Q3 2017 Navios Maritime Holdings Inc Earnings Call

Nov 21, 2017 AM CET
NM - Navios Maritime Holdings Inc
Q3 2017 Navios Maritime Holdings Inc Earnings Call
Nov 21, 2017 / 01:30PM GMT 

Corporate Participants
   *  Angeliki N. Frangou
      Navios Maritime Holdings Inc. - Chairman & CEO
   *  George Achniotis
      Navios Maritime Holdings Inc. - CFO
   *  Ioannis Karyotis
      Navios Maritime Holdings Inc. - SVP of Strategic Planning
   *  Thomas Beney
      Navios Maritime Holdings Inc. - SVP of Commercial Affairs - Navios Corporation

Conference Call Participants
   *  Christian F. Wetherbee
      Citigroup Inc, Research Division - VP
   *  Noah Robert Parquette
      JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst

Operator   [1]
 Thank you for joining us for Navios Maritime Holdings' Third Quarter 2017 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. George Achniotis; SVP of Commercial Affairs, Mr. Tom Beney; and SVP of Strategic Planning, Mr. Ioannis Karyotis.

 This conference call is being webcast. To access the webcast, please go to the Investors section of Navios Maritime Holdings' website at www.navios.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 will also be found there.

 This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Holdings. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings' 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 Holdings' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this conference call.

 The agenda for today's call is as follows: We'll begin with formal remarks from the management team. And after, we'll open the call to take questions.

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

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [2]
 Thank you, Laura, and good morning to all of you joining us on today's call.

 Slide 3 provides our company highlights. Navios Holdings controls directly 64 modern dry bulk vessels and manages almost 200 vessels. The fleet size creates efficiencies and purchasing power. It also allows us to develop operating leverage through proprietary processes and technical competency. As a result, our operating costs are estimated to almost 40% below the average of our listed peers.

 Slide 4 and 5 illustrate a diversified universe of companies. Navios is a global brand with significant scale and deep industry relationships. Navios Holdings' value derives from the dry bulk fleet it holds directly and its equity interest in other entities that own tankers, dry bulk vessels, container ships and ports. Each entity has a strong balance sheet and healthy cash flow. Today, Navios Holdings' share price approximates the market price of its stakes in its public subsidiaries. Over time, the intrinsic value of these companies should be realized.

 As you know, on November 14, 2017, we successfully refinanced the 8 1/8% unsecured bonds that were maturing in 15 months. The terms of the new bond are detailed on Slide 6 and then priced $305 million of senior secured notes with a coupon of 11.25%. The new notes mature in 4.75 years. Maturity springs to October 2021 if $130 million of the 7 3/8% secured notes are outstanding on September 5, 2021.

 The new secured notes are callable at any time and do not include a make-whole provision by design. We paid dearly for this option, but we believe it was to the best interest of the company. The call structure provides flexibility to refinance these notes any time. This right is important to us as we believe the dry bulk market has stabilized and better days are ahead.

 Accordingly, we can immediately call the bonds at a premium to par in years 1 and 2 and at par thereafter. Security on the new notes includes NM's equity interest in the operating entities, Navios Maritime Partners, Navios Maritime Acquisition, Navios Maritime Containers and Navios South American Logistics.

 While we provide the shares as security for the loan, we did not impact our operating ability at any one of these companies. We are concurrently contacting a tender offer to retire the 2019 bonds. The tender offer had an early deadline yesterday, November 20, 2017, and an expiration on December 5, 2017.

 As a result of this refinancing, we are well positioned, as detailed on Slide 7. We had $119.2 million in cash at the end of the third quarter. We have no committed growth CapEx. Our balance sheet was solidified by a successful refinancing of our unsecured bonds and by an extension of the maturities of the $18.3 million of loan balance by 3 years.

 We enjoy industry-leading operating efficiencies by controlling cost and providing excellent management services. Our commercial management is done at cost and includes all sales and purchase transaction, charter transaction and financing transaction. We use a similar approach for technical management and administrative services.

 Also, we decreased our G&A expense by 50% over the past 2 years based on a run rate G&A expense for the first 9 months of 2017. In 2016, we created about $40 million in estimated operating cost savings when compared to our listed peers.

 We have been investing through the cycle. We constructed a new iron ore port terminal. The iron ore port has 4 million tons in iron ore transshipment guaranteed by Vale for 20 years. It's expected to generate about $38 million in EBITDA in 2018. The take-or-pay aspect commenced in October of 2017. The contract is expected to generate $1.2 billion in estimated EBITDA and has built-in tariff escalator, which further provides margin protection and growth.

 Slide 8 shows the cash flow potential of our fleet in the market recovery. Our expected time charter rate for the fourth quarter of 2017 is $12,094 per day, generating $260 million on an annualized basis. For 2018, our fleet has a total of 21,506 available days, of which 19,106 days have market exposure.

 At current rates of $14,925 per day, our fleet will generate an additional $60.9 million of cash flow. Moreover, if rates were to recover to a 20-year average of $21,574 per day, our fleet would generate an additional $203.9 million of cash flow.

 Slide 9 sets forth Navios' cost structure. Our expected daily revenue for the fourth quarter is $12,734. We fixed 91.1% of our available days at an average daily rate of $12,094. For 2018, assuming current rates, expected daily revenue is $15,075 per day. We fixed 11.2% of our available days at an average daily rate of $10,187 per day. Daily revenue increases by $4,209 based on an expected impact of current market rates on open index days and an additional $679 based on an NNA dividend.

 As to breakeven, our cost for the fourth quarter of 2017 is expected to be $10,906 per day. To this, we add the allocable cost of the new debt to determine the breakeven. Our cost includes all operating expense, scheduled dry-docking expense, chartering expense for our charter-in fleet, G&A expenses as well as interest expense and capital repayment.

 Slide 10 highlights our strong liquidity position. Net debt to book capitalization was 69%, and we had cash of $119.2 million and $139.2 million in total liquidity. We have no committed shipping growth CapEx or any material debt maturity until 2022.

 I would now like to turn the call over to Mr. Tom Beney, Navios Holdings' Senior Vice President of Commercial Affairs. Tom?

 Thomas Beney,  Navios Maritime Holdings Inc. - SVP of Commercial Affairs - Navios Corporation   [3]
 Thank you, Angeliki. Slide 11 presents our diversified dry bulk fleet, consisting of 64 dry bulk vessels, totaling 6.6 million deadweight split between Capesize, Panamax and Supramax family. We have 64 vessels on the water with an average age of 8.3 years. This is 7% younger than the industry average. Navios group's total fleet of 195 vessels includes 55 tankers, 39 container vessels and 101 dry bulkers and is a highly diversified public shipping group.

 Slide 12 shows about $40 million of estimated operating cost savings for Navios Holdings in 2016. To measure our efficiencies, we compared our operating costs to the published results of our peers. We computed our peers' operating cost by reviewing their 2016 20-Fs and related disclosures.

 As you can see on Slide 12, our analysis showed that Navios Holdings' operating costs were estimated at approximately 40% lower than the average of the listed peers. These efficiencies translate into savings of about $40 million in 2016. We believe that these savings demonstrate the substantial competitive benefit we can generate and the value it delivers to all our stakeholders.

 Turning to Slide 14, global economic prospects worldwide are improving. The IMF has increased world GDP forecast for 2017 and 2018 to 3.6% and 3.7%, respectively. Important for dry bulk demand, emerging market growth, predominantly in the Asian region, is forecast to grow at 4.6% in 2017 and 4.9% in 2018. Growth of advanced economies such as Europe, Japan and the U.S.A. also seems to be accelerating as economic conditions improve.

 On the back of synchronized worldwide economic growth, dry bulk trade growth is expected to triple from 1.2% in 2016 to over 4% in 2017. At current BDI levels, the dry bulk market is about 370% above the all-time low of 290% in February 2016, with substantial upside as it would need to appreciate by a further 67% to reach the 20-year average.

 The recovery in dry bulk rates continues. The BDI average in the first half of 2017 was double the average in the first half of 2016. During the Q3 and recently, we continued to experience a series of higher lows and higher highs in the Baltic dry bulk index.

 Slide 15 shows demand for iron ore. Substitution of Chinese expensive, low-quality iron ore with higher-quality and lower-priced imports, particularly from Australia and Brazil, continues. Imports into China for 2017 are forecasted to rise by about 7% or 63 million tons. Up to the end of September, Chinese iron ore imports were up 7% year-on-year.

 Steel production in China continues to expand, up 6% year-to-date. High domestic demand has translated into a 4-year high in steel prices. With lower imported iron ore and coal prices, Chinese steel mills are enjoying their best profit margins in the last decade. Higher Chinese domestic steel demand has been stimulated by large infrastructure projects and the recovery in the housing market.

 The One Belt, One Road project is a cornerstone of the Chinese economic plans for the next 5 years and supports steel and power demand inside and outside China. To manage the impressive growth in domestic demand, Chinese steel exports have decreased by over 30% this year. Steel production in the rest of the world has increased by about 5.6% year-to-date as the global economy recovers.

 Of note, our Brazilian iron ore exports, which are forecast to grow by 17 million tons in 2017 and a further 20 million tons in 2018, as Vale's flagship mine, S11D, reaches its 90 million ton annual capacity, which will further help ton miles.

 Please turn to Slide 16. 2016 saw the Chinese coal market start to restructure. Domestic coal production reduced by about 9% or approximately 300 million tons, and imports of coal surged by 20% or about 40 million tons.

 The Chinese government continues to rationalize domestic coal production, closing down small, inefficient domestic 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 polluting mines are closed.

 Electricity consumption in China continues to rise in 2017 by about 7% up to the end of September, with thermal power generation rising by 7%. Through September 2017, coal imports are up by about 8%. As we enter the winter peak season, we should experience an increase in imports as power plants stock up. China imports less than 10% of its annual coal consumption. But with the domestic coal price above import prices, the market continues to incentivize strong imports.

 Turning to Slide 17. Agricultural production worldwide continues to increase. 2016 saw an increase in world trade of 21 million tons to 481 million tons. 2017 forecast called for a further increase of 6.3% or 30 million tons.

 Worldwide grain trade has grown by 5.2% CAGR since 2008, mainly driven by Asia. High grain demand particularly helps the Panamax and Supramax sectors. Demand increases are focused on Asian economies, and especially China, where incomes are rising and diets are changing. These areas tend to be further afield from the major agricultural product exporters, helping ton miles, which have grown by over 6% CAGR since 2009.

 Grain is an inefficient cargo. Loading delays due to complicated logistics and weather issues make total voyage days increase, absorbing ship capacity. The main export countries for grain tend to be Atlantic-based, and the main import regions are Pacific-based. This also contributes to longer-haul routes and increased ton miles.

 Moving to Slide 18, up to the end of October, about 36 million deadweight of new buildings delivered versus an expected delivery of 54 million tons deadweight, maintaining a 33% nondelivery rate.

 As of January 1, 2017, the order book stood at 58 million deadweight. Using a 33% nondelivery rate for the year, it is estimated that about 39 million tons will actually deliver. The total order book hit a 15-year low of 7.8% of the dry bulk fleet earlier this year. The forecast for fleet growth in 2018 is 1.2%. This will be the lowest fleet growth since 2000.

 Uncertainty over new Tier 3 designs incorporating the new SOx and NOx requirements as well as new ballast water systems makes ordering new buildings risky and encourages scrapping of older vessels.

 Turning to Slide 19, 2016 ended with net fleet growth of 2.2%, the lowest percentage for many years. Through November 2017, the pace of scrapping has fallen as charter rates have improved. 13.5 million tons of deadweight were scrapped year-to-date.

 Maintaining the current scrapping pace of nondeliveries will produce a lower net fleet growth this year. The current order book before nondeliveries is about 8% of the current fleet. We note that vessels over 20 years of age equal about 7% of the current fleet. This will help maintain low net fleet growth going forward.

 The fundamentals for 2018 and beyond remain positive, and the balance between supply and demand supports higher charter rates going forward. In fact, forecasts for 2018 show that expected demand growth of 2.7% will be more than twice the level of forecasted supply growth of 1.2%.

 I would now like to turn the call over to our CFO, George Achniotis, for the Q3 financial results. George?

 George Achniotis,  Navios Maritime Holdings Inc. - CFO   [4]
 Thank you, Tom. Please turn to Slide 20 for a review of the Navios Financial Holdings' financial highlights for Q3 and the 9 months through September 30, 2017. Revenue increased by 7% to about $121 million in '17 from $113 million in '16. Revenue from shipping operations increased by 22%. The increase was due to an increase in the TCE rate achieved and an increase in the operating days of the fleet compared to last year.

 EBITDA for the quarter was $31.2 million compared to adjusted EBITDA of $38.5 million in '16. EBITDA for the third quarter and the 9 months of '16 was adjusted to exclude the $16 million gain from the repurchase of bonds at a discount and an $8 million loss representing our share of Navios Partners' impairment losses. The decrease in EBITDA is mainly attributable to a reduction in earnings from affiliates and more especially from Navios Acquisition as the tanker sector is at a different point in its cycle.

 Net loss for the quarter was $0.26 compared to a net loss of $0.30 in '16. Net loss for Q3 of '16 was adjusted to exclude the items that affected EBITDA as well as $13 million write-off of intangible assets due to the early delivery of a chartered-in vessel. The result is mainly due to the decrease in EBITDA.

 Turning to the 9-month results, the revenue has increased by 4% to $335 million from $320 million in '16. Revenue from shipping increased by 20%, following a 9% increase in the TCE rate achieved and an 8% increase in the operating days of the fleet. EBITDA for the 9 months through September '17 was adjusted to exclude $14.2 million loss from the sale of 2 vessels earlier in the year and $4.7 million representing our portion of impairment losses at NNA.

 Adjusted EBITDA was $80.1 million compared to $100.1 million in '16. Similar to the quarterly results, the decrease was mainly attributable to a reduction in the equity pickup of earnings of NNA. The result was also affected by a lower EBITDA contribution from Navios South American Logistics. The decrease was mitigated by a 27% increase in the results of shipping operations. Adjusted net loss for the first 9 months of 2017 was $95.4 million compared to an adjusted net loss of $78.5 million in '16. The decrease was mainly due to the decrease in EBITDA.

 Moving to Slide 21, we continue to maintain a healthy cash balance. At September 30, 2017, we had $119 million in cash compared to $141 million at December 31, '16. With the completion of the construction of the port in Uruguay, deposits for asset acquisitions have decreased to $29 million compared to $137 million at December 31.

 The debt and senior notes do not reflect the refinancing of the 2019 notes, the repayment of the NNA loan and the issuance of the term loan B of Navios South American Logistics that took place after quarter end. I would like to point out the fact that after the refinancing of the 2019 notes, we have no significant maturities until 2022.

 Over the next slides, I will briefly review our subsidiaries. Please turn to Slide 22. Navios Holdings owns about 21% of Navios Partners, including a 2% GP interest. Navios Partners owns a fleet of 37 vessels: 30 dry bulk and 7 containers. Navios Partners also owns about 34% of Navios Containers, a growth vehicle dedicated to containers.

 Navios Partners is a unique platform expected to generate significant cash flow with no significant near-term maturities. The company is currently in the process of renewing its dry bulk fleet with younger and larger vessels. So far this year, it has added 7 vessels with an average age of 7.4 years and has sold 1 17-year-old vessel, achieving a 9% decrease in the average age of the dry bulk fleet and increasing the fleet size by 33% or 1 million deadweight tons.

 Turning to Slide 23, Navios Holdings owns about 46% of Navios Acquisition. Navios Acquisition has become a leading tanker company with 36 modern, high-quality vessels with an average age of less than 7 years, diversified between crude product and chemical tankers. All vessels are on the water generating cash flow and provide cash flow visibility as the fleet is almost fully fixed for 2017.

 The strategy of the company continues to provide charters that outperform the market. In fact, for the 9 months of September 2017, the charter rates achieved were 57% higher than the spot market average, translating into $60 million of additional revenue when compared to the market average.

 NNA is also a sponsor of Navios Midstream Partners, an MLP with 6 VLCCs. NNA expects to receive about $21 million distributions from Navios Midstream in 2017 and has received almost $55 million distribution since 2015. Navios Acquisition will also provide about $16 million in dividends to Navios Holdings during 2017.

 Now I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?

 Ioannis Karyotis,  Navios Maritime Holdings Inc. - SVP of Strategic Planning   [5]
 Thank you, George. Slide 25 provides an overview of the Navios Logistics business. Navios Logistics operates 3 port terminals: one for grain, one for iron ore and one for liquid cargoes. Navios Logistics complements its port business with its barge fleet for river transportation and product tanker fleet for coastal cabotage trade.

 Please turn to Slide 26. In November, Navios Logistics closed a $100 million term loan B facility. The facility bears an interest rate of LIBOR plus 4.75%, has a 4-year term and 1% amortization per year.

 The facility is secured by first priority mortgages, covering 5 vessels, and assignment of certain receivables, including the receivables from the Vale port contract. We used part of the proceeds to distribute a $70 million dividend, and the remaining net proceeds are available for general corporate purposes.

 The new iron ore terminal is operational since the second quarter of 2017. During the third quarter, Vale continued to move cargo ad hoc through the terminal, generating $1.1 million revenue.

 Beginning in October, Vale's minimum transshipment obligation under the take-or-pay agreement commenced. Based on just a minimum guaranteed quantity, we expect revenue of about $10.3 million for the fourth quarter of this year from the Vale port contract.

 The new iron ore terminal is transformational for Navios Logistics. On 4 million tons iron ore throughput, we expect to generate $38 million EBITDA in 2018. The contract includes annual tariff adjustment clauses with escalators, such that it is reasonable to expect approximately $1.2 billion of cumulative EBITDA over the 20-year contract period.

 Vale as of -- has an option to transit 2 million tons per year in addition to the minimum guaranteed quantity, while the terminal has a total annual transshipment capacity of 10 million, leaving 4 million tons available for other clients. The expected annual EBITDA from the additional 6 million tons beyond the minimum guaranteed quantity of Vale would be over $50 million.

 Slide 27 reviews our results. Q3 2017 revenue decreased 6% to $59.6 million, and EBITDA decreased 5% to $18.2 million. Q3 2017 port segment revenue was 15% higher compared to the same period last year, and EBITDA increased 30% to $10.1 million. The EBITDA increase is mainly attributable to the better performance of the grain terminal and the commencement of operations of the iron ore terminal.

 In the barge business, Q3 revenue decreased 24% and EBITDA decreased 51% to $3.6 million. The decrease is mainly attributable to the expiration of certain long-term iron ore transportation contracts during the second half of 2016. Going forward, we expect that the volume from the Vale port contract will have a favorable impact on the barge market.

 Cabotage business Q3 EBITDA increased 11% to $4.5 million compared to $4.1 million in the same period last year, mainly due to lower operating costs. Net income in Q3 2017 was $1.8 million compared to $2.8 million net income in the same period last year, mainly due to the weaker performance of the bulk segment and higher interest expense net, partially mitigated by higher income tax benefit.

 Turning to the financial results for the 9-month period ending September 30, 2017. Revenue decreased 8% to $162.8 million. EBITDA decreased 22% to $47.5 million, and net income amounted $3.3 million from $15.8 million in the same period last year.

 Please turn to Slide 28. Navios Logistics has a strong balance sheet. Cash at the end of Q3 2017 was $68 million compared to $68.1 million at the end of 2016. Net debt-to-book capitalization was 47% compared to 48% at the year-end 2016. The Q3 balance sheet does not include the issuance of a $100 million term loan and the $70 million dividend distribution that occurred in November and will be reflected in the consolidated financial statements of 2017.

 Now I would like to turn the call back to Angeliki.

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [6]
 Thank you, Ioannis. We open the call to questions.

Questions and Answers
Operator   [1]
 (Operator Instructions) Our first question comes from the line of Noah Parquette of JPMorgan.

 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst   [2]
 I wanted to ask about logistics on the port side, I guess, just about the additional capacity. Has Vale given any indication that they plan on using the additional 2 million? And maybe you could just give an update on any discussions you're having for the rest of that capacity.

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [3]
 Vale -- I mean, we have to realize that -- and you have to realize that Vale started in October, so we have now the ramping up of the minimum guarantee. You will have to see -- I mean, what is logical is that in the next 18 months, we will see the ramping up to the -- most probably to the higher number of 6 million. So the minimum guarantee is number one.

 And as the port grows, I mean, you will see that they will -- most probably, they will have to go to the full 6 million because it will be beneficial to them. And that's, I think, the important thing.

 There's also preliminary talks on the second -- on the fourth mine that is there, which is actually there is a tender and is undertaking -- an ownership is operated by a Brazilian consortium. But now there is a tender and maintained ownership. This was an ex MMX mine.

 Just to give you -- just to remind you one thing. Last year, iron ore down the river, which is the worst year for all commodities, we saw it in shipping, is 2 million. 2015 -- 2014 it was 8.5 million. So it gives you the potential that it can go without seeing the macro level of -- I mean, we had a -- with McKinsey reported the commission, where you see that the kind of iron ore from that area, which is (inaudible) good quality, it has a preferential pricing and quite significant. And that will have -- eventually go to 12 million to 13 million over a longer period.

 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst   [4]
 Okay. And then I think you guys said on -- in the commentary that on the barge business, you expect the situation to improve as the port ramps up. Is that correct?

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [5]
 Yes, yes. And let's be -- there is also an additional thing that you should remember. I mean, our barge operation has come to the lowest. We're about $19 million versus previously we had -- we were about 30% higher, 40%. Reality, in that business there's good things. You have at -- one more commodity coming down the river that will absorb capacity. And even with a very conservative calculation, it can go over 20%, suck up the capacity on that river with a very efficient operation.

 Secondly and most importantly, you see in the river, from a major competitor from -- of ours, scrapping. And we have seen that there is a program of over 200 barges being scrapped. So demand is going up, and scrapping and supply is reducing. Sorry?

 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst   [6]
 I was just going to say, is there more longer-term charter activity going on in the barge business now? Or is it still shorter periods?

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [7]
 No. This is going to be 2018. You need to see -- the cargoes coming in. Demand absorbing, but you have visibility. The smaller ecosystem -- I mean, you see the river. You know the flows that will be coming. And you see also the supply disappearing, which is an important issue. That is quite unique in that area, and you see a major scrapping program.

 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst   [8]
 Okay. And then just one other, just shifting to the parent. It's great that you guys have cleared up the maturities next year and in '19. And obviously, the dry bulk market should be better. Will you guys -- hopefully, you'd be accruing some cash at the parent. What do you plan on doing with that cash given the light near-term maturities?

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [9]
 Listen, our #1 priority is to repay debt and create room. And just realize that we have $200 million circa on our loans, which we can prepay immediately. Also, another thing I want to say that -- and you have to prepare cash generation.

 One other thing I will say is that, yes, we also paid dearly for this bond. But in reality, one of the things that Navios show as a great advantage is that we got an immediately callable bond. That, for us, was a priority. And it gives us the ability to call it immediately. And after the second year, at 0 premium.

 Also, it gave us the -- we gave collateral vestige on our affiliates, but it allow us -- we are our freely -- our affiliates can freely structure their -- create their capital structure and vis-à-vis operating discretion. Very major issues. By taking out the bond, you also made sure that you have almost 5 years of visibility, and you are able to execute on a strategy with a better market.

Operator   [10]
 Your final question comes from the line of Chris Wetherbee of Citigroup.

 Christian F. Wetherbee,  Citigroup Inc, Research Division - VP   [11]
 I guess I just wanted to pick up, Angeliki, on what you were just talking about there in terms of the refinancing opportunities for the new bond. We should be assuming that you'll be looking at the economics of that refinancing, I guess, as soon as possible. But certainly after year 2, that's when there would be, I guess, a meaningful push. And I guess if we're just trying to think about your approach there, that would be, sort of post year 2, it would be higher on the priority list.

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [12]
 Yes. I mean -- and that is a very clear thing. That's why we paid for that optionality, which -- to have an immediately callable bond. I mean, even from year 2, you can do it with less than $13 million. And in -- from after year 2, at 0 cost. So -- at 0 premium. So that is, I think, an important issue, that you give visibility to Navios Holdings. And let's not forget, I mean, Navios has an embedded optionality in all our structures.

 Christian F. Wetherbee,  Citigroup Inc, Research Division - VP   [13]
 Yes, okay. And then in terms of incremental free cash flow, I thought the Slide #8 was helpful. It sounds like first priority is to pay down debt. Is there any room for anything other than debt repayment in the next sort of year or so, assuming rates stay at current rates or maybe better?

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [14]
 One other thing I want to tell you -- and you may remember it because you have covered us during previous cycles. Navios has -- operates 64 vessels. 2/3 are owned, 26 are chartered-in. And we have 20 purchase options.

 I want to remind you that as market recovers, this optionality that is embedded in our fleet is going to be very useful, and you can create a lot of value. I think that is also another important -- so you can do acquisition/replenishment of your fleet without additional cash flow actually at a quite significant optionality.

 Christian F. Wetherbee,  Citigroup Inc, Research Division - VP   [15]
 Okay. Yes, that's helpful. And I do remember. It's been a long time I've been covering you guys. That's right. In terms of...

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [16]
 A different part of the cycle, but again, it repeats itself.

 Christian F. Wetherbee,  Citigroup Inc, Research Division - VP   [17]
 Absolutely. That's absolutely correct. And then can I turn to the logistics business for a minute? And specifically on the take-or-pay contract with Vale, could you just broadly speak without a ton of specificity -- but certainly, I want to get a sense of how the payment structure sort of works there. Is it monthly? Is it quarterly? How do you guys receive payment from Vale?

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [18]
 Let me have Ioannis explain exactly.

 Ioannis Karyotis,  Navios Maritime Holdings Inc. - SVP of Strategic Planning   [19]
 The -- according to the contract, we invoice Vale on the loading of its vessel, and they have to pay invoices within a certain -- very short period. And every 6 months, we have to calculate if there is a minimum guarantee payment obligation. So if they have performed less than the minimum for the period, then we invoice the difference.

 Christian F. Wetherbee,  Citigroup Inc, Research Division - VP   [20]
 Okay. So from a cash flow perspective, if they're below the 4 million tons, it can be lumpy with sort of true-ups every 6 months?

 Ioannis Karyotis,  Navios Maritime Holdings Inc. - SVP of Strategic Planning   [21]
 Yes, but what they load is invoiced immediately. Yes, of course, the -- for accounting purposes, the revenue is accrued for the period that it corresponds.

 Christian F. Wetherbee,  Citigroup Inc, Research Division - VP   [22]
 Okay. So the revenues are accruing as you're booking that according to the minimum guarantee, but cash flows will be lower if they're below and then catch up, say, every 6 months?

 Ioannis Karyotis,  Navios Maritime Holdings Inc. - SVP of Strategic Planning   [23]

Operator   [24]
 That was our final question. I would like to turn the floor back over to Angeliki Frangou for any additional or closing remarks.

 Angeliki N. Frangou,  Navios Maritime Holdings Inc. - Chairman & CEO   [25]
 Thank you. This completes our earnings -- Q3 earnings.

Operator   [26]
 Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect, and have a wonderful day.

PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

Copyright 2018 Thomson Reuters. All Rights Reserved.