Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Navios Maritime Partners LP (NMM, Financial) reported strong financial results for Q2 2024 with revenue of $342.2 million and net income of $101.5 million.
- The company has a significant cash balance of $318.4 million, providing a solid financial cushion.
- NMM has a robust contracted revenue pipeline of around $3.7 billion, ensuring future revenue streams.
- The company is actively modernizing its fleet, having sold older vessels and invested in new, energy-efficient ships.
- NMM has initiated a $100 million unit repurchase program, demonstrating a commitment to returning capital to unitholders.
Negative Points
- Regional conflicts, particularly in the Red Sea, continue to impact mining transportation and increase operational costs.
- China's economic challenges, including a troubled real estate sector and weak domestic consumption, pose risks to demand for commodities.
- Despite strong financial performance, the company's net leverage remains at 31.6%, above its target range of 20-25%.
- The company's container and tanker TCE rates were approximately 15% and 10% lower respectively compared to the same period in 2023.
- NMM's adjusted net income for Q2 2024 decreased by $8 million compared to Q2 2023, primarily due to increased depreciation and amortization expenses.
Q & A Highlights
Q: Hi, guys. Good afternoon. Obviously, nice quarter, good amount of free cash flow generation, and you continue to focus on fine-tuning the fleet, selling ships and bringing in some new ones with contract cover. Obviously, a big highlight is the buyback. You spent nearly $10 million, which is nice. Just kind of thinking about that, is there anything that triggered you putting that capital to work? Is it comfort with the outlook? Is it the buildup of the backlog? What would you say drove the decision to go after the buyback?
A: Good morning, Omar. I think basically, we focus on our target. We are driving NAV by reinvesting in our business. You have seen that it's clear from day one. We bought over $0.5 billion of vessels, and we contracted them out about $560 million, over $560 million of contracted revenue. But at the same time, we managed to achieve our goals or near achieving our goals, meaning we brought down our leverage to towards 31%. Our target is 20%, 25%. But our cash position is very close to what we have stated. So basically, we're driving NAV, which we like that by reinvesting. But we are also reaching our target. We were able to really implement on a strategy we have articulated. And we start a repurchase program, having a good firepower on that. And having an additional benefit for our investors by being additionally incremental creation by repurchasing, capturing about $0.59 when we acquire our sales. So this is a net, net good result.
Q: The LR2s that you just ordered, you're continuing to pay somewhere around that $66 million. That compares to market valuations that suggest new buildings are closer to high 70s or close to $80 million. Are these options that you've been able to exercise? Is that what's driving the cheaper price relative to what perception is of what a new building costs?
A: You are exactly right. I mean, one of the things we do, we are disciplined on purchasing. We like to focus on the quality, build on the quality and create options for us. And I think you have seen that we have been implementing on this strategy for quite some time, giving us an advantage. Also, we are able to remark, when you order a vessel, it's actually getting -- you have an obligation. So matching them to become an asset, we need to fix it and have that balance. And I think we are trying to be very focused on that.
Q: What's interesting, I guess, is the two 7,900 TEU new buildings that you just ordered, those are delivering in '26 and seem to have almost a 50% payback over just the first -- or basically the four-year charter. So a pretty attractive payback. I guess when we think about that, you've been very busy being able to acquire tonnage, put it on contract. But these container new builds stand out as having a sooner payback over just that four-year term. What do you think is -- any color you can give on what's driving that? I guess one is, do those numbers make sense that I referenced that quick of a payback? But two, is this a repeatable type of transaction in containers, or was this one of those one-offs where we had an opportunity to take advantage of some '26 slots at a good rate?
A: We build on our relationship to the yard. So this is not a repeatable, not on a particular deal, but we are repeatable deals, as you see, over different CPRs and over different asset classes. We care about where we order. We care about creating the relationships and the designs of the assets. If you remember, we ordered on the same type of vessel. We had done the LNG fuel vessel, and we repeat on the knowledge we have on the CPR, on the type of vessel, with an opportunity to match with the right charting opportunity. So this is a continuous effort we have. And a lot of deals, you may never see them. I mean, this is not a one-off. By the way, on also the aframaxes, the LR2s, our payback is quite significant. So we are very careful on both sides, because at the end of the story, you need to go at historical averages. We like to make sure that with the chart that we have, we bring the value, the residual value down. Thank you.
Q: Can you provide more details on the new management and administrative services agreements with Navios Ship Management Inc.?
A: In August, Navios Partners renewed its management and administrative services agreements with Navios Ship Management Inc. The current agreements were lastly renewed in 2019 and are expiring at the end of 2024. Based on the new agreements, Navios Ship Management will continue to provide administrative services based on allocable costs with no extra fees. Additionally, Navios Ship Management will provide technical, commercial, and other services based on the following fee structure: $950 per day technical management fee for all vessels, 1.25% commercial fee on gross revenues, S&P fee of 1% on purchase or sale price, and fees for other specialized services, for example, supervision of new building vessels. The new management and administrative services agreements will commence on January 1, 2025, for a term of 10 years, renewing annually, and is subject to a fee for termination or change of control. The agreements were negotiated and approved by the Conflicts Committee of the Board of Directors of Navios Partners. The Conflicts Committee used Watson Farley & Williams as their legal advisors and KPMG as their financial advisors, who issued a fairness opinion.
Q: Can you elaborate on the financial performance and sector-specific TCE rates for the second quarter of 2024?
A: Total revenue for the second quarter of 2024 slightly decreased to $342 million compared to $347 million for the same period in 2023, due to lower combined time charter equivalent rate and available days. Our combined time charter equivalent rate for the second quarter of 2024 stood at $23,384 per day. In terms of sector performance, the TCE for our dry-bulk fleet increased by 14% to $17,959 per day compared to the same period in 2023. In contrast, our container and tanker TCE rates were approximately 15% and 10% lower respectively. TCE rates for our containers stood at $30,239 per day and for our tankers at $27,816 per day for the second quarter of 2024. EBITDA and net income and EPU were adjusted as explained in the slide footnote. Excluding these amounts, adjusted EBITDA for Q2 2024 decreased by $1.7 million to $190 million compared to Q2 2023. Adjusted net income for Q2 2024 decreased by $8 million to $94
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
