Navios Maritime Containers LP
Q1 2019 Earnings Call Transcript

Published: 11 May 2019

[Operator:]

Thank you for joining us for Navios Maritime Containers L.P. First Quarter 2019 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. Chris Christopoulos. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investor Section of Navios Containers' website at www.navios-mlp.com. You'll see the webcast link in the middle of the page and a copy of the presentation referencing today's earnings conference call will also be found there. Now, I'll review the Safe Harbor statement. This conference call could contain forward-looking statements under 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 more fully discussed in filings with the Securities and Exchange Commission. The 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 call. The agenda for today's conference calls is as follows; first, Mrs. Frangou will offer opening remarks, then Mr. Petrone will give an operational update and industry overview. Next, Mr. Christopoulos will review Navios Containers' financial results, and lastly, we'll open the call to take questions. Now, I turn the call over to Navios Containers' Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

[Angeliki Frangou:]

Thank you, Dorris, and good morning to all of you joined us on today's call. I'm pleased with the results of the first quarter of 2019 where Navios Containers reported $31.8 million of revenue and $28 million of EBITDA. As you can see from Slide 5, NMCI has grown in fleet to 30 containers ships in just two years. The Company was established in early 2017 to leverage the weakness in the container ship sector and scaled quickly. In December of 2018, Navios Containers began trading on Nasdaq Global Select Market establishing the next stage in its growth. Slide 6 shows some of the Company highlights. NMCI is a container ship growth vehicle focused on acquiring vessels in the Baby Panamax and Neo Panamax container ship sizes. Our entry point has been tiny as we acquired the fleet at prices near scrap value indeed challenging this debt on our balance sheet is governed by scrap value over fleet. Our fleet thus projects an attractive mix of a potential improvement in cash yields and related capital appreciation. With the conservative leverage, low operating expense and right of first refusal for all container ships within the Navios Group, NMCI believes it’s offers investors an attractive opportunity. Slide 7 outlines our recent development. NMCI acquired 2011-built 10,000 TEU container ships for a $105 million. Both vessels were acquired at approximately 30% discount to newbuild parity. Also these vessels are on long-term time charter is at around $27,000 per day and are expected to provide 30 million of EBITDA over the next 12 months and accumulative EBITDA of $35.2 million through the expiration of the charters. Given the distress state of the equity market and unit price, we finance these vessels through a niche of internally generated cash, new debt financing and seller credi. We finalized 92.4 million in new debt financing which is look 62.2 million to finance a two 10,000 TEU vessels and 30.2 million to refinance the vessel Navios Unison. Therefore, financing was populated at favorable terms. We are solicitated a 20 million seller's credit for the purchase of the two container ships for a period ending January 15, 2020 at a rate of 5% per annum. The fresh containership deliverers in April 2019 and the second vessel is expected to deliver in the third quarter of 2019. As an update to our chartering airforce during the quarter, we completed our first index lobbing rate time charters for 2 Baby Panamaxes for a period of about 2 years based on the context index. We believe this is innovative for the containership market and reflects our thorough leadership on asset management in difficult market. The index charters provide us with a long-term employment while retaining any upside exposure. We are also expanded the existing OpEx rate under our commercial and technical management agreements and through the end of the year. Slide 8 shows our expected cash flow breakeven for the remaining 9 months of 2019. 55.7% of our available days are fixed at an average rate of 16,655 net per day. This does not include our index linked days. Our total cost is about 12,286 per day and are 3,587 open class index linked days provide a low breakeven of about 6,782 per day. Our total cost includes operating expenses, general and administrative expenses, interest expense, and capital repayment. Slide 9 dives deeper into the low breakeven rate for our fleet, the breakeven per day for our fleet is $6,782 per day, current rate are $9,791 per day 44% higher than our breakeven rate. Slide 10 shows our liquidity. As of March 31, 2019, we had total cash of $14.6 million and total debt of $217.1 million. Our net debt to book capitalization is 50.7%. Moreover, our debt balance is covered by the scrap value of our fleet alone and we have no debt maturities until 2022. At this point, I would like to turn the call over to Ted Petrone, who will take us through our fleet operation and the industry overview. Ted?

[Ted Petrone:]

Thank you, Angeliki. Please turn to Slide 11. Navios Maritime Containers' diversified fleet consists of 30 vessels with an average age of 10.7 years, totaling 53,000 TEU. The fleet investment is split between Neo and Baby Panamaxes, and consists of five Neo 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 12. Our charter strategy revolves around leveraging stable cash flow from the Neo Panamaxes while capturing market opportunity from the Baby Panamaxes. We seek protection from market volatility by obtaining charters of different durations in order to obtain better managed market cyclicality. For the remaining three quarter of 2019, approximately 56% of our fleets' available days are fixed. We have 3,587 open index days, 95% consist of Baby Panamax. We continue to monitor the market and look to gradually charter out our fleet at recurring rates. Turning to Slide 14. IMF projected global GDP growth of 3.3% in 2019 and 3.6% in 2020. Increases in container trade are generally grown at a higher rate in world economic growth. During the containerization of former break bulk cargos as well as increases in container miles as retail as in advanced economies seek cheaper production centres around the world that are farther from existing consumers. In the back of global economic growth, container trade grew by 4.2% in 2018 and is forecasted to rise by 3.8% in 2019 which is higher than the expected 2.6% naturally growth. Turning to Slide 15. 2018 fleet growth equals 5.6% on deliveries of 1.293 million TEU less than 120,000 TEU of demolitions. Projected net fleet growth for 2019 is 2.6% which should support time charter levels. We also note that vessels over 20 years of age equal about 6.2% of the fleet. New IMO regulations for balanced water treatment systems as well as the 0.5% global sulfur-cap restriction should accelerate the scrapping of older less efficient vessels. Effective fleet capacity in the second half of 2019 should be reduced as owners retrofit scrubber. Forecast call over up to 30 containers ships per month to be out of service during that period. Given current trade in container mile growth prediction of fundamentals going forward will remain positive. Turning to Slide 16. The current order book before non-deliveries is historically low at about 13%, and considerably below the average of 30% over the last two decades. Approximately, 62% of the current order book of the vessels of 13,000 TEU or larger and 78% is for vessels of 10,000 TEU or large. There is no order for the Baby and Neo Panamax. Turning to Slide 17. Containership idle capacity stood at 1.4% in May and marked the declines in the 4.3% peak while in this year reach to beginning of March as seasonality and scrubber retrofit increase fleet utilization. Press fixing among all sectors is leading to higher rates particularly for larger vessels. Turning to Slide 18. Since the beginning of 2014, there has been a net decrease of 120 container ships in the 4,000 to 5,100 TEU segment. This is led by a record 60 vessels or 272,000 TEU scrap and 16 and only three deliveries since then. Decrease fleet size and increase fleet deployment particularly entered AJ Trading since the end of 2016 has been instrumental in rising time charter rates for this segment. Turning to Slide 19. Post-expansion of the Panama Canal in 2016, there has been a shift and trading patterns which has caused greater needs for Baby Panamaxes that have shallow address and shorter lengths. This is a result of about 60% reduction in Panamax vessels used for the Far East to the United States, but an increase in these vessels being used in high growth regions of Inter Asia and Africa. Nearly 90% of all vessels in this size scrubbed since 2015 have been those with the longer lengths. From 2013 to the end of 2018, the use of 4,000 to 5,100 TEU vessels in Inter Asia trade has increased sevenfold from 22 to 151 vessels. Turn to Slide 20. As vessel trading in the main Far East to Europe increased in size, vessels that trade Inter Asia are also becoming larger. The Baby Panamax share of the Inter Asia trade has increased by 97% from 2012 making it the size with the highest deployment growth in this trade. Turn the Slide 21 please. Over, 67 of global trade utilizes vessels in the 7,500 TEU to 10,000 TEU size range. Recent 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 lines, while their order books remained non-existent. The fundamentals from Neo Panamax vessels remain positive. Turn to Slide 22. Before the Panama Canal expansion the primary trade route for these vessels was the Far East to Europe trade. While these routes increasingly use larger vessels, the growth in trade for vessels in the 75,000 to 10,000 TEU size range in other routes has more than offset the reduced use in the Far East to Europe trade route. Thank you. This concludes my review and I'd like to now turn the call over to Navios Maritime Containers' CFO, Chris Christopoulos for the Q1 financial results. Chris?

[Chris Christopoulos:]

Thank you, Ted, and good morning all. I will briefly review our unaudited financial results for the first quarter ended March 31, 2018. The financial information referenced is included in the press release and it's summarized in this slide presentation available on the Company's website. So moving to the financial results as shown on Slide 24, revenue for Q1 of 2019 increased to 31.8 million from $29.9 million in Q1 of 2018. The increase of 1.9 million primarily related to the increase and available days for the fleet, offset by the roll off of a number of our legacy time charter contracts. Our available days increased from 1,907 for Q1 of 2018 to 2,471 days for the same period in 2019 reflecting the increase in the size of the fleet during that time. Our TC for Q1 2019 was $12,217 per day down about 3,000 from the Q1 of last year, primarily because of the roll off of the legacy contracts that were fixed and above market rates. This decline was offset somewhat by the continued improvement in the earnings of our Baby Panamax fleet on short to medium term contracts. Adjusted EBITDA for Q1, 2019 was 12 million compared to 15.7 million in the same quarter last year. This decline of 3.7 million reflects the two dynamics as previously described. Growth and fleet size in the resetting of the legacy time charters as well as the increase expanse is associated with operating the larger fleet. Net income for Q1, 2019 amounted to $53,000. On Slide 25, I will briefly discuss some key balance sheet data. At the end of Q1, 2019 cash and cash equivalents were $14.6 million. Long-term borrowings including the current portion, Net op deferred fees amounted to $217.1 million. We retain a comfortable leverage level with financing that is attractive pricing and repayments profiles and we have no debt maturities until 2022. The book value of our equity was $182.5 million. Net debt to book capitalization was 50.7%. So, I'll now pass the call back to Angeliki keep for any closing remarks. Angeliki?

[Angeliki Frangou:]

Thank you, Chris. This will complete our formal presentation. We will open the call for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Noah Parquette of JP Morgan.

[Noah Parquette:]

I wanted to ask about the shift that you have coming off charter this year. What is your strategy for them sort of the index linked charters? Is that something that you’re kind of happy with at this point in the market? Or what’s the time charter market like for those ships as well?

[Angeliki Frangou:]

Today, the Hamburg -- I mean, if you take so many the Hamburg Index that we have fix is about over 9,950 that was -- I don't know if you shared that. We completed to index deals for two years, which gives us a great ability to keep the upside, part of the upside and protect coverage a continues earnings with the flaw. And if we see on the Page 12, in reality the majority of the vessels that will be coming, you will actually be able to fix at a higher rate, because these vessels have done in Q4 as the new amount will be at the higher level and that we see now over 9,000. Now, last year just give you data point, the Baby Panamaxes was over 11. As for the bigger 8,000 unit which is a strong market, we see that we will be able to fix at low 20s, at multiple years and that’s something that really provide us a visibility of the cash flows on the bigger vessel.

[Noah Parquette:]

Okay. Then I wanted to ask, I mean, you have put in place the $10 million share repurchase program last year. How you think about balancing your capital and the uses of capital between share purchases and obviously you’re still buying ships here. Just how do you think about that balance?

[Angeliki Frangou:]

I mean we have committed for the $10 million and we've announced that in March and implementing of course it's subject to liquidities and all the usual stuff. On the vessel front, today we have 30 vessels mix. I think the purchases we did had very attractive cash flow, cash flow with visibility. $35 million, it added to a set of the Neo Panamaxes. Now, we have like five vessels there. We are servicing the same customer. It's the same vessels we have from last year that we [indiscernible]. So, now we have completed that. And overall, the Company has 30 vessels, which is a good crystal mass to continue with low leverage. I mean, we're at [indiscernible] at sub value, which gives us also additional capacity, if we need to have additional liquidity. And we have the right portfolio to go forward. So, from a purchase new I think even though it is still at the opportunity to grow long is attractive. I think the purchases will be more on message buyback at this point, because we already have 30 vessels.

[Noah Parquette:]

Okay, that makes sense. Then just one, one last one, it looks like you guys extended the management agreements for the end of the year. Is there a why've been you go longer than that? I mean I guess, can we expect an agreement that farther out maybe later this year to be announced?

[Angeliki Frangou:]

Yes, I think it will be done.

[Noah Parquette:]

And do you see any cost pressure there or is that been pretty stable?

[Angeliki Frangou:]

No, we don't see that.

[Operator:]

At this time, there are no further questions. I will turn the call back to Angeliki Frangou for any additional or closing comments.

[Angeliki Frangou:]

Thank you. This completed our first quarter earnings. Thank you.

[Operator:]

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