Executives: Angeliki Frangou - Chairman and CEO Efstratios Desypris - CFO George Achniotis - EVP, Business

Development
Analysts: Noah Parquette - JP Morgan Amit Mehrotra - Deutsche

Bank
Operator: Thank you for joining us for Navios Maritime Partners Second Quarter 2016 Earnings Conference Call. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Efstratios Desypris; and Executive Vice President of Business Development, Mr. George Achniotis.

As a reminder, this conference call is being webcast. To access the webcast, please go to the Investor section of Navios Maritime 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 will 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 fact. 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 materially from the 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 in this call should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call.

The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks; next Mr. Desypris will give his overview of Navios Partners' financial results; then Mr. Achniotis will provide an operational update and an industry overview; and lastly, we'll open the call to take questions.

Now, I'll turn the call over to Navios Partners Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

Angeliki Frangou: Thank you, Doyce, and good morning to all of you joining us on today’s call. For the second quarter of 2016, we recorded $44.9 million of revenue and $11.8 million of EBITDA. Our results were affected by the one-time impairment charge on the anticipated sale over the container vessel, MSC Cristina.

Adjusting for the impairment charge, we have adjusted EBITDA of $29 million and a positive net income. Slide four outlines recent developments. Since the beginning of 2016, we have worked to fortify our balance sheet and we have reduced debt by $44.6 million. To do that, we have repaid $25 million principal repayment of our term loan B in $48.6 million under our bank credit facilities. The $73.6 million debt reduction was partly offset by $29 million increase in debt through our working capital facility.

The working capital facility is with ABN Bank and bears the interest rate of LIBOR plus 4% payable by January 13, 2017. We also increased a term loan B collateral package by $48.5 million through the contribution of the container vessel, Yang Ming Unity. During the quarter, we also agreed to sell subject to signing of definitive documentation one of our container vessels, the MSC Cristina for a net sale price of $125.0 million. We expect to receive the proceeds of $106.25 million upon delivery of the vessel and the balance of $18.75 million will be in the form of guaranteed sellers credit payable to us in 16 equal quarterly instalments. The sellers credit will include interest of 6% per annum, totaling about $2.2 million for the term of the loan.

We anticipate that the vessel will be delivered to its new owners by January 17th, 2017. Slide five provides the sales of the HMM charter restructuring. As you may know, we have five container vessels chartered to HMM for $30,119 per day for a period of five years. Under the restructuring charter, rate for these vessels are reduced by 20% to $24,095 per day for a period of three and a half years, after which the rate of $30,119 per day will apply until December of 2023. NMM total chartered revenue loss of $38.6 million was compensated by HMM through the receipt of $3.7 million of HMM shares representing a value of $30.9 million and $7.7 million senior secured notes due in 2024, bearing interest of 3% per annum.

We recently sold this HMM shares for $21.4 million. We estimate that we will have $16.3 million net cash benefit for 2016. Overall, we anticipate having a $7.7 million total loss. Slide six highlights the annual savings enjoy by harnessing the economies of scale created by Navios Holdings. Under the relevant agreement, NM provides technical and commercial management services for a fixed fee and administrative services at cost.

Importantly, NM does not charge any constructional fees whether for originating loans or sales and purchase or otherwise creating value. To that extent, the sub fees are paid, but these fees are paid to third parties based on the market prices as compared to some of our peers, not paying [indiscernible] or anything from 0.75% to 1.25% of the charters. The terms of the world relationship is that the - a fair allocation of cost in the pricing of the services, on terms and conditions that third parties generally would agree. As a result, OpEx is fixed through December 2017 at rates that are 17% below industry averages. Our G&A expenses are $718 per day, one of the lowest amount publicly listed shipping companies.

Slide seven demonstrates an immense position and the unique platform for the growth in the Dry Bulk sector. Our balance sheet is strong and our credit ratios are health with net debt to book capitalization of 42.5% and interest coverage of 4.3 times as of Q2. And our enterprise is valued relatively in inexpressively as NMM trade with above EV to EBITDA of about 4.7 times. We also have the ability to generate significant free cash flow. The table on slide seven sits for our potential cash generation for the remainder of 2016.

As you see, even the low chartered rate environment of today, we should be able to generate above $45 million, assuming steady operating cost and current market of our open days. Slide eight shows our liquidity. At June 30, 2016, we had a total cash of $26.9 million and total debt of $555 million. We have loan net debt to book capitalization of 42.5% and no significant debt maturities until 2018. At this point, I would like to turn the call over to Mr.

Efstratios Desypris, Navios Partners’ CFO, who will take you over the results for the second quarter of 2016. Efstratios?

Efstratios Desypris: Thank you, Angeliki, and good morning all. I will briefly review our financial results for the second quarter and six months ended June 30, 2016. The financial information is included in the press release and we summarized in the slide presentation on the Company's website. Moving to the financial results as shown in slide nine, revenue for second quarter of 2016 decreased by 20.5% to $44.9 million, compared to $56.5 million for Q2 of 2015.

The decrease was mainly due to lower time chartered equivalent rate achieved in the quarter of $16,005 per day, compared to $20,679 per day for the same quarter of 2015. EBITDA for the second quarter of 2016 was negatively affected by the $17.2 million impairment loss, recognized on one of our vessels. Excluding this one-off item, adjusted EBITDA for the second quarter of 2016 decreased by 25.1% to $29 million, primarily due to the decrease in revenues discussed. This was mitigated by $1.9 million net decrease in all other costs. Net income, excluding the one-off effect of impairment loss, amounted to $0.4 million.

Operating surplus for the second quarter of 2016 amounted to $19.4 million. The replacement and maintenance CapEx reserve was $3 million. Fleet utilization for the second quarter of 2016 was 99.9%. Moving to the six months operations, time chartered revenue for the six months decreased by 20.1% in $90.5 million, compared to $113.3 million in the first half of 2015. .

The decrease was mainly due to the decrease in the time chartered equivalent rate achieved in the first half of 2016 or $15,764 per day, compared to $20,248 per day in the first half of 2015. EBITDA for the first half of 2016 was negatively affected by the $17.2 million impairment loss, recognized on one of our vessels. Excluding this one-off item, adjusted EBITDA for the first half of 2016 decreased by 25.6% to $57.1 million, compared to $76.7 million in the same period of last year. The decrease was mainly due to decrease in revenues discussed and was mitigated by mainly by the $5.8 million increase in other income. Net income, excluding the one-off effect of impairment loss, amounted to $0.6 million.

Operating surplus for the six months ended June 30, 2016 was $37.7 million. Turning to slide 10, I will briefly discuss some key balance sheet data as of June 30, 2016. Cash and cash equivalents was $26.9 million. We do not have any significant immediate debt maturities or committed growth CapEx. Net debt to book capitalization was 42.5% at the end of the quarter.

As Angeliki mentioned earlier, in 2016, we reduced debt by $44.6 million and we increased the term loan B collateral by $48.5 million. Furthermore, the expected sale of the MSC Cristina is estimated to further leverage our balance sheet and increase our available liquidity. Slide 11 shows the details of our fleet. We have a large, modern diverse fleet with the total capacity of $3.3 million dwt. Our fleet is young with an average of 9.1 years.

Our fleet consist of 31 vessels, eight capsizes, 12 Panamaxes, three ultra-handymax and eight container vessels. In slide 12, you can see the list of our fleet with the contracted rates and their respective expiration dates for a vessel. Our charterers have [indiscernible] duration of 2.4 years. Over 75% of our contracted revenue is from chartered longer than three years. Currently, we have fixed 94.3% over available days for 2016 and we’re 55.5% fixed for 2017.

The expiration dates [indiscernible] and the chartered duration extended to 2027. Onto slide 13, we are an efficient low cost operator. We are being affected from the economies of scale loss functions and have fixed our operational cost at low levels until December 2017. Our fixed costs are almost 17% below the industry average. I’ll now pass the call to George Achniotis, our Executive Vice President of Business Development to discuss the industry sections.

George?

George Achniotis: Thank you, Efstratios. Please turn to slide 15 and the dry bulk market fundamentals. Growth in world GDP generally coincides with growing raw material demand for steel and energy production, particularly as emerging markets urbanize and industrialize. According to the IMF, the rate of world GDP growth declined between 2014 and ‘14 and is expected to remain stable at 3.1% in 2016. The rate of growth is forecasted to increase to 3.4% in ‘17.

Emerging and developing markets are expected to grow by 4.1% in ‘16 and 4.6% in ‘17. Between 2014 and 2015, dry bulk trade remained flat with 2016 forecast to show a small increase of about 1% to 2%. Turning to slide 16, Global seaborne iron ore demand has been surprisingly high for the first half of the year. The imports of iron ore into China have exceeded most forecasters’ expectations. Through June, Chinese iron ore imports were up 9% year-on-year.

This is the results of the displacement of low quality expensive Chinese domestic production, which is down 6% through June, with high quality low cost iron ore from Australia and Brazil. Chinese steel production rebounded in March and has remained above last year’s levels since then. The Chinese government committed to a controlled restructuring of the steel industry with cutbacks in production alongside stimulation demand. Steel production in China is expected to fall by about 1% in 2016. Steel exports from China remained robust and are up by over 9% year-on-year.

Australian and Brazilian iron ore producers are getting market share from higher cost producers. At the same time, the price of delivered iron ore to China has increased recently, showing a healthy demand in their fix load China stimulus program. Please turn to slide 17, the Chinese domestic coal industry seems to be going through a phase of restructuring similar to the one that the iron ore went through in the past several years, whereby low quality and economic capacities being shut down. Domestic coal production is expected to rebound by about 12% in 2016, a decrease of 400 million tons. This has been replaced by additional imports which are now up almost 5% through June, a complete turnaround from the negative numbers we saw at the beginning of this year and over the past few years.

Indian coal imports have continued to disappoint as its domestic production exceeds expectations. Domestic production is projected to grow by 4% in 2016 and imports to reduce by 1.4%. Combined Indian and Chinese imports are now expected to increase by 1% to 2%, indicating that a core market may have bottomed. Moving to slide 18, as of January 1st, 2016, order books were 92.7 million dwt. By July, 31.6 million delivered versus 65.9 million expected, a 52% on delivery rate.

This is the highest non-delivery rate in the last few years. We assume 40% on deliveries, then we estimate 2016, we’ll see about 55 million dwt delivered. With a time scrapping in annualized net fee growth should be between 1% to 2% this year, the order book as of January for 2017 and ‘18 decreases substantially. In today’s market, with low chartered rates, no vessel values and lack of financing, the fleet could contract further going forward as there is leader incentive orders of newer ships. Turning to slide 19, the scrapping pace has reduced in the first couple of months, as the monsoon seasonal term productivity by the traditional scrap buyers in the Indian Ocean.

However, we’re still driving at an annualized pace of about 14 million dwt, a record high scrapping in terms of deadweight tons. More specifically, the capesize fleet has shown negative growth since the beginning of 2015 and the Panamax fleet has seen negative growth since the beginning of ‘16. That kind of negative fleet growth becomes more compelling based on the projected order book of ‘17 and ‘18. Overall net fleet growth for ‘16 is projected to be between 1% to 2%, about the same is the projected growth in demand. The table in the bottom right shows that there is an increasing pool of scrap candidates as the average age of scrapping reduces.

The fleet average age of scrapping has reduced from 30 years five years ago to 23 years today. We regularly see evidence of vessel founded 20 years of age been scrapped. Looking at the total drive about fleet, there are 59 million dwt 20 years or older and 121 million tons 15 years or older, giving plenty of potential scrap candidates going forward. If the current low-rate environment persists, we expect non-delivery of scrapping to continue. Moving to slide 20, over the past 19 years, container trade has expanded at 7.2% CAGR.

As you know, world GDP growth declined between 2014 and ‘15, there was also a reduction in rate of continued trade growth to just over 2% 2015, the lowest increase since 2009. However, demand is expected to increase by about 4% in 2016. As demand growth is projected to be close to net fleet growth, we should expect an improvement in chartered rates. I want to remind that NMM’s container vessels are fixed on long-term trackers, so they’re not affected by the sluggishness in 2016. Turn to slide 21, at the beginning of August 2016, the container fleet consisted of about 5,200 of 20 million TEU capacity.

Vessels carrying 570 to 6,000 TEU have delivered during 2016 versus a projection vessels getting 1 million TEU, giving an on-delivery rate of 41% versus an on-delivery of just 11% in 2015. As non-deliveries have increased, so has the age of scrapping. So far in 2016, 94 vessels of 315,000 TEU have scrapped, which gives an annualized pace of over half a million TEU or about 2.6% of the total container fleet. Estimates are that TEU growth will be 34% in 2016, about the same as the estimated increase in container demand. With no incentive towards new buildings in the current environment, the balance between demand and supply should improve as we progress into 2017 and ‘18.

This concludes my presentation; I would now like to turn the call over to Angeliki for her final comments. Angeliki?

Angeliki Frangou: Thank you, George. We open the call to questions.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Chris Wetherby of Citi.

Unidentified Analyst: Good morning. This is Prashanth on for Chris. I guess my first question I wanted to talk about the Cristina sale. I wanted to get a little bit more color on the motivations or thought process behind the sale of that vessel. And also, you don’t have any maturities until 2018, so kind of wanted to get a sense of how much of that cash will be used to pay down debt? Are there other maybe uses of the cash proceeds from those sales? Just a little bit more detail on sort of what was behind the [indiscernible] particularly given that - acquired, I guess, back in just 18 months ago?

Angeliki Frangou: I think one of the issues we have seen in Q1 vessel [ph] values moving at a level that we have been ever before.

And even though the company was very well contracted and with good cushion, we had to do a lot of prepayments, we have to do around $75 million of prepayment in order to have the loan to values been rectified. So, being conscious about it, more we used to - we are selling MSC Cristina which is a good vessel with good cash flow and that also gives us the opportunity to really generate additional cushion and cash up front. Overall, we are very well contracted and you can see that in the rest of 2016, we have about 1,400 days open and even in today’s environment, exact today’s rate, have about 45 million of cash generation. This creates additional cushion and that provides us, you know, we like to be conservative on this environment and to see - 2017, how the markets develop.

Unidentified Analyst: Okay, thanks Angeliki, that makes sense.

And so, following the sale of Cristina, you are within where you feel comfortable on LTV and in terms of covenant?

Angeliki Frangou: Yes, I mean we’re having full compliance of our LTVs, but you always have to have extra cushions and that’s the reality, and that’s how we took the decision.

Unidentified Analyst: Okay, that makes sense. Looking at the dry bulk of the fleet, there is a couple of smaller, older vessels, sort of wanted to know about the disposition of those and I guess broader picture, given the environment or further asset sales either on container or the dry side, consideration - I am not - rationally maybe look for recovery, I just kind of wanted to get a sense how you think about that or that’s something that you just would be more opportunistic with?

Angeliki Frangou: I think at this point, we have a very clear fleet definition. We have a clear cash flow. You’ll see the interesting thing is most probably you have it in your model, I think, you can see from the disclosure we have, apart from 2016, if you move to 2017, NMM is a unique company your contracted revenue of $122 million more than covers the total expenses and you have a net cash of $21 million with about 6,000 open days more or less.

So, with that in mind, you realize that you’re in a good platform, you’re there to be able to capture - have a good cash generation and to see the opportunities and maybe at - on different vessels that you see as a best, more attractive asset class.

Unidentified Analyst: Okay, that makes sense. On the charter restructuring, I think this is maybe in line or slightly better than what we may have expected coming into earlier this year or - I just wanted to sort of circle the bases in this picture, are there other charters that maybe - like parties that may want to renegotiate at this point? Or do you see that that is sort of like the big risk is now kind of behind and we should sort of be in settled through this recovery now?

Angeliki Frangou: There is no other counterparties that is part of NMM, I mean, as you all know, there is Hanjin, but Hanjin is not part of the charterers of NMM. If you can see on the HMM, because this is not really - charter 11, it was reorganization.

Unidentified Analyst: Okay.

Angeliki Frangou: Sorry, I made a mistake. There is two vessels of Hanjin in NMM, and that most probably we’ll follow the same kind of roadmap as HMM, this, as you know, Hanjin is their largest container company of Korea and - I mean what we see is that Korean development path supports Hanjin and also the major - they sponsor Korea lines and most probably we’ll follow a similar idea. I mean distractions at Navios, the way that Navios look at this is that immediately upon receiving also conversation we wanted to remove risks, so we solved our sales, automatically we have a benefit of $16 million net cash benefit for ‘16 and we are cash neutral until second half of ‘18. So, this makes a full visibility on our cash flows, it takes the risk out and in HMM, Korea Development Bank is a major shareholder with a low cap for full year.

Unidentified Analyst: Okay.

Thanks for the time, I’ll turn it over. Thank you.

George Achniotis: Thank you.

Operator: Our next question comes from the line of Noah Parquette of JP Morgan.

Noah Parquette: Thanks.

I want to ask - obviously you guys are being conservative here about your liquidity, can you talk a little bit about further out - what kind of roadmap or strategy you have to return a dividend - started to go back negative and how you think about that timeframe?

Angeliki Frangou: Again, we value there might be a structure and this is - as you know, today the market has - even though with very slow cash flow contracted revenues and we have these cash flow - with a condition of a dry bulk container market, I’ve seen that doesn’t make a lot of signs. But as market - I think we have cleared the bottom of dry bulk and we have 600 - and I think this is now moving upwards at slow base, but is moving. As soon as we see that this built here for cash flow, this is a platform that can easily turn to a MAP dividend when you see the normality of this market. We have to admit that we have periods that were very, very unique on dry bulk and CP.

Noah Parquette: Okay.

And looking like you [indiscernible] straight liquidity and cash flow situation, so it seems like a lot of opportunity to create value, what kind of things are you thinking? Would you consider share repurchases here, given the math of discount?

Angeliki Frangou: The first thing is that we like to see stability. You sure with - even though with the solid cash flow, we needed to do a lot of prepayment, number one priority is stabilize the distractions, stabilize the conditions, because of plenty of cash flows, and then you have all the choices which we’re very well aware of providing additional value, but I think that will be our priority number one.

Noah Parquette: Okay, alright. Thanks.

Angeliki Frangou: Thank you.

Operator: And ladies and gentlemen, we have reached the allotted time for question. Our final question will come from the line of Amit Mehrotra of Deutsche Bank.

Amit Mehrotra: Hey, thanks. Good afternoon. I appreciate you squeezing me in here.

Well, first of all, congratulations on all the developments since the first quarter call. I have a few specific questions for Angeliki or Efstratios. Just following up the question on the sale of the Cristina, I may have missed it I just wanted to know what the net cash proceeds are of the $125 million, how much will actually hit the balance sheet as cash and how much would actually go down to pay down debt?

Efstratios Desypris: Amit, there is a loan that is associated with this vessel, which is approximately - today it’s approximately $72 million of balance, so out of the $125 million, you’ll have to repay this loan and the remainder will be cash on the balance sheet plus the note that is payable in the next four years.

Amit Mehrotra: Got it. So, if I look at pro forma cash balance of the company from the end of the first quarter - sorry, the end of the second quarter, add the HMM sale security proceeds of $21 million, plus maybe $53 million or little less than that, you’re looking at pro forma cash balance of a little under $100 million, is that right, Efstratios?

Efstratios Desypris: Yeah, but don’t forget that you have approximately $19 million that will be payable out of the 125, around $19 million will be payable in instalments over the next four years.

So, you need to…

Amit Mehrotra: Right. So, it’s a little over $80 million in pro forma cash balance?

Efstratios Desypris: Yeah, on a pro forma basis, this calculation makes sense.

Amit Mehrotra: Okay. So, if I take the $82 million or $80 million of pro forma cash balance and add it to, I guess, your annual operating cash flow of say, $80 million plus or minus, you’re still kind of well below - from a cash balance standpoint, well below what you need to repay or deal with the 2018 maturities, so the question is, is that - first of all, is that math correct? And how do you think about your ability to address that cash call in 2018, which is really not that far away and maybe it’s just more opportunities like what you did with Cristina to maybe crystalize or pull forward the annual cash flows?

Angeliki Frangou: You have to realize that this is a - there is one thing that is important is that the LTV is about 80% on the term loan, so you do not have here value that does not reflect in today’s market. The bank - also your bank loans are about around 70%, it’s 70%, let’s say, so it will be refinanced, so you have the ability to really refinance this, and you will be generating, let’s say, $75 million, $45 million this year, then for the remaining of the year, let’s see about $80 million excluding the sale of the Cristina adding that - you have quite a significant cash flow.

I cannot imagine a lot of companies with this kind of cash generation.

Amit Mehrotra: If I understood you correctly, basically, Angeliki, what you’re trying to say is that, a lot of the surplus cash flow between now and then will go down to pay the LTV of a company, which then can be re-collateralized to roll the remaining balance in 2018, is that right?

Angeliki Frangou: Yes, I mean you’ll get a loan, I mean you’re never zero debt. So, you’ll have - you will get a loan of 60% to 70% of debt, so you’re not going to be zero, additionally, to realize the chartered adjusted evaluation because on the term loan, there is an additional, very significant cash flow associated with the container vessels that are in there apart from the chartered free evaluation. Re-structural model, if you sit down and you look at what is really the cash flows, quite significant. I mean you do your own calculation, you see what we are discussing, maybe double the values of whatever of the [indiscernible].

Amit Mehrotra: Okay. Yep, that makes sense. So, given - I guess the operating cash outlook for the company, your ability to pay down debt between now and 2018 and then roll the remaining balance over which makes sense, you’ve effectively de-risked the business in a tough environment. Now, with that being said, I mean there are other areas that that Navios complex specifically holdings that has not been de-risked and the question I have, Angeliki, you talked about sort of your support of MLP business model, but when the distributions are at zero, and I would say line of sight probably not going to increase in the near-to-mid future, just wanted to understand why you have such a high commitment through the MLP business model specifically for NMM? And one last sort of follow-up to that, would you ever consider collapsing NMM into NM to take advantage of those cash flows or is that just maybe completely off the table given the dilution that would entail for NM equities?

Angeliki Frangou: I cannot comment on these, but about - and on the commitment to the MLP, we value MLP. We have seen - we have one of the companies that we dedicated earlier on and we have seen the goals and the business structures.

The way we view our company sees, on a conservative basis, would make sense on the shipping environment at that time and would it make sense for the company going forward. So, NMM has solid cash flows, and went through a very tough shipping evaluation - shipping market, which we navigate it nicely. So, at this point, we will review our options as we go forward.

Amit Mehrotra: Okay. I thought I tried to ask that question, but I understand your answer.

One last quick one from me is, one thing I noticed, maybe this one is for, Efstratios, I noticed the amounts due on the balance sheet to the relative parties was pretty high last quarter and it came in - I think it was cut in half in the second quarter, just wanted to understand sort of was that just a pull forward of some management fees or how should we think about that, because that balance was quite high last quarter?

Efstratios Desypris: The balance mainly is a timing issue. Some of the vessels [indiscernible] that a lot of things that add to this balance and also there just to mention, we’re also including their some balance from the Navios Europe and it is not we participate with working capital. So, naturally this balance will come down as we repay our obligations toward these companies.

Amit Mehrotra: Right. Okay, guys, that’s all I had.

Thank you so much, appreciate the time. Thank you.

Angeliki Frangou: Thank you.

Operator: That was our final question, I would now like to turn the floor back over to Ms. Angeliki Frangou for any additional or closing remarks.

Angeliki Frangou: Thank you. This completes our second quarter earnings.

Operator: Thank you, ladies and gentlemen. This does conclude today’s conference call, you may now disconnect.