Business Context and Reporting Period
Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three and six months ended June 30, 2014
Business Overview: Navios Partners is an international owner and operator of dry cargo vessels, including Panamax, Capesize, Ultra-Handymax, and Container vessels. The fleet is primarily chartered under long-term time charters. As of July 29, 2014, the fleet consisted of 30 owned vessels (14 Panamax, 8 Capesize, 3 Ultra-Handymax, 7 Container) and 2 chartered-in vessels.
Key Financial Metrics
| Metric ($ in thousands) | 3 Months Ended June 30, 2014 |
3 Months Ended June 30, 2013 |
6 Months Ended June 30, 2014 |
6 Months Ended June 30, 2013 |
|---|---|---|---|---|
| Time Charter & Voyage Revenues | $55,178 | $49,154 | $112,676 | $99,435 |
| Net Income | $29,985 | $19,511 | $48,346 | $35,757 |
| EBITDA (Non-GAAP) | $54,188 | $45,046 | $123,203 | $82,100 |
| Operating Surplus (Non-GAAP) | $41,920 | $40,008 | $98,767 | $71,223 |
| Net Cash from Operating Activities | $80,113 | $21,753 | $116,397 | $51,146 |
| Time Charter Equivalent (TCE) per Day | $19,824 | $25,318 | $20,300 | $25,781 |
| Total Debt (Outstanding) | $530.6 million (as of June 30, 2014) | |||
| Cash and Cash Equivalents | $183.5 million (as of June 30, 2014) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 12.3% (Q2) and 13.3% (YTD) compared to the prior year periods. This growth was driven by fleet expansion, including the acquisition of the Navios Joy, Navios Harmony, five container vessels, and the Navios La Paix and Navios Sun. Available fleet days increased significantly (from 1,894 to 2,724 in Q2).
- Rate Decline: Despite revenue growth, the Time Charter Equivalent (TCE) rate declined to $19,824/day in Q2 2014 from $25,318/day in Q2 2013, reflecting softer market rates.
- Expense Increases:
- Management Fees: Increased 42.6% (Q2) due to the larger fleet size.
- Interest Expense: Increased 80.4% (Q2) to $7.1 million, driven by a higher weighted average interest rate (4.67% vs. 2.17%) and increased average loan balances ($536.0 million vs. $305.3 million).
- Depreciation: Decreased in Q2 due to the expiration of intangible assets and write-offs, but increased YTD due to accelerated amortization of the Navios Pollux favorable lease.
- Other Income: Significant increase in "Other income" ($17.9 million in Q2 vs. $10.1 million in Q2 2013) due to the sale of a defaulted counterparty claim and compensation received from the termination of a credit default insurance policy.
Guidance, Outlook, and Risks
- Recent Developments: On July 25, 2014, the company agreed to acquire two South Korean-built container vessels for $117.7 million. These vessels are chartered for a minimum of four years at $34,266 net per day and are expected to be delivered in Q4 2014.
- Liquidity: The company believes cash flows from operations are sufficient to meet short-term liquidity needs for at least the next 12 months. A shelf registration statement allows for the sale of up to $500 million in securities, with approximately $390.6 million currently available.
- Distributions: The Board authorized a quarterly cash distribution of $0.4425 per unit for the period ended June 30, 2014, payable August 13, 2014. The minimum quarterly distribution target is $0.35 per unit.
- Risks:
- Market Risk: Fluctuations in charter rates and demand for dry bulk vessels.
- Interest Rate Risk: Borrowings are based on LIBOR; a 1% increase in LIBOR would increase interest expense by approximately $2.7 million for the six-month period.
- Counterparty Risk: Concentration of revenue with major counterparties (Hyundai Merchant Marine, Navios Corporation, Cosco Bulk Carrier accounted for ~45.7% of YTD 2014 revenue).
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the Term Loan B and July 2012 Credit Facility covenants, specifically the Loan-to-Value ratio (0.8 to 1.0) and EBITDA to Interest Expense ratio (minimum 5.00:1.00).
- Intangible Asset Amortization: Review the impact of the $22.0 million accelerated amortization of the Navios Pollux favorable lease on future earnings.
- Related Party Transactions: Confirm the terms and volume of management fees and vessel charters with Navios Holdings, which accounted for a significant portion of revenue and expenses.
- Non-GAAP Reconciliations: Review the reconciliation of EBITDA and Operating Surplus to Net Income to understand the adjustments for non-cash items and maintenance capital expenditures.
- Counterparty Exposure: Assess the creditworthiness of top charterers, particularly given the concentration of revenue and the history of charterer receivership (e.g., Korea Line Corporation).