Navios Maritime Partners L.P.(US:NMM)2023-03-24 20:14Forward-Looking Statements This report contains forward-looking statements regarding the company's plans, strategies, business prospects, and market trends, subject to numerous risks and uncertainties - This report contains forward-looking statements regarding the company's plans, strategies, business prospects, and market trends. These statements are based on management's current expectations and are subject to numerous risks and uncertainties1012 - Key areas covered by forward-looking statements include the ability to pay cash distributions, future financial results, charter hire rates, vessel values, debt repayment, access to capital markets, and the ability to integrate acquired fleets11 - The company cautions that actual results could differ materially from these statements due to significant uncertainties, many of which are beyond its control and have been exacerbated by events like the COVID-19 pandemic and the Ukrainian/Russian conflict13 PART I Item 3. Key Information This section details the primary risks facing the company, categorized into business and industry risks, indebtedness risks, risks related to its equity units, and risks concerning its organizational and tax structure Risks Relating to Our Business and our Industry The company's business is subject to significant industry-specific risks, including the highly cyclical and volatile nature of charter rates and dependence on global demand, particularly from China - The shipping industry is highly cyclical, with the Baltic Dry Index (BDI) ranging from a low of 530 in February 2023 to a high of 5,650 in October 2021, and the Containership Timecharter Rate Index falling from 434 in April 2022 to 95 by February 20233435 - The business is heavily reliant on China's economy, which accounted for approximately 74% of global seaborne iron ore trade and 23% of seaborne crude oil trade in 202244 - Customer concentration has decreased, with no single customer accounting for 10% or more of total revenues in 2022, a contrast to prior years86 - As of March 2023, the newbuilding orderbook as a percentage of the existing global fleet stood at approximately 7% for drybulk carriers, 29% for containerships, and 4% for tankers, indicating varied risks of future oversupply across sectors126127128 Risks Relating to Our Indebtedness The company's significant debt level, totaling $1.959 billion as of December 31, 2022, poses risks from restrictive covenants and interest rate volatility - As of December 31, 2022, the company's total borrowings amounted to $1,959.0 million, which could impair the ability to obtain additional financing and requires a substantial portion of cash from operations for debt service180 - Financing arrangements contain restrictive covenants, including maintaining security value to loan ratios (105%-140%), a minimum EBITDA to interest expense ratio of at least 2.00:1.00, and total liabilities to total assets ratios ranging from less than 0.75 to 0.80190 - The company is exposed to interest rate volatility as borrowings are based on floating rates like SOFR, and it does not currently have interest rate swap arrangements to hedge this exposure184185186 Risks Relating to Our Units Ownership of the company's common units carries risks, including the board's discretion over cash distributions, potential unit price volatility, and limited unitholder voting rights - The board of directors has discretion over cash distributions, having suspended them in February 2016 and reinstated them in March 2018196 - The partnership agreement restricts voting rights, stipulating that any person or group owning more than 4.9% of common units cannot vote the excess units, a limitation not applicable to the general partner or its affiliates except in independent director elections209210 Risks Relating to Our Organizational Structure, Taxes and Other Legal Matters The company's organizational structure presents risks, including dependence on its Managers, potential conflicts of interest with affiliates, and adverse U.S. federal income tax consequences for unitholders - The company depends on its Managers for significant commercial, technical, and administrative services, with fees and cost reimbursements representing a significant percentage of revenues214249 - Navios Holdings owns approximately 10.5% of the company's common units, and its affiliates may have conflicts of interest that could favor their own interests over those of other unitholders244 - There is a risk that U.S. tax authorities could treat the company as a "Passive Foreign Investment Company" (PFIC), which would have adverse tax consequences for U.S. unitholders; however, based on current operations, the company believes it was not a PFIC for 2022220221 - Recent tax law changes, particularly "downward attribution" rules, could result in the company being treated as a "Controlled Foreign Corporation" (CFC), which would have adverse tax consequences for U.S. unitholders owning 10% or more of the equity225 Item 4. Information on the Partnership This section provides a comprehensive overview of the partnership, including its history, strategic developments, business operations, fleet composition, competitive strengths, customer base, and the regulatory landscape History and Development of the Partnership Navios Partners, formed in 2007, has significantly grown its international dry cargo and tanker vessel fleet through strategic mergers and acquisitions, including a 36-vessel drybulk fleet in 2022 - Completed the merger with Navios Maritime Containers L.P. (NMCI) on March 31, 2021, making NMCI a wholly-owned subsidiary259 - Acquired a controlling interest in Navios Maritime Acquisition Corporation (NNA) on August 25, 2021, and completed the full merger on October 15, 2021260261 - Acquired a 36-vessel drybulk fleet from Navios Holdings for $835.0 million, with deliveries completed in July and September 2022265 Business Overview The company operates a diversified fleet of 175 vessels with 23 newbuildings, pursuing stable cash flows through long-term charters while navigating competitive markets and extensive environmental regulations - The company is committed to achieving "net-zero" carbon emissions by 2050 through operational improvements and investment in new, efficient technologies268 - Fleet Composition as of March 13, 2023 | Vessel Type | Count | | :--- | :--- | | Drybulk Vessels | 82 | | Containerships | 47 | | Tanker Vessels | 46 | | Total | 175 | - The company has a significant newbuilding program, including 12 containerships, 6 Aframax/LR2 tankers, and 5 other vessels expected for delivery through 2026271284 - The company's chartering strategy for 2023 involves having approximately 88.0% of containership days, 41.1% of drybulk days (ex-index), and 72.9% of tanker days (ex-index) fixed to secure stable cash flows while maintaining some market exposure283 - The company is subject to significant environmental regulations, including the IMO's EEXI and CII requirements effective January 1, 2023, and the upcoming inclusion of maritime transport in the EU's Emissions Trading System (ETS) starting in 2024383391393 Operating and Financial Review and Prospects This section analyzes the company's financial performance, highlighting a 69.7% revenue increase in 2022 due to fleet expansion and higher Time Charter Equivalent (TCE) rates, alongside liquidity, capital expenditures, and non-GAAP measure reconciliations Operating Results For the year ended December 31, 2022, time charter and voyage revenues increased by 69.7% to $1,210.5 million, driven by fleet expansion and a 6.1% rise in the Time Charter Equivalent (TCE) rate, leading to increased net income - Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Time charter and voyage revenues | $1,210.5 M | $713.2 M | | Net income attributable to unitholders | $579.2 M | $516.2 M | - Key Fleet Performance Indicators (2022 vs. 2021) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Available Days | 49,804 | 31,884 | | Time Charter Equivalent (TCE) per day | $23,042 | $21,709 | | Fleet Utilization | 98.9% | 99.2% | - The increase in revenue was primarily due to the expansion of the fleet following the acquisition of the 36-vessel drybulk fleet from Navios Holdings, the NMCI Merger, and the NNA Merger486 - A gain on the sale of vessels of $149.4 million was recognized in 2022, compared to a $33.6 million gain in 2021494 Liquidity and Capital Resources As of December 31, 2022, the company had a negative working capital position of $307.3 million, but anticipates sufficient cash flows and contracted revenue of $3.5 billion to meet obligations, with total borrowings at $1.9454 billion - The company had a negative working capital position of $307.3 million as of December 31, 2022, with current assets of $310.4 million and current liabilities of $617.7 million505 - Cash Flow Summary (2022 vs. 2021) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash from operating activities | $506,340 | $277,173 | | Net cash used in investing activities | ($316,241) | ($106,252) | | Net cash used in financing activities | ($184,447) | ($32,203) | - Total borrowings, net of deferred finance costs, were $1,945.4 million as of December 31, 2022, an increase from $1,361.7 million at year-end 2021536 - Capital expenditures totaled $610.6 million in 2022, a significant increase from $278.8 million in 2021, reflecting continued fleet expansion and modernization537 Critical Accounting Estimates The company's financial statements rely on critical accounting estimates, particularly concerning the impairment of long-lived assets, fair value of acquisitions, and the useful lives and residual values of vessels - The acquisition of the 36-vessel drybulk fleet from Navios Holdings in 2022 was accounted for as an asset acquisition, not a business combination556902 - In 2022, the company recognized a $7.9 million impairment loss on four vessels committed for sale, following a $71.6 million impairment loss in 2020, with no impairment recorded in 2021572576921 - The company estimates the useful life of its vessels at 25 years for drybulk and tanker vessels and 30 years for containerships, with residual values based on a scrap rate of $340 per LWT580898 Directors, Senior Management and Employees This section outlines the company's leadership, board structure, and compensation practices, noting the seven-member board, independent committees, and executive compensation through the Managers - The board of directors consists of seven members: three appointed by the General Partner and four elected by common unitholders to serve staggered three-year terms615 - Non-management directors receive an annual fee of $80,000, with additional fees for committee chairs, and the Chairwoman of the Board receives a fee of $150,000 per year609 - In December 2022, the Compensation Committee approved a cash payment of $4.4 million to officers and directors, with an additional $4.4 million subject to service conditions in 2023611 Major Unitholders and Related Party Transactions This section details the ownership structure and key agreements with related parties, including major unitholders like Navios Holdings (10.5%) and the Omnibus and Management Agreements governing operations and competition - Major Unitholders as of March 17, 2023 | Beneficial Owner | Common Units | Percentage | | :--- | :--- | :--- | | Navios Holdings | 3,183,199 | 10.5% | | Pilgrim Global ICAV | 3,087,401 | 10.2% | | Angeliki Frangou | 1,550,632 | 5.1% | - The Omnibus Agreement with Navios Holdings includes non-competition clauses and grants rights of first offer on the sale of certain vessel types between the two entities639645 - The company has Management Agreements with the Managers for commercial and technical vessel management and an Administrative Services Agreement for administrative support, both expiring on January 1, 2025650658 Financial Information This section addresses legal proceedings, including a past claim related to the 2016 Hanjin Shipping bankruptcy, and the company's cash distribution policy of $0.05 per unit quarterly, subject to board discretion and debt restrictions - The company's cash distribution policy, amended in July 2020, is to pay a quarterly distribution of $0.05 per unit, but payment is at the discretion of the Board of Directors and subject to various restrictions668 - The company had previously filed claims for lost revenues from the 2016 Hanjin Shipping bankruptcy and has fully provided for these amounts in its books665 Additional Information This section provides further details on the company's corporate structure, material contracts, and tax considerations, including its Marshall Islands entity status, U.S. tax election, and Section 883 exemption for shipping income Taxation The company, a Marshall Islands limited partnership, has elected to be treated as a corporation for U.S. federal income tax purposes and believes its international shipping income is exempt from U.S. tax under Section 883 - The company has elected to be treated as a corporation for U.S. federal income tax purposes433694 - Management believes the company qualifies for the Section 883 Exemption, which exempts U.S. Source International Transportation Income from U.S. federal income tax437438 - The company and its unitholders are not subject to Marshall Islands income, capital gains, or withholding taxes on distributions under current law448731 Quantitative and Qualitative Disclosures about Market Risks The company is exposed to market risks, primarily interest rate risk from floating-rate debt, with a 1% LIBOR/SOFR increase impacting 2022 interest expense by $12.6 million, while credit risk has decreased due to reduced customer concentration - The company is exposed to interest rate risk from its floating-rate bank borrowings; a hypothetical 1% increase in LIBOR/SOFR would have increased its 2022 interest expense by $12.6 million739 - Credit risk concentration has been reduced; no single customer accounted for 10% or more of total revenues in 2022741 - Foreign exchange risk exists but is limited as transactions are predominantly U.S. dollar-denominated736 PART II Item 15. Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022, with no material changes reported during the year - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022749 - Based on the COSO framework, management assessed the company's internal control over financial reporting as effective as of December 31, 2022, an assessment audited and confirmed by the independent registered public accounting firm753754756 Item 16. Corporate Governance and Other Matters This section covers corporate governance, identifying Serafeim Kriempardis as the Audit Committee Financial Expert, detailing audit fees of $0.6 million for 2022, and noting the $100.0 million common unit repurchase program authorized in July 2022 - The Board of Directors has determined that Serafeim Kriempardis qualifies as an "audit committee financial expert"758 - Principal Accountant Fees | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $0.6 million | $0.5 million | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | Other Fees | $0 | $0 | - In July 2022, the Board authorized a common unit repurchase program for up to $100.0 million; as of December 31, 2022, no repurchases had been made under this program768 PART III Item 18. Financial Statements This section presents the audited consolidated financial statements for Navios Maritime Partners L.P. for fiscal years 2022, 2021, and 2020, including balance sheets, statements of operations, cash flows, and detailed notes - Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $310,424 | $226,340 | | Vessels, net | $3,777,329 | $2,852,570 | | Total Assets | $4,895,704 | $3,623,299 | | Total Current Liabilities | $617,740 | $395,505 | | Total Non-Current Liabilities | $1,935,001 | $1,458,069 | | Total Liabilities | $2,552,741 | $1,853,574 | | Total Partners' Capital | $2,342,963 | $1,769,725 | - Consolidated Statement of Operations Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Time charter and voyage revenues | $1,210,528 | $713,175 | $226,771 | | Vessel operating expenses | ($312,022) | ($191,449) | ($93,732) | | Net income/ (loss) | $579,247 | $511,273 | ($68,541) | | Net income/ (loss) attributable to Navios Partners' unitholders | $579,247 | $516,186 | ($68,541) | - Consolidated Statement of Cash Flows Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $506,340 | $277,173 | $94,086 | | Net cash used in investing activities | ($316,241) | ($106,252) | ($83,854) | | Net cash used in financing activities | ($184,447) | ($32,203) | ($9,906) |