expensive long-lived assets in light of macroeconomic uncertainty and engine technology concerns due to CO2 restrictions in force since the beginning of the year. The current low order book is only 7.3% of the fleet of 66 vessels, one of the lowest in 30 years. vessels over 20 years of 8 are about 17% of the fleet or 156 vessels, which is over 2x the order book. Turning to Slide 24. Projected product tanker net fleet growth is 1.8% for 2024 and 4.9% for 2025. The current product tanker order book is 19.9% of the fleet and compares favorably with the 14.4% of the fleet, which is 20 years of age or older. In concluding the tanker sector review, tanker rates across the board continued historically healthy levels during the seasonally slow summer season. Combination of moderate growth and global oil demand, new longer trading routes for both crude and products as well as one of the lowest order books in 3 decades. And the IMO 2022 regulations should provide for healthy tanker earnings going forward. Please turn to Slide 26 for the review of the dry bulk industry. Q2 followed a similar pattern to Q1, a strong Atlantic exports of iron ore coal continued, resulting in the BDI averaging 1848, slightly higher than the counter cyclically strong Q1. Dry bulk trade is expected to grow by 2.6% this year, enhanced by a 4.4% in ton miles growth, with the most of this growth anticipated to come from additional Atlantic exports of the above-mentioned cargoes plus bauxite the vast majority destined to China and Southeast Asia. Going forward, supply and demand fundamentals remain intact. Longer duration trade, the low order book and tightening GHG and missions regulations remain positive factors, which are reflected in the futures markets. Please turn to Slide 27. The current order book stands at 9.9% of the fleet, one of the lowest since the late '90s. Net fleet growth for 2024 is expected to be 3.1% and only 2.6% in 2025 as owners removed tonnage that will be uneconomical due to the IMO 2023 CO2 rules. Vessels over 20 years of age are about 9.8% of the fleet, which is approximately equal to the low order book. In concluding our dry bulk sector review, continuing demand for natural resources, restrictions in transiting the Red Sea, war and sanction-related longer-haul trade combined with a slowing pace of new building deliveries all support freight rates going forward. Please turn to Slide 29 to review of the container industry. Continued strong trade flow, coupled with continued rerouting of vessels away from the Red Sea and around the Cape of Good Hope, causing ton miles to increase by about 17% on this year, pushing the SCFI to 3714 in the last week of June. The SCFI reached 3733, one week later, the highest level outside the pandemic era before correcting moderately recently. [indiscernible] charter rates should remain for the duration of the red sea disruption. However, continued record fleet growth should eventually modify these gains in reverse course when the Middle East conflict settles. Although trade is expected to grow by 5.1% in 2024 and 2.9% in 2025 new building deliveries in '24 and '25 will be equivalent to approximately 16% of the fleet after record net fleet growth of 10.2% this year, followed by 4.9% in 2025. This will continue to pressure rates for some time. Turning to Slide 30. Net fleet growth is expected to be 10.2% for 2024 and a further 4.9% for 2025. The current order book stands at 22.7% against 11.5% of the fleet 20 years of age or older, about 78% of the order book is for the 10,000 TEU vessels or larger. In concluding the container sector review, longer-term supply and demand fundamentals remain challenged due to economic and geopolitical uncertainties and an elevated order book. However, trade growth improvements, increased ton miles and world GDP growth of 3.2% this year provide for a counterpoint to a challenging second half of 2024. This concludes our presentation. I would like to turn the call over to Angeliki for her final comments. Angeliki?

Thank you, Ted. This completes our formal presentation. We open the call to questions.

[Operator Instructions] Our first question will come from Omar Nokta with Jefferies.

Obviously, next quarter, a good amount of free cash flow generation, and we continue to focus on fine-tuning the fleet, selling shifts and bringing in some new ones with contract cover. Obviously, a big highlight is the buyback you spent nearly $10 million, which is nice. Just kind of thinking about that, is there anything that triggered you putting that capital to work? Obviously, you highlight the disconnect between the share price and NAV but is there anything that maybe instigated the buyback here recently? Is it comfort with the outlook? Is it the buildup of the backlog? What would you say kind of drove the decision to go after the buyback?

Omar, I think basically, we focus on our target we are driving by reinvesting in our business. You have seen that it's clear from day 1. We bought over $0.5 billion of vessels, and we contracted them out about $560 million, over $560 million of contracted revenue. But at the same time, we managed to achieve our goals. Near achieving our goals, meaning we brought down our leverage to toward 31%. Our target is 20%, 25%, but our cash position is very close to what we were -- we have stated. So basically, we driving NAV, which we like that by the investor. But we are also reaching our targets. We were able to implement on a strategy we have articulated. And we start a repurchase program, having a good fire power on that and having an additional benefit for our investors by being additionally incremental creation by repurchasing caption about $0.59 when we acquired our sales. So this is a net-net good result.

Yes, certainly. And just a couple of more follow-ups for me, just kind of on the orders. The LR2's that you just ordered, you're continuing to pay somewhere around that $66 million. And that compares to maybe market valuations that suggest newbuildings are closer to high 70s or close to $80 million are these options that you've been able to exercise? Is that what's driving the cheaper price relative to what perception is of what a new building costs?

You are exactly right. I mean one of the things we do, we are disciplined on purchasing. We like to focus on a quality fleet chart on the quality vessel and create options for us. And I think you have seen that we have been implementing on this strategy for quite some time, giving us an advantage. Also, we are able to remark, when the older vessels is actually getting -- you have an obligation. So margin -- it's become an asset, you need to fix it and have that balance. And I think we are trying to be very focused on that.

Yes. Yes. And then obviously, the charters now looks like a little over half, maybe over half 50% payback over the term of the 5-year charters. What's interesting, I guess, is the two 7,900 TEU new buildings that you just ordered, those are delivering in '26 and seem to have almost a 50% payback over just the first -- or basically the 4-year charter. So a pretty attractive payback. I guess when we think about that, you've been very busy being able to acquire tonnage you put it on contract. But these container new builds are kind of stand out as having a sooner payback over just that 4-year term? What do you think is -- any color you can give on what's driving that? I guess one is those numbers make sense, I referenced that click of a payback. But two, is this a repeatable type of transaction in containers? Or was this one of those one-offs, we had an opportunity take advantage of some '26 lots at a good rate.

We build on our relationship there. So this is not repeatable not only on the particular deal, but we are repeatable in the -- you see over different shipyards and other different asset classes. We care about where we order. We care about creating relationships and the designs of the vessels. If you remember, we order the same kind of the type of vessel. We have done the energy for vessels. And we repeat on the knowledge we have on the shipyards on the type of vessel with an opportunity to match with the right chartering opportunity. So this is a continuous effort we have. And a lot of this, you may never see them. I mean, this is not a one-off. By the way, also the Aframaxes/LR2s our payback is quite significant. So we are very careful on both sides because at the end of the story, you need to go at historical averages. We like to make sure that with the charter we have, we bring the value, the residual value down.

Angeliki that's helpful. I appreciate the color. I'll turn it over.

Thank you. At this time, we have no further questions. I will turn the call back to Angeliki for any closing remarks.

Thank you. This concludes our quarterly results. Thank you.