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, 2018 (Unaudited)
Filing Date: August 3, 2018
Business Overview: Navios Partners is an international owner and operator of dry cargo vessels (Panamax, Capesize, Ultra-Handymax) and containerships. The fleet is primarily chartered under long-term time charters. As of August 2, 2018, the fleet consisted of 18 Panamax, 14 Capesize, 3 Ultra-Handymax, and 5 Containerships (excluding vessels sold in July 2018).
Key Financial Metrics
| Metric ($ in thousands) | 3 Months Ended June 30, 2018 |
3 Months Ended June 30, 2017 |
6 Months Ended June 30, 2018 |
6 Months Ended June 30, 2017 |
|---|---|---|---|---|
| Time Charter & Voyage Revenues | $58,196 | $50,018 | $111,248 | $92,429 |
| Net (Loss)/Income | $(29,533) | $4,445 | $(24,055) | $(1,208) |
| Net (Loss)/Income Attributable to Unitholders | $(29,533) | $4,090 | $(24,055) | $(1,563) |
| EBITDA | $(3,825) | $31,745 | $27,086 | $54,399 |
| Adjusted EBITDA | $34,656 | $32,214 | $66,181 | $58,087 |
| Operating Surplus | $19,783 | $22,350 | $37,243 | $39,917 |
| Net Cash Provided by Operating Activities | $24,827 | $12,264 | $31,254 | $10,084 |
| Total Debt (Net of discounts/fees) | $494.5 million (as of June 30, 2018) | |||
| Cash and Cash Equivalents | $40.6 million (as of June 30, 2018) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 24.0% for the three months and 24.5% for the six months ended June 30, 2018, compared to the prior year periods. This was driven by fleet expansion (acquisitions in 2017 and 2018) and higher Time Charter Equivalent (TCE) rates.
- Net Loss: The company reported a net loss of $29.5 million for the three months ended June 30, 2018, compared to a net income of $4.4 million in the prior year. The six-month loss was $24.1 million versus a loss of $1.2 million in 2017.
- Impairment Loss: A significant non-cash impairment loss of $37.9 million was recorded in Q2 2018 related to the YM Unity and YM Utmost containerships, which were classified as held for sale. This was the primary driver of the net loss.
- Interest Expense: Interest expense increased 32.5% for the three months and 11.6% for the six months, driven by a higher weighted average interest rate (6.87% vs 5.87% for Q2) and increased average loan balances.
- Adjusted EBITDA: Excluding the impairment loss and other non-cash items, Adjusted EBITDA increased to $34.7 million (Q2) and $66.2 million (6 months), reflecting improved operational performance.
Guidance, Outlook, and Recent Developments
- Distribution Policy: The Board declared a quarterly cash distribution of $0.02 per unit for Q2 2018, payable August 10, 2018. This follows a new policy announced in March 2018 to pay $0.02 per unit quarterly ($0.08 annually).
- Vessel Acquisitions:
- July 2018: Agreed to acquire Navios Sphera (Panamax) and Navios Mars (Capesize) from affiliate Navios Maritime Holdings Inc. for $79.0 million. Partially financed by a new $44.0 million term loan.
- Q2 2018: Took delivery of Navios Altair I, Navios Symmetry, and Navios Apollon I (all Panamax) for a total of approximately $35.6 million.
- Vessel Sales:
- July 2018: Sold YM Unity and YM Utmost (containerships) to affiliate Navios Containers for $67.0 million, recognizing a $37.9 million loss. Proceeds were used to repay $20.2 million of debt.
- Q3 2018 Expected: Agreed to sell Hyundai Hongkong (containership) to Navios Containers for ~$36.0 million. Options granted for four additional sister ships.
- Liquidity: The company maintains a positive working capital position of $66.2 million. Management forecasts sufficient cash flow to meet debt service and working capital needs for the next 12 months.
- Risks: Key risks include global trade uncertainty, fluctuations in charter rates, vessel aging, and the ability to secure financing. The company is exposed to interest rate risk as borrowings are based on LIBOR.
Investor Verification Checklist
- Impairment Impact: Verify the $37.9 million impairment loss on the YM Unity and YM Utmost and confirm the sale completion and proceeds usage.
- Debt Covenants: Confirm 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 repayments and new borrowings.
- Related Party Transactions: Review the terms of the $79.0 million vessel acquisition from Navios Holdings and the $67.0 million sale to Navios Containers to ensure fair value and proper approval by the Conflicts Committee.
- Distribution Sustainability: Assess whether the $0.02 per unit distribution is sustainable given the Operating Surplus of $19.8 million (Q2) and the requirement to maintain cash reserves.
- Interest Rate Exposure: Evaluate the impact of rising LIBOR rates on future interest expenses, noting the weighted average rate of 6.63% for the six months ended June 30, 2018.