Navios Maritime Containers LP
Q2 2020 Earnings Call Transcript

Published: 23 Jul 2020

[Operator:]

Thank you for joining us for Navios Maritime Containers L.P. Second Quarter 2020 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Vice Chairman, Mr. Ted Petrone; and Chief Financial Officer, Mrs. Erifili Tsironi. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Containers website, 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 we’ll 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 Ms. 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 Frangou:]

Thank you, Doris, and good morning to all of you joining us on today’s call. While the pandemic has greatly affected business, countries and people all over the world, the Navios family continues to persevere. We take great pride in the safety of our employees and that we have adapted to the ever-changing environment. The Navios family continues to show resilience during the time of uncertainty, and we will continue to take the necessary measures to ensure the safety of our people, all while keeping our fleet functioning. Given the current market, I am pleased with the results for the second quarter of 2020. The container trade was severely hurt by global quarantine effectively in place for much of the second quarter. Yet, Navios Containers reported revenue of $28.8 million and an EBITDA of $7 million for the second quarter of 2020. The duration of this downturn and timing of the recovery remains uncertain given the unique nature of the pandemic and contagion of this disease. Consumer demand has been understandably weak because of the combination of recessionary fear, quarantine measures and social distancing. The IMF is currently projecting a 4.9% decrease on global GDP in 2020, followed by a 5.4% increase in 2021. Slide 6 provides Navios Containers company highlights. NMCI remains relatively well positioned despite the broader challenges. Our charter policy allow us to balance utilization and market opportunity. Additionally, our strong balance sheet and conservative leverage strategy provide us with no significant debt maturities until 2023. Slide 7 reviews the impact of the pandemic on container trade. As I mentioned a moment ago, the near-term economic outlook is bleak. The IMF expects global GDP to shrink by 4.9% during 2020. The container sector is part of the global logistics platform. It has been materially disrupted, and the projected 2020 container trade is expected to contract by 8.5%. Much of the disruption has already occurred as countries have emerged from quarantine. We expect volume to pick up as people gradually return to work, particularly in the second half of 2020. For 2021, the IMF expects 5.4% growth in global GDP and the container trade is expected to grow at 7.4%. Slide 8 details the improving fundamentals in the containership sector. Three basic favorable events have taken place. There is a low order book, owners have increased scrapping and the idle capacity is reducing. We expect container trade to bounce off this quarter’s low. In fact, container trade is projected to grow by 7% in Q3 and 10% in Q4 of 2020 compared to the same period of last year. The order book at 9.3% is at its historical low and scrapping of vessel increased almost 700% from May to June. The idle containership capacity that includes vessels currently being retrofitted with scrubbers stands at 7.9% compared to a May peak of 11.8%. As a result of this improving fundamental charter rates for the 4,400 TEU containerships have improved by 29% over the past month and are now about 26% less than the 10-year average of $11,036 per day. Slide 9 details our recent developments. We reported $7 million of EBITDA for the second quarter of 2020 and $24.9 million of EBITDA for the first half 2020. We maintained low leverage. About 70% of our debt is covered by the scrap value of our fleet, and we have no significant debt maturities until 2023. Additionally, we modified a charter agreement of two 10,000 TEU vessels by extending the charter period by two years until May 2026 at a rate of $26,276 net per day. The charter extension was agreed in return for a charter hire reduction of $1,015 per day per vessel until May 2024. We estimate that this will provide us with an additional $22 million cumulative EBITDA for this charter extensions. The charter has also an option to extend the charter by an additional two years at hire rate. Slide 10 highlights our cost structure and shows our expected breakeven for the remaining six months of 2020. Navios Containers currently has about 73% of its remaining 2020 available days fixed or with index-linked charters. Days contracted on fixed rates provide for an average rate of $10,556 net per day. Our total cost, which includes operating expense, general and administrative expenses, interest expense and capital repayment is estimated at $11,482 per day. We have 1,640 open and index-linked days, providing us with a breakeven of $10,569 [ph] per day. Slide 11 shows our liquidity and debt maturity profile. As of June 30, 2020, we have a total cash of $11.4 million and a total debt of $248.3 million. Our net debt to book capitalization is 63.7%. Moreover, we have no significant debt maturities until 2023 and maintain a target debt maturity profile. At this point, I would like to turn the call over to Mr. Ted Petrone, who will take you through our fleet and operations overview and discuss the industry section.

[Ted Petrone:]

Thank you, Angeliki. Please turn to Slide 13. Navios Maritime Containers’ diversified fleet consists of 29 vessels with an average age of 12 years totaling approximately 143,000 TEU. The 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 14. 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. For the second half of this year, approximately 73% 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 16. Increases in container trade have generally grown in line with world economic growth, due to containerization of former break bulk cargoes as well as increases in container miles as retailers and advanced economies seek cheaper production centers around the world that are further from existing customers. Due to the global COVID-19 pandemic, the current forecast calls for a decline of 8.5% in container trade in 2020, followed by an increase of 7.4% 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 expanded by 13.7% in 2010. Turning to Slide 17. Through the middle of July, the fleet grew by 0.9% on 361,000 plus 156,000 demolitions. Projected net fleet growth for the full year 2020 is only 1.6%. The low fleet growth should support time charter levels as trade levels move closer to prior year’s volumes. We also note that vessels over 20 years of age equal about 6.8% of the fleet. New IMO regulations for ballast water treatment systems as well as the 0.5% sulfur – global sulfur cap restriction should accelerate scrapping of older, less efficient vessels after the current disruptions. Please turn to Slide 18. In the aftermath of the COVID-19 outbreak, the pace of non-deliveries has increased dramatically. After a very strong January deliveries, the average of non-deliveries from February through June equals 40%. This resulted in year-to-date non-deliveries of 35%. Turning to Slide 19. The current order book before non-deliveries is at all-time low of 9.3% and is considerably below the average of 30% over the last two decades. Approximately 63% of the current orderbook is for the vessels of 13,000 TEU or larger, and 81% is for vessels of 10,000 TEU and larger. There is no orderbook for the Baby and new Panamaxes. Turning to Slide 20. Containership idle capacity adjusted for scrubber retrofits stood at 6% on July 6, a marked increase from the 2.2% at the beginning of January. As liner companies readjusted sailings and services to account for COVID-19-led restrictions. However, this number is down 28% from idle capacity of 8.4% in mid-May. Turning to Slide 21. Post the expansion of Panama Canal in 2016, there has been a shift in trading patterns, which has caused greater need for Baby Panamaxes that have shallow drafts and shorter lengths. This is a result of about 75% reduction in Panamax vessels used for the Far East to North America trade, but an increase in these vessels being used in the high-growth regions of into Asia and Africa. The Baby Panamax share of the Intra-Asia trade has increased by about 93% from 2012, making it the size with the highest deployment growth in this trade. Turn to Slide 22. Approximately 50% of global trade utilizes vessels in the 7,500 to 10,000 TEU size range. Disruptions in the container trade, such as the expansion of the 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 non-existent. The fundamentals for new Panamax vessels remain positive even in the current sluggish trade environment caused by responses to COVID-19. Thank you. This concludes my review, and I would now like to turn the call over to Navios Maritime Containers’ CFO, Erifili Tsironi, for Q2 financial results.

[Erifili Tsironi:]

Thank you, Ted. good morning all. I will briefly view our unaudited financial results for the second quarter and six months ended June 30, 2020. The financial information referenced is included in the press release and is summarized in the slide presentation available on the company’s website. Moving to the financial results as shown on Slide 24. Revenue for the second quarter of 2020 decreased to $28.8 million compared to $33.7 million for the same period in 2019. Despite the increase in the number of available days from 2,568 for the second quarter of 2019 to 2,598 for the second quarter of 2020, the time charter equivalent rate for the fleet decreased by 19% to $10,000 per day in the second quarter 2020 compared to $12,594 per day in the second quarter of 2019 due to the termination of some of our legacy contracts that were fixed at higher rates and the overall depressed market rate conditions. EBITDA for the second quarter of 2020 was $7 million compared to $12.7 million in the same quarter last year. The decrease in EBITDA was primarily due to a $4.9 million decrease in revenue and a $1.9 million increase in expenses, mainly relating to management fees and time charter and voyage expenses as a result of the expansion of our fleet and the increase in the management fees, partially mitigated, but a $1 million increase in other income net and a $0.1 million decrease in other direct vessel expenses. Our management fees for the vessels, excluding dry docking expenses are fixed until the end of 2021 at $6,565 per day for our Baby Panamaxes, $7,830 per day for our 8,000 TEU containers and $8,320 for our 10,000 TEU containers. Net loss for the second quarter of 2021 was $2.1 million compared to $0.4 million net income for the same period in 2019. The decrease in net income was mainly due to a $5.7 million decrease in EBITDA and a $0.6 million increase in amortization of the first deferred drydock and special survey costs, which was partially offset by a $2.7 million decrease in depreciation and amortization expenses, mainly relating to the lower amortization of intangible assets and a $1.1 million decrease in interest expense – net interest expense and finance cost net. Moving to the six-month operations. Revenue for the first half of 2020 was $69.1 million compared to $65.5 million for the same period in 2019. The increase of $3.6 million was due to the increase in the number of available days by 4% to 5,237 for the first six months of 2020 from 5,039 for the first six months of 2019. The increase in revenue from the expansion of the fleet was partially offset by the slight decrease in time charter rates. Time charter equivalent rate declined to $12,225 in the first half of 2020 from $12,409 for the same period last year. EBITDA for the first six months of 2020 slightly increased to $24.9 million compared to $24.8 million for the same period in 2019. The increase in EBITDA was primarily due to a $3.7 million increase in revenue, a $0.7 million increase in other income net and a $0.1 million decrease in other direct vessel expenses offset by $4.3 million increase in expenses, mainly relating to management fees and time charter and voyage expenses as a result of the expansion of our fleet and the increase in the management fees. Net income for the first half of 2020 was $2.9 million compared to $0.9 million for the same period in 2019. The increase in net income was mainly due to a $2.8 million decrease in depreciation and amortization expenses, mainly relating to the lower amortization of intangible assets and a $0.5 million decrease in interest expense and finance cost net and a $0.1 million increase in EBITDA, partially offset by a $1 million increase in amortization of deferred drydock and special survey costs. Please turn to Slide 25 for the balance sheet highlights. As per June 30, cash and cash equivalents was $11.4 million. Long-term borrowings, including the current portion, net of deferred fees amounted to $248.3 million. We retain a comfortable leverage level with financing has attractive pricing and repayment profiles. We have no significant maturities under our bank and leasing facilities until 2023. As per June 30, 2020, the book value of our equity was $193 million. Net debt to book capitalization was 53.7%. I’ll now pass the call back to Angeliki for any closing remarks.

[Angeliki Frangou:]

Thank you, Eri. This completes our formal presentation, and we’ll open the call to questions.

[Operator:]

[Operator Instructions]

[Operator:]

At this time, there are no questions in queue. I would like to turn it back over to Angeliki for closing remarks.

[Angeliki Frangou:]

Thank you for attending our second quarter results. The second quarter was a difficult quarter because of the lockdowns, quarantines and the changing attitude of the consumer. But because of the actions that we do in 2019, our employment, financing and our conservative balance sheet, we are well positioned for the remaining of the year. We see recoveries starting in the third quarter, sequential, Q2 over Q3, but the real growth will be coming mostly on 2021. So thank you very much. And this completes our presentation.

[Operator:]

This concludes today’s conference call. You may now disconnect.