Business Context and Reporting Period
Company: Navios Maritime Partners L.P. (Navios Partners)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: November 22, 2017
Reporting Period: Three and nine months ended September 30, 2017 (unaudited)
Business Overview: Navios Partners is an international owner and operator of dry cargo and container vessels. The fleet consists of 14 Panamax, 13 Capesize, three Ultra-Handymax, and seven Container vessels. Operations are managed by Navios Shipmanagement Inc., a subsidiary of Navios Maritime Holdings Inc. (Navios Holdings).
Key Financial Metrics
| Metric ($ in thousands) | 9 Months Ended Sept 30, 2017 | 9 Months Ended Sept 30, 2016 | 3 Months Ended Sept 30, 2017 | 3 Months Ended Sept 30, 2016 |
|---|---|---|---|---|
| Time Charter & Voyage Revenues | $152,383 | $140,859 | $59,954 | $50,341 |
| Net Income (Loss) | $7,965 | $(50,460) | $9,173 | $(33,863) |
| Net Income Attributable to Unitholders | $7,726 | $(50,460) | $9,289 | $(33,863) |
| EBITDA | $95,405 | $53,266 | $41,006 | $13,391 |
| Adjusted EBITDA | $95,947 | $89,894 | $37,859 | $32,826 |
| Operating Surplus | $67,110 | $60,908 | $27,193 | $23,190 |
| Net Cash from Operating Activities | $37,905 | $34,625 | N/A | N/A |
| Net Cash Used in Investing Activities | $(179,526) | $20,392 | N/A | N/A |
| Net Cash from Financing Activities | $148,942 | $(41,188) | N/A | N/A |
| Total Debt (Net) | $500,580 | $523,800 | N/A | N/A |
| Cash and Cash Equivalents | $24,681 | $17,360 | N/A | N/A |
Note: 2016 figures include significant non-cash losses on vessel impairment ($17.2M) and sale of securities ($19.4M) which impacted Net Income but not Adjusted EBITDA.
Material Changes vs. Prior Period
- Profitability Turnaround: The Company reported a Net Income of $7.97 million for the nine months ended September 30, 2017, compared to a Net Loss of $50.46 million in the same period in 2016. This improvement is primarily due to the absence of the $17.2 million vessel impairment loss and $19.4 million loss on sale of securities recorded in 2016.
- Revenue Growth: Revenues increased by $11.5 million (8.2%) year-over-year for the nine-month period, driven by the acquisition of seven new vessels in 2017, which increased available fleet days.
- Expense Increases: Management fees increased by $5.8 million (13.0%) due to the larger fleet size and the inclusion of Navios Containers management fees. General and administrative expenses rose by $4.5 million, largely due to legal/professional fees and equity compensation.
- Depreciation Reduction: Depreciation and amortization decreased by $19.2 million year-over-year, primarily due to the write-off of favorable lease intangibles in 2016 and the sale of vessels in 2017.
- Interest Expense: Interest expense increased by $4.7 million (20.1%) due to a higher weighted average interest rate (5.64% vs 4.62%) and financing costs associated with Navios Containers.
Guidance, Outlook, and Recent Developments
- Fleet Expansion: In 2017, Navios Partners acquired seven vessels (Navios Symphony, Navios Aster, Navios Christine B, Navios Sol, Navios Libertas, Navios Ace, Navios Prosperity I) for a total cost of approximately $158.2 million.
- Debt Refinancing: In March 2017, the Company issued a new $405 million Term Loan B facility (LIBOR + 500 bps) maturing in 2020. In August 2017, a $53 million add-on was issued to finance vessel acquisitions.
- Navios Containers Deconsolidation: On August 29, 2017, Navios Maritime Containers Inc. (Navios Containers) was deconsolidated following a private placement that reduced Navios Partners' ownership to 39.9%. It is now accounted for under the equity method. Navios Partners recorded a $4.1 million gain on change in control.
- Management Agreement: On November 14, 2017, the Management Agreement with Navios Shipmanagement Inc. was extended until December 31, 2022, with fixed daily rates for ship management services through December 31, 2019.
- Distribution Policy: Quarterly cash distributions to unitholders remain suspended since the quarter ended December 31, 2015, to preserve cash and improve liquidity. There is no guarantee of reinstatement.
- Risks: Key risks include global trade uncertainty, fluctuations in charter rates, vessel aging, and the ability to secure funding. The Company is exposed to interest rate risk as borrowings are based on LIBOR.
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial covenants, specifically the EBITDA to interest expense ratio (minimum 2.00:1.00) and loan-to-value ratios, given the recent debt refinancing and interest rate increases.
- Charter Expirations: Review the fleet charter expiration schedule; several vessels have charters expiring in late 2017 and early 2018, requiring re-chartering or spot market exposure.
- Related Party Transactions: Confirm the terms and necessity of management fees paid to Navios Holdings, which totaled $50.1 million for the nine-month period.
- Navios Containers Investment: Assess the performance and valuation of the 39.9% equity interest in Navios Containers, which is now an affiliate rather than a consolidated subsidiary.
- Liquidity Position: Monitor the $24.7 million cash balance against upcoming debt maturities and maintenance capital expenditure requirements (estimated at $14.9 million for 2017).