Business Context and Reporting Period
Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: November 12, 2015
Reporting Period: Three and nine months ended September 30, 2015 (unaudited).
Business Overview: Navios Partners is an international owner and operator of dry cargo and container vessels. As of November 11, 2015, the fleet consisted of 31 vessels: 12 Panamax, 8 Capesize, 3 Ultra-Handymax, and 8 Container vessels. The company operates primarily under long-term time charters.
Key Financial Metrics
| Metric ($ in thousands) | 9 Months Ended Sept 30, 2015 | 9 Months Ended Sept 30, 2014 | 3 Months Ended Sept 30, 2015 | 3 Months Ended Sept 30, 2014 |
|---|---|---|---|---|
| Time Charter & Voyage Revenues | $170,362 | $167,966 | $57,103 | $55,290 |
| Net Income | $33,998 | $61,388 | $11,764 | $13,042 |
| EBITDA (Non-GAAP) | $117,547 | $160,675 | $40,872 | $37,472 |
| Operating Surplus (Non-GAAP) | $87,557 | $123,770 | $30,431 | $25,003 |
| Net Cash from Operating Activities | $98,053 | $148,554 | $28,615 | $32,157 |
| Total Debt (Net) | $603,292 | $576,000 (Dec 31, 2014) | N/A | N/A |
| Cash & Cash Equivalents | $25,141 | $99,495 (Dec 31, 2014) | N/A | N/A |
| Working Capital | ($4,889) | $85,125 (Dec 31, 2014) | N/A | N/A |
Note: Working capital is calculated as Current Assets ($46,309) minus Current Liabilities ($51,198) as of September 30, 2015.
Material Changes vs. Prior Period
- Net Income Decline: Net income for the nine months ended September 30, 2015, decreased by $27.4 million (44.6%) compared to the same period in 2014. This was primarily due to a $46.4 million decrease in "Other Income," which in 2014 included a one-time $47.6 million gain from the termination of credit default insurance and the sale of a defaulted counterparty claim.
- Revenue Growth: Time charter and voyage revenues increased by $2.4 million (1.4%) for the nine-month period, driven by the addition of new vessels (MSC Cristina, YM Utmost, YM Unity) and increased available fleet days, despite a slight decrease in Time Charter Equivalent (TCE) rates.
- Expense Increases: Management fees increased by $5.2 million (14.0%) due to fleet expansion. Interest expense increased by $2.8 million (13.4%) due to higher average outstanding loan balances and interest rates.
- Depreciation Reduction: Depreciation and amortization decreased by $20.9 million, largely due to a $22.0 million accelerated amortization of favorable lease intangibles in the prior year period that did not recur.
- Cash Flow: Net cash provided by operating activities decreased by $50.5 million, reflecting the lower net income and changes in working capital.
Guidance, Outlook, Risks, and Unusual Items
- Distribution Reduction: On October 23, 2015, the Board authorized a quarterly cash distribution of $0.2125 per unit for the third quarter of 2015, a significant reduction from the previous quarterly rate of $0.4425. The aggregate distribution is anticipated to be $18.0 million.
- Liquidity Position: The company reported a negative working capital position of $4.9 million as of September 30, 2015. Management believes cash flows from operations will be sufficient to meet short-term liquidity needs for the next 12 months. Approximately $330.4 million remains available under a shelf registration statement, and $60.0 million is available under the Navios Holdings Credit Facility.
- Capital Expenditures: The company spent $147.8 million on vessel acquisitions in the first nine months of 2015, primarily for the MSC Cristina container vessel.
- Risks and Contingencies:
- Charterer Default: Samsun Logix entered rehabilitation proceedings; Navios Partners redelivered its vessel in August 2015 and expects no significant financial exposure due to insurance coverage up to $20.0 million.
- Market Conditions: Results are subject to fluctuations in charter rates, global trade volumes, and fuel costs.
- Related Party Transactions: Significant revenue and expenses are tied to Navios Holdings and its subsidiaries, including management fees and vessel charters.
Investor Verification Checklist
- Distribution Sustainability: Verify the rationale and long-term impact of the 52% reduction in the quarterly cash distribution rate.
- Debt Covenants: Confirm compliance with financial covenants, specifically the EBITDA to interest expense ratio (minimum 5.00:1.00) and loan-to-value ratios, given the negative working capital position.
- One-Time Gains: Adjust financial analysis to exclude the $47.6 million one-time gain recognized in 2014 to accurately assess recurring profitability trends.
- Fleet Utilization: Monitor the impact of the aging fleet and drydocking schedules on available days and TCE rates.
- Related Party Exposure: Review the concentration of revenue from Navios Holdings and the terms of the management agreement.