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, 2009 (compared to 2008)
Date of Filing: July 29, 2009
Navios Partners is an international owner and operator of Capesize and Panamax dry bulk carriers. As of June 30, 2009, the fleet consisted of nine owned vessels (eight Panamax, one Capesize) and three chartered-in Panamax vessels. The company operates under long-term time charters, generating stable cash flows. Navios Holdings Inc. owns a 46.7% interest in the partnership.
Key Financial Metrics
| Metric ($ in thousands) | 6 Months Ended June 30, 2009 |
6 Months Ended June 30, 2008 |
3 Months Ended June 30, 2009 |
3 Months Ended June 30, 2008 |
|---|---|---|---|---|
| Time Charter & Voyage Revenues | $43,311 | $32,259 | $22,154 | $17,939 |
| Net Income | $12,551 | $11,001 | $3,592 | $7,155 |
| Adjusted EBITDA | $29,917 | $21,322 | $15,189 | $12,142 |
| Operating Surplus | $21,982 | $13,065 | $11,432 | $5,909 |
| Net Cash from Operating Activities | $56,964 | $13,901 | $13,916 | $10,397 |
| Long-Term Debt (Outstanding) | $195,000 | $235,000 | $195,000 | $200,000 |
| Cash and Cash Equivalents | $20,481 | $28,374 | $20,481 | $14,782 |
Note: Operating Surplus and Adjusted EBITDA are non-GAAP financial measures.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 34.0% ($11.0 million) for the six months ended June 30, 2009, driven by the full-year operation of the Navios Hope and Navios Aldebaran, and the acquisition of rights to the Navios Sagittarius in June 2009.
- Net Income Volatility: While six-month net income increased 14.1% to $12.6 million, the three-month net income decreased 49.8% to $3.6 million. This quarterly decline was primarily due to a one-time non-cash compensation expense of $6.1 million related to the issuance of subordinated Series A units.
- Debt Reduction: Total borrowings decreased from $235.0 million at year-end 2008 to $195.0 million at June 30, 2009, following a $40.0 million repayment in February 2009.
- Interest Costs: Net interest expense decreased due to a lower weighted average interest rate (3.98% in 2009 vs. 5.1% in 2008), despite a higher average outstanding loan balance.
Guidance, Outlook, and Risks
Management Commentary & Outlook: The company maintains a strategy of operating vessels under long-term time charters to ensure stable cash flows. Management believes future results will be affected by economic conditions, regulatory changes, and supply/demand dynamics in the dry bulk shipping industry. The company intends to distribute all available cash quarterly.
Recent Transactions & Capital Structure:
- Equity Offering: In May 2009, the company raised approximately $34.3 million in net proceeds from a public offering of 3.5 million common units to fund the acquisition of the Navios Sagittarius.
- Debt Facility Amendment: In January 2009, the credit facility was amended to reduce the minimum net worth covenant to $100.0 million and adjust value maintenance covenants. The facility margin was increased to 2.25%.
- Asset Options: The company declined to exercise an option to acquire the Navios TBN II due to unfavorable capital markets. It was relieved of the obligation to purchase the Navios Bonavis in exchange for issuing 1 million subordinated Series A units.
Risks & Contingencies:
- Market Risk: Exposure to fluctuations in charter rates and vessel values. A 1% increase in LIBOR would increase interest expense by approximately $1.0 million for the six-month period.
- Concentration Risk: Four major counterparties (Mitsui O.S.K. Lines, Cargill, Sanko Steamship, Daiichi Chuo Kisen) accounted for approximately 78.6% of revenues for the six months ended June 30, 2009.
- Liquidity: The company must maintain minimum cash reserves in a pledged account, escalating to $12.5 million by December 31, 2009.
Key Facts for Investor Verification
- Non-Cash Expense Impact: Verify the impact of the $6.1 million non-cash compensation expense on Q2 2009 net income, which significantly reduced reported earnings despite strong operating cash flow.
- Debt Covenants: Confirm continued compliance with the amended credit facility covenants, specifically the minimum net worth of $100.0 million and the value maintenance covenant (VMC) of 100% (charter-free) and 143% (charter-inclusive).
- Deferred Revenue: Note the significant increase in deferred voyage revenue to $29.5 million, largely due to a $30.4 million lump-sum payment received for the Navios Hope charter, which is being amortized over the contract life.
- Distribution Policy: The Board authorized a quarterly distribution of $0.40 per unit for Q2 2009, payable in August 2009. Verify the sufficiency of Operating Surplus to cover the minimum quarterly distribution of $0.35 per unit.
- Fleet Composition: Confirm the status of the three chartered-in vessels (Navios Prosperity, Navios Aldebaran, Navios Sagittarius) and the exercise dates for their respective purchase options.