This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Thank you for joining us for NAVYOS Marathon Partners 4th Quarter 2022 Earnings Conference Call. With us today from the company are Chairwoman and CEO, Ms. Angeliki Sango, Chief Operating Officer, Mr. Stratos Disipri, Chief Financial Officer, Ms. Airey Cerrone, and Vice Chairman, Mr. Tepe Trillon. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investor section of Navios' website at www.navios-mlp.com. You'll see the webcasting link in the middle of the page. Any copies 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 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about NAVY'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 NAVY's partners' management and are subject to risks and uncertainties which would cause actual results to differ materially from the forward-looking statements. such risks are more fully discussed in NAVY's partner's filing for the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. NAVY's partners do not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows. First, Mr. McGill will offer opening remarks. Next, Mr. DeCubris will give an overview of NAVY's partner segment data. Next, Ms. Zeroni will give an overview of Navia's Partners financial results. Then Mr. Patron will provide industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navia's Partners Chairwoman and CEO, Ms. Angeliki Franco. Angeliki?
spk05: Good morning to all of you joining us on today's call. I am pleased with our results for the year and first quarter of 2022. For the full year, we reported revenue of $1.2 billion and net income of $579.2 million. For the fourth quarter, we reported revenue of $370.9 million and net income of $118.3 million. We are also pleased to report net income per common unit of $18.82 for the full year. Navios Partners is a leading publicly listed shipping company diversified in 15 asset classes in 3 sectors, with an average vessel age of about 9.5 years. Navios Partners entered 2023 well positioned. Over the last couple of years, NMM acquired three fleets, one in each of containers, tankers, and dry bulk segments. Today, we have 176 vessels built roughly equally into three sectors, based on a charter-adjusted basis. In addition to achieving diversification, We have been actively managing our portfolio to maintain a younger, more technologically advanced fleet as we believe the newer technologies are a competitive advantage when compared to the older versions. Our business models allow us to take advantage of opportunities when a segment is experiencing difficulties such as when we acquired Tangiers in 2021. We can also acquire assets when markets are robust, and the cost of acquired assets can be offset by attractive long-term credit growth and charges, such as with depreciation with containers and tankers. As ever, our interest is battered by macro events and uncertainty dominates all forecasts. Recessions threaten as federal banks tighten quickly. Trading patterns are changing because of the Ukrainian conflict and the collateral consequences of the pandemic. So far, global trade has adapted to these conditions, mostly by increasing tomahawks for wet and dry commodities. We remain vigilant. We are also focused on reducing leverage rates in medium term. In this period of relative activity, in nationalizing our acquired fleet by selling old vessels and acquiring new vessels, we have a net LPV of about 45%, measured at the end of the fourth quarter 2022, for all vessels in the world. Our goal is to reduce leverage so that our net LPV falls within a range of between 20 and 25%. We believe that this leverage is an appropriate range for the full cycle while allowing us to expand our balances should opportunities develop. Also, in the current charter rate market, this should happen naturally, given our expected cash bills. Please turn to slide 7. As you can see, we had an excellent year generating net income of almost $600 million. A significant amount of our net cash flow was used to fund, number one, equity for our fleet replacement program, and second, amortization of our debt facilities. We also have been busy in the fourth quarter. We contracted $328.3 million in long-term charges, of which $226.5 million was for eight tankers and approximately $102 million was for three newly acquired cave-sized vessels. We also sold 11 vessels for $213.5 million. Our activities during 2022 created a low breakeven of $2,134 per open day. We break down on this on slide 8. As you can see, about half of our approximately 57,000 available days are open or market-exposed. We present details of the available and open days by vessel type in the right-hand side of the chart. Of the open days, about 77% are dry bulk and 17% are target and are tanker days. the balance being contained. We hope to generate substantial cash flow in 2023 given this low break-even. I now turn the presentation over to Stratos Tsipras, Navios Partners, SIFO Operating Officer. Stratos.
spk03: Thank you, Angelika, and good morning all. Slide 9 demonstrates the basic principles of our diversified platform in action. We aim to benefit from counter-psychicality, which creates opportunities to redeploy cats from well-performing segments into assets in under-performing segments. We believe a diversified touch-base is useful for the ability to know how to sustain us. You can see this dynamic playing itself out in the asset-nor-asset base. As of Q4 2022, values of containerships, adjusted for values of starters, dropped by 40%, and dieback dropped by 8%, while tank-adversarial values increased by 42%. In sum, the net change to our fleet value is a decrease of approximately 7%. We conducted this analysis valuing containerships on a charter-adjusted basis because otherwise it would not capture our shattering activities, which effectively hates the asset prices. Multiple segments also allows us to optimize shattering. In segments with attractive details, we can enter into period shatters. In other segments, we can do basing. As you can see from the chart on the bottom, the containment segment enjoys historically high shattering. Accordingly, we fixed our containances for the long-term chapters, and in fact almost 90% of our available containances days are fixed for 2023. This reduces market and residual risk. We manage the great risk of the long-term chapters independently to ensure that we are not seeing the day in one way or the other. In our target segment, current chapter rates are surpassing the 20-year average levels. We fixed available target days to almost 70% for 2023. We expect our target fleet will generate strong returns. Lastly, our driver signal rates are below the historical average. We have been patiently engineering short-term targets, awaiting some market recovery. As a result, about 30% of our available days are fixed for 2023. In slide 10, you can see our fleet in newer activities. We are always renewing the fleet so that we maintain a young profile, benefiting from newer technologies and more carbon efficient vessels. NavVest Partners made a $1.5 billion investment in $23 billion vessels that we will be delivering to our fleet through 2026. In container ships, we are acquiring 12 vessels for a total of $860 million. We have our investment by entering into long-term credit warfare charges, generating about $1.1 billion in contracted revenue for about six and a half years under the duration of the related charges. In the tanker space, we entered the LR2 uppermost sub-sector by ordering six vessels for a total price of approximately 380 million. These vessels have been started out for five years at an average net rate of $26,580 per day, generating revenues of approximately 290 million. We have also ordered two high-spec human vessels for about 8 million. Finally, on the drivable fleet, we have three game-size vessels on order that are being delivered through June of 2023. These vessels have been carted out for an average duration of about five years at a net rate of almost 20,000 dollars per day. We have also been very active in the S&P market. We have sold a total of 11 vessels with an average age of approximately 14 years. We sold seven times vessels for a total consideration of $156 million, taking advantage of a strong banking market and the corresponding increase in demand for second-hand tonnage. Also, we sold four dry-bark vessels for a total price of $57.5 million. Finally, we exercised the option of acquiring one 2016-bill scrubber-gated cave-sized vessel for a total price of $40.7 million. This vessel was previously part of our chartering fleet. Moving to slide 11, we continue to secure long-term employment for our fleet. As Angeliki mentioned earlier, in Q4, we have created approximately 350 million additional contracted revenue. Approximately 327 million was contracted for our target fleet, extending our target coverage in a small market. Also, we have contracted three new building case size assets for an average duration of almost five years at a net rate of about $20,000 per day, generating approximately 102 million in revenue. Our total contract revenue amounts to $3.4 billion. Sixty-six of our contract revenue comes from our competencies, which started extending from 2036 with a diverse group of quality counterparties. Almost 50% of this contract revenue will be earned in the next 25 years. I now pass the call to Eric Cironi, our CFO, which will take you through the financial guidelines. Eric?
spk06: Thank you, Stratos, and good morning, all. I will briefly review our unaudited financial results for the fourth quarter and five months ended December 31st, 2022. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. I would like to highlight that 2022 results are not comparable to 2021, and 2022 NMM significantly expanded its list through acquisitions. Moving to the annual highlights in slide 12, total revenue for the fourth quarter of 2022 increased by 38% to $370.9 million compared to $268.1 million for the same period in 2021. Time charter revenue for the period is understated by $18.1 million because of GAAP rules requiring the recognition of revenue on a straight line basis where some of our charters have the escalating rates. Available days increased by 27% to 14,409 compared to 11,363 for the same quarter last year and our average time charter equivalent rate increased by 4% to 23,840 per day compared to 23,005 per day for the same period in 2021. In terms of sector performance, both tankers and containers enjoyed improved rates. Rates for our tankers doubled to 30,834 and container rates increased by 43% to 34,037 In contrast, our drive-back rates were 46% lower to $15,876. EBITDA for the fourth quarter of 2022 increased by 35% to $206.2 million compared to $152.4 million for the same period last year. Net income for Q4 2022 slightly improved compared to 2021, reaching $118.3 million. per unit were $3.84. Total revenue for the full year 2022 increased by 70% to $1.21 billion compared to $713.2 million for the same period in 2021. 2022 revenue is understated by $48.2 million because of the gap adjustment required for charters with de-escalating rates. are available days increased by 56% to 49,804 compared to 31,884 for 2021. Fleet average PCE rate increased by 6% to 23,042 per day compared to 21,709 per day for 2021. In terms of sector performance, PC rates increased by 40% for containers to 31,358 and 37% for tankers to 21,020. Dry bark rates were 17% lower compared to 2021 at 19,464. EBITDA for 2022 increased by 41% to 817.3 million compared to 578.5 million for the same period last year. Excluding one of items, adjusted EBITDA increased by 57% to 667.9 million. Net income for 2022 increased by 12% to $579.2 million compared to $516.2 million for the same period last year. Earnings per unit were $18.8. Excluding one of items, adjusted net income increased by 18% to $429.9 million. Adjusted net earnings per unit were $14. Turning to slide 13, I will briefly discuss some key balance sheet data. As of December 31st, 2022, custom cost equivalents were $175.1 million. In 2022, we paid $176.8 million of pre-delivery installments and other capitalized expenses under our new building program. We also paid $412 million to acquire 37 second homes and five new building vessels. Finally, we sold seven vessels for $284.5 million net, adding $231 million cash after the repayment of their respective debts. During the period, we had $240 million scheduled debt repayment under our credit facilities. Long-term borrowings, including the current portion, net of deferred fees amounted to $1.9 billion. Net debt to book capitalization stood at $4. Slide 14 highlights our debt profile. Our debt and leasing liabilities are two times covered by the value of our fees based on publicly available valuations. We continue to diversify our funding resources between bank debt and leasing structures. Our maturity profile is target with no significant balance due in any single year. Slide 16 summarizes our recent balance sheet initiatives. We have tried to mitigate some of the increased interest rate costs by reducing our average margin to 2.7%, a reduction of 13% compared to 2021. In addition, 30% of our debt, including operating lease liabilities, has fixed interest rates at an average rate of 5.7%, providing a natural hedge against current rate increases. Finally, the average margin of our new building facilities is 1.84%. In terms of our new building program, approximately 75% of our new building debt requirements are already concluded or in documentation phase. We have used the opportunity to expand our financial resources, adding new banks and resorts, while we have also concluded our first export credit agency-backed facility. Finally, we have arranged 149 million of new finances for existing measures and new acquisitions. Turning to slide 16, you can see our ESG initiatives. We aspire to have zero emissions by 2050. In this process, we have been pioneering and are adopting certain environmental regulations in advance, aiming to be one of the first to achieve food compliance. NAVIOS is a socially conscious group whose core values include diversity, inclusion, and safety. We have very strong corporate governance and clear code of ethics. Our board is composed by majority dependent directors and independent committees that oversee our management and operations. Slide 17 details our company highlights. Navios Partners is a leading U.S. publicly listed shipping company. Our diversification strategy creates resiliency and enables us to mitigate individual segment volatility. Our financial strength, scale, and diversification should make NNM an attractive investment platform as we take advantage of global trade patterns. I now pass the call to Ted Petron to take you through the industry section. Ted?
spk01: Thank you, Ari. Please turn to slide 20 for the review of the tanker industry. After rising sharply in Q3, tanker rates continued to strengthen through mid-November before softening slightly on the back of a cooling Chinese economy, a mild winter in the Northern Hemisphere, in the absence of U.S. Gulf crude exports. Since the end of January, rates for both crude and product tankers have risen significantly on the basis of China's reopening and lower tonnage for all Russian crude and products. In spite of economic uncertainties and the Ukraine crisis, The IEA projects a 2% increase in world oil demand for 2023 to 101.9 million barrels per day, exceeding 2019 pre-pandemic levels. China in particular counts at 45% of global oil demand growth in 2023, rising 0.9 million barrels per day or 6% over 22. Turn to slide 21. Tanker rates across the board have risen due to improving supply and demand fundamentals combined with the invasion of Ukraine, which has shifted Russian crude and product exports to longer routes out to India and China. Additionally, European refineries are replacing Russian crude and products with supply from the US, Brazil, and the Middle East further increasing ton miles and trade inefficiencies. Incremental support for rates came into effect as the new EU sanctions and price caps began on crude December 5th and on product trades February 5th. Product tankers should also be aided by discounted Russian crude exported to the Far East returning to the Atlantic as clean product. This could add upward pressure on already strong rates. 2023 crude and product ton mile growth is expected to increase by 6.4% and 11.2% respectively. Turning to slide 22, VLCC net sleep growth is projected at 2.1% for 2023 and negative sleep growth of minus 1.5% for 2024. This decline can be partially attributed to owner's 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 record low order book is only 2% of the fleet or only 18 vessels the lowest in 30 years. 16 VLCCs will deliver during the balance of 2023, none in 24, and one each in 2025 and 2026. Vessels over 20 years of age, or 14% of the total fleet, or 127 vessels, which is over seven times the order rate. Turn to slide 23, auto tech and net fleet growth is projected at 1.8% for 23, and only 0.4% for 2024. The current product tank order book is 5.4% of the fleet or 137 vessels, one of the lowest on record. And it compares favorably with the 10.1% of the fleet or 363 vessels which are 20 years of age or older. In concluding, the tanker sector review, tanker rates across the board continue at strong levels. The combination of below-average global inventories, oil demand returning to pre-pandemic levels, new longer trading routes for both crude and products, as well as the lowest order book in three decades, and the IMO 2020 regulations should provide for healthy tanker earnings going forward. This turns slide 25 for the review of the drywall industry. The BDI attained its 2022 high of 3,369 by mid-May. Then the lockdown Chinese economy, the war in the Ukraine and strengthening the US dollar combined to weaken the world dry bowl trade. The 2022 BDI average of 1934 was some 1,000 points below the previous year. However, it should be noted that 2022 was still the second highest index since 2010. With regard to the Q4, the average of 1523 was the fifth year in a row that Q4 was lower than Q3. And the first time that Q4 was the lowest quarter of the year since 2008. Overall, the Chinese reversal of its zero COVID policy and additional fiscal stimulus combined with the weakening US dollar point to recovery in the dry bulk market as indicated by the higher future market for all asset classes. Overall dry bulk trade in 2023 is projected to increase by 2.2%. Going forward, long-term supply and demand fundamentals remain intact. China's reopening economy, the historically low order books, loss in the U.S. dollar, and tightening DHD emissions regulations remain positive factors. Please turn to slide 26. With regard to iron ore, China's Euro-COVID policy and real estate concerns significantly impacted steel production and iron ore demand in 22. Both Chinese seaborne imports and steel production fell 2% in 2022. However, China's recent removal of the zero COVID policy and difficult stimulus focused on supporting the real estate sector should boost iron ore demand. Overall, the iron ore trade is expected to increase by 0.8% in 2023. Additionally, iron ore trade is expected to increase by 9.2% in the second half of 2023 over the first half of this year. Concerning coal, the Ukraine crisis continues to impact global coal imports as European supply concerns persist. This has led European countries to reactivate coal-fired power plants. European seaborne coal imports increased by 20% in 2022 and are expected to increase by a further 7% in 2023. Additionally, the EU ban on Russian coal will lead to shifting trading patterns towards longer haul routes. Overall, 2023 seaborne coal trade growth is expected to be supported by an estimated 4.2% growth in tonnage. Additionally, coal trade is expected to increase by 2.7% in the second half of 2023 over the first half of 2023. On the grain side, 2022 grain seaborne trade trading volume was negatively impacted by the war in the Ukraine reducing vaccine exports, but this was partially mitigated by trade adjustments towards longer haul routes increasing tonnage. The global grain trade continues to be driven by heightened food security issues driven initially by the pandemic. Trade volume and ton mile growth are expected to increase by 3.8% and 5.3% respectively in 2023. Return to slide 27. The current order book stands at 7.1% of the fleet, one of the lowest since the early 1980s. Net fleet growth for 2023 is expected at 1.8%, and only 0.3% in 2024, as owners remove sizes that will be uneconomic through the IMO 23 CO2 rules enforced since the beginning of this year. Vessels over 20 years of age are about 9% of the total fleet, which compares famously with the historically low order book. including on dry bulk sector of year, continuing demand for natural resources, China's reopening, war and sanction related longer hold phase to model a slowing pace of new building deliveries also based on solar. Please turn to slide 29. Focusing on the container industry, after faltering in Q2, the Shanghai Container Freight Index correction accelerated in the second half of 22 on the back of uncertain macroeconomic conditions combined with slower consumer demand for goods, which led to decreasing container trade, easing port congestion, and then rapidly decreasing vessel charter rates. Starting toward year end and continuing into 2023, the fall in rates has moderated, and today's rates remain above historical pre-COVID averages. 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 low below long-term average. The graph on the lower left shows moderating purchases of goods, which has slowed imports through easing port takeaway bottlenecks and port congestion. Slowing U.S. and EU goods imports has not been helped by China's zero-COVID policy, which has slowed some finished goods exports. Overall, 2023 container trade is projected to decrease by 1.6% in 2023, but increase by 3.3% in 2024. Turning to slide 30, net fleet growth is expected to be 6.7% for 2023 and 5.5% for 2024. The current order book standard 29.5% against 11.7% of the fleet 20 years of age or older. About 72% of the order book is for 10,000 CEU vessels or larger. Concluding the container sector review, although supply and demand fundamentals remain challenged due to economic and political uncertainties, the combination of China's recent reversal of a zero-COVID policy and the IMF's January upgrade to world GDP growth to 2.9% in 2023 and 3.1% in 2024 provide a bright spot in a challenging 2023. This concludes our presentation. Now let's turn it over to Angeliki for her final comments. Angeliki?
spk04: Thank you, Ted. To complete our formal presentation, we open the call to questions.
spk08: At this time, we will open the floor for questions. If you'd like to ask a question, please press the star key followed by the 1 key on your touchtone phone. If at any time you'd like to remove yourself from the question queue, please press star 2. Again, to ask a question, please press star 1. Our first question comes from Omar Nogida from Jefferies.
spk00: Thank you. Hey, guys. Morning and good afternoon. I wanted to ask about – clearly a lot is going on, and you have a very dynamic approach to the fleet and the overall portfolio. I wanted to ask about the vessel sales you announced today. You've sold 11 ships, bringing in $214 million. How much of that are you expecting to net after paying down the debt associated with those ships? And then how are you thinking about the use of that free cash that remains?
spk04: Good morning, Omar. I mean, this is a good question. I mean, on the 213 million, if I am correct, is 123 million net of debt. I mean, basically, as you know, we rationalize our fleet by selling all the less efficient vessels, and keeping and acquiring our technologically advanced vessels, which also have a better carbon footprint. So this is a strategy. We have seen us working long on that and have provided a fleet today of about an average age of nine and a half years, materially a lower age than the industry, which is four years older on containers and tankers and about two years on dry bulk.
spk00: Yeah, definitely. And, you know, you mentioned, Angelica, early on in the presentation about the target leverage range. Can you just go over that again? Because I see that LTV is at 49%, and I think a year ago you had been – you were aiming for somewhere in maybe in the mid-30s. Could you just go over what you were saying earlier about what you'd like the net equity ratio to be?
spk04: You know, our net equity ratio, net LTV, is about 45. You should realize that in that LTV, we do not include the payments we have already done on new buildings. So there is a natural deleveraging that is happening as vessels come into the water. So you have approximately 300 million of capital repayment per year and a deleveraging naturally because the vessels are coming into the water. So with that and the cut generation we see, we see that this is, we are targeting on a rate of 20-25% because there is a cut generation from the vessels. So big picture, we entered 2023, well, we have done in the last two years three major acquisitions, one in containers, one in tankers, well positioned, and we have seen the rewards, and one in dry bulk, which basically we believe that 2023 with the reversal of the Chinese policy on zero COVID, that can produce quite significant cash flows.
spk00: Thanks, Angeliki. Yeah, so target net LTV is 20% to 25%. And Just double-checking, confirming, Stratos, I think you had mentioned the LR2 contract. So that sums it up now. All six of those new buildings have been fully contracted for, what is it, five years on average?
spk02: Yes, exactly. The last two LR2s have been concluded in Q4. So all six of them today are contracted for five years at an average rate of around $26,500. Okay.
spk00: Okay, great. And then maybe just one final one just on sort of the sales and the overall transactions you've done here. It's really been centered within dry bulk and within tankers. And clearly it seems containers has been much more about just harvesting the backlog effectively. How are you thinking about that fleet as it stands today? You know, given we've seen the market correct, there are some ships that do come up open for renewal. How are you thinking about the fleet that you have today in containers and whether you become more active in either divesting or acquiring ships?
spk04: I mean, if you see on the container segment, I mean, basically, we have seen that around high teens, 20s, and we have seen the rechartering of our vessels. We have minimal days. I mean, we have $2,134 break-even per open day. And if you see on page 8, basically container days, are less than 1,500. So it's a minimal, and we see that the rates there are still in a level of about high PINs, to 20 approximately there. So this is where we are on the containers. Our position on the container segment, we have already, as you remember in 2021, we had chartered, we had ordered vessels, And basically we made these decisions early on, chartered the fleet, and we are able to renew our fleet. So we already have the backlog of the vessels we need to renew. This is part of our billion and a half new building. And this is basically the positions we already have taken. So we are harvesting the existing, and this is the decision we had. and we already have ordered the ones we wanted to do.
spk00: Got it. Thanks for that, Keller. And, you know, thanks for answering my questions. I will turn it over.
spk08: It appears we have no further questions at this time. I will now turn the program back over to Angelica for any additional or closing remarks.
spk04: Thank you. This completes our presentation. Thank you very much.
spk08: Thank you, ladies and gentlemen. This concludes today's conference.
Disclaimer