Navios Maritime Holdings Inc.

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 De Cipris, Chief Financial Officer, Mrs. Eric Cironi, and Vice Chairman, Mr. Ted Petron. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.navios-mlp.com. You'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 Navi'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 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. Franville will offer opening remarks. Next, Mr. Vesipis will give an overview of Navios Partners segment data. Next, Ms. Cerrone will give an overview of Navios Partners financial results. Then, Mr. Petron, we'll 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 Frangu.

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 $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 marine transportation. The net result has been longer than miles for the similar volume of goods as people are avoiding the Red Sea and taking their route around Africa. It seems that the global inflation we all experience post-pandemic is subsiding. And while the US and European economies are generally healthy, China's economy is challenged by a troubled real estate sector and fading domestic consumption. We are watching carefully to determine whether China's economic walls 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 badly quickly if some sort of new equilibrium is not established. Accordingly, we continue to execute on our strategic initiative by focusing on things that we can control, such as reducing levels 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 three 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 turn some of our focus to returning capital to our unit holders. Under our dividend program, we pay a 20 cent dividend per unit annually. In addition, we have a 100 million unit repurchase program. Under this program, we purchase around 200,000 units through August to April for approximately $10 million. In total, so far in 2024, we have returned around $13 million of capital to our unit holders through dividends and unit repurchases. I would also mention that the purchase of our unit was accretive. The estimated NAV of our unit, based on our analyst average estimate, is around $140 per unit. Our per-unit repurchase price averaged at about $50. Thus, we captured an $18 million discount to NAV, which represents a net accretion of 59 cents 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 sold three vessels with an average age of 16.4 years in our effort at keeping a modern fleet. The sales to two MR2 tankers and one post-Banamax 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 new buildings scrubber-fitted AfraMax LR2 tankers, two new buildings methanol-ready scrubber-fitted 7,900 TEU container ships, one Japanese-built Ultra Handy Max previously chartered in. We also took delivery of four previously announced new building vessels, 5,300 EU container ships fixed at an average rate of $37,050 net per day for 5.2 years, and one Aframax LR-2 tanker fixed at 26,366 net per day for five years. We continue to add to our contracted revenue, which today is around $3.7 billion. In the second quarter and third quarter, quarter today, 2024, we added $561 million contracted revenue, of which $307.3 million was from six new-building Aframax LR2 tankers fixed at an average rate of $28,000 and $67 net per day for five years. 125.6 million was from two new buildings, 7,900 TEU container ships fixed at a rate of $43,000 net per day for four years, and 128.1 million from 4,250 TEU container ships fixed at an average rate of 28,116 net per day for 2.1 years. Our operating cash flow potential remains 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, or 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 we feel are important. As you can see, our fleet is only slightly larger than it was in the year end 2022 after a significant modernization program. Our fleet age remains 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-nutrient technologies. In addition, as you can see from vessel values, the steel value of 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 container ship segment, which dropped significantly post-pandemic and has recovered in 2024 as a primary beneficiary of the Red Sea conflict and longer torn miles. I would also note that these three 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% over 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 on a path to reach our target net LTV of 20-25%. I'm also pleased to report that we have negotiated new management and administrative arrangements to our fleet with our existing managers. Stratos will take you through these details. I now turn the presentation over to Mr. Stratos Desipris, Navios Partners Chief Operating Officer. Stratos?

Thank you, Angeliki, and good morning, all. Please turn to slide 10. In August, Navios Partners renewed its management and administrative services agreements with Navioship Management Inc. The current agreements were lastly renewed in 2019 and are expiring at the end of 2024. Based on the new agreements, navigation management will continue to provide administrative services based on allocable costs with no extra fees. Additionally, navigation management will provide technical, commercial, and other services based on the following fee structure. $950 per day technical management fee for own vessels, 1.25% commercial fee on gross revenues, S&P fee 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 subject to a fee for termination or change of control. The agreements were negotiated and approved by the Conference Committee of the Board of Directors of Navios Partners, The conflicts committee used Watson, Farley, and Williams as their legal advisors, and KP&G as their financial advisors, who issued a firm's 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 operon index link days that should provide substantial additional precast flow. On the right side of the slide, we provide our 27,878 available days by vessel type so that you can perform your own sensitivity analysis. Please turn to slide 12. We are always renewing the FLIP so that we maintain a young profile. It is part of our strategy to reduce our carbon footprint by modernizing our fleet, benefiting from newer technologies and ecovessels with greener characteristics. In Q2 and Q3 to date, we took delivery of four vessels, three 5,300 TU container ships, all chartered out for an average of 5.2 years at an average net daily rate of $37,050 per day. one LR2 Aframax vessel, which has been chattered out for five years at $26,366 net per day. Following these deliveries, we have 28 additional new building vessels, delivering to our fleet through 2028, representing $1.8 billion of total acquisition price. In container ships, we have eight vessels to be delivered, with a total acquisition price of about $0.7 billion. We have mitigated this risk with long-term credit-worthy 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. We chartered out 16 of these vessels for an average period of five years, generating aggregate contracted revenue of about $0.8 billion. We have also been opportunistically replacing older vessels. In 2024, we have sold seven vessels with an average age of 17.1 years for $157.2 million. At the same time, we exercised the purchase options on five Japanese-built vessels with an average age of eight 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 today, we have created about $560 million additional contractor savings. About 305 million comes from our tanker fleet and about 255 million from our container ships. Our total contracted revenue amounts to 3.7 billion. 1.4 billion relates to our tanker fleet, 0.4 billion relates to our dry-bally fleet, and 1.9 billion relates to our container ships. Charters are extending through 2037 with a diverse group of quality counterparts. About 50% of our contracted revenue is expected to be earned in the next two years. I now pass the call to Eri Tsiromi, our CFO, which will take you through the financial highlights. Eri?

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 and is summarized in a 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 and tanker TCE rates were approximately 15% and 10% lower, respectively. TCE rates 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 footnotes. 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 due to the decrease in adjusted EBITDA and the 10.6 million negative effects from depreciation and amortization, despite the 4.3 million positive effects 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 days. 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 bark fleet increased by 21% to 16,090 per day compared to the same period in 2023. In contrast, our container and tanker TCE rates were approximately 15.6% 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 an 11.5 million increase in the amortization of deferred dry dog special survey 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 the new management agreement compared to the prior agreement. Turning to slide 15, I will briefly discuss some key balances data. As of June 30, 2024, cash and cash equivalents, including restricted cash and time deposits in excess of three months, were 318 million. During the first half of 2024, we paid 145.5 million net of related debt of pre-delivery installments and capitalized expenses under a new building program. We concluded the sale of four vessels for 91.4 million net, adding about 6.7 million cash after the repayment of the respective 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 five new building vessels for which the respective 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 leasing structures, while 34% of our debt has fixed interest at an average rate of 5.6%. We also try to mitigate part of the increased interest rate cost, having reduced the average margin for our floating rate debt to 2.2%, while the average margin for the floating rate debt of our new building program is 1.8%. Our maturity profile is tagged with no significant balloons 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 two vessels and to finance part of the acquisition cost of four dry bulk vessels. The credit facility has five years' term and bears interest at compounded SOFRA Class I 75 basis points per annum. Turning to slide 17, you can see our ESG initiatives. We continue to invest in new energy-efficient vessels and reduce emissions through energy-saving devices and efficient vessel operations. In February 2024, NAVIUS, in collaboration with the Lloyds Register, founded the Global Maritime Emission Reduction Center that will focus on optimizing the existing global heat efficiency. NAVIUS 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. And now I pass the call to Ted Patron to take you through the industry section. Ted?

Thank you, Ari. Please turn to slide 19 for a review of current trade disruptions. The Red Sea entrance leading to the Suez Canal, a strategic maritime transport point, continues to operate at restricted transit levels. Red Sea disruptions have caused a rerouting of ships via the Cape of Good Hope, increasing cost and tonne miles. Since first half of December, transits have reduced 61% for containers, 60% for dry bulk vessels, and 53% for tankers. Panama Canal daily transit restrictions continue to ease on the back of returning seasonal rains, with transits anticipated to be near normal by month end. Please turn to slide 21 for a review of the tanker industry. World 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 remained 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 miles are expected to grow by 7.5% in 2024, but are expected to decline by 2.4% in 2025. These percentages increases incorporate continued canal restrictions in 2024. Turning to slide 23, VLCC net fleet growth is projected to be negative for both 2024 and 2025, at 0.1% negative and 1.7% negative respectively. 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 the year. The current low order book is only 7.3% of the fleet or 66 vessels, one of the lowest in 30 years. Vessels over 20 years of age are about 17% of the fleet or 156 vessels, which is over two times the order book. Turn 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 continue 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 three decades, and the IMO 2023 regulations should provide for healthy tanker earnings going forward. Please turn to slide 26 for the review of the dry bowl industry. Q2 followed a similar pattern to Q1 as strong Atlantic exports of iron or coal and grain 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 cargo, plus bauxite, the vast majority destined to China and Southeast Asia. Going forward, supply and demand fundamentals remain intact. Longer-duration trades, the low order book, and tightening GHG emissions regulations remain positive factors which are reflected in the future's 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 remove 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 trades combined with the slowing pace of new building deliveries all support freight rates going forward. Please turn to slide 29 for review of the container industry. Continued strong trade flow coupled with continued rerouting of vessels away from the Red Sea and around Cape of Good Hope causing time loss to increase by about 17% this year, pushing the SCFI to 37.14 the last week of June. The SCFI reached 37.33 one week later, the highest level outside the pandemic era, before correcting moderately recently. Pressure for time-threatening rates should remain for the duration of the Red Sea disruption. However, continued record fleet growth should eventually modify these gains and 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 2024 and 2025 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 should 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 10K 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.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself at any time by pressing star 2. Once again, if you would like to ask a question, please press star 1. We'll pause just a moment to allow questions to queue. Our first question will come from Omar Nocta with Jefferies. Please go ahead.

Thank you. Hi, guys. Good afternoon. Obviously, nice quarter, good amount of free cash flow generation, and you 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?

Good morning, Omar. Basically, you know, we focus on our target. You know, we are driving by reinvesting in our business. You have seen that. It's clear from day one. We bought over half a 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. or near achieving our goals, meaning we brought down our leverage towards 31 percent. Our target is 20, 25 percent. But our cash position is very close to what we were – we have stated. So basically, Driving an AV, which was like that by reinvesting, but we were also reaching our target. We were able to really implement on a strategy we have articulated. And we start a repurchase program, having a good firepower on that, and having an additional benefit for our investors by being additionally incremental a creation by repurchasing, capturing about $0.59 when we acquire our shares. So this is a net-net good result.

Yeah, certainly. Well, thanks, Angeliki, for that. And just a couple more follow-ups for me, just kind of on the orders. The LR2s that you just ordered, you're continuing to pay somewhere around that $66 million. And that compares to market valuations that suggest new buildings are closer to high 70s or close to $80 million. Are these options that you've been able to exercise today 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 feature, build on the quality 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, we must, when you order a vessel it's actually getting, you have an obligation. So to become an asset you need to fix it and have that balance. And I think we are trying to be very focused on that.

Yeah, and obviously the charters now looks like a little over half, maybe over half a 50% payback over the term of the five-year charters. What's interesting, I guess, is the two 7,900 TEU new buildings that you just ordered, those are delivering in 2026. and seem to have almost a 50% payback over just the first or basically the four-year charter. So a pretty attractive payback. I guess when we think about that, you know, you've been very busy being able to acquire tonnage, put it on contract, but these container new bills kind of stand out as having a sooner payback over just that four-year term. What do you think is – Any color you can give on what's driving that? I guess, one, do those numbers make sense that I referenced, you know, that quick of a payback? But, two, you know, is this a repeatable type of transaction in containers, or was this one of those one-offs where you had an opportunity to take advantage of some 26 slots at a good rate?

We're building on our relationship with AI. So this is not an exact thing. repeatable not only on the particular deal but we are repeatable uh deals if you see over different cprs and over different asset classes we care about where we order we care about creating the relationships on the and the designs of the vessels if you remember we ordered on the same kind of type of vessel. We have done the LNG fuel vessels. And we repeat on the knowledge we have on the CPS on the type of vessel with an opportunity to match with the right charting opportunity. So this is a continuous we have. And a lot of deals, you may never see them. I mean, this is not an one-off. By the way, on also the Aflamaxis, the LR2s, 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.

Thank you. Thanks, Angeliki. That's helpful. Appreciate the caller. I'll turn it over.

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

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