Navios Maritime Partners (NMM) 5 Nov 242024 Q3 Earnings call transcript

Thank you for joining us for Navios Maritime Partners Third Quarter 2024 Earnings Conference Call. With us today from the company are Chairwoman and CEO, Ms. Angeliki Frangou; Chief Operating Officer, Mr. Efstratios Desypris; Chief Financial Officer, Mrs. 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, which could cause actual results to differ materially from the forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call.

The agenda for today's call is as follows: First, Ms. Frangou will offer opening remarks.

Next, Mr. Desypris will give an overview of Navios Partners 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, and thank you all for joining us on today's call. I am pleased with our results for the third quarter of 2024 and the 9 months period ended September 30, 2024.

For the quarter, we reported revenue and net income of $340.8 million and $97.8 million, respectively.

For the first 9 months, we reported revenue and net income of $1 billion and $272.6 million, respectively. Earnings per common unit were $3.20 for the quarter and $8.87 for the first 9 months. This past 18 months has been a good time for shipping. All sectors have been performing well. More surprisingly, this performance has been in the face of slowing growth from China, an anemic European economy and 2 arm conflict. The Ukrainian conflict is in its third year and is evolving dangerously with the addition of North Korean troops to the battery space.

The war in Israel is in its second year, having expanded to Lebanon and now including the direct exchange of fire between Iran and Israel. In light of this, I question whether we are becoming insensitive to increasing risk of struggling economies and expanding conflict zones. At Navios, we vigilantly monitor these increasing risks and try to calibrate our business activity accordingly.

Please now turn to Slide 6. Navios Partners is a leading publicly listed shipping company with 179 vessels diversified in 16 asset classes in 3 sectors.

We have $331.9 million of cash on our balance sheet.

We continue on our glide path to our target net leverage range of 20%, 25%.

As you can see, our net LTV as of the end of the third quarter was 32.9%, not meaningfully up from the last quarter.

Please turn to Slide 7. I would like to focus on how we are returning capital to our unitholders. Under our dividend program, we pay a $0.20 dividend per unit annually.

In addition, we have a $100 million unit repurchase program. Under this program, year-to-date, we repurchased 351,125 units. We used $18.3 million to repurchase 1.2% of the original float. Including dividends, we have returned a total of $22.9 million to our unitholders.

In addition, the repurchase of our units was accretive. The analyst average estimate of our unit NAV is now around $148 per unit. In contrast, our unit repurchase price averaged $52.1. By repurchasing units well below analyst estimate NAV, we captured a $33.7 million discount. This represents a creation of $1.11 to its remaining unitholder.

We have around $81.7 million of availability under the unit repurchase program. The volume and timing of further repurchases will be subject to general market and business conditions, working capital requirements and other investment opportunities, among other factors.

Please turn to Slide 8, where we provide you an S&P update.

For the third quarter and Q4 2024 quarter-to-date sales, we generated $25.9 million gross sale proceeds from 2 dry bulk vessels with an average age of 19 years.

For acquisitions, we spent $212 million for 2 newbuildings, methanol-ready and scrubber-fitted 7,900 TEU container ships. These container ships were fixed for $43,247 net per day for 5 years.

In terms of deliveries, we took delivery of 3 previously announced newbuilding vessels. 2 were 5,300 TEU container ships fixed at an average rate of $37,282 net per day for 5.3 years and one was an aframax/LR2 tanker fixed for $25,576 net per day for 5 years.

Contracted revenue update. Contracted revenue continues to beat and is currently $3.9 billion, up $200 million from the previous quarter. We added $421.7 million of contracted revenue in the third quarter and fourth quarter quarter-to-date. $159.2 million was from 2 newbuildings, 7,900 TEU containerships fixed at $43,247 net per day for 5 years, $147.4 million from five 4,250 TEU container ships fixed at $34,915 net per day for 2.3 years. $80.6 million from three MR2 tankers fixed for $24,544 net per day for 3 years and $34.5 million from one VLCC tanker fixed at $44,438 net per day for 2.1 years.

Our operating cash flow potential remains strong with the fourth quarter of 2024, we estimate $61.8 million excess of contracted revenue over total cash expense with 2,650 remaining open/index days.

Please turn to Slide 9, where we focus on how we are executing on our strategy.

We have achieved a 27% decrease in net LTV since year-end 2022.

In terms of fleet renewal and modernization, we have purchased 46 newbuildings since the first quarter of 2021, of which 19 vessels have been delivered.

We have also sold 31 vessels since the third quarter of 2022. We provide a view of the evolution of our fleet through selected metrics.

As you can see, our fleet is only slightly larger than it was in year-end 2022.

Our fleet age remains about the same. We maximize energy efficiency by maintaining a fleet of useful vessels with the latest technology.

In addition, as you can see from vessels value, the steel value of our fleet has increased by about 31% since the end of 2023.

I would like to point out that much of this increase has been from volatility in the Containership segment, which dropped significantly post pandemic and has recovered in 2024 as a primary beneficiary of the Red Sea conflict and longer ton miles. I would also note that these steel values do not give any consideration to a $3.9 billion contracted revenue. With a stable and performing fleet, our financial metrics are strong.

Our adjusted EBITDA is up 5% over the first 9 months of 2023 and 17.6% over the same period in 2022.

Our cash balance is $332 million and current net leverage is 32.9%, a material improvement since the end of 2023 and in a path to reach our target of net LTV of 20%, 25%.

We present at the bottom of the slide, the average analyst estimate of the company's NAV for the period starting Q4 2022 and ending Q3 2024. Navios per unit NAV increased by $37 to $148, an increase of 33.3% over the 21-month period.

I now turn the presentation over to Mr. Efstratios Desypris, Navios Partners' Chief Operating Officer. Efstratios?

Thank you, Angeliki, and good morning all. Please turn to Slide 10, which details our operating free cash flow potential for Q4 of 2024. We fixed 81% of available days at a net average rate of $26,052 per day. Contracted revenue is expected to exceed total cash expense by $61.8 million, and we have 2,650 remaining open or index-linked days that should provide substantial additional cash flow.

So that you can perform your own sensitivity analysis.

On the right side of the slide, we provide our 13,741 available days by vessel type.

Please turn to Slide 11.

We are constantly renewing the fleet, so we maintain the profile. We reduced our carbon footprint by modernizing our fleet, benefiting from new technologies and eco vessels with greener characteristics. In Q3 and so far in Q4, we took delivery of 3 vessels, two 5,300 TEU containerships, all chartered out for an average period of 5.3 years at an average net daily rate of $37,282. One LR2 aframax vessel, which has been chartered out for 5 years at $25,576 net per day.

Following the deliveries, we have 27 additional newbuilding vessels delivering to our fleet through 2028, representing $1.9 billion of investment.

In containerships, we have 8 vessels to be delivered with a total acquisition price of $0.8 billion.

We have mitigated this risk with long-term creditworthy charters, expected to generate about $0.8 billion in revenue over a 6.6-year average charter duration. In tankers, we have 19 vessels to be delivered for a total price of approximately $1.1 billion. We charter out 15 of the vessels for an average period of 5 years, expected to generate aggregate contracted revenue of about $0.7 billion.

We have also been opportunistically replacing older vessels. In 2024, we sold 9 vessels with an average age of 17.5 years for $183 million. At the same time, we exercised purchase options on 5 charter-in Japanese built vessels with an average age of 8 years for a total price of $142.1 million.

Moving to Slide 12.

We continue to secure long-term employment. In Q3 and so far in Q4, we created about $420 million additional contracted revenue. Approximately $305 million from our containerships and about $115 million from tankers.

Our total contracted revenue amounts to $3.9 billion, $1.5 billion relates to our tanker fleet, $0.3 billion relates to our dry bulk fleet and $2.1 billion relates to our containerships. Charters are extended through 2037 with a diverse group of quality counterparties. Almost 50% of our contracted revenue is expected to begin by the end of 2026.

I now pass the call to Eri Tsironi, our CFO, which will take you through the financial highlights. Eri?

Thank you, Efstratios, and good morning, all. I will briefly review our unaudited financial results for the third quarter and first 9 months of 2024. 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 on Slide 13. Total revenue for the third quarter of 2024 increased to $341 million compared to $323 million for the same period in 2023 due to higher fleet time charter equivalent rate despite slightly lower available days.

Our fleet time charter equivalent rate for the third quarter of 2024 increased by 7% to $23,591 per day compared to Q3 2023.

In terms of sector performance, the time charter rate for our dry bulk fleet increased by 32% to $18,632 per day compared to the same period in 2023. In contrast, time charter rates for our containers and tankers were approximately 11% and 7% lower, respectively. Time charter equivalent rates for our containers stood at $30,710 per day and for our tankers at $25,788 per day for the third quarter of 2024.

EBITDA, net income and EPU were adjusted as explained in the slide footnote.

Excluding these amounts, adjusted EBITDA for the third quarter of 2024 increased by $22 million to $195 million compared to Q3 2023. Adjusted net income for Q3 2024 increased by $14 million to $97 million compared to Q3 2023. Total revenue for the first 9 months of 2024 increased by $22 million to $1 billion compared to the same period in 2023. The increase in revenue was mainly a result of higher fleet time charter equivalent rate despite slightly lower available days.

Our fleet time charter equivalent rate for the first 9 months of 2024 was $22,830 per day.

In terms of sector performance, time charter rate for our dry bulk fleet increased by 24% to $16,920 per day compared to the same period in 2023. In contrast, time charter rates for our containers and tankers were approximately 13% and 6% lower, respectively.

For the first 9 months of 2024, time charter equivalent rates for our containers stood at $30,275 per day and for our tankers $27,241 per day. Adjusted EBITDA for the first 9 months of 2024 increased by $29 million to $549 million compared to the same period last year. Adjusted net income for the first 9 months of 2024 increased by $12 million to $262 million compared to the same period last year. Adjusted earnings per common unit for the first 9 months of 2024 were $8.53.

Turning to Slide 14. I will briefly discuss some key balance sheet data.

As of September 30, 2024, cash and cash equivalents, including restricted cash and time deposits in excess of 3 months were $332 million.

During the first 9 months of 2024, we paid $174 million under our newbuilding program, net of debt. We concluded the sale of 5 vessels for $104 million, adding about $70 million cash after the repayment of debt. Long-term borrowings, including the current portion, net of deferred fees, increased by $221 million to $2.1 billion, mainly as a result of the delivery of 8 newbuilding vessels for which their respective delivery installments were paid with debt. Net debt to book capitalization increased to 34.3%.

Slide 15 highlights our debt profile.

We continue to diversify our funding resources between bank debt and leasing structures. 31% of our debt has fixed interest rate at an average rate of 5.5%.

We also have mitigated part of the increased interest rate cost by reducing the average margin for the floating rate debt for the -- in the water fleet to 2%. I note that the average margin for the floating rate debt of our newbuilding program is 1.65%.

Our maturity profile is staggered with no significant balance due in any single year. In September 2024, Navios Partners entered 2 new credit facilities.

The first is for up to $130 million to refinance the existing indebtedness of fixed vessels and finance part of the acquisition cost of one newbuilding LR2 vessel. The tranche relating to the newbuilding is priced at term SOFR + 150 basis points per annum, and the remaining facility amount is priced at term SOFR + 175 bps per annum.

The second facility is up to $48 million to refinance the existing indebtedness of 3 vessels and finance part of the acquisition cost of an Ultramax vessel. The facility bears interest of term SOFR + 175 basis points per annum or 70 basis points for any part of the loan secured by cash collateral.

Turning to Slide 16, you can see our ESG highlights.

We continue to invest in new energy-efficient vessels and reduce emissions through energy-saving devices and efficient vessel operations. Navios is a socially conscious group whose core values include diversity, inclusion and safety.

We have 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 18 for a review of current trade disruptions. The Red Sea entrance leading to the Suez Canal, a strategic maritime transit point continues to operate at restricted transit levels. Red Sea disruptions have caused a rerouting of ships via the Cape of Good Hope, increasing costs and ton miles. Since the first half of December '23, transits have reduced by 51% for containers, 55% for dry bulk vessels and 50% for tankers. Panama Canal daily transits are essentially back to normal.

Please turn to Slide 20 for a review of the tanker industry. World GDP is expected to grow at 3.2% in 2024 and 2025 based on the IMF's October forecast. The IEA projects a 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 to disappoint, averaging 11.1 million barrels a day through September, down 3% or about 0.3 million barrels a day compared to the same period last year. After a strong first half, Q3 seasonality played out on the back of refinery maintenance during the shoulder season, combined with softening Chinese demand.

However, current rates remain in line with long-term averages.

Product tankers held up better than crude, even though swing tonnage, i.e., uncoated tankers taking CPP was up over 60% for the same period last year. October saw increased crude movements, raising crude tanker rates. This should assist product tanker rates. The OPEC plus crude export cuts which was scheduled to commence unwinding on December 1 this year, are currently planned to start January 1, 2025, which, if implemented, should further assist crude tanker rates.

Turning to Slide 21.

As previously mentioned, both crude and product rates remain at healthy levels due to solid supply and demand fundamentals and shifting trading patterns. Crude ton miles are expected to grow 2.8% in '24 and a further 3.1% in 2025. Product ton miles are expected to grow 7.9% in '24 and a further 2% in 2025. These percentages increases incorporate continued Red Sea restrictions in 2024.

Turning to Slide 22. Fleet growth is projected to be zero and possibly negative for VLCCs in 2024 and 2025 combined. 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 enforced since the beginning of this year. The current low order book is only 8.3% of the fleet or 75 vessels, one of the lowest in 30 years. Vessels over 20 years of age are about 20.1% of the fleet or 184 vessels, which is over 2x the order book.

Turning to Slide 23. Projected product tanker net fleet growth is 1.7% for this year and 4.3% for 2025. The current product tanker order book is 21.3% of the fleet and compares favorably to the 19.3% of the fleet, which is 20 years of age or older. In concluding the tanker sector review, tanker rates across the board continue at historically healthy levels. The combination of moderate growth in global oil demand, new longer trading routes for both crude and product as well as a low to moderate order books and the IMO 2023 regulations should provide for a healthier tanker earnings going forward.

Please turn to Slide 25 for a review of the dry bulk industry. Q3 followed a similar pattern to the first half as robust Atlantic exports of iron ore, coal and grain continued, resulting in the BDI averaging 871, slightly higher than the first half average of 1,836 with an assist from a countercyclically strong Q1. Q3 ended 2% higher than it started with the BDI bouncing off a low in early August as Capes led the way finishing with the highest quarterly average of the year, while Panamaxes and [indiscernible] softened slightly.

As of yesterday, the BDI was ,1,374 after peaking at 2,110 on September 27. The anti-cyclical Q4 downturn has been led by Capes, assisted by Panamaxes, which have underperformed Supers year-to-date.

Dry bulk trade is expected to grow by 2.7% this year and 0.8% in 2025, enhanced by a 5.2% and 1.3% increase in ton miles, respectively. Most of the growth is 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 trades, the lower order book and tightening GHG emissions regulations remain positive factors.

Please turn to Slide 26. The current order book stands at 10.3% of the fleet. Net fleet growth for '24 is expected to be 3.2% and only 2.9% in 2025 as owners remove tonnage that will be uneconomic due to the IMO 2023 CO2 rules. Vessels over 20 years of age are about 11.9% of the total fleet, which is slightly higher than the 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 trades combined with slowing pace of newbuilding deliveries, all support freight rates going forward.

Please turn to Slide 28 for a review of the container industry. The Shanghai Container Freight Index, SCFI, is currently at 2,303, which is now only slightly higher than it opened the year at 1,897 and approximately 38% down from its peak of 3,734 on July 5 this year, which was the highest level outside the pandemic era. In contrast to the previously mentioned box rate, container ship rates remain firm on the back of continued rerouting of vessels away from the Red Sea and around the Cape of Good Hope, causing TEU miles to increase by about 18% this year.

As we noted last quarter, pressure for time charter rates should remain for the duration of the Red Sea disruption.

However, continuing record building order books and record fleet growth should eventually modify these gains and reverse costs when the Middle East conflict finally settles.

Although trade is expected to grow by 5.4% in '24 and 2.9% in 2025, newbuilding deliveries in '24 and '25 combined will be equivalent to approximately 16% of the fleet, giving net fleet growth of about 10.3% this year, followed by 5.3% in 2025. This should continue to pressure rates for some time.

Turning to Slide 29. Net fleet growth is expected to be 10.3% for 2024 and a further 5.3% for 2025. The current order book stands at 24.7% against 14.3% of the fleet 20 years of age or older. About 80% of the order book is for 10,000 TEU vessels and 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, increasing ton miles and the world GDP growth of 3.2% for both 2024 and 2025 provide a counterpoint to a challenging 2025.

This concludes our presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?

Thank you, Ted. This concludes our formal presentation, and we open the call to questions.

[Operator Instructions] We'll hear first from Omar Nokta at Jefferies.

You can tell obviously -- you can tell very clearly from the presentation and the release, you're continuing to execute on the strategy, selling older vessels, acquiring newer ones, which are derisked with the contracts on delivery and you're all -- and clearly just adding more backlog.

Here recently, we've seen several shipping markets sort of becoming a bit less exciting than what we've been used to seeing in the past couple of years. Ship values maybe look to have perhaps peaked or at least have been easing from the recent levels. Is that something you're seeing pressure on asset prices? And does that present an opportunity you think for Navios to take advantage perhaps of owners with weaker hands?

I think we see the spot market, but spot market is today.

If you see on the last 18 months, we have seen a surprisingly strong market in all the sectors of shipping. And I say surprisingly because basically, you have anemic growth in Europe, you have China, which is wobbly, I would say. And you have 2 geopolitical -- you have 2 wars, Ukraine in its third year and in a different phase and with Israel in the second year, again, in a totally different phase.

So I would say that this period is clearly a period of intensified risk, and we are being cautious, but we are focusing on these strategies, as you said. I mean you saw that we added about $420 million of contracted revenue, $3.9 billion, modernizing our fleet. and we continue. We've got delivery of our vessels. And we have a clear focus on our leverage, net LTV going with a target of 20%, 25% and focusing on the returning capital to our unitholders. I will not take a single weakness on the moment to say that I'll change the strategy.

You have to view it in the longer term and to see really something changing.

I will add, I mean, basically, today, everyone is well capitalized is a moment that 1 month won't change the equilibrium.

So you need to be focused on the long-term strategy because you really need to see a real trend out of that.

Yes. That makes sense. And I guess you did mention just a month and -- or recently, but you take a body of work and over the past 12 months, clearly, markets have been fairly strong. I guess when you think about -- as you mentioned, there's 2 wars and there's just a lot of geopolitical and macro risks and obviously, the election today in the U.S. I guess just in general, you mentioned doesn't change the strategy for Navios. But do you think about -- when you think about the company going into 2025, is there a part of the business where you want to add more fixed cover to just derisk everything overall? Or do you like the approach you have now? And is there any part of the business you think that just needs to have contract cover, whether that's tankers, dry or containers as you look ahead?

I will tell you one thing. The beauty of how we have modeled the business is we are opportunistic on the coverage. I mean we did amazing -- we added a lot of contracted revenue in container sector, which if you told me a year ago, I wouldn't have expected the strength. And we did an incredible nicely adding almost $300 million in the container sector, which is a very nice.

So we have the luxury of selecting the moment that we add the contracted revenue so that we actually get very nice returns.

So you are not going to go and sit on a weak moment on the market.

So we do that opportunistically.

That makes sense. Yes, certainly. And I guess maybe just finally, you've mentioned the capital returns, you have the dividend and beyond and the share repurchases.

You put $18 million to work here maybe over the past, I think, maybe 6 months or so. I know you mentioned it's at the discretion of obviously the Board and there's no promises. But just in general, as we think about the capital return thus far, is this the type of pace you'd like to keep moderate repurchases on an ongoing basis? Any reason you think that you would need to slow that down or perhaps step it up?

We have the usual disclaimers, as you know, but we are deliberate with our strategy. We articulated well in advance, and we are executing on that, even though this is -- we have to be cautious in this kind of a market, but we are here to execute on a very deliberate strategy. We -- also our targets on leverage, on modernizing our fleet, putting money to work, but we also feel that returning capital to our unitholders is part of our strategy.

And we have no further questions from our group. Angeliki, I will turn the floor back to you for any additional or closing remarks you have.

Thank you. This completes our quarterly results. Thank you.

Ladies and gentlemen, this does conclude our meeting for today. We thank you all for your participation.

You may now disconnect your lines.