Navios Maritime Partners L.P. — FY2014 Form 20-F
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing, not a quarterly report; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash-flow figure. Financial amounts below are in U.S. dollars unless stated otherwise.
Business context
Navios Maritime Partners owns and operates drybulk and container vessels, generally under medium- to long-term time charters. Its fleet expanded through 2014 acquisitions, including two container vessels, and year-end fleet data lists 32 vessels, including owned and chartered-in vessels. The partnership is managed by affiliates of Navios Maritime Holdings.
Key financial metrics
| Metric | FY2014 | FY2013 |
|---|---|---|
| Time charter and voyage revenue | $227.4 million | $198.2 million |
| Net income | $74.9 million | $59.0 million |
| Basic and diluted earnings per common unit | $0.93 | $0.84 |
| Net cash from operating activities | $171.7 million | $104.8 million |
| Net cash used in investing activities | $123.3 million | $382.7 million |
| Net cash from financing activities | $15.8 million | $281.0 million |
| Cash and cash equivalents at year-end | $99.5 million | $35.3 million |
| Total debt, including current portion | $583.3 million | $533.3 million |
| Total assets / partners’ capital | $1,346.0 million / $749.1 million | $1,250.1 million / $706.5 million |
Revenue increased 14.7%, mainly because acquired vessels contributed more operating days; the reported time charter equivalent rate declined to $20,306 per day from $24,284. Net income included substantial nonrecurring other income. As a simple scale indicator, net income was about 33% of revenue, but that comparison is affected by the unusual income items below. EBITDA, a non-GAAP measure, was $200.0 million versus $153.4 million; operating surplus, also non-GAAP, was $150.2 million versus $125.5 million.
Management fees rose 39.2% to $50.4 million, primarily due to fleet growth. Depreciation and amortization was $95.8 million, including approximately $22.0 million of accelerated amortization related to the Navios Pollux favorable lease. Net interest expense increased 70.1% to $28.8 million; the weighted-average borrowing rate rose to 4.69% from 3.67%, and average debt outstanding increased.
Liquidity improved: current assets were $115.2 million versus current liabilities of $32.3 million at year-end, and cash was $99.5 million. Cash provided by operations exceeded cash distributions paid of $139.0 million; operating-cash-flow coverage was approximately 1.24x. Operating surplus was approximately 1.08x distributions. These measures do not guarantee future distributions. All credit facilities were fully drawn, and the partnership reported compliance with its financial covenants at year-end.
The common-unit distribution declared for the fourth quarter was $0.4425 per unit, paid in February 2015. The filing reports FY2014 dividends declared per common unit of $1.73.
Material changes and unusual items
- Revenue rose as acquisitions increased available fleet days to 10,927 from 7,952, partly offset by lower charter rates.
- Other income was $47.9 million, including $17.8 million from selling a defaulted-counterparty claim and $29.8 million from terminating a credit-default insurance policy. A further $1.2 million related to prior-period insurance claims was recorded in revenue. These amounts materially supported reported earnings and cash flow.
- Investing cash outflow fell to $123.3 million from $382.7 million, while financing cash inflow fell to $15.8 million from $281.0 million, reflecting the timing and scale of vessel acquisitions, borrowings, and equity issuance.
- Twenty vessels had estimated fair values below their carrying values by approximately $189.1 million in aggregate. Management’s impairment test found no impairment at December 31, 2014, based on projected undiscounted cash flows; the filing warns that weaker charter-rate trends could lead to future impairment.
- Common units outstanding increased to 77.4 million from 71.0 million during 2014. In February 2015, the partnership issued additional units, including a private placement to Navios Holdings, to fund fleet expansion.
Outlook, risks and contingencies
Management’s strategy is to grow distributions over time by pursuing long-term charters and selective fleet expansion. No specific earnings or distribution guidance is provided. Management said operating cash flows were expected to meet existing short-term liquidity needs for at least the next 12 months, while longer-term acquisitions and expansion were expected to rely partly on external financing.
- Shipping markets are cyclical, and drybulk and container oversupply and weak charter rates could reduce vessel utilization, earnings, vessel values, and distributions. The filing cited a Baltic Dry Index of 533 on February 26, 2015.
- Debt is floating-rate and unhedged; a 1 percentage-point LIBOR increase was estimated to raise FY2014 interest expense by $5.6 million. Debt covenants restrict distributions and other actions, and a breach could accelerate debt or expose mortgaged vessels to foreclosure.
- Customer concentration is significant: Hyundai Merchant Marine represented 24.4% of FY2014 revenue and Navios Corporation 11.0%. Container vessels also depend on a limited pool of liner-company charterers.
- Management fees are paid to an affiliate and include fixed daily rates through December 31, 2015; from 2016 through 2017, the partnership expected to reimburse actual operating costs, potentially increasing and making costs less predictable. Drydocking and special-survey expenses are reimbursed at cost.
- Contractual commitments included $586.7 million of loan obligations and $147.8 million for the MSC Cristina acquisition, then expected to be delivered in Q1 2015. The vessel was contracted on a 12-year charter at $60,275 net per day, with an option to terminate after year seven.
- Other risks include vessel damage or off-hire, environmental and regulatory compliance costs, foreign-exchange and bank-deposit exposure, sanctions and political disruption, and related-party conflicts. The filing reported no material legal proceedings and no defaults or distribution arrearages.
Important facts for investors to verify
- Review the audited statements and notes for the composition and repeatability of the $47.9 million in other income and its impact on earnings and operating cash flow.
- Check debt maturities, the large 2018 balloon payment, covenant headroom, and the funding plan for vessel commitments and any further acquisitions.
- Assess charter expirations, current re-chartering rates, counterparty credit quality, and concentration—especially Hyundai Merchant Marine exposure.
- Compare distributable cash and maintenance/replacement capital needs with the distribution paid; do not treat non-GAAP operating surplus or EBITDA as GAAP cash flow.
- Monitor vessel valuations and impairment assumptions, including the use of long-term historical charter rates despite materially lower current market rates.
- Verify the effects of the February 2015 equity issuance on unit dilution, ownership, and per-unit distributions, and the transition to reimbursement of actual fleet operating costs after 2015.