Navios Maritime Containers LP
Q1 2020 Earnings Call Transcript

Published: 9 May 2020

[Doris Estrada:]

Thank you for joining us for Navios Maritime Containers L.P. First Quarter 2020 Earnings Conference Call. With us today from the company are Chairman and CEO, Mrs. Angeliki Frangou; Vice Chairman, Mr. Ted Petrone; and Chief Financial Officer, Mr. Erifili Tsironi.As a reminder, this call has been webcast. To access the webcast, please go to the Investors section of Navios Containers website at www.navios-containers.com. You'll see the webcast 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 Containers. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Containers' management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. Such risks are not fully discussed in Navios Containers' filings within the Securities and Exchange Commission. This information set forth herein should be understood in light of such risks. Navios Containers does not assume any obligation to update the information contained in this conference call.The agenda for today's conference call is as follows. First, Ms. Frangou will offer opening remarks. Then Mr. Petrone will give an operational update and industry overview. Next Mrs. Tsironi will review Navios Containers' financial results. And lastly, we will open the call to take questions.Now, I turn the call over to Navios Containers, Chairman and CEO Mrs. Angeliki Frangou. Angeliki?

[Angeliki Frangou:]

Thank you, Doris and good morning to all of you joining us on today's call. While the humanitarian crisis caused by the pandemic has been heartbreaking, we have also been strengthened by the courage and compassion of the first responders, particularly, the many dedicated health care workers.At any given time, our vessels carry about 1,000 people. Keeping these people safe and these vessels moving in and out of quarantined countries with ever-changing rules and challenges requires the immediate input of many disciplines. I am proud of the members of the Navios family, as they have shown admirable resilience during this unprecedented time of uncertainty and we have taken the necessary measures to ensure safety of our people, while keeping our fleet functioning.I am pleased with the results of the first quarter of 2020. We entered 2020 relatively well-positioned. And consequently for the first quarter of 2020 Navios Containers reported $17.8 million of EBITDA, $5 million of net income and $0.14 of earnings per unit. However, the global container trade has been significantly impacted by the pandemic.The global stay-at-home orders have led to decreased consumer demand for the first and second quarter. The duration of the downturn and timing of the recovery remains uncertain given the unique nature of the pandemic. However, the IMF projects a 3% decrease in the global GDP in 2020, followed by a 5.8% increase in 2021.Slide 6 provides Navios Containers' company highlights. NMCI remains relatively well positioned despite the broader economic challenges with operating cost visibility, attractive financing and non-near maturities.Slide 7 reviews the impact of the pandemic on container trade. As I mentioned a moment ago, while the outlook is murky the IMF expects global GDP to shrink by 3% during 2020. The container sector is part of the global logistics backbone. That has been materially disrupted and the projected 2020 container trade growth is expected to contract by 10.6%. Much of the disruption may have already occurred. As countries emerge from quarantine and return to work, we expect volumes to pick up, particularly, in the second half of 2020. For 2021 the IMF expects 5.8% growth in the global GDP, while container trade is expected to grow by almost 10%.Slide 8 reviews our addition developments. We had a strong financial results for the first quarter of 2020. We reported EBITDA of $17.8 million, net income of $5 million and an earnings per unit of $0.14 per share. Our balance sheet is strong and we maintain low leverage.About 80% of our bank debt is covered by scrap value of our fleet and we have no significant debt maturities until 2023. The slowdown caused by the pandemic will reflect in our second quarter results. However, our breakeven per open day for the second quarter of 2020 is only $6,734 and helped to mitigate a market downturn.We successfully closed a new sale-leaseback facility for two 10,000 TEU vessels and two 8,240 TEU vessels. The new facility extends duration reduced average margin to just over 3% and has an improved age-adjusted amortization profile.Slide 9 highlights our cost structure and shows our expected breakeven for the remaining nine months of 2020. Approximately, 44% of our available days are fixed or fixed with index-linked charters. Days contracted on fixed rate provides for an average rate of $15,632 net per day.Our total cost, which includes operating expense, general and administrative expense, interest expense and capital repayment is estimated at $11,636 per day, and 4,845 open and index-linked days provide a low breakeven of $9,054 per day. Assuming current charter rates, we should generate about $47.5 million in revenue for the remaining nine months in 2020.Slide 10 shows our liquidity and debt maturity profile. As of March 31, 2020 we had total cash of $20.6 million and total debt of $256.7 million. Our net debt to capitalization is 52.3%. Moreover, we have no sizable debt maturities until 2023.At this point, I would like to turn the call over to Ted Petrone, who will take you through our fleet operations and industry overview.

[Ted Petrone:]

Thank you, Angeliki. Please turn to slide 12. Navios Maritime Containers diversified fleet consists of 29 vessels with an average age of 11.8 years, totaling approximately 143,000. Fleet is split between New and Baby Panamaxes and consists of four New Panamaxes ranging from 8,204 TEU to 10,000 TEU and 25 Baby Panamaxes ranging from 3,450 TEU to 4,730 TEU.Please turn to slide 13. Our chartering strategy revolves around leveraging stable cash flow from the New Panamaxes, while capturing market opportunity from the Baby Panamaxes. We seek protection from market volatility by obtaining charters of different durations in order to better manage market cyclicality.From the remaining nine months of 2020, approximately 44% of our fleet's available days are fixed including index-linked charters. We continue to monitor the market and look to gradually charter out our fleet at recovering rates.Please turn to Slide 15. Increases in container trade have generally grown in line with world economic growth due to the containerization of former break bulk cargoes as well as increases in container miles as retailers in advanced economies seek cheaper production centers around the world that are further from existing customers.Current forecast calls for a decline of 10.6% of container mile trade in 2020 followed by an increase of 9.6% in 2021. The rebound in trade is forecast to be similar to the response to the financial crisis when container trade contracted 9.5% in 2009 but then expanded to 13.7% in 2010.Turning to Slide 16. Fleet growth in 2019 equaled 4% on deliveries of 1063000 TEU less 183000 TEU of demolitions. So the beginning of May, the fleet grew by 0.5% on 149,000 deliveries, less 38,000 demolitions. Projected net fleet growth for the full year 2020 is 2.2%. The low fleet growth should support time charter levels once trade levels get close to their prior year volumes, which analysts have projected will be by the fourth quarter of this year.We also note that vessels over 20 years of age equal about 7.2% of the fleet. New IMO regulations for ballast water treatment systems as well as the 0.5% global sulfur cap restrictions should accelerate scrapping of older less efficient vessels after the current disruptions.Please turn to Slide 17. In the aftermath of the COVID-19 outbreak, the pace of non-deliveries has increased dramatically. After 100% deliveries in January the average of non-deliveries from February through April equaled 68.5%. This resulted in a year-to-date non-deliveries of 54%.Turning to Slide 18. The current order book before non-deliveries is historically low at about 10% is considerably below the average of 30% over the last two decades. Approximately 65% of the current order book is for vessels of 13,000 TEU or larger and 82% is for vessels of 10000 TEU and larger. There is no order book for the new Panamaxes.Turning to Slide 19. Containership idle capacity adjusted for scrubber retrofits stood at 5.8% in the middle of April a marked increase from the 2.2% at the beginning of the year. As liner companies readjust sailings and services to account for COVID-19 land restrictions, a total of 9.4% of the fleet was idle as of mid-April compared to 6.1% at the beginning of the year.Turning to Slide 20. Post the expansion of the Panama Canal in 2016, there has been a shift in trading patterns which has caused greater need for Baby Panamaxes that have shallower drafts and shorter lengths. This is a result of about 75% reduction in Panamax vessels used for the Far East and North American trade but an increase in these vessels being used in the high-growth regions of intra-Asia and Africa.The Baby Panamax share of the intra-Asia trade has increased by about 95% from 2012 making it the size with the highest deployment growth in this trade. Turn to Slide 2021. Approximately 60% of global trade utilizes vessels in the 7500 to 10000 TEU rain size. Disruptions in the container trade such as the expansion of Panama Canal in 2016 have created favorable dynamics for certain vessel sizes that have benefited from the increased demand from redeployment across trade lanes while their order books remain nonexistent. The fundamentals for the new Panamax vessels remain positive even in the current slow trade environment caused by responses to COVID-19.Thank you. This concludes my review and I would like to turn the call over to Navios Maritime Containers', CFO, Eri Tsironi for the Q1 financial results.

[Erifili Tsironi:]

Thank you, Ted and good morning, all. I will briefly review our unaudited financial results for the first quarter of 2020. The financial information referenced is included in the press release and summarized in the slide presentation available on the company's website.As shown in Slide 23 revenue for the first quarter of 2020 increased by 26% to $40.3 million compared to $31.8 million for the same period in 2019. The increase was due to the increase in both the number of vessels operating during the period and the charter higher rates. More specifically, our available days in the first quarter of 2020 increased by 7% to 2639 from 2471 in the first quarter of 2019.Our time charter equivalent rate for the first quarter of 2020 was $14271 per day compared to $12217 per day for the first quarter of 2019. EBITDA for the first quarter of 2020 increased by 48% to $17.8 million compared to $12 million for the same quarter last year. The increase in EBITDA was primarily due to an $8.5 million increase in revenue, which was partially offset by a $1.5 million increase in management fees, mainly due to the increase of the available days, a $1 million increase in time charter and voyage expenses and a $0.2 million increase in other expenses net.Effective January 1, 2020, our management fees for the vessels excluding dry-docking expenses and including the $5 per day technical and commercial management fee are fixed for a two-year period at $6,265 per day for our Baby Panamaxes, $7,830 per day for our post 8,000 TEU containers and $8,320 for our post 10,000 TEU containers.Net income for the first quarter of 2020 significantly increased to $5 million compared to $53,000 for the same period in 2019. The $4.9 million increase in net income was mainly due to a $5.8 million increase in EBITDA, which was partially offset by a $0.5 million increase in interest expense and finance cost net and a $0.4 million increase in amortization of deferred drydock and special survey costs.Please turn to slide 24 for the balance sheet highlights. As per March 31, 2020 cash and cash equivalents was $20.6 million. Long-term borrowers net of deferred fees including the current portion amounted to $256.7 million. We retain a comfortable leverage level with financing that has attractive pricing and repayment profiles. We have no significant maturities under our bank and leasing facilities until 2023. As per March 31, 2020, the book value of our equity was $195 million. Net debt to book capitalization was 52.3%.And I now pass the call back to Angeliki for any closing remarks. Angeliki?

[Angeliki Frangou:]

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

[Angeliki Frangou:]

Thank you for attending our first quarter -- first quarter results, a quarter that we are well positioned with the results of $18 million of almost EBITDA and $5 million of net income. We were well prepared.As we move to the second quarter, this is a more difficult environment, where the effects of the pandemic and the lockdown are increasing. A good mitigation to this difficult market is our low breakeven of $6,750. And as vessels are opening up, we are currently fitting them at about breakeven. It is projected that the second half of the year will have a much stronger market as we are moving away from the lockdowns to a full shrink of the market. Thank you.

[Operator:]

Thank you for participating in today's conference call. You may now disconnect your lines at this time and have a wonderful day.