Navios Maritime Containers LP
Q2 2019 Earnings Call Transcript

Published: 3 Aug 2019

[Operator:]

Thank you for joining us for Navios Maritime Containers L.P. Second 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, Mrs. Eri Tsironi.As a reminder, this conference call is being 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 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 Navios Containers 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

[Angeliki Frangou:]

Thank you, Doris, and good morning to all of you joining us on today's call.I'm pleased with the results of the second quarter of 2019 where Navios Containers reported $12.7 million of EBITDA and net income of about $450,000. As you can see from slide five, NMCI has grown its fleet to 29 containerships.The Company was established in early 2017 to leverage the weakness in the container ship sector and was able to acquire relatively quickly. In December of 2018, Navios Containers began trading on the Nasdaq Global Select Market, establishing the next stage in its growth.Slide six shows some of the Company highlights. NMCI is a growth vehicle focused on acquiring vessels in the Baby Panamax and New Panamax containership sizes. Our entry point has been tiny as we acquired the fleet at prices near scrap value, with conservative levers, low operating expenses and the right of first refusal of all containerships within the Navios Group, NMCI believes it offers investors an attractive opportunity.Slide seven outlines our recent development. During Q2 of 2019, NMCI generated a $33.7 million in revenue, $12.7 million of EBITDA and $0.4 million of net income. The 4,400 TEU vessels have recently experienced a 62% increase in the period time charter rate. To-date the rate stands at $13,100 per day, a significant improvement from a low of $8,100 per day recorded in the Q1 of 2019.NMCI acquired the Navios Constellation relation, a 2011-built 10,000 TEU containership in April of 2019 for $52.5 million. The vessels charter out at around $27,000 per day until October 2021. Given the distressed state of the equity market and unit price, we financed the vessels with a mix of internally generated cash of $6.4 million, new debt financing or $31.1 million and seller’s credit of $15 million. The debt financing was provided by a European commercial bank at favorable terms. The $15 million in seller’s credit is at a rate of 5% per annum.NMCI has also an option to acquire an additional 10,000 TEU vessels similar to the Navios Constellation. We were successfully able to convert the purchase obligation on vessel into a an 8-month purchase option for $3 million. The purchase price will be mutually agreed by the parties, and we will have a right of first refusal on the vessel. The option vessel includes a long-term charter of around $27,000 per day until June 2022.Slide eight shows expected cash flow breakeven for the remaining six months of 2019. 75% of our variable days are fixed at an average rate of $15,345 net per day. This does not include our index linked days. Our total cost is about $12,233 per day, and that 1,355 open plus index linked days provide a low breakeven of about $2,866 per day. Our total cost includes operating expenses, general and administrative expenses, interest expense, and capital repayment.Slide nine dives deeper into our low breakeven rate for our fleet. The breakeven rate for our fleet for the second half of 2019 is $2,866 per open day. Current rates are $13,100 per day, a 357% higher than our breakeven rate.Slide 10 shows our liquidity. As of June 30, 2019, we had total cash of $16.9 million and total debt of $265.4 million. And our net debt to book capitalization is 55.4%. Moreover, we have no bank debt maturities until 2022.At this point, I would like to turn the call over to Mr. Ted Petrone, who will take you through our fleet operation and industry overview.

[Ted Petrone:]

Thank you, Angeliki. Please turn to slide 11. Navios Maritime Containers' diversified fleet consists of 29 vessels with an average age of 11 years, totaling 143,000 TEU. The fleet investment 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 to4,730 TEU.Please turn to slide 12. Our charter 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 2019, approximately 75% of our fleets' available days are fixed. We have about 1,335 open and index days, and all of those days on Baby Panamaxes. We continue to monitor the market and look to gradually charter out our fleet at recurring rates.Turning to slide 14. The IMF projects global GDP growth of 3.2% in 2019 and 3.5% in 2020. Increases in container trade have generally grown at higher rate than world economic growth due to containerization of former break bulk cargos as well as increases in container miles as retail as in advance economies seek cheaper production centers around the world that are farther from existing consumers. On the back of global economic growth, including the current effects of the U.S., China trade war, container trade is forecast to rise at 3.4% in 2019 and 3.8% in 2020. The net fleet growth in 2019 is estimated at only 2.9%.Turn to slide 15. Fleet growth through last week equaled 2.3% on deliveries of 641,000 TEU less 126,000 TEU of demolitions. Projected net fleet growth for the full year of 2019 is 2.9%, which should support the time charter levels. We also note that vessel over 20 years of age equal about 6.1% of the fleet.New IMO regulations for ballast water treatment system as well as 0.5% sulfur, global cap restriction should accelerate scrapping of older less efficient vessels. Effective fleet capacity in second half of 2019 could be reduced by approximately 1.1% as owners retrofit scrubbers and 0.7% reduction in 2020. Additionally, in response to the rising fuel cost expected due to 2020 IMO, the average fleet speed could reduce by about half knot, absorbing about 2.5% of fleet capacity. Given current trade and container mile predictions, the fundamentals going forward remain strong.Turning to slide 16. The current order book before non-deliveries is historically low by about 11%, a record and considerably below the average of 30% over the last two decades. Approximately, 61% of the current order book is for vessels of 13,000 TEU or larger and 78% is for vessels of 10,000 TEU and large. There is no order book for the Baby and New Panamaxes.Turning to slide 17. Containership idle capacity stood at 1.5% in June, a marked decline from the 4.3% peak this year reached at the beginning of March as seasonality and scrubber retrofits increased fleet utilization. Risk fixing among almost all sectors is leading to higher rates.Turning to slide 18. Since the beginning of 2014, there has been a net decrease of 121 containerships in the 4,000 to 5,000 segment. This is led by a record 60 vessels or 272,000 TEU scrapped in ‘16 and only three deliveries since then with no delivery since the end of 2017. Decreased fleet size and increased fleet deployment, particularly in the Intra-Asia trading since the end of 2016 has been instrumental supporting time charter rates for this segment.Turning to slide 19. Post the expansion of Panama Canal in 2016, there has been a shift in trading patterns which has caused greater needs for Baby Panamaxes that have shallower drafts and shorter lengths. This is a result of about 80% reduction in Panamax vessels used for the Far East and North America trade, but an increase in these vessels being used in the high growth regions of Intra-Asia and Africa. Nearly 90% of all vessels in this size scrapped since 2015 have been those with a longer length. From 2013 to the end of 2018, the use of 4,000 to 5,000 TEU vessels in Intra-Asia trade has increased 7.5 times from 22 to 165 vessels.Turn to slide 20. As vessels trade in the main Far East to Europe increased in size, vessels that trade Intra-Asia are also becoming larger. The Baby Panamax share of the Intra-Asia trade has increased by 100% from 2012, making it the size with the highest deployment growth in this trade.Turning to slide 21. Approximately 60% of global trade utilizes the vessels in the 7,500 to 10,000 TEU size range. Recent disruptions in the container trade such as the expansion of the Panama Canal in ‘16 have created favorable dynamics for certain vessel sizes that have benefited from the increased demand from redeployment across trade lanes, while their order book remains non-existent. The fundamentals of new Panamax vessels remain positive.Turning 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 7,500 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 would like to turn the call over to Navios Maritime Containers’ CFO, Eri Tsironi for the Q2 financial results. Eri?

[Eri Tsironi:]

Thank you, Ted. And good morning, all.I will briefly review our unaudited financial results for the second quarter and six months ended June 30, 2019. 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 from the second quarter of 2019 increased to $33.7 million compared to $31.5 million for the same period in 2018. The increase of $2.2 million was primarily due to the increase in number of vessels operating during the period resulting in an increase in our fleet available days. Our available days for the second quarter of 2019 increased by 28% to 2,568 from 2,012 in the second quarter of 2018. Our time charter equivalent for the second quarter of 2019 was 12,594 per day compared to 15,308 per day for the second quarter of 2018, primarily due to the termination of some of our legacy contracts that were fixed at higher rates.EBITDA for the second quarter 2019 was $12.7 million compared to $16.7 million in the same quarter last year. The $4 million increase in EBITDA was primarily -- the $4 million decrease in EBITDA was primarily due to a $6.2 million increase in expenses, mainly relating to management fees, general and administrative expenses and time charter and voyage expenses as a result of the expansion of our fleet. The increase in expenses was partially offset by $2.2 million increase in revenue.Our management fees for the vessels excluding drydocking is fixed until December 2019 at 6,100 per day for Baby Panamaxes and 7,400 per day for our first 8,000 TEU containers.Net income for the second quarter of 2019 was $0.4 million compared to $4.5 million for the same period in 2018. The $4.1 million decrease in net income was mainly due to the $4 million decrease in EBITDA in addition to a $2.3 million increase in interest expense and finance cost, net related to the financing of new acquisitions and $0.6 million increase in amortization of the deferred drydock and special survey costs. The decrease was partially offset by $2.8 million decrease in depreciation and amortization expenses, mainly relating to the lower amortization of intangible assets.Moving to the six months operations. Revenue for the first half of 2019 was $65.5 million, compared to $61.4 million for the same period in 2018. The increase of $4.1 million was due to the increase in the number of vessels operating during the first six months of 2019, which also increased the number of available days by 29% to 5,039 from 3,919 for the first six months of 2018. The increase in revenue, from more available days was partially offset by the decrease in time charter rates, reflecting primarily the expiration of certain legacy time charter contracts.Time charter equivalent per day declined from 19% to $12,409 in the first half of 2019 from $15,284 for the same period last year.EBITDA for the first six months of 2019 decreased by $7.6 million to $24.8 million compared to $32.4 million for the same period in 2018. The decrease in EBITDA was primarily due to an $11.7 million increase in expenses mainly relating to management fees, general and administrative expenses and time charter and voyage expenses as a result of the expansion of our fleet. The increase in expenses was partially offset by $4.1 million increase in revenue.Net income for the first half of 2019 was $0.5 million compared to $7.5 million for the same period in 2018. The $7 million decrease in net income was mainly due to the $7.6 million decrease in EBITDA, in addition to a $4.6 million increase in interest expense and finance cost, net related to the financing of new authorizations and $1.1 million increase in amortization of deferred drydock and special survey costs. The above $13.3 million decrease was partially offset by $6.3 million decrease in the depreciation and amortization expenses, relating mainly to the lower amortization of intangible assets.Please turn to slide 25 for the balance sheet highlights. As of June 30, 2019 cash and cash equivalents including restricted cash was $16.9 million. Long-term borrowings including the current portion and the seller’s credit, net of deferred fees amounted to $265.4 million. We retain a comfortable leverage level with financing that has attractive pricing and repayment profile. We have no maturities under our bank community facilities until 2022. As per June 30, 2019, the book value of our equity was $183 million. Net debt to book capitalization was 55.4%.I'll now pass the call back to Angeliki for any closing remarks. Angeliki?

[Angeliki Frangou:]

We open the call to questions.

[Angeliki Frangou:]

Thank you for joining us on today's call. I just want to say a couple of points. The Company has a nice fleet of 29 containerships and net income positive, low leverage and breakeven in the market that is growing our way. So, with that we conclude with Q2 results. And thank you very much.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.