Executives: Angeliki Frangou – Chairman and Chief Executive Officer Stratos Desypris – Chief Financial Officer George Achniotis – Executive Vice President of Business

Development
Analysts: Espen Landmark –

Fearnley
Operator: Thank you for joining us for Navios Maritime Partners First Quarter 2018 Earnings Conference Call. With us today from the company are Chairman and CEO, Angeliki Frangou; Chief Financial Officer, Stratos Desypris; and Executive Vice President of Business Development, George Achniotis. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.navios-mlp.com. You'll see the webcasting 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 within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to numerous material risks and uncertainties, which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission, including the company's most recent 20-F.

The information discussed on this call should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in the call. The agenda for today's call is as follows; first, Mr. Frangou will offer opening remarks; next, Mr. Desypris will give an overview of Navios Partners financial results; then, Mr.

Achniotis will provide an operational update and industry overview and wrapping, we'll open the call to questions. Now I turn the call over to Navios Partners Chairman and CEO, Angeliki Frangou. Angeliki?

Angeliki Frangou: Thank you, Laura, and good morning to all of you who joined us on today's call. I am pleased with the results for the first quarter of 2018, for which Navios Partners reported a net income of $5.5 million. During the quarter, we reinstated distribution announcing an annual distribution of $0.08 per unit with a current annualized yield of about 4%.

The first quarterly distribution of $0.02 per unit will be paid on May 14 to unitholders of record on May 10. I'm also pleased that we were able to restore distribution to our unitholders. Over the past couple of years, we used our cash flow to solidify our balance sheet and to renew and expand our drybulk fleet. In the process, we established a unique drybulk platform capable of generating significant cash flow. We also levered the pronounced weakness in the container sector in an established Navios Containers, a growth vehicle dedicated to the sector.

As you can see from Slide 4, NMM today owns 33 drybulk vessels and five container ships. Slide 5 provide some of Navios Partners highlights. NMM has no near-term debt maturities and low leverage. NMM has about $615 million in contracted revenue, of which about 90% is through charters longer than three years. In addition, our credit ratios are strong with 33.8% in net debt to book capitalization as of Q1 2018.

Slide 6 highlights NMM's dynamic drybulk growth platform. Navios Partners has very challenging market and emerged as a vibrant [indiscernible] company. NMM has renewed drybulk fleet via the net nine vessels since the beginning of 2017, resulting in an approximate 40% increase in the drybulk fleet deadweight ton capacity and 12% reduction in the drybulk fleet average age. NMM also recently sold two of its 8,200 TEU containerships to Navios Containers for $67 million in sale process. Slide 7 provides an update on Navios Containers.

Navios Container was formed in the Q2 of 2017 to take advantage of the dislocation in the containership market. Navios Containers today has a fleet of 25 containerships and is well-capitalized with $180 million of equity and $177 million of debt. Navios Partners has thus far invested $65 million for about 36% equity stake plus warrants for a further 6.8% of equity. Navios Containers provide a ready platform to drop down the Navios Partners containerships. In fact, Navios Partners recently sold two 2006-built 8,200 TEU containers each to Navios Containers for $67 million.

These containers generated $10.8 million or 27% return on equity. Cash flow generated through this and other drop downs can be used to expand NMM's drybulk fleet as well as deleveraging. Of the $67 million in sales proceeds, $21.3 million was used to repay debt. $13 million was used to acquire a post-Panamax vessel and $32.7 million balance will be added to liquidity. Pro forma for the transaction and net debt to book capitalization reduces to 31.1%, which is a reduction of about 8%.

Slide 8 illustrates our ability to generate significant cash flow in our low daily breakeven per open day. For 2018, our estimated daily breakeven per open day is only $3,617. Therefore, our fleet is expected to generate significant free cash flow through $6,216 open and index days. Assuming current rate, our fleet can generate about $76 million of free cash flow. As charter rates recover to almost 20-year average, our fleet has a potential to generate about $125 million to free cash flow.

As I mentioned in my opening remarks during the quarter, we reinstated our distribution and announced a quarterly distribution of $0.02 per unit and/or $0.08 per unit annually, which will result to a $13.6 million return to our unitholders annually. Slide 9 shows our liquidity. As of March 31, 2018, we have total cash of $48.7 million and total debt of $486.8 million. We have a low net debt to book capitalization ratio of 33.8%, which further reduced by another 8% after the transaction. No debt maturities until 2020 and additional firepower for future growth.

At this point, I would like to turn the call over to Stratos Desypris, Navios Partners CFO, who will take you through the results of the first quarter of 2018. Stratos?

Stratos Desypris: Thank you, Angeliki, and good morning, all. I will briefly review our unaudited financial results for the first quarter ended March 31, 2018. The financial information is included in the press release and is summarized in the slide presentation on the company's website. Moving to the financial results, as shown on Slide 10.

Our revenue for the first quarter of 2018 increased by 25.1% to $53.1 million compared to $42.4 million for Q1 of 2017. The increase was mainly due to the 9.8% increase in the time charter agreement that we've achieved in the first quarter of 2018, reflecting the improvement in the drybulk market as well as the 14% increase in our available days due to the increased drybulk fleet. Adjusted EBITDA for the first quarter of 2018 increased by 21.8% to $31.5 million compared to $25.9 million in Q1 of 2017, primarily due to the increase in revenues, which was mitigated mainly by the 16.4% increase in management fees due to a increased fleet. Net income for the first quarter of 2018 amounted to $5.5 million, $11.1 million higher than the corresponding quarter of last year. Operating surplus for the first quarter of 2018 amounted $17.5 million.

Replacement and maintenance CapEx reserve was $6.1 million. Fleet utilization for the first quarter of 2018 was almost 99%. Turning to Slide 11. I will briefly discuss on key balance sheet data as of March 31, 2018. Cash and cash equivalents was $48.7 million.

We do not have any debt maturities until 2020. Net debt to book capitalization reduced to 33.8% at the end of the quarter. This is a decrease of 8.1% compared to the end of last year. Pro forma for the sale of the two containerships to Navios Containers for $67 million discussed earlier, and the expected use of proceeds for deleveraging and cash on balance sheet, net debt to book capitalization would have further decreased to 31.1%. Additionally, we expect to recognize a book loss of approximately $37.5 million in the second quarter from the sale of the two vessels.

Long-term debt including the current portion decreased by approximately $6.7 million in 2018 and amounted to $486.8 million at March, 31, 2018. Moving to Slide 12. As Angeliki mentioned earlier, our Board of Directors approved the reinstatement of our distribution. For the first quarter of 2018, we declared the distribution of $0.02 per unit equivalent to $0.08 per unit on an annualized basis. Our current annual distribution provides for an effective yield of 4.2% based on yesterday's closing price.

The record date for the distribution is May 10 and the payment date is May 14, 2018. Total distributions for the quarter amount to $3.4 million and our common unit coverage for the quarter is 5.2x. Slide 13 shows the details of our fleet. We have a large modern diverse fleet with total capacity of 4.2 million deadweight tons and an average age of 10.1 years. Our fleet consists of 38 vessels, 13 Capesizes, 17 Panamaxes, three Ultra-Handymax and five container vessels, excluding the two containerships that were agreed to be sold to Navios Containers.

Moving to Slide 14. As Angeliki mentioned earlier, we have been actively removing and expanding our drybulk fleet. From the beginning of 2017 up to date, we have grown our drybulk fleet by 9 vessels. We did this by selling 200 vessels, purchasing 10 vendor vessels and entering to one long-term bareboat charter. As a result, we have expanded the capacity of our fleet by 40%, and we have reduced the average age of the drybulk fleet by 12%.

The table below details the vessels we acquired. In Slide 15, you can see the list of our fleet with contracted rates, and the respective expiration dates per vessel. Our charters have an average remaining contract duration of approximately two years. Almost 90% of our approximately $600 million contracted revenue is from charters longer than three years. Currently, we have contracted approximately 72.9% of our available days for 2018, including days contracted at index linked charters.

The expiration dates extend to 2028. As shown on Slide 16, we are an efficient low-cost operator. We are benefiting from the economies of scale of our sponsor. We have agreed to extend our management agreement until December 31, 2022 and fix our operational costs until December 2019. There is no additional charge or commissions for technical or commercial management nor any fees for S&P in financing transactions.

In Slide 17, you can see the details of Navios Containers. This entity completed its listing in Oslo OTC market in June 2017 and has raised a total of $180.3 million of equity since its inception. It has – we have 25 containerships with a further visible growth pipeline. Currently, Navios Partners has a 36% ownership interest in Navios Containers plus 6.8% warrants. I now pass the call to George Achniotis, Executive Vice President of Business Development to discuss the industry section.

George Achniotis: Thank you, Stratos. Please turn to slide 19. The IMF forecast world GDP growth at 3.9% for 2018 and 2019. Emerging markets are expected to grow at a healthy 4.9%. On the back off synchronized global economic growth, drybulk rate grew by 4% in 2017 and is forecasted to rise by 2.6% in 2018 above the expected 2.1% net fleet growth.

Moving to Slide 20. Data from the IMF shows further evidence of the global economic expansion as all major economies are growing simultaneously. This was last experienced during the period 2004 to '07, and previously to that in the late '80s. Important for seaborne trade, the percentage of countries showing export growth has risen to 85% which is the highest on the record. I would like to point out that the drybulk market still has substantial upside as it remains about 40% below the 20-year average.

Turn to Slide 21. Worldwide steel production experienced a 5% increase in 2017, while the bulk of [indiscernible] steel prices. Chinese steel production also rose by 6%. Chinese steel exports have reduced to trade it for the increased domestic demand, which has been stimulated by large infrastructure projects and recovery in the housing market. The One Belt, One Road project is a cornerstone of the Chinese economic plans for the next five years and supports steel and power demand upside, inside and outside of China.

Substitution of Chinese expensive, low-quality iron ore with higher-quality and lower-priced imports continues. Iron ore imports into China for 2017 rose 5% or 50 million tons and our forecast to rise further in 2018. Vale recently reiterated that they expect to meet their 2018 production target of about 390 million tons which were a result in increased export volume for the balance of the year, since Q1 was negatively affected due to seasonal weather issues. This could support [indiscernible] rates as one ton of Brazilian ore equates to almost three times of Australian ore in ton miles. Please turn to Slide 22.

The Chinese government continues to rationalize domestic coal production, closing down small inefficient mines and encouraging consolidation of large mining groups. It is expected that the restructuring of the Chinese coal industry will continue to keep domestic coal prices high and encourage imports as inefficient, polluting mines are closed. During the peak winter season, strokes of thermal coal at power plants in both China and India, reach uncomfortably low levels prompting both governments to allow additional coal imports to maintain power supply. In 2017, Chinese seaborne coal imports were up by about 10% and through March of this year, they were up by 28% quarter-on-quarter. Moving to Slide 23.

In 2017, 34% of total expected new building deliveries never delivered. In spite of a significantly better market this year, the non-delivery rate increased to 41% year-to-date. Forecasts are for the 2.1% net fleet growth in 2018, the lowest since 2000. Based on the current order book and shipyard availability, low net fleet growth is expected to continue over the next few years. In addition, as a result of incoming changes in IMO regulations, scrapping of older vessel is expected to continue.

Turning to Slide 24. 2017 ended with net fleet growth of 3% below the drybulk trade growth of 4%. Net fleet growth so far this year is 1.1%. The current drybulk order book before non-delivery is about 10% of the total fleet and vessels over 20 years of age equal about 7.5%. Given forecasted trade growth, there seems to be a balance between expected deliveries and potential scrap candidates.

With the new IMO regulations soon to come into effect, older ships should continue to scrap. The supply and demand fundamentals going forward remain positive, supporting healthy charter rates. Moving to Slide 26 in the container market. As world GDP grows, so does container demand. Over the past 20 years, container trade has expanded at a 7% CAGR rate.

In 2017, container trade grew by 5.7% and is expected to grow by further 5.2% in 2018 and 4.9% in 2019. As previously discussed, a record 85% of the world economies are growing, an all-time high. After a number of years of high vessel deliveries, the container market is poised for recovery, which looks likely to continue going forward. Turning to Slide 27. As of January 1, 2018, order book stood at about 1.7 million TEU before nondeliveries.

The order book declined significantly in 2019 and 2020 to 0.5 million TEU in each year. Over 80% of the order book is for vessels over 10,000 TEU with minimal order book for the smaller sizes. Nondeliveries continued and year-to-date were 23%. Moving to Slide 28. Since the beginning of January 2017, the container fleet increased by $1.3 million in TEU capacity but only by about 100 vessels, reflecting scrapping of older smaller units and delivery of larger ships.

Forecasts for 2018 and 2019 net fleet growth are below the expected container trade growth, making it four years in a row of positive supply-demand fundamentals. The expected deliveries in 2018 to 2020 will continue to focus on over 10,000 TEU vessels with minimal growth in the sub-10,000 TEU categories. With a record low order book and continued global economic recovery, the container fundamentals look positive going forward. And this concludes my presentation. I would now like to turn the call over to Angeliki for the final comments.

Angeliki?

Angeliki Frangou: Thank you, George. And we'll open the call to questions.

Operator: [Operator Instructions] Your first question comes from the line of Espen Landmark with Fearnley.

Espen Landmark: Angeliki, I wanted to start with the container transaction, I mean, it makes perfect sense for me, strategic standpoint, simplifying the dividend story and expanding on the container side. But from a valuation standpoint, these ships seldom can chance in the secondhand market.

So, at least for us, hard to have a good opinion on the charter fleet values. Can you discuss how you ended up with the various prices that you now have based on broker codes, comparable transactions, et cetera?

Angeliki Frangou: This was done with valuations from brokers and it was done independently by the Conflict Committee of the Board of Directors of the each company negotiated between the 2.

Espen Landmark: Okay. And then if you kind of add on the cash proceeds from the sale, you probably have around $65 million to $70 million of cash in hand by the end of June. Is there any remaining CapEx on the two other Panamaxes that you acquired, I guess, that were in the second quarter?

Angeliki Frangou: I mean, those – in essence, we bought three vessels from the beginning of the year, and we are located on the Panamax sector.

We see that, that sector has a good upside potential as already the gauge had a nice run. Even though we are very bullish overall on the drybulk and where cash flows can go from here, you can have easily another 50% upside. So we allocated in the Panamax sector. So the exact – if you see from the $67 million, we had about $13 million for the purchase of the vessel, we add it to our balance sheet, and we deleveraged by about $22 million. So we have a nice cash cushion to do further acquisitions.

One thing that I like to add is that you have a strong growth – drybulk growth platform in NMM but you also have very conservative balance sheet. I think for smaller tiers, we have one of the lowest net debt to EBITDA. I mean last year, we're about $3.5 million, this year, we'll be below $3 million and EBITDA to interest is about 4.5% will be this year. And the company is really – apart from the growth potential is really in – is recognized by rating agency, and we are – that we have a strong balance sheet, and we are in an upgrading cycle.

Espen Landmark: All right.

And then last question is, I mean, on the cash conversion you had, I think three quarters in a row now where the EBITDA is in excess of $30 million and in 4Q, I know there was a big build up in working capital. In this quarter you have EBITDA of $31 million and then you have a cash flow from operations of $6 million. Is the difference there – is it just the interest and then there is a significant build up of working capital also in the first quarter?

Stratos Desypris: This is a timing issue. You should not forget that we also have the advance for the vessels that we have not announced for the first quarter, including also the bareboat vessel that we'll be delivery in the second half of 2019. And the results are some time in working capital activities.

Operator: There are no questions at this time. I will turn the call back to Ms. Frangou for any additional or closing remarks.

Angeliki Frangou: Thank you. This completes our Q1 results.

Operator: Thank you for participating in today's conference call. You may now disconnect your lines at this time. And have a wonderful day.