NMM

Business Context and Reporting Period

Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: May 23, 2022
Reporting Period: Three months ended March 31, 2022 (Q1 2022) compared to Q1 2021.
Overview: Navios Partners is an international owner and operator of dry cargo and tanker vessels. The results for Q1 2022 include the consolidated operations of Navios Maritime Containers L.P. and Navios Maritime Acquisition Corporation following completed mergers. The fleet consists of 54 dry bulk vessels, 47 containerships, and 49 tanker vessels, with significant newbuilding orders pending delivery through 2025.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased by 263.4% ($171.5 million) primarily due to a larger fleet size (128 vessels at period end vs. 79 in 2021) and a 37.4% increase in TCE rates.
• Net Income Decline: Net income decreased by $51.0 million to $85.7 million. This decrease is largely attributable to the absence of non-recurring items in Q1 2022 that inflated Q1 2021 results, specifically an $80.8 million gain from equity in net earnings of affiliated companies and a $44.1 million bargain gain from the Navios Containers merger.
• Expense Increases: Vessel operating expenses rose 218.3% to $73.2 million, and interest expense increased 127.6% to $13.2 million, driven by the expanded fleet and debt associated with recent acquisitions.
• Adjusted EBITDA Improvement: Excluding non-recurring merger gains, Adjusted EBITDA increased significantly by $92.4 million to $126.1 million, reflecting strong operational performance.

Guidance, Outlook, and Risks

• Recent Developments:
  • Vessel Acquisitions: In April 2022, agreed to purchase four 115,000 dwt Aframax/LR2 newbuilding vessels at $58.5 million each (plus extras), expected delivery in 2024-2025.
  • Financing: On May 9, 2022, entered a new $25.2 million credit facility (fully drawn May 11) to refinance debt and fund working capital, maturing Q2 2027.
• Liquidity: The company reported a negative working capital position of $117.2 million as of March 31, 2022. Management forecasts sufficient cash generation from contracted revenues ($2.8 billion as of May 16, 2022) and vessel sales to meet obligations for at least 12 months.
• Distributions: A quarterly distribution of $0.05 per unit was declared for Q1 2022 and paid on May 12, 2022. Future distributions remain subject to board discretion and credit facility covenants.
• Risks: Key risks include global economic conditions, the impact of the Russia-Ukraine conflict, charterer creditworthiness, vessel supply/demand fluctuations, and the ability to refinance debt on attractive terms.

Investor Verification Checklist

• Merger Accounting Impact: Verify the exclusion of the $124.9 million in non-recurring gains (equity earnings and bargain gain) from Q1 2021 to accurately assess year-over-year operational performance.
• Liquidity Position: Review the negative working capital of $117.2 million and the reliance on future contracted revenues and vessel sales to service debt.
• Debt Covenants: Confirm continued compliance with financial covenants, specifically the EBITDA to interest expense ratio (minimum 2.00:1.00) and minimum net worth requirements.
• Capital Expenditures: Monitor the execution of the newbuilding program (four Aframax/LR2 vessels) and the associated cash outflows for deposits and deliveries.
• Related Party Transactions: Note that vessel operating expenses ($73.2 million) and general/administrative expenses ($13.9 million) are largely incurred with affiliated managers (Navios Shipmanagement Inc. and Navios Tankers Management Inc.).