Navios Maritime Partners LP

Thank you for joining us for Navios Maritime Partners 3rd Quarter 2023 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 Petron. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navier's Partners website at www.navier-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 State Harbor Statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Integration Reform Act of 1995 about novice partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of novice 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 other partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Another partner 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. Petron will provide an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Nervous 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 the results of the third quarter of 2023 in which we reported revenue of $323 million and net income of about $90 million. We are also pleased to report net earnings per common unit of $2.92 for the quarter. Before I provide some comments on the company, I would like to share my views regarding economic sentiment. The US economy is generally healthy, but there are clouds on the horizon. The US has high government debt levels and the highest peacetime fiscal deficits. The Fed is engaged in quantitative tightening and there is a risk of interest rates rising further from their current relatively elevated levels. China, the world's largest consumer of commodities, is not firing on all cylinders. These factors along the walls in Ukraine and Israel have contributed to making this one of the most dangerous times in memory. Despite these clouds, the shipping market is robust and healthy. Our company is doing well and positioned for all weather. We continue to focus on things that we can control, such as reducing leverage, being eco-friendly by keeping a modern, energy-efficient fleet, and expanding into areas which will promote our long-term prospects, such as the recent tanker bills we entered into with various oil majors. Navios Partners is a leading publicly listed shipping company diversified in 15 asset classes in 3 sectors with an average vessel age of about 9.6 years. We have 180 vessels split roughly equally into 3 sectors based on a charter adjusted value. We turn to slide 7. We have about 270 million of cash on our balancing. In the third quarter, we have about 5.3% on an annualized basis on our cash balances. In addition, we are positioned well for the fourth quarter, as we have 52 million of contracted revenue in excess of cash expenses and 2,304 open index days. In the third quarter, we enter into the transsegment business. We modify the Navios Vega ultra-handimax vessels to have the equipment necessary to provide transshipment operations and enter into a five-year charter with Navios South America Logistics. The vessel is expected to commence this operation in the fourth quarter and generate about 30 million of EBEDA over the course of its charter. The vessel itself in this trade should have an extended useful life of about 30 years. Please turn to slide 8. We provide an S&P update. Year-to-date, 2023, we generated 255.2 million gross proceeds from the sale of 14 vessels. In the first 9 months of the year, we received 242 million dollars and we received 13 million balance in the fourth quarter of 2023. In terms of acquisition, we spent 421.6 million for four new buildings Krabber fitted Afromax LR2 vessels and four Japanese new buildings MR2 vessels. We also spent 28 million dollars to acquire a 2019 built Kamsa Maxx vessel that we previously charted in. We continue to work on obtaining long-term contracted revenue. In the third quarter, we created 257.9 million of contracted revenue. Of this amount, we expect to receive 171.9 million dollars from five tankers with an average charter period of 3.8 years. In addition, we expect to receive 47.1 million from the vessel we place into the transshipment business. Finally, We expect to generate 38.9 million from three 4,250 PU container ships. Average about 18,300 net per day for 1.9 years. This year we were approached by certain counterparties to enter into amendments that would relieve them of certain liabilities. We facilitated this transaction at an estimated 10.2 million net present value benefit to Navios. 3.5 million of this value is attributable to a 52.5 million prepayment of charter hire for two container ships and 6.7 million of this value was attributable to charter amendment and extension for two container ships. Please turn to slide 9. Since our transformation in 2020, our financial performance has been strong. A 9 months 2023 adjusted EBITDA is 11.4% higher than 9 months 2022. Looking backwards, 2022 was 57% higher than 2021 and almost 570% higher than 2020. We believe that our diversified business model can continue to perform in difficult markets. I now turn the presentation over to Mr. Stratos Desypris, Navios Partner, Chief Operating Officer. Stratos?

Thank you, Angeliki, and good morning all. Please turn to slide 10, which details our strong operating free cash flow potential for the fourth quarter of 2023. We fixed 83% of our available days at an average rate of $23,610 net per day. Our contracted revenue exceeds expected total cash expense for Q4 2023 by about $52 million. We have 2,304 open and index-linked days that will provide additional profitability. Please turn to slide 11. We are always renewing the fleet so that we maintain a young profile. It is part of our strategy to reduce our carbon footprint by modernizing our fleet benefiting from new technologies and ecovessels with greener characteristics. We have 1.7 billion remaining investment in 28 new building vessels delivering to our fleet 3027 for which most of the financing has already been in place. In container ships we acquired 12 vessels for a total of about 860 million. would be hedged by entering into long-term credit-worthy charters, generating about 1.1 billion in contracted revenue for about 6.5 years average duration of the related charters. In the tanker space, we acquired 16 vessels for a total price of approximately 885 million. We have already chartered out 10 of these vessels for an average period of 5 years, generating revenues of about half a billion. The dry-bulk new building program of eight vessels was completed in June 2023 with the delivery of the last cave-sized vessel. We have also been actively and optionistically selling all their vessels based on segment fundamentals. Year-to-date, we have sold 14 vessels with an average age of approximately 15 years for $265.2 million. We sold seven tanker vessels for about $160 million, taking advantage of a strong tanker market. Also we sold 7 dry bulk vessels for a total price of 95.4 million. Our last sale was a 19.3 years old cage size vessel which we sold within Q4 for 13 million. Moving to slide 12, we continue to secure long term employment for our fleet. As Angeliki mentioned earlier, in Q3 we have created about 260 million additional contracted revenue. Approximately 172 million comes from our tanker fleet and about 40 million comes from our containerships. Additionally, we agreed a five-year contract with Navis Logistics for Marios Vega, one ultra-handy max vessel that was modified to perform transshipment operations, which is expected to provide about 50 million in revenue. The vessel is expected to be delivered within the fourth quarter. Additionally, we amended charters for four of our container ships. For two of the vessels, we agreed a prepayment of higher, of 52.5 million, and the assumption of the subcharters that the vessels are currently on. This prepayment was received in October and resulted in a net present value benefit of approximately 3.5 million. For the remaining two vessels, we have agreed to amend the current charter rate and extend the duration of the charters for an additional 2.4 years at an implied rate of $18,000 net per day, creating 31.7 million additional revenue and resulting in a net present value benefit of approximately 6.7 million. In slide 13, you can see our total contracted revenue, which amounts to 3.3 billion. 1 billion relates to our tanker fleet, 0.4 billion relates to our dry bulk fleet, and 1.9 billion relates to our container ships. Charters are extending from 2037 with a diverse group of quality counterparties. About 50% of our contracted revenue will be earned in the next two years. I now pass the call to Erif Tsironi, our CFO, which will take you through the financial highlights. Erif?

Thank you, Fraters, and good morning all. I will briefly review our unaudited financial results for the third quarter and nine-month end of September 30th, 2023. 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 14, total revenue for the third quarter of 2023 slightly increased to $323.2 million compared to $322.4 million for the same period in 2022. Time charter revenue for the period is understated by $9.7 million because U.S. GAAP rules require the recognition of revenue for our charters with de-escalating rates on a straight line basis. Available days increased by 6.7% to 13,759 compared to 12,897 for the same quarter last year. Our average combined time charter equivalent rate for the third quarter of 2023 was 22,052 per day. Thank you for joining us. Thank you very much. EBITDA, Net Income and EPU were adjusted due to the following gains from sale of vessels. For Q3 2023, 7.2 million. For the first nine months of 2023, 50.8 million. And for Q3 and first nine months 2022, 143.8 million. Excluding these items, adjusted EBITDA for Q3 2023 decreased by 2.3% to $173.7 million compared to $177.7 million for the same period last year. Adjusted net income for Q3 2023 decreased by 27% to $82.6 million compared to $113.4 million in Q3 2022 mainly due to the negative effect of the 21.3 million reduction in the positive income of the amortization of unfavorable leases and a 6.3 million increase in our interest expense, net of interest income, due to the increase in our debt levels and interest rate costs. Adjusted earnings per common unit for Q3 2023 were $2.68. Total revenue for the first nine months of 2023 increased by 16.7% to $979.6 million compared to $839.7 million for the same period in 2022. Time charter revenue for the period is understated by $30.2 million because U.S. GAAP rules require the recognition of revenue for our charters with de-escalating rates on a straight-line basis. The increase in revenue was mainly a result of a 16.5% increase in available days to $41,239 compared to $35,394 for the same period since 2022. Our combined time charter rate for the first nine months of 2023 was slightly lower at $22,242 per day compared to the same period last year. In terms of sector performance, both tankers and containers enjoyed improved rates compared to the same period last year. Time charter equivalent rate for the first nine months of 2023 for our tankers increased by 62.7% to $29,014 per day and for our containers by 14.6% to $34,930 per day. In contrast, our dry PTC rate was $36 Thank you very much. Adjusted net income for the first nine months of 2023 decreased by 21% to $250.5 million compared to $317.2 million for the same period last year. Our net income was negatively affected by a 47.8 million reduction in the positive impact of the amortization of our favorable leases and a 43.4 million increase in our interest expense net of interest income due to the increase in our debt levels and interest rate costs. Adjusted earnings per common unit for the first nine months of 2023 were $18.13. Turning to slide 15, I will briefly discuss some key balancing data. As of September 30, 2023, cash and cash equivalents were $269.2 million. In the first nine months of 2023, we paid $225.9 million of pre-delivery installments and other capitalized expenses under our new building program and $83.9 million for vessel acquisitions and improvements. We sold 13 vessels for 237.4 million, net adding 153 million cash after the repayment of the respective debt. Long-term warrants, including the current portion, net of deferred fees, slightly reduced to 1.93 billion. Net debt to book capitalization ticked off to 36.4%. Slide 16 highlights our debt profile. We continue to diversify our funding resources between bank debt and leasing structures, while 36% 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 debt by approximately 40 basis points to 2.3% from 2.7% at 2022 year-end. Our maturity profile is tagged with no significant balloons due in any single year. In terms of our new building program, 82% of our new building financing is already concluded or in documentation phase at an average margin of 1.8%. During the quarter, we arranged a total of 92.3 million to refinance existing leasing facilities where we managed to decrease respective margins and extend maturities. 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. 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. and now pass the call to Ted Patron to take you through the industry section. Ted?

Thank you, Eri. Please turn to slide 20 for the review of the tanker industry. World GDP is expected to grow at 3% in 2023 and 2.9% in 2024 based on the IMF's October forecast. There's an 85% correlation of world oil demand to global GDP growth. In spite of economic and geopolitical uncertainties, IEA projects a 2.3 million miles per day increase in world oil demand for 2023 to 101.9 million miles per day and a 0.9 million miles per day increase in 2024. Chinese crude imports continue to rise, averaging 11.4 million miles per day through September, a 14.6% increase over the same period last year. following very strong first half tanker rates softened slightly as Q3 seasonality played out, accentuated by reduced exports, refinery maintenance, and inventory drawdowns. Recently, rates have risen on the back of rising demand and increased refinery throughput as the autumn maintenance season finishes. The recent Saudi and Russian crude export cuts have been somewhat mitigated by increased Atlantic exports, which have elevated volatility for the larger vessels. Turn to slide 21. As previously mentioned, both crude and product rates remain strong across the board due to healthy supply and demand fundamentals, minimal fleet growth, and shifting trading patterns. Product tankers are also aided by healthy refinery margins and discounted Russian crude exported to the Indian Ocean and the Far East returning to the Atlantic as clean product. Crude tunnel growth is expected to increase by 6.2% in 2023 and a further 4.9% in 2024. Similarly, product ton miles anticipated increases stand at 11.3% and 6.1% for 2023 and 2024, respectively. Turn to slide 22. The LCC net fleet growth is projected at 2.3% for 2023 and a negative fleet growth of 0.9% for 2024. 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 2.7% of the fleet, or only 24 vessels, the lowest in 30 years. Vessels over 20 years of age are 14.1% of the total fleet, or 129 vessels, which is over five times the order book. Turn to slide 23, product tanker net fleet growth is projected at 2.1% for 23 and only 1.1% for 2024. The current product tanker order book is 10.2% of the fleet, one of the lowest on record and is approximately equal to the 9.8% of the fleet which is 20 years of age or older. In concluding the tanker sector review, tanker rates across the board continue at strong levels. Combination of below average global inventories, growth in global oil demand, new longer trade routes for both crude and products, as well as the lowest order book in three decades, and the IMO 2023 regulations should provide for healthy tanker earnings going forward. Please turn to slide 25, the review of the dry boat industry. For the majority of Q3, normal seasonality played out, assisted by unwinding congestion and soft demand outside China. Chinese raw material demand continued to increase on the back of sustained economic stimulus and pre-winter stockpiling, especially for coal and iron ore. This led the BDI to more than double from 962 on July 25th to 2105 on October 18th. After a recent retracement, the BDI currently stands at about 1400. With regard to iron ore and coal, Chinese continuing stimulus measures and pre-winter stocking should assist imports through the year end. The global grain trade is impacted by the war in Ukraine, shifting trading patterns toward longer haul routes. Seaborne grain trade volume is expected to grow by 2.7% in 2024, added by primal growth of 3.6%. Going forward, supply and demand fundamentals remain intact. In normal seasonally stronger Q4, the historically low order book declining net fleet growth and tightening GHG emissions regulations remain positive factors, which are reflected in the time strutter and S&P markets. Please turn to slide 26. The current order book stands at 8% of the fleet, one of the lowest since the early 1980s. Net fleet growth for 23 is expected at 2.9% and only 2.2% in 2024 as owners remove tonnage that has been uneconomic due to IMO 23 CO2 enforced since the beginning of the year and the emissions trading system starting in Europe at the beginning of next year. This is over 20 years of age, or about 8.3% of the total fleet, which compares fairly with the historically low order book. In concluding our dry bulk sector review, continuing demand for natural resources, congestion at the Panama Canal, war and sanction related long haul routes combined with the slowing pace of new deliveries, all support freight rates going forward. Please turn to slide 28. Container rates, although still above pre-pandemic levels, continue to soften on the back of elevated deliveries and low imports by Western consumers, partially attributed to the end of stimulus fuel spending and other macroeconomic issues, including inflation. Although trade is expected to grow by 3.8% in 2024, new building deliveries in 2024 and 2025 will be equivalent to approximately 20% of the fleet after a record net fleet growth of 7.7% this year. This has continued to pressure rates for some time. The Shanghai Container Freight Index, or SCFI, currently at 1,013, which is 5% lower than opening the year at 1061. As you'll note in the graph in the lower right, the U.S. retail inventory to sales ratio is off the recent low, but still well below the long-term average. The graph on the lower left, a recent slowdown of U.S. consumer purchases of goods, although still above pre-pandemic levels. Lower imports have eased, port takeaway bottlenecks, and port congestion. Turning to the slide 29. Net fleet growth is expected at 7.7% for 2023 and 6.8% for 2024. The current order book stands at 26.7% against 10.7% of the fleet 20 years of age or older. About 72% of the order book is for 10,000 TEU vessels or larger. In concluding the container sector review, supply and demand fundamentals remain challenged due to economic and geopolitical uncertainties and an elevated order book. Over the prospect of Chinese stimulus and world GDP growth of 3% for 23 and 2.9% in 24 provide a counterpoint for a challenging 23. 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. We open the call to questions.

At this time, if you would like to ask a question, please press the star and 1 on your touch-tone phone. You may remove yourself from the queue at any time by pressing star and 2. Once again, that is star and 1 if you would like to ask a question. And we will take our first question from Omar Nicola with Jefferies. Your line is now open.

Thank you. Hey, guys. Good morning and good afternoon. Thanks for the update, as always. Obviously, Novios has been focused on keeping a pretty nice and sizable contract backlog at $3.3 billion, which is basically flat with last quarter. You've highlighted the amends and extends on the container ship charters, which makes sense given the pullback, obviously, in that market. And you highlighted that they are NPV positive. I wanted to ask in general, can we expect more of these in the near term? Is this something that we will continue to see in the container market and also with respect to Navios? And then do you think that there's potential that's happening with the new buildings as well or just more of a dynamic that's affecting some of the existing tonnage that was fixed at the height of the market?

Good morning, Omar. Actually, your observation is correct. It continues in a weak moment. So, these kinds of transactions happen. I mean, counterparties will ask for amendments. And, of course, we only do things that make sense for Navios. So, we are very careful about that. We basically got about over 10 million of positive NPV. We do not see this happening on AVE. And this actually was a counterparty that uniquely left the sector. It came in when there was a very robust situation and logistics had to be resolved. And this kind of counterparties really were not strategic to the area, to the sector.

Thank you. Yeah, no, that's helpful, Angeliki. Thank you. And then I wanted to follow up and ask about the transshipment business, which clearly looks interesting. You took the Vega, as I recall, that's an older Supermax, and you fixed it for five years at that $30 million of cash flow. Obviously, that jumps out just given, especially where dry bookways have been. Just wanted to ask, you know, one, you know, what does the cost look like to modify the ship for that transshipment business? And then also, are there opportunities to do more here on that front?

You know, actually, to be honest, the CAPEX was very modest considering the opportunity. We are entering a unique area. We have that ability because we have the transparency into the region because of South America logistics. And yes, this business can start with one vessel and grow to more. And there is also an additional tremendous benefit is that you, and it's basically proprietary because of the transshipment vessels, then you can see more opportunities on employment on an ocean-going vessel, you know, on South America to China, on South America to Europe. So this can create opportunities The ability of a whole sector and that we see as a very good entry point. Modest capex and the ability really to extend the life of the asset because this asset unlike the rest can be 30 years plus. So basically We are amortizing 100%. We get all our profits and capex on the five years, but we see that this can actually have additional life.

Okay. Wow. Thank you. That sounds interesting and compelling, so we'll stay tuned for more to come. And maybe just one final one. You've obviously addressed this on the call, but also in the past. In terms of strategic priorities, clearly fleet renewal, continuing to build backlog is key. In terms of the balance sheet, perhaps maybe the main priority is to de-lever and bring the net LTD down to that 20-25% range.

Yes, I mean, deleveraging, sometimes you have to judge between a new opportunity and new sectors and deleveraging, but deleveraging is a target, energy efficient vessels and creating the new sectors and new opportunities. I mean, you saw that we modernized, we found some unique opportunities to modernize with energy efficient vessels. and basically the very important part of that was that we actually expanded and did more relationship oil majors and that is something that we focus on building.

Yep. Great. Well, thanks Angeliki. I'll turn it over.

Thank you very much.

Thank you and we'll take our next question from Chris Weatherby with Citigroup. Your line is now open.

Thanks, guys. Appreciate the time today. I wanted to ask, Angeliki, maybe as you think about this entity, so you have obviously exposure to multiple end markets here, and I guess, you know, Each one of them is in a little bit of a different part of the cycle. So as you're thinking about incremental capital and where you want to put that to work, how are you approaching that? I understand the new build opportunities you have both on the container and the tanker, but as we're thinking about where you're putting, where you think about putting new capital work, where you'd want some emphasis to be placed, where would it be?

Good morning, Chris. The reality is a lot of calculations, a lot of work trying to see what is the best opportunity. I mean, you saw where we allocated a good amount of money this quarter, building, you know, entering, we have entered a new asset class, the Alpha Max LR2s, and we build it on that because we see Efficient vessels that have the specifications that we have actually, the additional specifications, we see a lot of opportunities with the oil majors on trade that are actually expanding. Same with MR2s, we see certain counterparties that they need specific needs with, you know, short coal has higher emissions, but if you have energy efficient vessels that can really mitigate the situation. So, we look at the opportunity and build on that. On containers, obviously, I mean, this was a previous transaction, fixed at a good time, but we always review and we see what makes the long-term returns, what will give us the best residual value, and and in between providers and attractive return. So big picture is a very simple thing, attractive return over 10% and have low individual value risk. And so that you have a longer duration.

Okay, that's helpful. I appreciate that. And that makes sense. And I guess maybe on the other side of that coin, you know, so I think there was 14 vessels that were sold year to date. You know, can you talk a little bit about how you think about opportunities to maybe monetize some of the fleet and maybe where you want to be emphasized or where you see relative value between asset values and charter rates today?

You know, basically there is a graph that we have using the coverage that we see values on Thank you for the strong values, of course, strong returns. I mean, you optimize, I mean, we optimize our fleet. And then, you know, on the dry bulk, you have more or less values and long-term earnings of the vessels, approximately about 80%, 90%. So, what we are doing is, basically, we see a vessel that is maintenance capacity, What is the age of the vessel? Knowing the regulatory environment for the next couple of years, meaning that there will be, you will have carbon tax, there will be in Europe, there will be requirements. So you target a vessel that makes sense at the value to And we have done that. You will think that about, for the fleet we have, on an average year, we should have about at least 10 vessels renewal, basically, just to renew and keep the aid. So, yes, we had more vessels in the beginning. This will, in 2024, drop to about, on the average, about $1,000. This is not mathematical. It depends on the market. But this is approximately the kind of a renewal you will need.

Okay. That's the way we should be thinking about it. And obviously, I guess market fluctuations will determine how aggressive you are, I guess. And then maybe just one... Thank you for joining us.

The U.S. economy is still healthy. There is clouds. I mean, there is definitely clouds, both on the interest rate. But we don't see a recession today. But you also have a big effect from the wars in Ukraine and Israel. Basically, the Ukrainian war added to the tonne miles. This is something that hasn't changed. It will continue in our system. There is longer tonne miles on crude and product. And this is without taking any consideration of any potential, and I don't know how that will be, potential disruption because of the war in Israel. And that can have quite significant, don't forget the area has a lot of the oil, a lot of the gas, it can be significant in case of a disruption there.

Very helpful. Appreciate the time this morning. Thank you very much. Thank you.

Thank you. And we have reached our allotted time for questions. I will now turn the call back over to Ms. Angeliki Frangou for any additional or closing remarks.

Thank you. This concludes the results for the quarter.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.