Business Context and Reporting Period
Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2011 (Q1 2011)
Business Overview: Navios Partners is an international owner and operator of dry bulk vessels, primarily operating under long-term time charters. As of March 31, 2011, the fleet consisted of 16 vessels (10 Panamax, 5 Capesize, 1 Ultra-Handymax) and 2 chartered-in vessels. The company is managed by Navios ShipManagement Inc., a subsidiary of Navios Maritime Holdings Inc.
Key Financial Metrics
| Financial Metric ($ in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Time Charter & Voyage Revenues | $42,804 | $29,413 |
| Net Income | $16,600 | $12,585 |
| EBITDA (Non-GAAP) | $32,430 | $21,341 |
| Operating Surplus (Non-GAAP) | $26,518 | $16,929 |
| Net Cash from Operating Activities | $31,273 | $23,783 |
| Long-Term Debt (Total) | $314,200 | $236,500 |
| Cash and Cash Equivalents | $53,350 | $25,373 |
| Time Charter Equivalent (TCE) per Day | $30,422 | $27,222 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $13.4 million (45.6%) to $42.8 million, driven by the acquisition of five vessels in 2010 (Navios Hyperion, Sagittarius, Aurora II, Pollux, Fulvia, and Melodia) which increased available fleet days from 1,081 to 1,407.
- Profitability: Net income rose by $4.0 million (31.9%) to $16.6 million. This was achieved despite a $6.3 million increase in depreciation and amortization and a $0.8 million increase in interest expense.
- Expense Increases: Management fees increased by $2.0 million (50.0%) to $6.0 million due to the larger fleet size. Interest expense rose 66.7% to $2.0 million due to higher average loan balances ($318.1 million vs. $205.4 million) and a higher weighted average interest rate (2.40% vs. 2.12%).
- Capital Expenditures: Investing cash outflows were $0 in Q1 2011, compared to $175.8 million in Q1 2010, as the company paused vessel acquisitions during the quarter.
Guidance, Outlook, Risks, and Unusual Items
- Recent Capital Raise: On April 13, 2011, the company completed a public offering of 4.6 million common units (including overallotment), raising approximately $90 million in gross proceeds ($86.5 million net) to fund fleet expansion.
- Distributions: The Board authorized a quarterly cash distribution of $0.43 per unit for Q1 2011, payable May 11, 2011. The aggregate amount is anticipated to be $23.9 million.
- Contingencies: In January 2011, charterer Korea Line Corporation (KLC) filed for receivership. The charter for the vessel Navios Melodia was affirmed, with the sub-charterer agreeing to pay Navios Partners directly during an interim suspension period.
- Operational Issues: The vessel Navios Apollon was off-hire during March 2011 due to an engine breakdown, resulting in approximately $2.0 million in off-hire expenses.
- Outlook: Management expects stable cash flows due to long-term charters and fixed management fees. However, results are subject to market risks including dry bulk demand, charter rate fluctuations, and interest rate volatility.
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.
- Charterer Credit Risk: Monitor the status of the Navios Melodia charter with KLC and the financial health of top counterparties (Mitsui O.S.K. Lines, Cosco Bulk Carrier), which collectively represent ~40% of revenue.
- Interest Rate Exposure: Assess the impact of rising LIBOR rates on interest expense, given the floating-rate nature of the $314.2 million credit facility.
- Asset Valuation: Review the amortization of favorable lease terms (intangible assets) which significantly impacts reported net income but not cash flow.
- Capital Allocation: Confirm the deployment of the $86.5 million raised in April 2011 for new vessel acquisitions and the resulting impact on leverage ratios.