Navios Maritime Acquisition's (NNA) CEO Angeliki Frangou on Q1 2014 Results - Earnings Call Transcript

| About: Navios Maritime (NNA)

Navios Maritime Acquisition Corporation (NYSE:NNA)

Q1 2014 Earnings Conference Call

May 14, 2014 8:30 AM ET


Angeliki Frangou – Chairman and CEO

Ted Petrone – President

Leonidas Korres – CFO


Taylor Mulherin – Deutsche Bank Securities, Inc.

Ben Nolan – Stifel, Nicolaus & Co., Inc.

Seth Lowry – Citigroup


Thank you for joining us for this morning’s First Quarter 2014 Earnings Conference Call for Navios Maritime Acquisition Corporation. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; the Chief Financial Officer, Mr. Leonidas Korres. This conference call is also being webcast. To access the webcast, please go to the Investors section of Navios Maritime Acquisition’s website at You’ll see the webcast link in the middle of the page.

I’d now like to read the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition’s management and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements.

Such risks are more fully discussed in Navios Acquisition’s filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Acquisition does not assume any obligation to update the information contained in the conference call.

Now I’d like to review the agenda for today’s call. First, Ms. Frangou will offer opening remarks. Then, Mr. Petrone will give an operational update and an overview of market fundamental. Next, Mr. Korres will provide an overview of Navios Acquisition’s first quarter 2014 results. And finally, Ms. Frangou will offer concluding remarks and we’ll open the call to take questions.

I’d now like to turn the call over to Angeliki Frangou, Chairman and CEO of Navios Maritime Acquisition Corporation. Angeliki?

Angeliki Frangou

Thank you, Laura [ph], and good morning to all of you joining us on today’s call. I’m pleased with our results as we grew our revenue and adjusted EBITDA by 38% and by 28% respectively. As a result, we again declared a quarterly dividend of $0.05 per share. Given our current share price, stockholders are receiving a yield of about 5.4%.

We have grown our company to be one of the top five largest publicly listed tanker owners among our U.S. and European peers with one of the youngest underwater fleet. In fact, so far this year, we grew the fleet by four vessels and we expect six additional vessels to be delivered in 2014. We are proud of our responsible growth strategy as we have been able to expand the fleet while protecting our balance sheet and stakeholders. With this discipline, Navios Acquisition believes it has built one of the strongest tanker companies among our public peers.

Let’s now turn to Slide 3. Today, Navios Acquisition has a modern high quality fleet of 44 vessels with an average age of 4.2 years. Currently, we have 36 vessels on the water and eight vessels to be delivered over the next few quarters. As a result, of the three VLCCs, all will be delivered this year and the two additional VLCCs that they are delivering within June. Navios Acquisition also has one of the largest VLCC fleets underwater among our publicly listed peers.

We identified the market opportunity in tankers a number of years ago during the downturn. As a result, we have focused on security – securing all the vessels accompanied by period charters with strong counterparties. We also have structural charters to capture market upside by insisting these charges to have a profit sharing element, thus we have. Thus, we have developed reasonably strong cash flow visibility given the circumstances.

We have 89% fixed for 2014 and 45% fixed for 2015. As important, 76% of our contracted fleet has profit sharing. In fact, for every $1,000 of profit sharing we receive on our vessels, this results in $10.6 million in incremental free cash flow. We feel that in achieving these results, we have taken advantage of the market opportunity without introducing unnecessary risk.

Let’s now turn to Slide 4 which will gauge Navios Acquisition’s strength and growth. We have strengthened our balance sheet during the quarter by raising $57.6 million of equity and $60 million in debt by completing an add-on offering to our existing senior secured notes. There, the offering was done at the premium, displaying the demand for our paper [ph].

We have also added further visibility into our operating cost as we have extended the management vessel with Navios Holdings for another five years and fixed monitoring fee for the two years. In the market, generally pressured by rising cost, we have been able to reduce VLCC operating expenses by 5% while keeping the rate for products and chemical tankers constant.

In fact, the daily operating expense were 17% below industry average and that general and administrative expenses are well below our peers. We believe this demonstrates that the group is able to achieve economies of scale with unique and serve these economies with the members of the group, ultimately, to the great benefit of all our stakeholders.

Our EBITDA growth reflects disciplined growth. The 2014 [indiscernible] EBITDA based on the first quarter of 2014 is approximately $143.5 million. About $12 million of incremental annualized EBITDA will come from the six vessels delivered or delivering within 2014. We may experience further upside as the remainder of our fleet keeps rewarded in what we hope to be in the improving market.

As previously stated, profit sharing is central to (inaudible) strategy and we received $1.5 million of profit sharing in the first quarter of 2014 from all type of vessels. We also acquired two VLCCs delivering in June of 2014 through an aggregate purchase price of $84.5 million.

Turning to Slide 5, Navios Acquisition has become one of the largest public owners of VLCC vessels. In fact, we have the third largest VLCC fleet when measured by vessels underwater among our U.S. and European publicly listed peers. As our recently announced acquisition makes clear, we are looking to continue to grow the fleet. Eleven VLCCs makes us one of the premier owner of VLCCs.

We take pride in our disciplined process that allow us to make investment decisions during difficult moments in the second cycle, a timely acquisition of six VLCCs beyond 2013 and ‘14 has already credited 65.4 million in value appreciation.

We also renewed our fleet by selling the older VLCCs that had an average age of 19 years. By selling these vessels and acquiring Ganges 1 [ph], we have been able to reduce the average age of our fleet by about 32% or eight years [ph].

Slide 6 outlines our VLCC chartering strategy. When we charted out vessels, our goal is to balance age of [ph] ownership with current market results while keeping in mind honor [ph] position in the second cycle. Regardless of our position in the cycle, we always seek to monitor credit risk which we have done here by chartering out all 11 of the vessels to quality credit counterparties.

Seven of the vessels are on fixed rate in contrast to the average duration of 5.3 years and then average net charter-out rate of $37,934 per day. We also have profit sharing on six of the seven vessels. The remaining four vessels are on a floating rate with an average duration of a year.

Our strategy to monitor market risk is to employ aggressive on one year charters. This one year charters provide protection from any immediate market downside and also allow us to reposition the vessels in the longer-term. And in contrast with market upside in the interim through profit sharing by giving them our contacts with their adjusted TBC [ph], which clubs are at [ph] premium, put the index of 07 in the EBITDA [ph] adjustment. And by placing one vessel in the VLCC pool which allow us to capture the average market rate.

Slide 7 shows the growth of our company. After a stellar year in 2012, we continue a strong performance in 2013 as our available days in fleet grew by 67% and 74% respectively compared to 2012. EBITDA grew by 28% during the first quarter of 2014 compared to the first quarter of 2013.

As you can see, our available days and fleet will continue to grow in double digits in 2014 and 2015 as we would anticipate in the current rate environment, dual support [ph] and the period [ph] increase in EBITDA during those years.

Slide 8 represents our CapEx requirements and delivery schedule for our fleet as of today. CapEx is well funded. For the eight vessels to be delivered, we need to pay a total of almost $79 million. Of this amount, $72.6 million is due in 2014 when we expect delivery of six vessels. And $6.3 million is due in 2015 when we take delivery of the remaining two vessels.

Slide 9 demonstrates our strong liquidity position. We have a total liquidity of $164.5 million at the end of the quarter including $124.5 million in cash. We have more than sufficient cash on hand to fully fund the remaining balance of our new building commitment. Also because we have bond refinancing, late last year, we have no significant debt maturities until the fourth quarter of 2021.

We expect our leverage ratio to reduce naturally as we enjoy the cash flow benefits of our vessels in the water. If you look at the capitalization of 65% at the end of the year, this is a significant reduction from previous years.

Slide 10 shows the cash flow cushion from a low breakeven, 89% of our fleet is contracted throughout 2014 and we expect to earn an average contracted daily charter-out rate of $19,075.

For 2015, 75% of our fleet is contracted out and we expect to earn an average charter-out contracted a charter-out rate of $22,297. As to the all-in cost, I estimated average fully loaded cost is $16,482 per day for 2014, and this will reduce to $16,173 per day in 2015.

As we know, our daily operating cost includes the revolving VMA expenses, interest expense and capital repayment. And at this point, I would like to turn the call over to Mr. Ted Petrone. Ted?

Ted Petrone

Thank you, Angeliki. Please turn to Slide 12. With the recent acquisition of another two VLCCs, our fleet has grown to 44 vessels. In 2013, we took delivery of 15 tankers – 2 LR1s, 10 MR2s, 2 chemical tankers and 1 VLCC. Year-to-date in 2014, we took delivery of three VLCCs both 2009, ‘10 and ‘11, purchased two VLCCs both 2002 and ‘03, both of those delivered in Q2, and sold the 1993 built VLCC.

This renewal of our VLCC fleet which began last year decreased the average age of our VLCC fleet by about 33% and makes it more in line with the industry average of 8.3 years. We also took delivery of one MR2 product tanker, new building probably in this month.

Please turn to Slide 13. Navios Acquisition diversified fleet consists of 44 vessels totaling 5 million deadweight. The fleet consists of 4 chemical tankers, 21 MR2 product tankers and 8 LR1 product tankers and 11 VLCCs.

All the fleet statistics exclude the vessels in the age to age [ph] agreement. Navios Acquisition currently has vessels on the water with an average age of 4.2 years.

Since January 1, 2013, our product tanker fleet in the water has grown by 108% to 27. And the total fleet on the water grew 80% to 36 vessels. Thirteen product tankers have delivered since the beginning of 2013. Four more will deliver during the balance of 2014 and two in 2015.

Available fleet days will grow from 13,682 in 2014 to 15,870 in 2015 representing a 42% growth in available revenue days in ‘14, and a 16% percent growth in 2015.

Turning to Slide 14. Navios Acquisition continued to Navios Group Policy of locking in secured cash flow with credit worthy counterparties. Since the beginning of 2014, we have chartered out three VLCCs with a total of three year’s coverage. And three MR1s for a total of four years coverage.

Including the new acquisition, we have fixed about 90% of our capacities for 2014. In what is expected to be improved conditions, we’ve got fixed rates over 45% in 2015 and about 22% of revenue days in 2016. 76% of a contracted fleet has profit sharing. In fact, we earned $1.5 million of profit sharing Q1 from all asset classes.

The average daily charter-out rate for our fleet is $19,075 a day for 2014. The rate for 2015 and ‘16 are $22,297 and $31,100 respectively.

Please turn to Slide 15. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diverse group of first class charters. As a result, the average duration of our charter is about two years. VLCC charters have an average duration of 4.3 years.

Please turn to Slide 16. Slide 16 recaps our strong relationship with key participants in our industry. We continue to build a portfolio of quality charter parties and counterparties which provide vessel employment with a strong diversified customer base. One of the attributes we seek in our counterparties is a strong credit quality.

Turning to Slide 17, Navios Acquisition enjoys vessel operating expenses significantly below the industry average. Currently, Navios Acquisition’s daily OpEx is about 17% below the industry average. We achieved this operational savings through a manageable agreement with Navios Holdings.

As previously mentioned by Angeliki, the operating cost under this management agreement had been extended until May 2016 at current level except for a 5% decrease in VLCC rates. Please note that the operating cost shown here include all dry docking cost.

Turning to Slide 19, according to the IEA, refinery capacity is expected to increase by 9.5 million barrels per day for the period 2013 to ‘18. About 80% of that capacity will be added in Asia and the Middle East with the IEA projecting China and other non-OECD Asia countries to increase refinery capacity by 4.3 million barrels per day and 1.3 million barrels per day respectively.

New low capacity in Asia is forcing rationalization of all high cost capacity in the OECD. Recent refinery closures in Europe and the Caribbean as well as closures due in Australia and Japan and will probably attribute to the age and inefficiencies of these facilities.

Because of the structural shift, the growth in ton miles of refined oil products is expected to continue to outpace the general demand for refined oil products in the long run.

Turning to Slide 20, U.S. crude production has increased by about 60% since the end of 2008, reaching 8 million barrels per day this February. Since U.S. crude oil exports are prohibited by law, the U.S. has increased its total product exports by over 300% to about 4 million barrels a day since 2004. U.S. exports have exceeded imports consistently since 2011.

U.S. Gulf refineries which benefit from inexpensive domestic crude and natural gas supplies are finding a natural export market to neighboring Mexico and Latin America, as well as Africa. U.S. product imports have declined over the past couple of years, but continue to come from further away adding to product ton tanker miles. The fundamentals of the product tanker trading patterns continue to adjust in relation to all these changes.

Turning to Slide 21, oil refineries vary greatly in the quantity, variety and specifications of products that they produce. As depicted in this slide, regional surpluses and deficits combined with relative low-cost transportation drive arbitrage trades and increase product ton miles. As an example, requirements for gasoline in Europe and Latin America can be met by shipping the oversupply westward from Asia and the Middle East or eastward from the U.S.

Similarly, requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe and the Middle East, increasing worldwide product imbalances point to increased ton mile development. This global multi-directional trade pattern enables product tankers to triangulate thereby minimizing balance time and maximizing revenue.

Please turn to Slide 22. In the product sector, demand for transportation expressed in terms of ton miles increased by about 77% in the period ‘04 to ‘13 equivalent to a CAGR of 6.5%. Projections indicate similar growth in 2014. The increase in tanker demand was greater than the increase in overall trade due to the growth in long haul product tanker trades. The map at the bottom of this slide depicts existing product tanker routes as well as prospective routes based on anticipated eastward shift in global refinery capacity.

Please turn to Slide 23. Product tanker non-deliveries in 2013 equaled approximately 35%. Through Q1 of 2014, tanker non-deliveries equaled 39%, as 1.3 million deadweight was delivered at about projected 2.2 million deadweight expected. About 6.2% of the product tanker fleet is 20 years of age or older.

The order book totaled 26.3 million deadweight on paper or about 20% of the fleet, a level usually considered adequate for regular replacement of an existing fleet with little or no demand growth. Higher scrap prices should encourage further scrapping of older or single haul units, demolition prices appear to depend on overall steel prices and not to supply vessels.

Turning to Slide 25. The IMF projected global GDP growth in 2014 and ‘15 at 3.6% and 3.9% led by emerging and developing markets growth of 4.9% in 2014 and 5.3% in 2015. The IEA projects global oil demand growth to rise by 1.4 million barrels per day to 92.7 million barrels a day by the end of 2014. This growth remains well below historic averages. It is expected that all of the projected growth will come from non-OECD companies.

Please turn to Slide 26. China is the world’s second largest consumer of oil, importing more than half of its requirements. China’s imports have more than doubled since January 2009. However, on a per capita basis, China’s consumption is less than one-third of European usage and one-eighth of U.S. usage. In April, China imported 6.8 million barrels a day of crude. Current projections show China’s crude oil imports will likely surpass the U.S. later this year or next year growing to about 14 million barrels a day by 2035 as the country continues the urbanization, industrialization, and modernization of its economy.

Please turn to Slide 27. Tanker demand is driven by demand for oil and distance of transport. As noted in the chart on the lower left, in terms of ton miles, the movement of crude from West Africa and South America to China uses about as many VLCCs as the movement from the Arabian Gulf even though the Arabian Gulf shipped 1.9 times more oil to China. The growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil and West Africa as it diversifies its sources of oil more than offsetting any decline in U.S. imports.

In addition, Indian companies have recently secured crude oil from Brazil to replace existing Iranian supplies, increasing VLCC ton mile demand. The IEA expects Brazil to increase net crude oil exports by about 3.5 million barrels per day by 2035 from being a net importer this year. With demand for oil increasing only marginally on an annual basis, distance has been a key driver to tanker demand.

As you can see in the upper part of the slide, an increase of 53 VLCCs will be needed by 2016 according to Clarksons projections. The shift in expected VLCC trading patterns to Asia and to the Far East away from the Atlantic basin can also be seen in these projections.

Please turn to Slide 28. In 2013, VLCC new building non-deliveries represented 46% of projected deliveries. Through Q1 of 2014, non-deliveries equaled 49% as 1.9 million deadweight delivered out of a projected 3.8 million deadweight.

Net fleet growth continued to slow dramatically due to the continued elevated scrapping and non-delivery levels. The high price of steel combined with high fuel prices led to continued high scrapping in Q1 with three vessels about 1 million deadweight of scrap. Clarksons recently reiterated its belief that the VLCC fleet is expected to experience a zero growth from this year and contract at 2015.

Please turn to Slide 29. The 1991 increases in the world GDP growth year-on-year had generally led to rises in one year VLCC time charter rates. According to the IMF world GDP growth is expected to be higher in 2014 than it was in 2013, which if past patterns continue would lead to improved VLCC rates.

In conclusion, world crude oil and refined product consumption has generally grown for 30 years with declines in ‘08 and ‘09 due to the global financial crisis. Starting in 2010 world crude oil and refined product consumption returned to this pattern of growth. The main drivers are increased demands from the Asian economies particularly China as well as the increases of refinery capacity in the broader Asia and Middle East regions. Going forward, we see this trend continuing.

Thank you. I would like to now turn the call over to Leonidas Korres for the Q1 financial results. Leo?

Leonidas Korres

Thank you, Ted. I will discuss the financial results for the first quarter of 2014. In order to make the comparison with previous periods more meaningful we have adjusted EBITDA and net income for the following noncash items – $10.7 million impairment loss related to the sale of the VLCC Shinyo Splendor that took place in May 2014, $2.2 million loss related to a claim from a defaulted charter that was started in May 2014, and $1.4 million stock based compensation expenses.

As shown in Slide 31, our operating metrics for the first quarter of 2014 have improved compared to the same period in 2013 mainly due to the 68% increase in the number of available days of our fleet from 1,832 days to 3,079 days.

Revenue for Q1 2014 increased by 38% or $61 million from $44.2 million in Q1 2013. We enjoyed a 99.8% fleet utilization and a time charter equivalent of $19,544 per day.

Operating and voyage related expenses were $23.1 million. And G&A expenses were $3.6 million. We continue to demonstrate significant EBITDA growth in this quarter. Adjusted EBITDA for Q1 2014 increased by 28.4% to $35.9 million from $28 million the same period of 2013.

Other expenses include depreciation and amortization of $17.4 million and interest expense and finance cost of $17.1 million. Our adjusted net income improved by $0.8 million from a net profit of $0.7 million in the first quarter of ‘13, to an adjusted net profit of $1.5 million or $0.01 per share in the first quarter of 2014.

As you can see the graph at the bottom of the slide, since we commenced operation in 2010, we have grown our operating metrics significantly reflecting the growth of our fleet. With an expected 42% increase with the available days in 2014, we expect our metrics to continue increasing substantially.

Slide 32 provides selected balance sheet data as of March 31, 2014. Cash and cash equivalent including restricted cash increased to $124.5 million from $107.8 million as of December 31, 2013.

Vessels, net of depreciation increased $1.5 billion, reflecting the increased number of vessels in our fleet. Vessel deposits of $94.4 million represent deposits in capitalized cost for vessels to be delivered over the next 18 months. Total assets amounted to $1.8 billion. Total debt as of March 31, 2014 was $1.2675 billion. Total debt increased by $103.1 million in the quarter due to the $60 million down to the eight and one-eighth [ph] senior notes and a new credit facility for two product tankers.

However, net debt to book capitalization ratio remains at 65%. Following the $57.6 million of equity raised in February, net debt repaid with [ph] the cash generated during the quarter. As vessels deliver to our fleet and we’ll start repaying the respected debt facilities, their ratio is expected to decrease. As of March 31, 2014, Navios Acquisition was in compliance with all of the cabinets of each credit facilities and ship mortgage notes.

Turning to Slide 33, our financial strength has enabled us to announce a dividend of $0.05 per share for the first quarter, equivalent to $0.20 per share on an annualized basis. Based on last night’s closing price, our dividend provides an annual yield of about 5.4%. The dividend will be paid on July 10, 2014 to shareholders on record as of June 17, 2014.

Please turn to Slide 34. Navios Acquisition has a prudent financial strategy. Approximately half of our debt is non-amortizing which provides significant cash flow flexibility. Our senior notes mature at the end of 2021 and we have no debt maturities in our bank debt until 2016.

Overall, financial strategy is to provide lender additional comfort relating to the stability of our balance sheet. Our liquidity volumes remain strong. Our CapEx is fully funded and we have significant cash flow visibility since 89% of our available days are contracted in 2014 and 45.1% in 2016.

Moreover, our company is very well positioned to capture the upside of the tanker market since 76% of our contracted fleet has profit sharing. And now I will pass the call back to Angeliki. Angeliki?

Angeliki Frangou

Thank you, Leo. And this completes our formal presentation. We open the call to questions.

Question-and-Answer Session


(Operator instructions) Your first question comes from the line of Taylor Mulherin of Deutsche Bank.

Taylor Mulherin – Deutsche Bank Securities, Inc.

Good afternoon, everyone.

Angeliki Frangou

Hello, good morning.

Taylor Mulherin – Deutsche Bank Securities, Inc.

So I want to start off by asking about the recent VLCC purchases so far in Q2. In just the fact that both of the vessels are a little bit on the older side, so I just wanted to get a sense of what you might be seeing in the second-hand market from a valuation standpoint as you look at different vessel ages or maybe if it’s whether you think Navios has its specific advantage over the rest of the market operating these types of ships, just kind of any color about that or whether it was just a coincidence?

Angeliki Frangou

I think what we – that’s a very good question. If you see our strategy to strengthen our VLCC position, we like to be opportunistic about [indiscernible] selected vessels, with going [ph] through vessels around 10 years old. These vessels are fast [ph] vessels of age, so you don’t have the downtime, neither the capital expenditure that associates with that.

So you have the next five years uninterrupt to be profitable without having to stop pushing these [ph], the good quality vessels with very good reputation. Our whole target is to acquire vessels in the water and build this cash flow just to realize the breakeven on these vessels well below $20,000. So, yeah, looking on vessels that breakeven will be around $16,000, $17,000. This is quite – it can be quite creative to the bottom line of Navios Acquisition.

And at the same time we have scrapped our older VLs, 19 years old and we have replaced – overall, the six vessels we acquired can improve the age profile by four years. We see this as in a portfolio approach. So I remember late last year, we acquired vessels two or three years old. Today, we’re buying around 10 years old. Overall, you see that we replace our fleet with improving age profile by 30% and the getting vessels in the water that can generate a significant cash flow.

Taylor Mulherin – Deutsche Bank Securities, Inc.

Makes sense. And then just kind of to keep on the VLCCs for a moment, the second-hand market asset values have been moving up fairly rapidly over the last few months. And you’ve clearly been successful so far in the quarter, acquiring ships but my guess is those negotiations may have been going on for a little while. Can you just provide an update on sort of what you’re seeing in the market right now in terms of any opportunities versus maybe three months ago, and then just whether or not that’s changed your strategy going forward of the crude opportunity versus product or anything like that?

Angeliki Frangou

I mean, it’s obvious. Last year, we’re buying the three-year-old vessels at $54 million, so of course there is – as late as November, we’re buying these vessels. So of course there’s a move in the market because this is everything that applies really – these seem to have a negative – we have either zero or very little in asset growth.

And that leads the opportunity of course. I mean, and you see that somehow U.S. is importing crude from the Middle East and when you have Venezuela exporting to China, so this creates a normal demand additional. But I think that the strategy was we see – and that’s why we saw a – I mean, prices have moved and that’s why we moved to cold assets of turning [ph] around.

So we find where the opportunity is better. We have stayed clear from new buildings up to date because the value appreciation and the future delivery doesn’t match with our strategy which is to generate heavy cash flows today and as a market, we’ll see it with very good fundamentals.

So with the market in the way we view it, which is a recovering market, and –


Ladies and gentlemen, this is the operator. I apologize. There will be a slight delay in today’s conference call. Please hold. The conference will resume momentarily.

You may resume the conference.

Angeliki Frangou

Sorry. Hello, I don’t know where did you lose us or where the call – hello?

Taylor Mulherin – Deutsche Bank Securities, Inc.

Hi. I think I got most of that. So I think that makes sense. And then the last one, I just wanted to ask about quickly was just on the management services agreement. Just if you could provide any detail on how you were able to reduce those VLCC expenses by 5%, just any color on that would be great.

Angeliki Frangou

As we grew our fleet and we’re seeing our entire – we’ll have to see it also on a portfolio. I mean, the entire fleet of [indiscernible] group has grew by – to about 150 vessels as a group. So these economies of scale that – I mean we had to review it and as we have seen the economies of scale and the youngest fleet that now comes in the VLCC segment, as you remember, we replaced some of the vessels. And the entire fleet, we’re scrapping the older 19-year-old VLs, gave us the ability with the knowledge we have to get a very good deal from Navios Holdings and benefit from keeping – very importantly, we kept operating expenses steady for the last four years which – 17% below industry average and the youngest VLCC with the ability to get a 5% reduction on the VL operating expenses.

Far more important, I’d like to stress, is that all our stakeholders get the benefit of the economies of scale in the Navios Group expertise because we don’t see it as a profit center. You see that even in the G&A, the G&A of Navios Acquisition is substantially lower than a lot of the other – of our peers.

So you have first class management, you have first class ability to operate and grow in this market. And on the same time, you have one of the lowest cost because strategies – these economies of scale could be transparent. They are transferred to within the group and to all our shareholders, bond holders and overall stakeholders.

Taylor Mulherin – Deutsche Bank Securities, Inc.

Great. I appreciate your time. Thank you very much.

Angeliki Frangou

Thank you.


Your next question comes from the line of Ben Nolan of Stifel.

Ben Nolan – Stifel, Nicolaus & Co., Inc.

Great. Hi and thank you. I actually – following up on your last comment there with respect to G&A, I absolutely agree you guys do a fantastic job of keeping that much lower than really anybody else. And there was an uptick in the quarter on the G&A side and I assume that is attributable to probably just an annual stock comp element. But even beyond that, it was a little bit up year-over-year and certainly quarter-over-quarter, do you see it coping maybe (inaudible) you could give me an idea of what I need to be modeling for G&A on a go-forward basis?

Leonidas Korres

If you do exclude the non-cash $1.4 million, the remaining, in fact, keep us a run rate of course taking into account the vessel deliveries throughout the year.

Angeliki Frangou

I mean, just to have a realistic view; in 2012, we had 19 vessels. Today, we in – we are running 42 vessels. And if you see the – apple to apple will be a very minor difference here.

Ben Nolan – Stifel, Nicolaus & Co., Inc.

No, absolutely. And I think it’d be – again, if you look at it on a per vessel basis compared to really anybody else, it’s often low. My second question had to do with the acquisition strategy and really more is a function of acquisition funding. Post to this most recent announcement from today, it looks like you guys are pretty well fully [based] as it relates to at least your immediate liquidity.

Could you maybe talk to where you could see additional capital becoming available for further acquisitions or is it just a function of needing to start the – collect some of this cash flow before you can really be aggressive?

Angeliki Frangou

I mean, actually, Ben, if you take a look on our cash – our liquidity is $165 million, our cash is $125 million and our entire requirement is $72 million. So we still have quite a significant buying power. The reason we selected this vessel because it made sense on a breakeven and ability to even generate strong cash flows for the next five years. It’s a very simple logic.

Ben Nolan – Stifel, Nicolaus & Co., Inc.


Angeliki Frangou

You have – we see values today and we see the relative value of the best asset. Now, don’t forget, we also have – in our category, we have also an additional $19 million that we don’t see there from the sale of the Navios – of Shinyo Splendor which is not included.

So leveraged together with the cash we have in our balance sheet and our cash generation, that comes from 2,000 days that we have of which 1,000 are product tankers and 1,000 are approximately VLCC days. You can see that you have – I mean this will actually contribute quite a significant free cash.

So the company can do [indiscernible] because you have the sale of the Navios – of Shinyo Splendor with $19 million. You have 2,000 of available days and you have $165 million of liquidity, of which for the entire year you only use $72 million.

Ben Nolan – Stifel, Nicolaus & Co., Inc.

Okay. So that sort of leads me to my next question. You guys, at least by my calculation, the share price is now trading at a discount to net asset value. Would it make more sense to be buying shares as opposed to be buying ships in the second-hand market or how do you think about the relative economics of those two different uses of your capital?

Angeliki Frangou

I think we are very sensitive to all our stakeholders and we’ll do whatever is best value on the circumstances. So I think Navios has not been – we are very protective of all our stakeholders and we do the best.

Ben Nolan – Stifel, Nicolaus & Co., Inc.

Okay, all right, fair enough. That does it for me. Thanks a lot.

Angeliki Frangou

Thank you.


Your next question comes from the line of Christian Weatherby at Citi.

Seth Lowry – Citigroup

Good morning. This is Seth Lowry in for Chris. And probably just to follow up on the VLCC questions, from the two older vessels you bought, I know you take a portfolio approach to investing in assets. And I’m just wondering, does it make – were those assets purchased to sort of maintain some spot exposure even at the cycle uptick or do you think it’s (inaudible) at the market detail enough we could potentially see those chartered out a bit longer term closer to the average duration of your portfolio?

Angeliki Frangou

Listen, I mean our targeting strategy as we have articulated very clearly, it’s a function to what – where we sit to be in the cycle. In this part of the cycle, we like to be exposed and explored and be able to capture as market recovers. That is the – and have shorter [ph].

And as you very well know from our Navios strategy, we are not shy to any opportunity. Even in this portfolio, we are not shy to go long. This is not something that scares us. We like to be – to create cash flows and visibility. But in the particular period, I think the best is to be able to capture shorter durations and being able to capture a market recovery.

Seth Lowry – Citigroup

Okay, great. And then my other question, is how to switch over to supply. It looks like slippage (inaudible) product markets remain pretty high in Q1. And that comes sort of in the phase of forming supply-demand fundamentals. Do you think that’s indicative that there may be a bit more canceled orders than originally thought in the order book?

Angeliki Frangou

I think this is – as we have always said, this is a permanent almost – it’s an order book that is obviously the same boosted from orders from the previous cycle. At one point, this has to be cleared and I think this is going to be happening in the next year or so. I think this will have to be cleared and taken out from the order book.

So reality is that this VL order book. That’s why you see also a lot of non-delivery easiness, (inaudible) were not able financially to deliver or they have never done the expansion for these vessels or are – in that sense vessels that are wrongly marked. We know at this point that this is a reality, so we can really follow more or less and know that this is not going to come.

The order book for the VLs in the next two, three years, looks very good, meaning that an active growth and where we are in the cycle gives us a very good positioning.

Ted Petrone

It looks like to us year-to-date is the one net growth, one VLCC. And so if there is even a positive this year, it’s de minimus. And I think that’s why you see time generated staying up there even though you have some seasonal softness here because everybody sees the (inaudible) fundamentals look very good going forward.

Seth Lowry – Citigroup

Okay, great, thanks. I’ll turn it over.


At this time, there are no further questions. I’ll now return the call to Angeliki Frangou for any additional or closing remarks.

Angeliki Frangou

Thank you for attending our first quarter results. Thank you.


Thank you for participating in today’s conference call. You may now disconnect.

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