Business Context and Reporting Period
Company: Navios Maritime Partners L.P. (Navios Partners)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: October 27, 2010
Reporting Period: Three and nine months ended September 30, 2010 (unaudited)
Business Overview: Navios Partners is an international owner and operator of dry bulk vessels. As of September 30, 2010, the fleet consisted of 14 vessels (10 Panamax, 3 Capesize, 1 Ultra-Handymax) operating primarily under long-term time charters. The company is managed by Navios ShipManagement Inc., a subsidiary of Navios Maritime Holdings Inc.
Key Financial Metrics
| Financial Metric ($ in thousands) | 9 Months Ended Sep 30, 2010 | 9 Months Ended Sep 30, 2009 | 3 Months Ended Sep 30, 2010 | 3 Months Ended Sep 30, 2009 |
|---|---|---|---|---|
| Time Charter & Voyage Revenues | $100,742 | $67,028 | $38,074 | $23,717 |
| Net Income | $42,114 | $23,340 | $16,345 | $10,789 |
| Adjusted EBITDA | $74,900 | $46,691 | $28,967 | $16,774 |
| Operating Surplus | $75,926 | $35,106 | $23,716 | $13,124 |
| Net Cash from Operating Activities | $65,310 | $69,599 | $14,884 | $12,635 |
| Net Cash Used in Investing Activities | ($285,756) | ($34,600) | N/A | N/A |
| Net Cash Provided by Financing Activities | $187,663 | ($9,986) | N/A | N/A |
| Long-Term Debt (Outstanding) | $271,500 | $195,000 | $271,500 | $195,000 |
| Cash and Cash Equivalents | $45,095 | $77,878 | $45,095 | $53,387 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 50.3% ($33.7 million) for the nine months ended September 30, 2010, compared to the same period in 2009. This was driven by the acquisition of four new vessels (Navios Hyperion, Navios Sagittarius, Navios Aurora II, and Navios Pollux) and the exercise of purchase options, increasing available fleet days from 2,570 to 3,498.
- Profitability: Net income increased 80.4% to $42.1 million for the nine-month period. Adjusted EBITDA rose 60.4% to $74.9 million.
- Expense Increases: Management fees increased 78.5% to $14.1 million due to the larger fleet. Depreciation and amortization surged 161.7% to $28.7 million, largely due to the amortization of favorable lease terms associated with new vessel acquisitions.
- Capital Expenditures: Investing cash outflows increased significantly to $285.8 million (vs. $34.6 million in 2009) to fund the acquisition of four vessels totaling approximately $285.5 million.
- Debt Levels: Long-term debt increased to $271.5 million from $195.0 million, reflecting new tranches borrowed to finance vessel acquisitions. The weighted average interest rate decreased to 2.33% from 3.75%.
Guidance, Outlook, and Risks
- Recent Equity Offering: On October 14, 2010, the company completed a public offering of 5.5 million common units plus an overallotment, raising approximately $111.6 million in gross proceeds to fund further fleet expansion.
- Distributions: The Board authorized a quarterly distribution of $0.42 per unit for the quarter ended September 30, 2010, payable November 12, 2010. The minimum quarterly distribution target is $0.35 per unit.
- Outlook: Management expects to continue expanding the fleet through acquisitions funded by external financing and equity raising. The company intends to distribute all available cash quarterly.
- Risks: Key risks include fluctuations in dry bulk charter rates, demand for vessels, and credit risk associated with charter counterparties. The company is exposed to interest rate risk as its credit facility bears interest based on LIBOR plus a margin.
- Contingencies: The company has no off-balance sheet arrangements. It maintains counterparty insurance to mitigate credit risk from unsecured charter obligations.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the Credit Facility covenants, specifically the Value Maintenance Covenant (VMC) of 143% and minimum net worth of $135 million.
- Charter Counterparty Concentration: Review the top four counterparties (Mitsui O.S.K. Lines, Cargill, Cosco, Sanko) which accounted for ~60% of revenues in the nine-month period.
- Related Party Transactions: Confirm the terms of the management agreement with Navios ShipManagement Inc. (daily fees fixed until Nov 2011) and the pricing of vessel acquisitions from Navios Holdings.
- Capital Allocation: Assess the sustainability of the $0.42 per unit distribution against Operating Surplus and the impact of future expansion capital expenditures on cash flow.
- Interest Rate Sensitivity: Evaluate the impact of rising LIBOR rates on interest expense, noting a 1% increase would raise annual interest costs by approximately $1.8 million based on current debt levels.