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, 2012
Business Overview: Navios Partners is an international owner and operator of dry bulk vessels, primarily operating under long-term time charters. As of June 30, 2012, the fleet consisted of 19 vessels (12 Panamax, 7 Capesize, and 2 Ultra-Handymax), with 2 additional vessels chartered-in. The company is managed by Navios ShipManagement Inc., a subsidiary of Navios Holdings Inc., which holds a 25.2% interest in the partnership.
Key Financial Metrics
| Metric ($ in thousands) | 3 Months Ended June 30, 2012 |
3 Months Ended June 30, 2011 |
6 Months Ended June 30, 2012 |
6 Months Ended June 30, 2011 |
|---|---|---|---|---|
| Time Charter Revenues | $49,122 | $45,675 | $97,109 | $88,479 |
| Net Income | $16,681 | $13,511 | $33,618 | $30,111 |
| EBITDA | $36,377 | $30,793 | $73,162 | $63,223 |
| Adjusted EBITDA | $36,377 | $34,772 | $73,162 | $67,202 |
| Operating Surplus | $29,497 | $28,673 | $59,087 | $55,196 |
| Net Cash from Operating Activities | $34,709 | $30,597 | $72,497 | $61,870 |
| Net Cash Used in Investing Activities | ($59,501) | ($120,000) | ($59,501) | ($120,000) |
| Long-Term Debt (Outstanding) | $290.5 million (as of June 30, 2012) | |||
| Cash and Cash Equivalents | $41.1 million (as of June 30, 2012) |
Material Changes vs. Prior Period
- Revenue Growth: Time charter revenues increased 7.4% ($3.4 million) for the three months and 9.7% ($8.6 million) for the six months ended June 30, 2012, compared to the prior year periods. This growth was driven by the acquisition of the Navios Luz, Navios Orbiter, and Navios Buena Ventura, which increased available fleet days.
- Profitability: Net income increased 23.5% ($3.2 million) for the quarter and 11.6% ($3.5 million) for the six-month period. Adjusted EBITDA rose due to higher revenues, partially offset by increased management fees and time charter expenses.
- Expense Increases: Management fees increased 12.3% (quarterly) and 16.8% (six-month) due to fleet expansion and a fixed fee increase effective November 2011. Depreciation and amortization increased 10.9% (quarterly) and 16.2% (six-month) due to new vessel acquisitions and favorable lease term amortization.
- Interest Costs: Net interest expense increased 20.0% (quarterly) and 30.0% (six-month) primarily due to a higher weighted average interest rate (3.06% vs. 2.27% for the quarter), despite a reduction in the average debt balance.
- One-Time Item: The prior year period included a $4.0 million write-off of an intangible asset related to the Navios Apollon charter termination, which did not recur in 2012.
Guidance, Outlook, and Risks
- Capital Raising: On May 8, 2012, the company completed a public offering of 4.6 million common units, raising net proceeds of approximately $68.7 million to fund fleet expansion.
- Fleet Expansion: The company acquired three vessels in mid-2012: the Navios Buena Ventura (Capesize, $67.5 million), Navios Soleil (Ultra-Handymax, $20.7 million), and Navios Helios (Panamax, $20.8 million). Acquisitions were financed via the equity offering and new bank financing.
- Distributions: The Board authorized a quarterly distribution of $0.4425 per unit for the period ended June 30, 2012, payable in August 2012. The minimum quarterly distribution target is $0.35 per unit.
- Liquidity: The company believes cash flows from operations will meet short-term liquidity needs for at least 12 months. Long-term needs are funded by external financing. All credit facilities were fully drawn as of June 30, 2012.
- Risks: Key risks include fluctuations in dry bulk demand and charter rates, credit risk from counterparties (top three customers accounted for ~55% of revenue), and interest rate exposure on floating-rate debt. A 1% increase in LIBOR would increase interest expense by approximately $1.6 million for the six-month period.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with financial covenants (Net Worth, debt coverage ratios) given the fully drawn credit facilities.
- Counterparty Concentration: Monitor the financial health of top charterers (Cosco Bulk Carrier, Mitsui O.S.K. Lines, Samsun Logix), which collectively represent over 50% of revenue.
- Charter Expirations: Review the schedule of charter expirations, particularly for vessels with contracts ending in 2013-2014, to assess re-chartering risks.
- Related Party Transactions: Confirm the terms and pricing of management fees and vessel acquisitions from Navios Holdings, a related party.
- Interest Rate Sensitivity: Assess the impact of rising LIBOR rates on future interest expenses and Operating Surplus.