Navios Maritime Acquisition Corporation
Q4 2014 Earnings Call Transcript

Published: 11 Feb 2015

[Operator:]

Thank you for joining us for this morning's Navios Maritime Acquisition Corporation fourth quarter and full-year 2014 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 also being webcast. To access the webcast, please visit the Investors section of Navios Acquisition's website at www.navios-acquisition.com. Also on the website, under the Investors section, you will see a corresponding Q4 and full-year 2014 presentation that we will reference throughout this conference call. I would now like to read the Safe Harbor statement. This conference call contains 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. Thank you and now I would like to outline the agenda for today's call. First, Ms. Frangou will offer opening remarks, then Mr. Petrone will explain the operational update and industry overview. Next, Mr. Korres will review Navios Acquisition's financial results and finally we will open the call to take questions. And now, I would like to turn the call over to Navios Acquisition's Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

[Angeliki Frangou:]

Thank you, Laura. Good morning to all of you joining us on today's call. I am pleased with our results. We maintained [indiscernible] during the fourth quarter and grew revenue by 25.2% and adjusted EBITDA by 26.5%. We also declared a quarterly dividend of $0.05 per share for the quarter resulting in a dividend yield of about 6%. We are proud now that we have managed our business to consistently pay a dividend since inception. We believe that our company will benefit from the recent dynamic decline in rice of oil. The VLCC spot rate has averaged about $64,000 per day year-to-date which is 137% higher than 2014's spot rate average of $27,000 per day and 50% higher than the Q4 spot rate average of $44,000. It appears that we are starting [ph] in the low price environment and we think that this behavior will not be short lasting given the stimulative effect of the price decline in oil, assuming $50 per barrel oil, global consumers of oil save about $1.6 trillion annually compared to $100 barrel oil that we averaged during the past few years. This savings provides over time a significant boost to global economy. All of this is beneficial to oil transportation and is a structural change in the industry of increased ton miles coming from oil consumption effectively moving eastward and oil supply effectively moving westward. Turning to slide two, we have been actively building scale since we acquired an initial fleet about 4 years ago. In 2013, we reentered the VLCC market and acquired vessels at attractive prices. In addition, during 2014, we [indiscernible] in the U.S. equity markets for an MLP in the tanker space and launched Navios Midstream in November 2014 with four VLCCs. Navios Midstream brings NNA flexibility and liquidity, while providing a new platform in deadweight sector for dividend seeking investors. From our perspective, Navios Midstream is a natural home for certain of our assets that we develop to the point of providing attractive long-term returns. Slide three presents the company highlights. I wanted to emphasize a few items. NNA has 39 vessels all of which are operational. The fleet is almost 80% employed for 2015 and about 26% covered for 2016. Our goal is to manage through each cycle protecting the downside and allowing the upside to take care of itself. So risk management is a premium [ph], whether that means cautiously protecting our balance sheet or assuring that we have sufficient long-term charter. So to protect our stakeholders, we have consistently matched our income statement to our balance sheet and have adopted a chartering strategy that balances credit risk and market opportunities. As a byproduct, we have been also able to provide a dividend to our shareholders totaling about $0.80 per share since inception. We have been mindful to protect the value of the acquired vessels by reducing operating expenses. Our OpEx is 18% less than industry average and we have fixed to meet 2016. Slide four highlights the key developments during the quarter. Our EBITDA growth reflects a discipline. NNA earned $156.2 million in adjusted EBITDA in 2014, a 27% increase over 2013. Our Q4 run rate has NNA earning more than $180 million in 2015 EBITDA and NNA is well positioned for strong cash flow generation in 2015, with almost 80% of our available days fixed and about 3,900 days open or on floating rate. Our profit sharing has been effective. We earned $6.7 million in profit sharing in 2014, $4.4 million of which was earned during the fourth quarter alone. Navios Midstream will provide $15.7 million in dividend in 2015, but more than $80 million on an annual run rate basis. Slide five details our chartering strategy that balances NNA's risk and reward and is designed to provide the company downside protection from market volatility through our peer charter coverage. 80% and 26.2% of our fleet is contracted out for 2015 and 2016, respectively. Our chartering strategy balances market opportunities with long-term employment and as a result show further upside market improvement with capture through three things, open days plus days fixed on floating rates plus days with base rate and profit sharing. Slide six further [indiscernible] into our chartering strategy for the VLCC asset class. Through our disciplined approach we have gained market exposure VLCCs at an opportune time. By chartering vessels on index linked or pool earnings basis, we have internally secured quality counterparties but also 100% fleet utilization and constant rate exposure. During the fourth quarter, four of our VLCC on floating rate earned about $45,000 per day, $1,000 per day more than the market average for this period. Average VLCC earnings year-to-date are about $64,000 per day which would allow us to generate heavy cash flow from the 1,500 VLCC open days. Creating stable cash flows through long-term charters remains our core strategy and we will re-balance charters to include long-term contracts when they are available. Slide seven goes deeper into the chartering strategy for our product tankers with an upside potential through profit sharing arrangements on majority of our available days. Similar profit sharing earned us about $4.2 million in the fourth quarter and displayed in the chart at the bottom right, [indiscernible] product tankers at the time during Q4 will create better re-chartering opportunities for our fleet. Slide eight showcases NNA's continued growth. Our available days grew by 37% in 2014 compared with 2013. As you can see, our available days and fleet posted solid growth over the year and with our entire fleet now in the water, we are positioned for a strong EBITDA growth going forward. Slide nine demonstrates our strong liquidity position. We have total liquidity of $101.2 million at the end of the year, including $61.2 million in cash. Also we have no significant debt maturities until the fourth quarter of 2021. We expect that amortization to continue to reduce naturally as we enjoy the cash flow benefit from our vessels that are now or are in the water. Slide 10 shows the cash flow cushion from our low breakeven. 80% of our fleet is contracted for 2015. We expect to earn an average contracted daily charter-out rate of $16,668. For 2016, 26% of our fleet is contracted out and we expect to earn an average contracted daily charter-out rate of $19,221. Our average fully loaded cost is $15,469 per day in 2015 which reduces to $15,397 per day in 2016. As you know, our daily operating cost include drydocking, general and administrative expenses, interest expense and capital repayment. At this point, I would like to turn the call over to Mr. Ted Petrone. Ted?

[Ted Petrone:]

Thank you, Angeliki. Please turn to slide 12. In 2014, we took delivery of 11 tankers, seven VLCCs and four MR2s. With these recent acquisitions, our fleet in the water stands at 39 vessels. Navios Acquisition continues the Navios Group policy of locking in secure cash flow with credit worthy counterparties. In 2014, we chartered out our VLCCs for total of 5.25 years of coverage, our product tankers for 8.9 years and our chemical tankers for a total of two years of coverage. Please turn to slide 13. Navios Acquisition's diversified fleet consists of 39 vessels totaling 4.1 million deadweight. The fleet consists of eight VLCCs, 19 MR2 product tankers, eight LR1 product tankers and four chemical tankers. All of the fleet statistics exclude the vessels in the HSH agreement. Navios Acquisition currently has vessels on the water with an average age of 4.4 years. Since the beginning of 2013 our product tanker fleet in the water has grown by 170% to 27 and the total fleet on the water grew 105% to 39 vessels. 13 product tankers have delivered since the beginning of 2013. NNA terminated the newbuilding contracts of two MR2 product tankers with no penalty, due to the shipyard's inability to issue a refund guarantee. Turning to slide 14. We have fixed about 80% of our capacity for 2015 in what is expected to be improved conditions. We have fixed just 26.2% in 2015 and about 10% of revenue days in 2017. 48.5% of our contracted fleet has profit sharing in 2015. The average daily charter out rate for our fleet is $16,668 for 2015. The rates for 2016 and 2017 are $19,221 and 19,543, respectively. Available fleet days will grow from 14,190 in 2015 to 14,274 in 2016. Please turn to slide 15. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diverse group of first class charters. As a result, the average duration of our charters is about one year. We earned $6.7 million of profit sharing in 2014, $4.4 million of which was earned in Q4. The strategy is intended to allow us to capture increased profits during strong charter markets while developing relatively stable cash flows from longer term charters. Slide 16. We have strategic relationships with key participants in our industry and a strong vetting track record with major oil companies. Good management is an integral part of long-term success and is therefore a fundamental part of our business plan. NNA, as a part of the Navios Group provides world-class ship management services that meet safety, environmental and customer requirements. We conductor operations in a manner which protects human health, safety, environment and property. We have extensive experience in managing all tanker segments. The attributes we seek in our counterparties are strong credit quality and the ability to conclude long-term charters only available to those owners that have been thoroughly vetted. Please turn to slide 17. Navios Acquisition enjoys vessel operating expenses significantly below the industry average. Currently, Navios Acquisition's daily OpEx is about 18% below the industry average. We achieve these operational savings through a management agreement with Navios Holdings. Operational costs under the management agreement are in force until May 2016. Please note that the operating cost shown here include all drydocking costs. Turning to slide 19. World crude oil consumption has generally grown for 30 years with declines in 2008 and 2009 due to the global financial crisis. Starting in 2010, world crude oil and refined product consumption returned to this pattern of growth. The main structural drivers going forward are minimal net fleet growth for VLCCs in 2015 through 2017, increasing demand from the Asian economies, particularly China as well as the boost to the U.S. and Euro zone GDP growth that comes from declining energy prices. VLCCs fits the higher rates sustained due to falling cost, increased consumer demand, the effects of filling floating storage and SPRs around the world as current fuel oil prices fall below log time inflation adjusted averages. Please turn to slide 20. The IMF projected global GDP growth for 2015 and 2016 at 3.5% and 3.7%, respectively, led by emerging and developing markets growth of 4.3% in 2015 and 4.7% in 2016. Increases in world GDP growth year-on-year have generally led to higher time charter rates for VLCCs. The IEA projects global oil demand growth to rise by 0.9 million barrels per day to 93.4 million barrels per day in 2015. This growth remains below historic averages. It is expected that most of the projected growth will come from non-OECD countries, particularly in the Asia-Pacific region. Turn to slide 21, please. Crude oil prices have declined around 50% since June of last year. This sharp price drop provides an opportunity for major oil consuming economies to restock strategic and commercial crude oil reserves at relatively little cost by also serving as a catalyst to stimulate their GDP growth. Increased oil demand coupled with increasing ton mile benefits, shipping rates were also providing substantial savings to fuel cost for shippers. Please turn to slide 22. Refinery expansion in both the Asia-Pacific and Middle East regions is a key driver to VLCC demand. As the Middle East refines more crude in its expanding refinery network, there will be less crude available for export. As a result of new refineries being built in the Far East will have to source crude from further away. This crude is more likely to be shipped in VLCC due to economies of scale over the longer distances. As noted in the bottom half of slide 22, in terms of ton miles the movement of crude from West Africa and South America to China uses about as many VLCCs as the movement from the Arabian Gulf even though the Arabian Gulf shipped 1.8 more times oil to China. The growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil and West Africa and as it diversifies its sources of oil more than offsetting any decline in U.S. imports. In addition, Indian companies have secured crude oil from Brazil to replace existing Iranian supplies, increasing VLCC ton mile demand. With demand for oil increasing only marginally and on annual basis, distance has been a key driver to tanker demand. Please turn to slide 23. China is the world's second largest consumer of oil, importing more than half of its requirement. Chinese imports have more than doubled since January 2009, representing a 16% CAGR. Crude imports reached a record 7.1 million barrels per day in December. Additionally, refinery openings this year will add about 400,000 barrels per day in crude demand. The lower graph spotlights the additional crude demand that is likely to come from the Chinese completing 100 million barrels as part of the second phase of their strategic petroleum reserve. Both the new refineries and the SPR fills should be met by shipments on VLCCs. Please turn to slide 24, as previously noted. China's imports have more than doubled since January 2009. Current projections show China's crude oil imports will likely surpass the U.S. next year growing to about 14 million barrels per day by 2035 as the country continues to urbanize, industrialize and motorize up its economy. On a per capita basis, U.S. oil usage is 7.5 times that of China. European usage is 3.5 and world usage is 1.6 times that of China. If China grows to simply world per capita consumption levels, China would require an additional 300 VLCCs, assuming all crude is imported by sea. This then represents an expansion of the existing fleet by about 50%. Please turn to slide 25. When there is Contango in oil prices, that is forward prices being higher than the current price and land storage is limited, traders have in the past made money by chartering vessels for floating storage. This has the added benefit for ship owners of reducing vessel supply and has raised time charter rates. In the 2008 to 2010 period, many VLCCs were chartered for floating storage reaching 8% of the fleet at one point. 8% of today's fleet would equate to approximately 50 VLCCs. Please turn to slide 26. In 2014, VLCC non-deliveries equaled 25%, as 7.6 million deadweight delivered out of a projected 10.2 million deadweight. Net fleet growth in 2014 equaled 2.1% and continued to slow dramatically due to continued elevated scrapping and nondelivery levels. The higher price of steel led to continued high scrapping and renewals. In 2014, 12 vessels of about 3.6 million deadweight were removed from the fleet. Please turn to slide 27. Since 1991 increases in world GDP growth year-on-year have generally led to rise in one year VLCC time charter rates. According to the IMF, world GDP growth is expected to be higher in 2015 than it was in 2014, which if past patterns continue would lead to improved VLCC rates. Please turn to slide 29. According to the IEA, refinery capacity is expected to increase by 6.4 million barrels per day for the period 2015 through 2020. About 70% 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 1.5 million barrels per day and $1.2 million per day respectively. New low-cost capacity in Asia is forcing rationalization of old high-cost capacity in the OECD. Recent refinery closings in Europe and the Caribbean as well as closures in Australia and Japan can probably be attributed to the age and inefficiencies of these facilities. Additionally U.S. refinery capacity will increasingly serve export markets. Because of this structural shift, the growth in ton miles of refined oil products is expected to continue to outpace the general demand for refined oil products in the oil market. Turning to slide 30. U.S. crude production has increased by almost 80% since the end of 2008, reaching 9 million barrels per day in October of last year. Since U.S. crude oil exports are prohibited by law, the U.S. has increased its total product exports by over 300% to about 4 million barrels per day since 2004. U.S. exports have exceeded imports consistently since 2011. U.S. Gulf refineries which benefit from inexpensive domestic crude and natural gas supplies are finding a natural export market to neighboring Mexico, Latin America as well as Africa. U.S. product imports have declined over the past couple of years but continue to come from further away adding to product tanker ton miles. The fundamentals of product tanker trading patterns continue to adjust in relation to these changes. Turning to slide 31. Oil refineries vary greatly in their quantity, variety and the specifications of products that they produce. As depicted in this slide, regional surpluses and deficits combined with relative low-cost transportation drive arbitrage trades and increase product ton miles. As an example, requirements for gasoil in Europe and Latin America can be met by shipping the oversupply westward from Asia and the Middle East or eastward from the U.S. Similarly, requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe and the Middle East increasing worldwide products and balances point to increased ton mile development. This global multidirectional trade pattern enables product tankers to triangulate thereby minimizing balance time and maximizing revenue. Please turn slide 32. In the product sector, demand for transportation expressed in terms of ton miles increased by about 79% in the period from 2004 to 2014, equivalent to a CAGR of 6.5%. Projections indicate similar growth in 2015. The increase in tanker demand was greater than the increase in overall trade due to the growth in long haul product tanker trades. The map on the bottom of the slide depicts existing product tanker routes as well as prospective routes based on the anticipated eastward shift in global refinery capacity. Note the product exports from the U.S., India and Saudi Arabia on the lower left are up significantly from 2009 levels driving ton mile increases. Please turn to slide 33. In 2014, tanker non-deliveries equaled 33% and 6.4 million deadweight delivered out of a projected 9.7 million deadweight. About 5.5% of the product tanker fleet is 20 years of age or older. The order book consists of 24.8 million deadweight or about 18% of the fleet, a level usually considered adequate for regular replacement of existing fleet with little or no demand growth. High scrap prices should encourage further scrapping of older or single haul units. Demolition prices appear to depend on overall steel prices and not the supply of vessels. Thank you. I would like to turn the call over to Leonidas Korres for the Q4 financial results. Leo?

[Leonidas Korres:]

Thank you, Ted. Now we discuss the financial results for the fourth quarter and the year ended December 31, 2014. As shown on slide 35, our operating metrics for the fourth quarter of 2014 have significantly improved compared to the same period in 2013. We were able to benefit from an improved tanker market through our VLCCs that are fixed on floating rate and through the profit sharing of the majority of our product tanker fleet. Furthermore, because of the net increase in our fleet, the available days increased by almost 10% in Q4 from 3,080 days to 3,384. Our results were also affected by the sale of four VLCCs to Navios Midstream on November 18. Revenue for Q4 2014 increased by approximately 25% to $72.4 million from $57.8 million in Q4 2013. We enjoyed almost 100% fleet utilization and an increased time charter equivalent of $21,124 per day compared to the $18,155 per day time charter equivalent of Q4 2013. During the quarter, we performed scheduled drybulking for 2 VLCCs and two MR2 product tankers. Operating and voyage related expenses were $25.5 million and G&A expenses were $3.4 million. We continue to demonstrate significant EBITDA growth in this quarter. Our adjusted EBITDA for Q4 2014 increased by 26.5% to $45.7 million from $36.1 million in the same period of 2013. EBITDA has been adjusted to exclude $23.5 million gain on sale of the four VLCCs to Navios Midstream and $0.9 million of share based compensation. Other expenses include depreciation and amortization of $16.7 million and interest expense and finance cost of $24.8 million. As a result, we reported net income of $27 million or $0.17 per share. We have adjusted net income to exclude three items, $23.5 million gain on sale of vessels. $6.3 million write-off of deferred financing fees and debt prepayment expenses in relation to the Navios Midstream IPO and $0.9 million of share based compensation. Our adjusted net income increased by $8.2 million compared to Q4 2013 to $10.7 million or $0.07 per share. Turning to the financial results for the year ended December 31, 2014. In addition to the two adjustments for fourth quarter's EBITDA, full-year 2014 EBITDA has been adjusted for the following items, $12.6 million related to valuation of assets and loss from sale of one VLCC in Q2, $1.2 fair value loss from a receivable settled in Q2 and $4.4 million of share-based compensation expenses. Net income has been further adjusted to exclude the $6.3 million write-off of deferred financing fees and debt prepayment expenses in relation to Navios Midstream IPO. Revenue increased by 30.9% to $264.9 million from $202.4 million last year, reflecting a time charter equivalent of $19,633 per day and 99.7% fleet utilization. Operating and voyage related expenses were $101 million and G&A expenses were $14.6 million. 2014 adjusted EBITDA increased by 27.4% to $156.2 million from $122.6 million in 2013. Depreciation and amortization was $69.7 million and net interest expense and finance cost was $78.6 million. Adjusted net income for 2014 improved by $17.3 million compared to 2013 to $14.9 million or $0.09 per share. Slide 36 provides selected balance sheet data as of December 31, 2014. Cash and cash equivalents including restricted cash were $61.2 million. Vessels, net of depreciation, was $1.4 billion. Vessel deposits of $42.3 million represent deposits and capitalized cost for vessels delivered in our fleet in the first quarter of 2015. Total assets amounted to more than $1.7 billion. Total debt as of December 31, 2014 was $1.16 billion resulting in a net debt to book capitalization ratio of 66.8%. We currently have no remaining CapEx as all acquired vessels have been delivered. As a result, we expect the company to deleverage going forward through the strong projected cash flow generation. As of December 31, 2014, Navios Acquisition was in compliance with all of the covenants of its credit facilities and the ship mortgage notes. Turning to slide 37. Our financial strength has enabled us to announce a dividend of $0.05 per share for the fourth quarter, equivalent to $0.20 per share on an annualized basis. Based on last night's closing price, our dividend provides an annual yield of 5.6%. The dividend will be paid on April 2, 2015 to shareholders on record as of March 18, 2015. At this point, I would like to point out that given our 57.5% stake in Navios Midstream, we expect to receive in minimum cash distribution o f$15.7 million in 2015. Please turn to slide 38. Navios Acquisition has a prudent financial strategy. Almost half of our debt is non-amortizing, expiring at the end of 2021, providing significant cash flow flexibility. Overall, our financial structure provides lenders additional comfort relating to the stability of our balance sheet. Our liquidity position is strong. We have no remaining CapEx. And we have significant cash flow visibility since 79.8% of our available days are contracted in 2015 with profit sharing in 48.5% of our available days and we have another 27.4% of available days open on fixed or floating rates. We are very well positioned to capture the upside of the improving tanker market. Moreover, the recent IPO of Navios Midstream provides a platform to increase liquidity and grow through the dropdown of vessels into the MLP. And now, I will pass the call back to Angeliki. Angeliki?

[Angeliki Frangou:]

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

[Operator:]

[Operator Instructions]. Your first question comes from the line of Michael Webber of Wells Fargo.

[Michael Webber:]

Good morning, guys. How are you?

[Angeliki Frangou:]

Good morning.

[Michael Webber:]

Angeliki, I wanted to first start off kind of high level with the new structure with the MLP daughter and NNA as a JP. When you think about one, the property and revenue generated both at NNA and at the daughter and then B, the consistent distributions that NNA should be getting back up from the daughter level, is there any thought process around augmenting the dividend policy at NNA, either to work as a pass-through for the cash flows from NAP or to use it to delever. I am just curious as to how that map changes for you now with the launch of the MLP.

[Angeliki Frangou:]

This provides a great flexibility and stability to NNA and gives ability to really grow the VLCC segment with buy assets, put the cash flows and create a really very strong company. The process can be used in either. As you know, we have already done buyback, $50 million and if we see, we are already about six months on this recovery and as we see this progressing we can really view later on how we like to change the dividend policy to reward our investors. Let's not forget, that we are a major shareholder on NNA. So we are totally aligned with our investors.

[Michael Webber:]

Sure and it's a pretty meaningful distribution back up to NNA. Around the revenue recognition, I know you signed a new index linked charter. Now I know this is an aspect of the profit sharing agreements at NAP as well. How does that revenue actually gets recognized? And I guess from a cash flow perspective, when do you guys actually get paid out on that new index linked charter?

[Angeliki Frangou:]

On the new index, we are paid every month. So it's very attractive. If you see our portfolio, in page six, where you have our strategy on VL, we give maximum profitability. We have a portfolio, four of our VL are fixed time charter on average about $34,000 with two of them having profit sharing. This is done on a quarterly or six months basis. And four of the vessels are really index linked, which means on a $44,000 on the index Q4, we earned about 45. This year, year-to-date about the $64,000. So we earned almost 1005 of the index. So four of our vessels are really exposed to the spot market adjusting daily. That's why you have such a better return. And four of our vessels are done in a very nice rate that provides us visibility with profit sharing.

[Michael Webber:]

Fair enough. So just looping back to my original question around the uses of that cash. That would be spread out over the first half of the year as you guys start to actually see the injection from those profit shares as those three months and six months payment schedule start kicking back up to you. Is that pretty fair?

[Angeliki Frangou:]

Yes.

[Michael Webber:]

Okay.

[Angeliki Frangou:]

Yes and on the index vessels every month.

[Michael Webber:]

Okay.

[Angeliki Frangou:]

You get immediate assessing of the daily adjustment of the rate.

[Michael Webber:]

Fair enough. One more for me and then I will turn it over. Just along the lines of proceeds from, as your organic cash flow starts to pick up and within the company's name, from an acquisition core perspective, just curious as to where you see the most value here when you look at asset values? You get the sense that VLCCs have appreciated to the point where there is an aspect of potentially chasing current or past performance by the time many newbuilds would deliver. I am just curious as to whether or not they are -- where do you see the most value? And then maybe specifically whether there is the potential to do something either in the shuttle tanker space or in some of the more esoteric offshore assets? Or whether that's a bit too early, given that we are still in the middle of that slide?

[Angeliki Frangou:]

Navios is always open to new sectors. Well, I think we are in a very early stage of a recovery. We are only running six months of these. And I think that the drop of oil, eventually that will create which is immediate is transportation, but eventually we will have the economies kick-start and then demand will dry and the fundamentals on the crude side, they are very good. So our target today is crude. I will say that one of the issues that we like in Navios is, we always monitor every segment to see where these pockets of value. But on the near-term, I think we should be more on the crude and VL.

[Michael Webber:]

That's fair. All right. I appreciate the time, guys. Thank you very much.

[Angeliki Frangou:]

Thank you.

[Operator:]

Your next question comes from the line of Chris Wetherbee of Citi Research.

[Chris Wetherbee:]

Great. Thanks. Good morning, guys.

[Angeliki Frangou:]

Good morning.

[Chris Wetherbee:]

Just curious in terms of the depths of the timecharter market, particularly for VLCCs. We have seen obviously shorter-term rates continue to move higher when you think about the actual depth of multiyear time charters. Just kind of curious how that stands currently?

[Angeliki Frangou:]

Actually Navios did one of the -- we did back in December, $35,000 for one year time charter. At the time, it was the highest one year time charter since 2010. From that time, we have seen multiple, a lot of vessels going at $40,000 and high, almost $48,000 [indiscernible]. So I think the period charter has been active and you will see that, that is also an indications from a strong spot market element.

[Ted Petrone:]

I think Angeliki is right. It's not just what you report on the surface that you see, I would just say there is lot more chatter. There is lot more discussions from charters. So it's there. It's a matter of, if someone is going to step up and do. But there is a lot more interest in not only short charter but extending one and two year charters. There is a lot more talk.

[Chris Wetherbee:]

Okay and when you think about the VL book, obviously you have some opportunity for new charters coming up here in 2015. Is it too early yet to try to go out longer term, sort of north of a year, call it two or three to try to provide some stability of cash flows and longer term visibility from a drop-down perspective? You still think there is room to run here? I guess I am kind of curious how you thing about that employment strategy or if its too early to really be thinking about term on some of those ships?

[Angeliki Frangou:]

Honestly, we like to do period charters. So it is not a matter that we are never going to be so clever to know the actual top of the market and try to do everything at that point. So if we see attractive cash flows and durations, I think now what we consider is duration. Can you really achieve high numbers and with good counter parties on three to five years? That is the target for the company.

[Chris Wetherbee:]

Okay.

[Ted Petrone:]

I think just one of advantages that we have is that most of the other VLCC owners are looking at playing spot and so therefore the charter is wanting first class owner, there is not many Navios' around. So I think we are in a good position, should we want to hit that bullet.

[Chris Wetherbee:]

Okay. Makes sense. And then just lastly, when you think about that focus on the tanker market, Angeliki, you just articulated, should we be thinking about used, secondhand, newbuild? How do we think about your preference where the better opportunities are in terms of potential acquisitions that you start to generate more cash and obviously you don't have a lot of CapEx requirements really going forward?

[Angeliki Frangou:]

We have zero CapEx requirement, so we can be easily go and pick up vessels. But preference is vessels in the water. In the part of the cycle we are today, it does not make sense to have long deliveries and have a negative carrier in newbuilding.

[Chris Wetherbee:]

Okay. That certainly makes sense. Thanks for the time, guys. I appreciate it.

[Angeliki Frangou:]

Thank you.

[Operator:]

Your next question comes from the line of Amit Mehrotra of Deutsche Bank.

[Amit Mehrotra:]

Yes. Thanks very much. Congrats on a good quarter. You have some progress on deleveraging the balance sheet, going from 69% net debt to capital to under 67%. I would expect this to continue trending down, maybe even more dramatically as we move to subsequent quarters. But can you just help us understand what sort of level of net leverage you are targeting and where that could go over the next year or two? And really, maybe another way to ask it to is, at what point, where do you want that number to get to before you start making maybe some additional acquisitions without surplus cash flow? Do you have something in mind vis-à-vis a target?

[Angeliki Frangou:]

Let's start with one thing. Mid-cycle, we like to be delevered to around between 40% and 50%. So that is our target mid-cycle and obviously the full-cycle model. So we like to be able to really capture opportunities through every cycle. So that is medium-term. Now if we are going to do acquisitions, I think we feel very comfortable with our cash position and as we generate and we see attractive deals that are -- if we see that the purchase of the asset is more accretive to your bottomline, then the intention, we will do acquisition of assets. So it depends on the multiple we acquire the vessel.

[Amit Mehrotra:]

Okay. So over the next 12 to 18 months, you expect your net leverage, just so I am clear, to go down towards that sort of mid-cycle target? Is that what I should take away from that comment?

[Angeliki Frangou:]

Yes and no. Number one is that we are looking on acquisitions constantly and if it is accretive on a multiple base, we acquire vessels. Because that makes sense on the part of the cycle we are. In about mid-cycle, we like to be more delevered. But we have methods of delevering. Don't forget we created NAP. That provides is the ability to create cash flows, acquire assets, create cash flows and then drop them down and repay debt.

[Amit Mehrotra:]

Right. Okay. And then just a follow-up question with respect to that share repurchase. It doesn't look like you did any in December, which makes sense given the timing of the announcement of the program, but just to understand sort of how you are thinking about the buyback, like a tactical perspective? Are you going to choose to be a little bit more opportunistic? Or is this going to be more of a discipline purchase program where levels are consistent over time? How do you imagine that occurring over time?

[Angeliki Frangou:]

It's a steady discipline program.

[Amit Mehrotra:]

Okay. Fair enough. Thank you very much.

[Angeliki Frangou:]

Thank you.

[Operator:]

Your next question comes from the line of Omar Nokta of Clarksons Capital Markets.

[Omar Nokta:]

Question on several times on this call, but I just wanted to sort of ask again. The newbuilding program is now complete and at this point there is obviously no investments that we see on the horizon. And you did mention that it is still early on in the cycle, so you feel that there are opportunities. But I just wanted to ask again, at this point, as you look forward, would you say that you are still in expansion mode on the crude side or are you maybe shifting towards monetizing as we have seen with NAP and how that was formed? The impression that maybe some are getting, maybe now is the time that you monetize the assets or at least start to just simply generating cash flow with what you have and slow down the growth profile? I just wanted to see what your thoughts on that.

[Angeliki Frangou:]

We like acquisitions. But they need to be accretive. It needs to be accretive for NNA. We like vessels in the water. We have articulated. We have changed from a program in 2010, 2011 of newbuildings to a program of vessels in the water because they generate cash flow. So we see opportunities and don't forget that acquiring vessels creating cash flow, you can always drop them on NAP for investors that they like dividends and really capturing the long durations. So we have already created a strategy to monetize the long time charters.

[Omar Nokta:]

Okay. That's helpful. Thanks, Angeliki. Also just wanted to ask about the two MRs that you cancelled with no penalty. Were there any deposits actually made on those? Or were those still under negotiations still?

[Angeliki Frangou:]

There shipyard was unable to provide a refund guarantee. So that was a decision to cancel.

[Omar Nokta:]

All right. So there were no -- you haven't made any --

[Angeliki Frangou:]

No.

[Omar Nokta:]

Okay and then just sort of one housekeeping question just on the CapEx for 1Q, just so I can have our model correct. What was the CapEx on those two MR deliveries?

[Leonidas Korres:]

We had some withdraw debt for the one MR of $22.5 million. So the installment was less that it gave some cash to the balance sheet. And also the other vessel, we had $8 million of equity and $3 million of debt.

[Omar Nokta:]

Okay. All right. Thank you very much.

[Operator:]

At this time, we have reached the allotted time for questions. I would now like to turn the conference over to Ms. Frangou.

[Angeliki Frangou:]

Thank you. This completes our fourth quarter results. Thank you.

[Operator:]

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