Executives: Angeliki Frangou – Chairman and Chief Executive Officer Efstratios Desypris – Chief Financial Officer George Achniotis – EVP, Business

Development
Analysts: Noah Parquette – JP

Morgan
Operator: Thank you for joining us for Navios Maritime Partners' Second Quarter and First Half 2017 Earnings Conference Call. With us today from the company are Chairman and CEO, Mrs. 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 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, which can also be found there. Now I'd like to 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 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 conference call should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in the conference call.

The agenda for today's call is

as follows: First, Mrs. Frangou will offer opening remarks; next Mr. Desypris will give review of Navios Partners' financial results; then Mr. Achniotis will provide an operational update and 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, Mrs.

Angeliki Frangou. Angeliki.

Angeliki Frangou: Thank you, Laura, and good morning to all of you joining us on today's call. For the second quarter of 2017 Navios Partners reported revenue of $50 million and adjusted EBITDA of $32.2 million. Last year was a challenging run for the Drybulk market with the BDI reaching the historical low in the first quarter of 2016.

Also last year, was an extraordinarily difficult year for the container sector, as it suffered from the adjustment to the enlargement of the Panama canal and [Indiscernible] structuring, which led to industry consolidation. The sustainability of many Maritime companies was tested. Navios’ strong balance sheet and disciplined cost management allow us to weather the storm and prosper. As you can see from Slide 4, today, NMM owns 37 vessel fleet consisting of 30 drybulk vessels and 7 container vessels. Recently, we formed Navios Maritime Containers Inc, a growth vehicle dedicated to opportunities within the container sector.

Navios Partners owns 59.7% of Navios Containers and has warrants for an additional 6.8% ownership in the company. Slide 5 provides some of the company highlights. NMM is a unique platform expected to generate significant cash flow with no significant near-term debt maturities. We are in the process of renewing our drybulk fleet with younger and larger vessels. We have about $700 million in contracted revenue and 84% of wage is earned through charters longer than 3 years.

The average charter duration of an entire fleet is about 2.4 years, and our credit ratios are strong with 33.3% in net debt to capitalization as of Q2 of 2017. Please now turn to Slide 6, which describes our strategic initiative of renewing our drybulk fleet. Given the market opportunity, we are replacing older vessels with younger vessels, at attractive prices, compared to historical average values. So far, we have a enlarged our fleet by a net of 6 vessels. The 7 additional vessels have an average age of 7.4 years, and 1 vessel sold was 17 years old.

Overall, this is expected to reduce Navios Partners drybulk fleet average by about 9% from 10.4 years to 9.5 years. Through this process, we're also increasing NMM's drybulk fleet size by 33% or almost 1 million deadweight tons. We've dive deeper into the process on Slide 7. NMM recently agreed to acquire 2 drybulk vessels for $42.5 million. One 2010 built Capesize vessel, from an unrelated third party for $26.7 million plus 1 million units to be issued at a price of $2.01 per unit.

And one 2009 Handymax vessel from a related party for $13.8 million. These transactions are subject to signing definitive documentation. We also secured a $62 million in bank financing for 5 of recent acquisitions at attractive market terms of which $23 million of bank financing for 2 vessels is currently subject to the usual approval process. As you can see from the table at the bottom, our contracted revenue alone covers all our cost and we expect to generate about $36 million in free cash flow for the second half of 2017. Slide 8, describes our strategic initiatives of our investment in Navios Maritime Containers.

This new vehicle provides the ability to capitalize on the opportunity within the distressed container sector by having a dedicated vehicle for these purposes. The containership sector is near its cyclical bottom and Navios' unique opportunities not just within the old Panamax vessel size, an asset class that is currently going through a transition, but more broadly, given the number of banks which have exposure to this asset class and are seeking a logical exit. Navios Containers raised $50.3 million of gross profits through a private placement offering and listed on the Oslo OTC market. The Oslo OTC market provides us a unique access to capital and also allow for the flexible process that was more suited to this growth capital for distressed opportunities. As part of the private placement, NMM invested $30 million for about 60% ownership in this plus received warrants for an additional 6.8% of the equity of Navios Containers.

Navios Containers used the process from the private placement to acquire the 14 container vessel fleet that Navios Partners have previously agreed to purchase from Rickmers Maritime Trust. Navios Containers also reimbursed Navios Partners for all costs that it incurred in pursuing this transaction, plus an additional $5 million. NMM also provided Navios Containers a short-term sellers credit for the container fleet acquisition bank interest of LIBOR plus 375 basis points, $14 million of which was outstanding as of June 30, 2017. To fully fund this acquisition, Navios Containers also raised $61 million in bank loans as highlighted on the slide. The acquisition fleet includes 14 container vessels that have an average age of 9.7 years, acquired for a total purchase price of $118 million, plus certain delivery and other operating costs.

These vessels have a scrap value of approximately $90 million, which equates to approximately 75% of the acquisition price. Additionally, the vessels have $45 million of expected EBITDA and $60 million of contracted revenue attached to them. As you can see the risk reward characteristics were very compelling for Navios Containers and these vessels should provide a significant upside in a recovering market. Slide 9 details our chartering performance relative to the market. Our long-term charters protect our cash flow in a correcting market.

As you can see for Q2 of 2017, NMM average charter rate for a combined fleet was 29% higher than the market average translating into $21 million in potential additional revenue on an annualized basis. We wanted to put in perspective the recovering trend we have seen in the drybulk market and the best way to see that would be through the lens of the Baltic Dry Bulk Index. As shown on Slide 10, while the BDI increased about 240% since the low of Q1 of 2016, the index is still about 60% below its 20-year average, signifying further room for recovery. Slide 11 shows our liquidity. As of June 30, 2017, we had a total cash of $86 million and a total debt of $475 million, including the balances of Navios Containers.

We have a loan - net debt to book capitalization ratio of 33%, and no significant debt maturities until 2020, an additional firepower for further growth. At this point, I would like to turn the call over to Mr. Efstratios Desypris, Navios Partners CFO, who will take you through the results of the second quarter of 2017. Efstratios?

Efstratios Desypris: Thank you, Angeliki. And good morning all.

I will briefly review our unaudited consolidated financial results for the second quarter and 6 months ended June 30, 2017. The consolidated financial information is included in the press release and summarized in the slide presentation on the company's website. As Angeliki mentioned earlier, in June, Navios Containers completed a $50 million private placement and was listed in the Norwegian OTC market. Navios partners invested $30 million and received 59.7% of the equity of Navios Containers, plus warrants for 6.8% of the equity. As such, the results presented below are consolidated including the 23 days of operations from Navios Containers.

Moving to the financial results, as shown on Slide 12. Our revenue for the second quarter of 2017 increased by 11.4% to $50 million, compared to $44.9 million for Q2 of 2016. The increase was mainly due to the increase in Navios Partners revenue by $2 million and $3.1 million revenues of Navios Containers. Adjusted EBITDA for the second quarter of 2017 amounted to $32.2 million, compared to $29 million for the same quarter of 2016. The increase in adjusted EBITDA was primarily attributable to the increase in revenues discussed above.

The increase was partially mitigated by a $1.2 million increase in all other costs. EBITDA for the second quarter of 2016 was negatively affected by the $17.2 million impairment loss recognized on one of our vessels. Net income, excluding equity compensation expense amounted to $4.6 million. Operating surplus for the second quarter of 2017 amounted to $22.1 million and the replacement and maintenance CapEx reserve was $3.5 million. Fleet utilization for the second quarter of 2017 was almost 100%.

Moving to the 6 months operations, time charter revenue for the 6 months increased to $92.4 million, compared to $90.5 million in the first half of 2016. The increase was mainly due to the $3.1 million revenues of Navios Containers discussed above. EBITDA net income for the first half of 2017, were negatively affected by a number of one-off items. EBITDA was affected by the $1.3 million loss of disposal on one vessel, $1.5 million allowance for a doubtful receivable and $0.9 million noncash compensation expense. Net income was also negatively affected by the $3.2 million write-off of deferred fees and discount from the refinancing of the Term Loan B.

EBITDA net income for the first half of 2016, were negatively affected by the $17.2 million impairment loss, recognized on one of our vessels. Excluding these items, adjusted EBITDA for the first half of 2017, amounted to $58.1 million, compared to $57.1 million in the same period of last year, primarily due to the increase in revenues. Net income, excluding the above items, amounted to $5.3 million for the first half of 2017. Operating surplus for the 6 months ended June 30, 2017, was $39.9 million. Turning to Slide 13.

I will briefly discuss some key balance sheet data as of June 30, 2017. Cash and cash equivalents was $86 million. This includes approximately $35 million cash of Navios Containers. Long-term debt, including the current portion, was $475 million, including $33.6 million debt of Navios Containers. Navios Partners debt was approximately $85 million lower than December 31, 2016.

Net debt to book capitalization was 33.3% at the end of the quarter. Slide 14 shows the details of our fleet. We have a large modern diverse fleet with a total capacity of 4.2 million deadweight tons. Our fleet is young, with an average age of 9.7 years. Our fleet consists of 37 vessels, 13 Capesizes, 14 Panamaxes, 3 Ultra-Handymax and 7 container vessels.

In Slide 15, you can see the list of our fleet with the contracted rates and the respective expiration dates per vessel. Our charters have an average remaining contract duration of 2.4 years. 84% of our contracted revenue is from charters longer than 3 years. Currently, we have contacted approximately 90% of our available days for 2017, and approximately 36% for 2018. The expiration dates are [Indiscernible] and the charter durations extend to 2023.

As shown in Slide 16, we are an efficient low-cost operator. We are benefiting from the economies of scale of our sponsor and we have fixed operational cost at low levels until December 2017. There is no additional charge or commissions for technical and commercial management, nor any fees for [S&P in] [ph] financial transactions. Our total costs are approximately 10% below the average cost of our listed peer group. This translates in estimated savings of over $7 million only in 2016 only.

In Slide 17, you can see the ownership structure of Navios Containers. This entity completed its listing in the Oslo OTC market in June 2017. Currently, Navios Partners has 59.7% ownership interest in Navios Containers, plus 6.8% warrants. The company had 115 vessel operating days in the second quarter of 2017, generating $3.1 million in revenues, EBITDA of $2.3 million, and a net income of approximately $0.9 million. I'll now pass the call to George Achniotis, our Executive Vice President of Business Development to discuss the industry section.

George?

George Achniotis: Thank you, Efstratios. Please turn to Slide 19. World GDP growth in 2017 is expected to be 3.5% and will increase to 3.6% in 2019, accelerating from the 3.1% growth in 2016. Emerging economies growth is forecasted to increase from 4.3% in 2016 to 4.6% in 2017 and 4.8% in 2018. Connected to GDP growth, drybulk trade growth is expected to more than double from 1.3% in 2016 to 3.4% in 2017.

At current BDI levels, the drybulk market is about 240%, above the all-time low of 290% in February 2016. With substantial upside, this still remains 60% below their 20-year average. The recovery in drybulk rates continues with a BDI average in the first half of 2017, double the average of the first half of 2016. The fundamentals in the second half of 2017 remained positive and the balance between supply and demand supports higher charter rates going forward. We expect that we will see a series of higher lows over the next few quarters.

Turning to Slide 20. The imports of iron ore into China for 2017 are forecasted to rise by about 7.3% or 70 million tons. Up to the end of May, Chinese iron ore imports were up 8% year-on-year. Steel production in China continues to expand and it has been up 4% year-to-date. Good domestic demand has translated into almost a 4-year high in steel prices, as a result, Chinese steel mills are enjoying their best profit margins in the last decade.

High Chinese domestic steel demand has been stimulated by large infrastructure projects in recovering the housing market. Chinese steel exports have decreased to manage the impressive growth in domestic demand. As a result, steel production in the rest of the world has increased, further aiding seaborne iron ore shipments. Off note, Brazilian exports, which are forecasted to grow by over 20 million tons in 2017, which will further help ton miles. The main increases in Brazilian shipments are expected to occur in the second half of 2017.

Please turn to Slide 21. 2016, so the Chinese coal market started to restructure. Domestic coal production reduced by about 9% or approximately 300 million tons, and import of coal surged by 20% or about 40 million tons. 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 encourage imports as inefficient mines as closed.

The electricity consumption in China continued to rise in 2017 by about 7%, up to the end of May. Chinese thermal power generation rose by 7.6% to the end of May. We've had low production, having issues with low rain fall, the demand for coal continues to rise, encouraging both an increase in domestic production and an increase in the imports. Through May 2017, coal imports were up by about 22%, and as we enter the peak summer consumption months, that trend looks likely to continue. China imports less than 10% of its annual coal consumption, but with the domestic coal price, about $10 per ton above import prices, the market continues to incentivize strong imports.

Turning to Slide 22. Agricultural production worldwide continues to increase. 2016 saw an increase in world trade of 19 million tons to 478 million tons. In 2017 forecast, and for a further increase of 5%. Worldwide grain trade has grown by 5.2% CAGR since 2008, mainly driven by Asia.

Demand increases are focused on Asian economies, and especially China, where incomes are rising and diets are improving. These areas are further afield from the major agricultural products exporters helping ton miles, which have grown by over 6% CAGR since 2009. High grain demand particularly helps the Panamaxes and Supramaxes. During Q3 and Q4, the grain harvest in the Northern hemisphere will continue to fuel increases in seaborne shipments. Moving to Slide 23.

Up to the end of June 2017, $27.8 million dead weight of new build vessels delivered, vessels on expected delivery of 42.4 million tons, maintaining a high pace of non-deliveries at 35%. As of January 1, the 2017 order book stood at 58.1 million deadweight tons. Using a 35% non-delivery rate for the year, it is estimated about 38 million tons will actually deliver. With about 8.7 million tons scrapped so far in 2017, net fleet growth will continue to be low. With a little incentive to ordering new buildings, and a 15-year low in the order book at 7.4% of the fleet, dry bulk fundamentals going forward should continue to improve.

Turning to Slide 24. 2016 ended with net fleet growth of 2.2%, the lowest percentage for many years. Through June 2017, the pace of scrapping has fallen as charter rates have improved. However, 8.7 million tons have scrapped year-to-date. Maintaining the current scrapping pace in non-deliveries, we produced another low net fleet this year based on increasing pool of potential scrap candidates with bulk as 20 years or over representing about 7.4% of the total fleet.

With new regulations regarding ballast water treatment systems and sulfur emission restrictions coming into force, all the ships will continue to scrap. Scrapping can further increase with the deactivation of several of the converted VLOC vessels. There are currently 50 of these vessels, over 20 years of age. However, only 46 are actually trading with 3 currently in layup in Malaysia and 1 in a Chinese shipyard for an extended period. These vessels are facing increased hurdles to continue trading, and we believe will be phased out over the next few years.

Moving to Slide 26. In the container market, as world GDP grows, consumption grows and so does container demand. Over the past 20 years, container trade has expanded at a 7% tagger. In 2016, container growth increased by 3.8%. It is expected to grow by 4.8% in 2017 and a further 5.1% in 2018.

Maersk Lines recently stated that market fundamentals continue to improve and that continued volume demand is growing above expectations. Please turn to Slide 27. This slide highlights the recent positive developments in the container market as trade growth exceeds net fleet growth. Starting in the second half of 2016, demand began to improve significantly. At the same period, record scrapping reduced the growth of the fleet dramatically, a trend which has continued into 2017.

This has been reflected in improved time charter rates. Turning to Slide 28. At the beginning of January 2017, the container fleet consisted of about 5,100 vessels, of about 20 million TEU capacity. As of January 1, 2017, order books stood at about 1.7 million TEU. Through June, 537,000 TEU have delivered, versus unexpected 986,000 TEU, giving a non-delivery rate of 46%.

Net fleet growth year-to-date in 2017 has been a low 1.4%. I would like to point out that over 75% of the order book is focused on the larger over 10,000 TEU ships with minimal order book in the smaller sizes. Moving to Slide 29. After an extended period of low charter rates, continuous scrapping increased dramatically in 2016. They record a 194 vessels with total capacity of 650,000 TEU or about 3.3% of the total container fleet were scrapped.

Net fleet growth was only 1.3%, the smallest in the last several years. Based on an annualized 100 million TEU scrapping pace for 2017, and a 35% non-delivery rate, net fleet growth should be about 2.7% compared to demand growth forecast of about 4.8%. With little incentive towards the new buildings in the current environment, the balance between demand and supply continues to improve. 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 now open the call to questions.

Operator: [Operator Instructions] Our first question comes from the line of Noah Parquette with JP Morgan.

Noah Parquette: You guys have been really active buying ships. I noticed one of the more recent ships, the Capesize had units as part of their consideration at pretty senior premium too.

Can you talk about like why that was included in the price and if you are open to using your units as currency here?

Angeliki Frangou: You know, we saw that this was giving us indications to apply the units to even do that it was – we issued the price of 2.1, which was at last raising. So it was not significant, it’s only one million units. But one of the things, as we’ve seen on our activities is we have concentrated on [indiscernible] in total seven vessels, and we are focusing on

two things: Reducing age profile of our fleet and increasing the deadweight of our fleet almost by one million tons. So concentration on age on all sectors – mainly on age, and this provides us with the ability to refocus on and renew our dry bulk fleet at the right time.

Noah Parquette: And then may be other shift to Handymax.

Is the related party the parent? It looks like the Celestial and if so --?

Angeliki Frangou: No we follow them, very good market with all these prices.

Noah Parquette: Okay, okay. That answered my question. And I guess, just quickly on the financing, it looks like you’ve been pretty successful, getting 3- to 4-year terms, at roughly 50% of the value. Are you comfortable with kind of that level of financing for future purchases?

Angeliki Frangou: I mean, we’ve been doing – this is within the very acceptable level of financing.

We have been added [ph] new banks to our – make sure markets -- are strong in the market and this is part of mix of bank financing, that we like to have.

Noah Parquette: Okay, great. That’s all I have, thank you.

Angeliki Frangou: Thank you.

Operator: At this time, there are no further questions.

I would turn the call back over to Angeliki Frangou.

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

Operator: This concludes today’s conference call.

You may now disconnect.