Business Context and Reporting Period
Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: November 15, 2018
Reporting Period: Three and nine months ended September 30, 2018 (unaudited).
Business Overview: Navios Partners is an international owner and operator of dry cargo vessels, including Panamax, Capesize, Ultra-Handymax, and Containerships. The fleet is primarily chartered under long-term time charters. As of November 15, 2018, the fleet consisted of 18 Panamax, 14 Capesize, 3 Ultra-Handymax, and 5 Containerships.
Key Financial Metrics
| Metric ($ in thousands) | 3 Months Ended Sept 30, 2018 | 9 Months Ended Sept 30, 2018 |
|---|---|---|
| Time Charter & Voyage Revenues | $62,571 | $173,819 |
| Net Income (Loss) | $10,457 | $(13,598) |
| EBITDA | $36,096 | $63,182 |
| Adjusted EBITDA | $41,981 | $108,162 |
| Operating Surplus | $25,791 | $63,034 |
| Net Cash from Operating Activities | $19,394 | $50,648 |
| Total Debt (Net) | $511,669 (as of Sept 30, 2018) | |
| Cash & Cash Equivalents | $53,462 (as of Sept 30, 2018) | |
| Working Capital | $35,300 (Current Assets $89.4M - Current Liabilities $54.1M) |
Fleet Performance (9 Months 2018):
- Time Charter Equivalent (TCE) Combined: $16,745 per day.
- Fleet Utilization: 98.9%.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 23.4% for the quarter and 24.1% for the nine-month period compared to 2017, driven by fleet expansion (acquisitions of 5 vessels in 2018) and higher TCE rates due to improved freight markets.
- Net Loss vs. Profit: While the company reported a net income of $10.5M for the quarter, it reported a net loss of $13.6M for the nine-month period. This contrasts with a net income of $8.0M for the same period in 2017.
- Impairment Charges: The nine-month 2018 results were significantly impacted by non-cash vessel impairment losses totaling $43.1M. This includes a $37.9M loss on the sale of two containerships (YM Unity and YM Utmost) and a $5.3M loss on the Navios Felicity.
- Adjusted EBITDA: Excluding impairments and other one-time items, Adjusted EBITDA increased by $18.7M to $108.2M for the nine-month period, reflecting improved operational performance.
- Interest Expense: Interest expense increased 10.6% for the nine-month period to $31.4M, primarily due to a higher weighted average interest rate (6.77% vs 5.64% in 2017).
Guidance, Outlook, and Risks
Recent Developments & Strategy:
- Distributions: The Board declared a cash distribution of $0.02 per unit for Q3 2018, paid November 14, 2018. The company intends to maintain a quarterly distribution of $0.02 per unit ($0.08 annually).
- Navios Containers Distribution: Announced a distribution of approximately 2.5% of Navios Maritime Containers Inc. equity to unitholders, expected to occur around December 3, 2018. Post-distribution, Navios Partners will own approximately 33.5% of Navios Containers.
- Fleet Transactions:
- Acquisitions: Acquired Navios Sphera (Panamax) and Navios Mars (Capesize) for $79.0M in August 2018.
- Sales: Agreed to sell Navios Libra II and Navios Felicity for net prices of $4.6M and $4.7M, respectively, expecting a total book loss of ~$6.6M.
- Charters: Fixed several vessels to long-term charters, including Navios Fantastiks (Capesize) and Navios Mars (Capesize), with rates ranging from $18,911 to $22,610 net per day.
Risks and Contingencies:
- Market Volatility: Results are subject to fluctuations in charter rates, global trade volumes, and bunker costs.
- Customer Concentration: Hyundai Merchant Marine Co., Ltd. (HMM) accounted for 24.4% of total revenues for the nine months ended September 30, 2018.
- Debt Covenants: The company is subject to restrictive covenants in its credit facilities, including minimum liquidity and EBITDA-to-interest ratios. Failure to comply could restrict distributions.
- Related Party Transactions: Significant management fees and administrative expenses are paid to Navios Holdings, a related party.
Investor Verification Checklist
- Impairment Impact: Verify the extent to which the $43.1M impairment loss in the nine-month period distorts the reported net loss and confirm the remaining book value of the vessels sold (Navios Felicity and Libra II).
- Debt Maturity Profile: Review the maturity schedule of the $511.7M debt, noting the significant repayment due in 2020 ($412.4M) under the Term Loan B Facility.
- Adjusted EBITDA Reconciliation: Scrutinize the reconciliation of Net Income to Adjusted EBITDA to understand the quality of earnings excluding non-cash charges.
- Related Party Exposure: Assess the financial impact of management fees ($51.3M for 9 months) and the $59.8M balance due from related parties.
- Navios Containers Equity: Monitor the proposed distribution of Navios Containers equity and the resulting change in ownership percentage and potential liquidity event.