Navios Maritime Acquisition Corporation
Q4 2019 Earnings Call Transcript

Published: 7 Feb 2020

[Operator:]

Thank you for joining us for Navios Maritime Acquisition Corporation’s Fourth Quarter and Year Ended 2019 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, Mr. Leonidas Korres.As a reminder, this conference call is being webcast. To access the webcast, please visit the Investors section of Navios Acquisition’s website, at www.navios-acquisition.com. You will 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 under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition.Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition’s 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 Acquisition’s filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Acquisition 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, Mr. Korres will give Navios Acquisition’s financial results. And lastly, we will open the call to take questions.Now, I turn the call over to Navios Acquisition’s Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

[Angeliki Frangou:]

Thank you, Doris. And good morning to all of you joining us on today’s call. I am pleased with the results for the fourth quarter and full year of 2019. For the fourth quarter of 2019, Navios Acquisition recorded revenue of $85.4 million and EBITDA of $45.9 million, representing increases of about 46% and 149% respectively over Q4 2018.NNA also recorded net income of $6.6 million or $0.44 per share for Q4. For the full year of 2019, NNA recorded revenue of $280.1 million and EBITDA for the $128.4 million, representing increases of about 49% and 170%, respectively, over 2018. We declared a quarterly distribution of $0.30 cents per share for Q4.Recently, the oil and oil transportation markets were adversely affected by the fear and uncertainty caused by the coronavirus in China. Because the situation is too fluid, we are unable to provide any meaningful indication of the effect on our 2020 activity. We are closely monitoring the event.The robust tanker market assisted in creating forward visibility. We have about $400 million in long-term contracted revenue. About 69% of our 2020 available days as fixed was about 88% over the VLCC fixed on base rate having profit sharing. We also have market exposure at about 41% of our 2020 available days open or on floating rates.Slide 4 presents some company highlights. NNA has a core fleet of 46 diverse tankers with an average age of 8.7 years. We recently added 5 vessels to our fleet by liquidating Navios Europe I, transforming $33.2 million of receivable into steel value.We further have an important maritime investment in Navios Europe II, [indiscernible] 14 vessels.Slide 5 highlights our key developments. NNA reported strong financial results for the fourth quarter with $45.9 million in EBITDA, 149% higher than Q4 of 2018. For the full year of 2019, our EBITDA was $128.4 million, a 170% higher than 2018.We grew our fleet with a minimum capital outlay. We dissolved Navios Europe I and added 5 product tankers to our fleet, thereby transforming $33.2 million of receivables into steel value.As I mentioned, a moment ago, for 2020, we have a good mix of fixed revenue and exposure to the market. Compared to a year ago, 1 year time charter rate per vessel per day has increased by 56% to $48,500 for VLCC, by 32% to $19,125 for LR1, and by 23% to $16,750 for MR2.Slide 6 highlights the recent events that led to a robust tanker market. Scrubber retrofitting; an increase in floating storage due to compliance with the IMO 2020 regulation have considerably reduced VLCC availability globally; sanctions on Iran; deteriorating crude production and exports from Venezuela and Libya have also impacted the market; and finally, increased ton miles from U.S. oil exports have added to the effective demand side of the equation.Obviously, all these positive consideration are countered by the coronavirus and we await clarity. For 2020, our contracted revenue is expected to be $179.2 million. However, NNA also has 6,561 days that are open or on floating rate, giving us a breakeven rate of about $17,211 per day.Assuming the current 1 year time charter rate, 2020 expected revenue from days open or on floating rate should be $166 million. With cost visibility, we believe we will generate free cash flow of about $54 million at current 1 year time charter rate.Slide 7 shows our liquidity position. Our cash balance is $44.1 million and as of December 31, 2019. Our net debt-to-book capitalization is 75.9% with a fully funded our growth CapEx, and we do not have any significant debt maturities until Q4 2021.Slide 8 details our 2020 cost structure. 68.8% of 2020 available days are fixed at an average base rate of $19,334 per day. Our total cost, which includes operating expenses, dry docking expenses, general and administrative expenses, interest expense and capital repayment is estimated at $18,454 per day. Our 2020 contracted revenue is expected to be $179.2 million. We have 6,561 open days and days contracted on floating rates, which give us a breakeven of $17,211 per day.At this point, I’d like to turn the call over to Mr. Ted Petrone. Ted?

[Ted Petrone:]

Thank you, Angeliki, and good morning all. Please turn to Slide 10. In December of 2019, Navios Maritime Acquisition took delivery of 5 product tankers found with liquidation of Navios Europe I. Navios Acquisition’s diversified fleet now consist of 46 vessels with an average age of 8.7 years totaling $5.7 million deadweight. The fleet consists of 13 VLCCs, 10 LR1s, 18 MR2s and 3 MR1s product tankers and 2 chemical tankers. 3 of the VLCCs are bareboat new buildings and are scheduled for delivery in 2020 and 2021.Please turn to Slide 11. Slide 11 details our chartering strategy, which we use to balance market opportunity and credit risk. We see protection from market volatility by obtaining charters of different durations in order to better manage the market cyclicality. For 2020, about 58.5% of our fleets available days are fixed at a base rate or at a base rate plus profit sharing, and about 10.3% are fixed on floating rates. We continue to monitor this market and look the charter out the circa 31% of our fleet that remains open for the year at healthy rates.Please turn to Slide 12. Navios Acquisition continues its policy of locking in secured cash flow with creditworthy counterparties. Our fleet has secured about $400 million in long-term contracted revenue. We continue to extend the coverage of our fleet via new fixtures, continuations and exercised optional periods at higher levels, in some cases with profit sharing.Please turn to Slide 13. Slide 13 shows in detail our current charters with their respective expected expiration dates. Our chartering strategy revolves around capturing market opportunity, while also developing dependable cash flow from a diverse group of first-class charterers.Please turn to Slide 15. The IMF projected global GDP growth at 3.3% in 2020 and 3.4% in 2021, with emerging and developing markets growing at 4.4% in 2020 and 4.6% in 2021. The main structural drivers going forward are historically low VLCC order book, increasing demand from the Asian economies, particularly China and India, and increasingly supply from the Atlantic Basin.Time out of service for scrubber retrofitting will continue to reduce effective VLCC fleet supply in the near-term. While it is too early to gauge the full impact of the coronavirus on world oil trade, economic indicators continue positive. Initial industry reports for 2020 remain unchanged on the back of the initial response by both China and the international community through this latest viral outbreak.Please turn to Slide 16. According to the Phase I trade deal, China has agreed to buy an additional $200 billion in U.S. goods and services over the next 2 years as compared to the 2017 baseline. $52.4 billion of which is to be in the form of energy imports with half of these unexpected to be U.S. crude oil. In 2017, China imported about 200,000 barrels of U.S. crude daily. Reports indicate that China could import an additional 500,000 barrels in the U.S. crude this year, and an additional 800,000 barrels per day in 2021. These quantities are in addition to the 2017 baseline.In terms of ton miles, the movement of crude oil from the U.S. Gulf to China would require about 2 times as many VLCCs as compared to moving the same amount of crude oil from the Persian Gulf to China.Please turn to Slide 17. In October of 2019, a record 12.7 million barrels a day solidifies the U.S. as the world’s largest crude oil producer. U.S. crude exports averaged 3.3 million barrels per day in the fourth quarter, up 16% from the first 9 months of 2019. The U.S. exported a record 4.5 million barrels a day during the last week of December as new pipeline capacity came on stream delivering more light crude to the U.S. Gulf for export. This is positive for ton miles.Slide 18, please. Tanker fleet utilization is expected to reduce over the first half of 2020 due to scrubber retrofitting and associated yard delays. Assuming 85% of the contracted retrofits occur circa 3% of the crude tanker fleet and about 1.3% of the product tanker fleet will be out of service during this period. Overall, 3.6% of the VLCCs fleet is expected to be out of service due to retrofits. This should tighten vessel availability and support time charter rates.Please turn to Slide 19. Net fleet growth for 2019 equaled 8.5% with 21.1 million deadweight deliveries against 1.8 million deadweight removals. Projected net fleet growth for 2020 is 3.8%. We note that while the order book shows 64 VLCCs as of last week, there are 146 VLCCs, 17 years of age and older. With the IMO 2020 and Ballast Water Management regulations that will lead to some vessel retirements, we believe that the order book and fleet are well balanced.Turning to Slide 21. According to the IEA, refinery capacity is expected to increase by 13.7 million barrels per day from 2019 to 2024, including all additions, expansions and upgrades. About 74% of that capacity will be added in Asia and the Middle East with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 5.2 million barrels per day and 2.4 million barrels per day, respectively.Turning to Slide 22. U.S. crude production has risen about 150% since the end of 2008, reaching 12.7 million barrels per day in October of this year, the highest level of production since record started in 1920. The U.S. has increased its total product exports by about 500% to about 5.7 million barrels per day since 2004.Please turn to Slide 23. September 2019, 7.1 million barrels per day refinery capacity was taken offline in preparation for increasing product demand associated with IMO 2020. This amount was circa 2 million barrels per day above the 5-year average. For 2020, refinery capacity could rise by up to 4 million barrels per day due to a combination of new refinery additions and a significant reduction in refinery maintenance as refineries finally make this historic fuel switch as a result of IMO 2020.We are seeing some of this effect already in the Atlantic Basin, where product tanker rates have remained elevated since the beginning of the year. Additional product tanker rate support is expected in the Pacific, once China allows more bunker exports in barging in the near-future.Please turn to Slide 24. In 2019, the fleet grew 4.5% on deliveries of 8.3 million deadweight, less 1.2 million deadweight of demolitions. Projected net fleet growth for 2020 is about 2.7%, about 6.8% of the product tanker fleet is 20 years of age or older. As of January 1 of this year, there were 172 product tankers on order and 469 which are 17 years of age or older. The total order book is much less than those ships 17 years and older.The Ballast Water and IMO 2020 rules, and historically high scrapping prices should encourage elevated scrapping. Thank you. This concludes my review, and I’d now like to turn the call over to Leonidas Korres for the Q4 financial results. Leo?

[Leonidas Korres:]

Thank you, Ted. I will discuss the financial results for the fourth quarter and year ended December 31, 2019. Please turn to Slide 26. Revenue for Q4 2019 increased by 45.5% to $85.4 million from $58.7 million in Q4 of 2018, reflecting the improved tanker market and the increased fleet of Navios Acquisition following the merger with Navios Midstream Partners and the acquisition of 5 product tankers in mid-December through the liquidation of Navios Europe I.In Q4 2019, we had 99.4% fleet utilization. We achieved a time charter equivalent of $22,484 per day, improved from the $15,483 per day achieved in the fourth quarter of 2018. Time charter and voyage expenses of $8.4 million mainly reflect expenses relating to our vessels support voyage during the quarter. Operating expenses were $26.5 million and G&A expenses were $6 million. EBITDA for Q4 2019 increased by more than 2 times to $45.9 million from $18.5 million in Q4 2018.Other expenses include depreciation and amortization of $15.6 million and interest expense and finance cost of $22 million. As a result, net earnings for the quarter was $6.6 million or $0.44 per share.Turning to the financial results for the year-ended December 31, 2019, revenue increased by 49% to $280.1 million from $188 million last year, reflecting a time charter equivalent of $18,248 per day and 99.6 % fleet utilization. Operating expenses were $107.7 million and G&A expenses were $21.7 million. EBITDA for 2019 increased by 170% to $128.4 million from $47.6 million in 2018. Depreciation and amortization was $67.9 million and net interest expense and finance cost was $91.4 million. Net loss for 2019 was $65.4 million and was negatively affected by $32.7 million accelerated amortization of intangible assets following the termination of 2 charters in Q3 2019 and $7.3 million impairment loss relating to the sale of 1 VLCC in Q3 2019.Slide 27 provides selected balance sheet data as of December 31, 2019. Cash and cash equivalents including restricted cash was $44.1 million. Vessel’s net book value was $1.3 billion. Total assets amounted to $1.6 billion. Total debt as of December 31, 2019 was $1,173.1 million resulting to a net debt-to-book capitalization ratio of 75.9%.Turning to Slide 28, as for return of capital to shareholders for the fourth quarter, we declared a dividend of $0.30 per share, equivalent to $1.20 on an annualized basis. The dividend will be paid on April 7, 2020 to shareholders on record as of March 5, 2020.And now, I would like to pass the call to Angeliki for her final remarks. Angeliki?

[Angeliki Frangou:]

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

[Operator:]

[Operator Instructions] Your first question comes from the line of Chris Wetherbee with Citi.

[Liam Garrity-Rokous:]

Hi, this is Liam on for Chris. Thank you for taking my question. So, first…

[Angeliki Frangou:]

Good morning.

[Liam Garrity-Rokous:]

So, first, I just want to ask a little bit about your debt maturities in 2020 and 2021, and just what are your thoughts on in terms of either meeting or being able to roll over some of that debt? And if an equity issuance could be considered as one of the means for meeting those maturities?

[Angeliki Frangou:]

As with the debt, on the bond we have almost 2 years in front of us. Now, on the bank debt this is an – the bank debt is part of the solution in a sense that our vessels that are – the debt that is maturing in 2020 is vessels that are about 50% loan to value. And as we repay the debt and as we move them from one category to the other, it will provide us additional cash or equity to – for early financing.Also another thing to say to that is don’t forget we have a – we are coming with a good cash generation. I mean, with 2 years, so you have a lot of value that you keep on your vessels that you have on the bank, where there is equity value. And secondly, there is a cash generation of the company for the next 2 years.As you have seen, we have a good cash generation. We were well positioned for the 2020. We are coming for Q1 of almost 100%. And that absent to the coronavirus considered, we are very, very well positioned for the year.

[Liam Garrity-Rokous:]

Understood. Thank you. And I know you said that it’s a little bit too early to discuss the impact of the coronavirus and your operations in 2020. But have you seen the virus reduce shipyard capacity and slow scrubber installations? And if that’s the case, would you see capacity sideline for scrubber installations increase once the virus passes?

[Angeliki Frangou:]

We have done a survey of the market. I don’t think anyone knows very well. The one thing that we have seen is that we and we have is that, some of the capacity that left China, it has already booked in [AG] [ph] on the yard, in [AG] [ph]. So what has happened is that a lot of the – there is no spare capacity in [AG] [ph], because there is a diversion of the vessels that’s going to be not doing any work in China to that area.

[Liam Garrity-Rokous:]

All right, and one additional question I have. With the COSCO fleet resuming trading, are you seeing any negative impacts in need to the chartering or spot market from this occurrence?

[Angeliki Frangou:]

Even this is where I think we need to see where the market is. I mean, in essence, the vessels that came in from COSCO was something that in essence was easily to be absorbed, because we have passed the big deliveries of the vessels on the VLCCs. We are looking at about 3.5%, 3.8% net fleet growth, so well past big deliveries. You have vessels that are out of service about 2.5%, 3%. And also, the reality is that we have more Atlantic oil with, especially with the U.S./China deal. That means that you will have double the – you have almost double the vessels that you need to get the same kind of cargo.So you have that as the fundamental for the year. You are sitting in a good position overall. Now, the coronavirus is what creates the uncertainty. On the issue of that is that, the good thing on a bad situation is that we’re seeing a slowing rate of a – slowdown on the situation and this is a good thing versus what we had a couple of days ago.And maybe, it will end up to be a pause and not as severe on the overall year.

[Liam Garrity-Rokous:]

All right. Thank you very much for taking my questions.

[Operator:]

Thank you. I will now turn the conference over to Angeliki Frangou for any additional or closing remarks.

[Angeliki Frangou:]

Thank you. This completes our quarterly results.

[Operator:]

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