Navios Maritime Acquisition Corporation (NYSE:NNA) Q1 2019 Earnings Conference Call May 13, 2019 8:00 AM ET
Laura Yagerman - VP, Corporate Communications
Angeliki Frangou - CEO
Erifili Tsironi - Co-CFO
Leonidas Korres - Co-CFO
Ted Petrone - Vice Chairman
Conference Call Participants
Noah Parquette - JPMorgan
Thank you for joining us for Navios Maritime Acquisition Corporation's First Quarter 2019 Earnings Conference Call. With us today from the company are Chairman and CEO, Mrs. Angeliki Frangou; Vice Chairman, Mr. Ted Petrone; and Co-Chief Financial Officers, Mr. Leonidas Korres and Mrs. Erifili Tsironi. As a reminder, this conference call is being webcast. To access the webcast, please visit the Investors section of Navios Acquisition's website at www.navios-acquisition.com. You'll see the webcast link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call can also be found there.
Now I'll review the Safe Harbor statement. This conference call could contain forward-looking statements under 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 this conference call.
The agenda for today's conference call is as follows; we will begin this morning's conference call with formal remarks from the management team, and after we will open the call to take questions.
Now, I will turn the call over to Navios Acquisition's Chairman and CEO, Mrs. Angeliki Frangou. Angeliki?
Thank you, Doyce, and good morning to all of you joining us on today's call. I'm pleased to report that the first quarter of 2019; Navios Acquisition reported revenue of $77.1 million, EBITDA of $41.7 million, and net income of almost $900,000. We continued to return capital to our investors. We declared a quarterly distribution of $0.30 per share for the first quarter, and so far we have repurchased about 735,000 shares, representing a total return of about 22% on an annualized basis.
Tanker rates have maintained their positive momentum during Q1 of 2019, during which our time charter equivalent was about 40% higher than Q1 2018. While there has been some rate volatility this year, the one-year time charter rate for VLCC vessels is about $30,650 [ph] per day, a 25% increase from this one-year time charter rate observed earlier this year.
Slide 4 presents few company highlights. NNA has a core fleet of 42 diverse tanker vessels with an average age of 7.9 years. We also have material investment in the two Navios Europe and it is that own 24 vessels. As of the end of Q1 2019, we had $77.5 million in receivables from this entity. We have cash flow visibility, we have $440 million in long-term contracted revenue and we have fixed 77.1% of our total available days for 2019. About 60% of these days are fixed base rate, most with profit sharing. About 18% of 2019 available days are fixed on floating rate. These charters are with a diverse group of first-class counterparties. We expect to generate more than $172.2 million of contracted revenue from base rate charters; our floating rate charters plus our profit sharing would generate additional revenue.
Slide 5 highlights our key developments. NNA generated $41.7 million of EBITDA in the first quarter of 2019 operating in a positive tanker rate backdrop. We began to renew our fleet a couple of years ago when asset values were weak, selling our older vessels for scrap and committing to new bareboat charters that allow us to fully fund the acquisitions. We continued this program by exercising an option we acquired in 2018 to bareboat-in newbuilding Japanese VLCC vessels. The implied purchase price is about $84.5 million and will be 100% debt financed with a 6% effective interest rate. The VLCC is expected to deliver to our fleet in the third quarter of 2021. The bareboat charter in turn is for 12 years with de-escalating purchase options. We sold our two oldest VLCCs for about $34.3 million in total. We will use the sale proceeds to break down the term loan B; this will reduce our term loan B balance to about $163 million. We have also arranged $105 million of financing. As you can see from the chart on the right of Slide 5, we are in the process of refinancing the term loan B.
Slide 6 details our financing efforts through which we have refinanced $77.8 million in maturities coming due in the next 13 months. We have extended these maturities to 2026 through a leasing structure We will have an interest rate of LIBOR plus 3.5% and tenure of 7 years with an adjusted repayment profile of 18 years.
Slide 7 shows the expected cash flow breakeven for 2019. 77.1% of our available base are fixed at an average rate of $18,807 net per day. Our fully loaded cost is about $17,898 per day, and our 5,250 open cash floating rate days provide a breakeven of about $16,417 per day. Our daily costs include operating expenses, dry docking, general and administrative expense, interest expense, and capital repayment.
Slide 8 shows our expected cash flow potential. For 2019, we have 5,250 open days plus days contracted on floating rate. Therefore, NNA’s fleet is expected to generate significant free cash flow at current rate and with our current capital structure NAA's fleet will generate about $24.7 million of free cash flow. If charter rates recovers over 20 year averages, NNA's fleet will generate about $60 million in free cash flow.
Slide 9 demonstrates our liquidity position pro forma for the refinancing of the three MR2 product tankers and the sale of the one VLCC that occurred post-March 31, 2019, we have $92 million in cash in the first quarter of 2019. Our net debt to book capitalization is 70.6%, and we have a fully funded growth CapEx.
At this point, I would like to turn the call over to Erifili Tsironi, Navios Acquisition Co-CFO. Eri?
Thank you, Angeliki, and good morning, all. Please turn to Slide 11. Navios Acquisition's diversified fleet consists of 42 vessels with an average age of 7.9 years totaling 5.8 million deadweight. The fleet consists of 14 VLCCs, 8 LR1, and 18 MR2 product tankers, and 2 chemical tankers. Three 3 VLCC bareboat new buildings are scheduled for delivery in 2020 and 2021.
Please turn to Slide 12, chartering strategy. Slide 12 details our chartering strategy which we use to balance market opportunity and credit risk. We seek protection from market volatility by obtaining charters of different durations in order to better manage market cyclicality. For 2019, about 59.4% of our fleet available days are fixed at a base rate or at a base rate plus profit sharing; and about 17.7% are fixed on floating rates. We continue to monitor the market and look to gradually charter out our fleet at recovering rates. Any market improvement will be captured through one of the three methods: days with fixed rate; days with floating rates; or days with base rates plus profit sharing.
Please turn to Slide 13, recent fleet development. Navios Acquisition continues it's policy of locking in secured cash flow with credit worthy counterparties. Our fleet has secured close to $440 million in expense and revenues with an average remaining duration of 1.3 years. In Q1 2019, we expanded the coverage of our fleet for approximately 8.5 years of coverage buying new fixtures, continuations and exercise optional periods at higher levels in some cases with profit sharing. We have continued that trend adding approximately 2.5 years through April of this year.
Please turn to Slide 14. Slide 14 shows in detail our current charters with their expected expiration dates. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diverse group of first-class charters. Through our profit-sharing arrangements, we can capture benefit from market improvement over our current charter rates.
I would now like to turn the call over to Leonidas Korres for the Q1 2019 financial results. Leo?
Thank you, Eri. I will discuss the financial results for the first quarter ended March 31, 2019.
Please turn to Slide 16. Q1 2019 is the first quarter which fully reflects the measurable Navios Midstream Partners. Revenue for Q1 2019 increased by 67.1% to $77.1 million from $46.2 million in Q1 of 2018 reflecting also the improved tanker market. In Q1 2019, we had 99.7% of utilization. We achieved a time charter equivalent of $19,643 per day, improved from the $14,205 per day achieved in the first quarter of 2019. Time charter enrolled [ph] expenses of $4.8 million mainly reflect expenses relating to our vessels export voyages during the quarter. Operating expenses were $27.9 million and G&A expenses were $5.1 million. EBITDA for Q1 2019 increased by almost 5x to $41.7 million from $8.8 million in Q1 of 2018. Other expenses include depreciation and amortization of $17.7 million and interest expense and finance cost of $22.9 million. As a result, we reported a net profit for the quarter of $0.9 million or $0.06 per share.
Slide 17 provides selected balance sheet data as of March 31, 2019. Cash and cash equivalents, including restricted cash, was $67.9 million. Pro forma for the recently financing of 3 MR2 product tankers through a Chinese leasing scratch rule [ph] and the sale of the Shinyo Ocean VLCC our cash position increases to $92 million. This does not include unrepaired damages plus expenses in [indiscernible] incidents covering the fair market value of the vessel that are covered by insurance subject to applicable deductibles and other customer limitations. Vessels net book value was $1.3 billion. Investment and affiliates reflecting Navios Acquisition investment in Navios Europe I and Navios Europe II was $11.4 million. Total assets amounted to $1.6 billion. Total debt as of March 31, 2019 was $1.2 billion, resulting to a net debt-to-book capitalization ratio of 72%. Pro forma for the refinancing of the 3 MR2 product tankers and the sale of the Shinyo Ocean VLCC net debt-to-book capitalization ratio improved to 70.6%.
Turning to Slide 18, as for return of capital to shareholders for the first quarter, we declared a dividend of $0.30 per share, equivalent to $1.20 on an annualized basis. The dividend will be paid on June 27, 2019, to shareholders on record as of May 29, 2019. We have also repurchased 0.7 million common shares through our share repurchase program providing an additional 5.4% return to our stockholders.
And now, I would like to pass the call to Mr. Ted Petrone to discuss the industry section. Ted?
Thank you, Leo. Please turn to Slide 20. The IMF projected global GDP growth at 3.3% for 2019 and 3.6% for 2020 with emerging and developing markets growing at 4.4% in '19 and 4.8% in 2020. The main structural drivers going forward are moderate VLCC fleet growth; increasing demand from the Asian economies, particularly China and India; and increasing supply from the Atlantic basin.
Please turn to Slide 21. China is the world's largest importer of oil and the second-largest consumer of oil, importing over two-thirds of it's requirements. Chinese crude averaged 9.9 million barrels per day in Q1, up 8.2% from the same period last year. Additional refinery openings going forward should add about 2.8 million barrels per day coming on-stream from 2019 through 2021.
Turn to Slide 22, please. The December record of 12 million barrels per day solidifies U.S. as the world's largest crude oil producer. U.S. crude exports have continually expanded since 2015 when the first reauthorized reaching 2.9 million barrels per day in February of this year and from almost zero in 2012. In terms of ton miles, the movement of crude from the Atlantic base into China uses about as many VLCCs as the movement from the Arabian Gulf, even though the Arabian Gulf shipped about 2x more oil to China. Over the past two years, increases in Atlantic basin crude going to China created additional demand equal to 43 VLCCs based on a 90-day round trip.
Please turn to Slide 23. Net fleet growth for 2018 equals 1% with 39 deliveries against 33 removals. We note that while the order book shows 90 VLCCs as of May 7, there are 122 VLCCs over 17 years of age. With the upcoming IMO 2020 and Ballast Water Management Regulations that will lead to some vessel retirements, we believe that the order book and fleet are well balanced.
Please turn to Slide 25. According to the IEA, refinery capacity is expected to increase by 13.7 million barrels per day from 2019 to 2024, including all additions, expansions and upgrades. About 74% of the capacity will be added in Asia and the Middle East, with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 5.2 million barrels per day and 2.4 million barrels per day, respectively.
Turning to Slide 26; U.S. crude production has risen about 125% since the end of 2008 reaching a 12 million barrels per day in December of 2018, the highest level of production since records started in 1920. The U.S. has increased it's total product exports by about 500% to about 5.5 million barrels per day since 2004.
Please turn to Slide 27. In 2018, the fleet grew by 1.2% on deliveries of 5.2 million deadweight less 3.2 million deadweight of demolitions. About 7.2% of the product fleet is 20 years of age or older. As of May 1 of this year, there were 205 product tankers on order, and 369 which were 17 years of age or older. The total order book is much less than those ships of 17 years of age or older, particularly given historic non-delivery rates, the coming Ballast Water and IMO 2020 rules and scrap prices that remained high. As a result, projected net fleet growth for 2019 is a low 3.2%, the second lowest growth in five years, which should support current time charter levels.
Thank you. This concludes my review, and I would like to now turn the call over to Angeliki for her final comments. Angeliki?
Hello, this concludes our formal presentation. We open the call to questions.
[Operator Instructions] Our first question comes from the line of Noah Parquette of JPMorgan. Noah, your line is open, make sure you're not on mute.
Sorry about that, thanks. I wanted to ask about the vessel sales. First, the Shinyo Ocean, the insurance proceeds; when is that expected to be received? I mean, is that going to be roughly $8 million to $10 million additional? I just want to get a sense of timing.
It is as customary with any claim, it will be settled in the next weeks, as I discussed. Maybe, it will be collected as expected on fair market value.
On the fair market value, okay. And then, for the other ship, C. Dream, was that scrapped? Just getting a sense of what happened to a ship that age or is that still on fleet trading?
Actually, it was not scrapped, it was sold in the second-hand market at around $22 million; and it most probably went for storage.
Are you seeing that more often, ahead of IMO 2020 some of the older ships getting set-up for storage. Do you think that will be a trend?
It can be, actually this is something that we see, and basically the kind of the deal with C. Dream indicates it because it is well above the scrap value.
And then I just wanted to ask, there is a big draw -- it looks like on related parties in the cash flow stand, it's almost $30 million. What was that related to? And is that going to be reversed or is that a one-time?
This is mainly timing issue of some payments of previous quarter that were paid in this quarter. Also you have the accrued interest on the Navios Europe I and II entities, on the working capital and the investment.
Additionally, we had about 7 -- 2 VLCCs and another 5 vessels that are going through dry dockings and water ballast treatment.
Our next question comes from the line of Chris Weatherbee of Citi.
Hi, this is William on for Chris, thank you for taking my questions. So, I just want to ask a little bit more about your fleet renewal program. And I know you guys just had to sell two VLCCs recently, but I'm just wondering if you kind of look beyond that like what are your plans for fleet renewals? Are you going to look to take on additional bareboat leases beyond the one you guys just signed? And/or are you guys also looking to sell additional vessels? I'm just trying to get a sense of that.
The reality is -- there are options that we have done two VLCCs last year, and we have two additional options. So to be honest, exercising the options creates a lot of sense relative to the current newbuilding prices, and that gives us the opportunity to also replace our older fleet with younger vessels that are coming from a first-class Japanese shipyard.
And also, on the refinancing side, have you guys begun any discussions in terms of refinancing your 2021 debt maturities? And if so, could you just provide an update on this?
Actually, what we're looking first is to complete our 2020 maturities which we already organized this quarter basically, and we will be completing it next quarter. And after that I mean, we will have the opportunity to go to the next maturity. As you see, we work very heavily and very diligently with a term loan deal.
Thank you. I'll now turn the call back over to Angeliki Frangou for any additional or closing remarks.
Thank you. This completes our earnings presentation. Thank you.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.