Q4 2019 Earnings Call
Ladies and gentlemen, this was the operator todays conference is scheduled to begin momentarily until that time. Your line polygamy placed on music cold. Thank you for your patience.
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Morning, My name is Laurie Adobe Your conference operator today.
At this time I would like to welcome everyone to the pin jail logistic solutions fourth quarter 2019 earnings teleconference.
Our host for today's call on Mr. At Kohl's, Chairman and Chief Executive Officer, and Mr., Gianni Delsignore Chief Financial Officer.
Today's call is being recorded and will be available for replay beginning at 11 am eastern time.
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And it's now my pleasure to turn the floor over to T. I go on occur with first that's partners.
Thank you Laurie and thank you for joining us for this morning's fourth quarter 2019, earning conference call for Penn jail logistic solution with us today from the company, our chairman and CEO, Mr. I'd call and Chief Financial Officer, Mr. Gianni Delta anyway.
Before I turn the call over to add I'd like to read the Safe Harbor statement.
This conference could contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 about Pangaea logistics solutions.
Forward looking statements our statements that are not based on historical facts such forward looking statements on the current beliefs and expectations a pin Jay logistics operations 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 can jail logistic solution filing with the securities and Exchange Commission. The information that boy hearing should be understood in light of such risks have jail logistic solutions does not assume any obligation to update the information contained in this conference call also please recall that.
Supplemental slide presentation ball company. That's all those slides can be found attached to the 8-K that was filed with last nights release, which is available on the investor section of Www Dot pin J.R.L.S. Dot com and your company filing or on the Fccs website at Sep.
Dotcom.
Now I'd like to turn the call over the pen jail logistic solution, Chairman and CEO Mr. I'd call Ed.
Thanks, Tim and good morning to all of you and thank you for joining us on the call.
Good morning, I'll provide an update of our operations on the overall market.
Turning the call, it's a gianni our CFO to provide a more detailed.
Overview of the fourth quarter financials.
Then open the lines for questions.
Before I address all results and talk about our fiscal.
Yes 2019.
Please allow me to talk about the impact who Wanna virus, which I don't know market.
And the way, we're approaching that I think it'd be very difficult time foolish I hope you and your families which safely wedding score.
Across all of offices were taking everything caution, mostly working from home, which is familiar territory for most of our people. It's just as a 24 seven.
Business and the best at times.
Overall, our position in the shipping markets and I was attempting to be resilience of the impact of its global and on it.
After a weak start to the year minor bulk smell moving.
Capsulation certain points imports or exports to the virus response.
Right and supply just listen.
However, we're prepared for downturn, it becomes which maybe some evitable, it's much much of the world economy closing down the same time.
You can only hope for a quick recovery.
Our board has wisely deferred a decision on our next dividend payment.
And we have assisted buying more ships to replace those who have sold over these past few months.
We will use our flexible business model the quickly adjust for chartered in this that's we feel the Mark Newman.
Well continue to work closely with our customers to support the businesses and they will try to conserve cash.
But will always be resourceful and opportunistic.
We hope that time to do our press release and accompanying presentation, which really should let Steven.
That's you've heard a state or seaborne drybulk industry cyclical I couldn't be very volatile.
Although the average pediatric from 2019 remained flat year over year 13 29.
She still volatile totally led to a low fives 95 in February.
And a multiyear 525 week in September.
Despite these conditions our fleet remains the same.
We were actually average published market reach for Supramax six handymax vessels decreased by approximately 8% for 10009 three in 2019.
And she is savage GCA Tc rates increased by 1% in 2019.
You also exceeded the public market rates.
Published market rates by an average of 39% for.
For 2019, continuing or industry, leading performance.
2019 was an extremely active here for us we continue to operate profitably despite losses on sale and impairments.
Those sales advanced our strategic priority, improving our fleet age Gianni will provide more detail shortly.
Well go over our vessel activity increased substantially in the third and fourth quarters, which is typically our busiest time of year.
Along with our strong operational results, you're able to push forward course teacher initiatives such as our fleet renewal efforts important just fix.
In May we announced expansion of or high ice class fleet age because the new trend year contract with our customer back Finland, and one of your minds Corporation.
Continuing to demonstrate our leadership in high Arctic shifting.
You also signed a contract to build for new post Panamax 95000, deadweight ton dry bulk vessels like Wanzhou shipyard in China. This supports this business.
Additionally, we built the temporary poor and formed a shipment valuable or from being on the beach less than a thousand miles from the north pole.
To enhance our fleet renewal during the year before.
We purchase of young secondhand vessels, our joint venture with Hudson instruction capital management continues to help us expand.
Last capabilities.
With the construction of these vessels.
Further the ships has been committed that have committed financing through competitive 15 year.
Sales for the back transaction.
Well we ended the year, we took further steps in our fleet with the plan by selling for older ships, putting us in a position to a new an opportunity she arrives.
<unk> aggressive debt amortization, the purchase of new vessels.
Substantial new building deposits and payment of dividends to our shareholders are strong cash operating income I love cash to stay about $50 million that you're in.
Additionally, we expanded our reach onshore Brayton point terminal, which is now one operation and received or first part of a shipment there.
You also awarded the contract when she's doing operations for major customer and the Mississippi River you and.
We continue to demonstrate our expertise and they've just been difficult challenges.
Related to Clark of humans, which make us always ready to expand.
2020 began much uncertainty about the implementation of new fuel regulations and the IMO 2020.
Our decision on compliance with the new regulation. This me in early 2019, and our advanced famine put us in a position to transition to fine fuel without significant operational problems.
The concerns over non availability not availability of fuel seem to have been overstated.
And the gap between complain feels burned by our ships and Noncompliant field, but burdened by ships with scrubbers, there's no considerably.
A very competitive market its adjusted well, that's just how much time and time again.
With that I'd like to turn to covert Johnny to provide additional details.
Thank you Adam Thank you all for joining us on today's call.
Yeah, and we hope everyone remains healthy and say this unprecedented time.
I mean are truly appreciate everyone, taking the time to join us.
Before walking through our financials I'd like to expand upon <unk> earlier comments about our strategy.
Of course, this is not the market we'd like to be in.
However, as we said in the past our business model is built to protect the downside as it did in 2016.
As we navigated the decline during the fourth quarter and into 2020.
Why we recorded a book losses during the fourth quarter related this vessel sales impairments.
We were able to sell four of our older vessels at very good prices right before the market class.
Our goal as Ed noted this to renew our fleet and lower are averaging which we have reduced from 13 years down to nine years.
As the market collapse in interest rates fell equally in March.
We capitalize on a low rate environment to improve our cost of capital by fixing interest rate on the bulk under its full price and bulk independent step facilities.
In addition in January we accelerated our purchase option on the Bofi Onyx finance lease facility to pay off one of our most expensive facilities.
We were very active in 2019 would vessel acquisitions.
Opportunistically identifying ways to strengthening our balance sheet.
And extending contracts with key customers.
2020, our capital allocation strategy will remain tied to our fleet renewal and opportunistically acquiring new vessels, when we feel the kind of right.
And from a revenue standpoint, well continue sourcing value added projects to preserve and enhance our customer relationships.
And as I've noted to maintain our strong putting in these extremely uncertain times, we have deferred a decision on our next dividend payments.
We will continue to revisit quarterly as we monitored the Kobin 19 global pandemic.
With that I'll now turn to our full year financials.
Starting with revenue, which are revenues generated from carrying cargo for our clients was 365.7 billion an increase of approximately 14% from 2018.
This was predominately driven by 12% increase in Wednesday's.
Are you see rates increased 1% to 14199 per day in 2019 from 14019 and 23.
While the market average for the year was approximately 10090 degree.
We continue to outperform the market and maintained in overall average premium over market rates between the 2019 of approximately 39% driven by our long term seaways cargo focus, especially like sleep.
From a revenue, which are opportunistic and time to market rigs decreased by 13% to 46.5 million.
This decrease was driven by the decrease in market route and to a decrease in charter in days, which decreased 3177 in 2019 from 3543.
The decrease in time charter days is primarily due to utilization of our fleet on voyage charters and the execution of our chartering strategy to reduce exposure to declining market by Redelivering vessels.
Whereas expenses increased by 14%.
During 2019 is 165.5 million compared to 145.1 million in 2000, Kim This is driven by 12% increase in Boise state.
Charter expenses paid to third party ship orders increased 233 million from 117 million.
The 14% increase in charter expenses was due to a 5% increase in chartering days.
Further although the market was relatively flat on average in 2019, that's compared to 2018.
The performance of certain voyage charters, requiring the company to charter in additional vessels coincided with the VDI, reaching a multiyear heightened September resulting in an increase in charter expenses paid.
Vessel operating expenses increased by 14% from 39.8 million in 2018 to 45.3 million in 2019.
The increase is due the acquisition of three vessels during 2019.
Net income attributable to pantry or for the year ended December 31st 2019 was 11.6 million or 27 cents per share compared to 17.7 million for 42 cents per share Big decrease is due to the recognition of book losses in sale.
Book losses on sale and impairment of vessels.
Moving on the balance sheet and cash flows.
[laughter] cash cash equivalents were 53.1 million as of December 30, Onest 2019, compared to 56.1 million as of December 31st 2018.
Cash providing provided by operating activities grew slightly to 44.5 million compared to 40.1 million in 2018.
Net cash used in investing activities was 46.6 million versus 17.5 million during 2018.
Net cash used in financing activity.
Totaling 916000 compared to 5 million during the same period in 2018.
These changes reflect the company's investment in Newbuilding vessels, and the purchase of second hand vessels, including the books here in the bulk friendship which were financed under finance lease arrangement.
The bulk independence, which was financed under a commercial loan facility.
With that I will now turn call back over to aired for any additional remarks before we get to the Q and a portion of our call. It.
Thank you Gianni. Thanks, you can see from our results in the various initiatives we took this year.
Well positioned to address the uncertainty presenting definitely facing us.
Longer term path forward for Penn GE is clear and we're well positioned we thank our customers. This is partners and shareholders for their continued commitment partnership we look forward updating you further in coming quarters I'll now open the floor for questions.
Thank you at this time I would like to remind everyone. If you would like to ask your question. Please press Star then the number one on your telephone keypad.
If your question has been answered and you wish to remove yourself from the Q press the pound key again to ask your question. Please press star one.
Your first question comes from the line up post Frac of noble capital markets.
Good morning, Ed Good morning Gianni.
Good morning, I was Arpus and I was hoping you would expand on your comments about the current market conditions.
Sorry, I heard you say that you know the year started off pretty aren't on a week note you know maybe seasonally to and then it's picked up.
Do you hope of or could you help me understand sort of where we stand right now in sort of already went in and like 70% of last year or sort of is is there any sort of benchmark that you could point me to true for I understand where the market stands right now and then also if you could talk about your cargo book.
Good and whether you're seen any change in either volume or pricing and the cargo book.
Okay. So I think you know you used to look at it two ways number one.
If you put the Corona thing out of it right, that's one way or looking at and if you added then it's it's another way I mean fundamentally.
There's not that many ships that supply demand.
Situation was pretty.
Healthy, Okay and now we have this disruption.
And we are not quite seeing it.
Reflected.
Except because we're not Cape operators say to fuel in the Cape size business and a war material business steel mills et cetera.
Well in a world of her that's not our business.
You know so beyond that it's been fairly resilient, we do see a lot of interesting things on the ground.
Happening.
But this world wins.
Corona has just stopped the it could be economies and so I think unfortunately, we.
You're going to see some fallout from that in a general marketplace and you know it's okay. Because in the end, it's going to create all sorts of opportunities.
Ross.
Because for were solid and.
No we have good.
Relationships in contracts and a lot of the things we're doing on a project basis that we hope will.
You know comes to fruition.
And the next few months you know but.
Well fundamentally you know.
Our contracts support our ships.
We have on the water.
We.
We're fortuitously able to sell for ships before this mess happened and you know we have reduced the age or.
Fleet and you ought to those ships in 2019 against contracts.
And.
I think at this stage what you have to end up looking at is not just your client their clients.
So you have to understand how everything all fits together.
For example, our Bafin clients.
You know I think their cost of.
Production.
With our new project will get down toward $20 a ton.
So I floor, and they're selling a $90 a ton.
And in China, and they get a premium up 20% for their quality on top of that so I think that's safe.
Safe bet in that example, you aluminum business, which we do with Miranda.
We took over their stevedoring operation you know we invested into cranes there.
Small capital for us very good business and the aluminum business is it's actually pretty resilient you know so.
I think that's when we get through this situation.
Which we will get through right, whether it's two weeks for six months it will happen.
You know they were going to get an explosion of up demand that's my opinion.
And so we've already now we would like to sell one more ship and ownership and we would like to pick up a couple of ships you know taking advantage of.
People.
We need to sell.
So I think fundamentally you know we have our cash.
You don't have a good operating business continued to make money.
So.
We're in the best situation that I can imagine across certainly across more than others.
And can you.
Can you sort of updates on the progress on the new builds in any concern about what's going on in and try and as far as just maybe some.
I had the ship you have your project has been impacted at all by somebody.
Well it answered it seems like you're coming out of the shipyards in China.
Well I think this is very interesting for a lot of reasons. Okay. So I spent my warnings talking to all right guys around the world and what's going on and.
In China, you know we.
They did have a problem paid but now pretty much everyone's back to work and they're doing what they need to do.
We were asked early on.
With the Chinese was the shipyard. They say can you help us can you can't get us masks can you do.
No all these things for us and we did you know we see you sent them at a police about $15000 worth of equipment to help them.
And you know now they're turning around let's say you don't need it do you want it back.
Right. So that tells you a story about.
What's going on.
In Asia and of course, you know certainly in China. They can.
A lot more rigid them weekend in United States about and Europe about how you.
Treat your people, but it kinda give shoes.
That you know we can get get through this but everything seems to be coming back.
There in China, and they also are stimulating the economy and here you know, you're obviously going to do that.
You know.
Stimulate the economy in so everything with the kitchen sink into the mix.
And.
We will.
We will get fluid. So there is no problem.
Out out there for the new buildings or do you can see that there will be pent up.
Demand you know when the minor bulks, what we see is every day, there's more and more things that people want to do there being.
Being restraint.
By the current situation, but things are still moving and so.
And but I think it will get worse in our market before it gets better that's just a our sense is that people have to move things by.
Hi, Ocean and and that's Okay, we see no change.
Really it's for short term and in the project business, that's not going to it's not going to change.
And you know people need to do things and we're well positioned to take.
Take advantage of that.
And would you your model allows you to flex your chartering activity can you and it's interesting mentioned it was higher [noise].
Bob fabric care, but second half of your can you give us some some color on how your charter in activity. It's evolved over the course would be year and you know looking into maybe the second quarter.
Well I think well you know as you know what we try to do is everything with our chartered vis chartering business is based around backhaul harvests right. So.
To eliminate or risk.
And backhaul and short period, you know and this optionality.
Yeah.
So I.
I think our pro program now probably.
In the near term will be.
I'm not too.
Let's take the money out of those.
Those charters and go down a little bit.
Further when the number in a number ships I think that's probably the right thing to do and then come back at the same time, we're looking at at longer term.
Opportunities on that on the charter side.
It doesn't it doesn't take a lot you know what I think it's finding people.
Tonnage providers is that say that our stress in order to find and they're not really commercial people. It's the two guys on the dog.
Scenario.
You know better.
Asset players.
I think that we will.
Look.
Carefully to find the opportunities there, but you know in the near term.
We won't take the risk.
I think of.
Keeping ships ships on if we don't believe in the short term that the market is going to.
Support it will probably just take the cash.
No go down.
And can you give me an idea how many vessels your chart in right now works or sooner, but a ballpark number.
Yeah, I think we're it's about 40.
Give or take you know and you know as you know changes every day, because she's coming and going.
And we don't.
We don't have long term commitments on charter chips.
And those that we have long, let's say longer term payments on our index space and that's okay with us because as you know we can.
Continually outperformed the index by quite a bit.
So that but we were not you know.
We own ships as you know, but it's not.
No. The I shifts are very specific to trade and we have a lot of focus on that half the ships that we actually owner I ships.
And the other ships are.
Our commodities we.
You know, we need to own a fleet of shifts to be able to service our clients and we do some difficult cargoes and work and some difficult places. So it requires us to own a certain percentage of our ships.
We don't believe in the model.
He did total asset light model, we don't believe in.
Not really because we think it you know.
You can only be so smart so long before you get a.
I don't get whacked, and that's historically or winner in this business for 40 years I've seen that happen over and over so.
Having a balance where we can have.
You know 20, 25% of our ships that are.
Owned and controlled in the balance charter I think that's a it's a good.
Rule of thumb.
Great and Gianni if you wouldn't mind <unk> couple of.
A follow up question Brian.
Looks good the Patriots when did the Patriot sale close was it in the fourth quarter or the first quarter 2020 or hasn't closed yet.
Yes. So she was held for sale as of December 31st on our balance sheet be sale closed.
In February.
Okay and then also you sold the the parents.
Yes.
Andy you want to correct that was also sold.
It's in the first quarter.
Yes in February two way thinker he.
It was a little bit earlier, but it was it was early in the mid.
In the first quarter.
Rob January.
And then you said you fix some fix some of the great on thanks to the book.
Bill Thank goodness pride in the independents can you give us that give me a flavor of where are you fixed.
Sure. So the two things, we we fixed interest rates I'm on a one of our facilities.
And we we exercise they purchase option early on we bought biotic. So the bumpy audit was.
It was financed under a finance lease arrangement.
As you recall I think about a two years ago, we sold her.
Sale leaseback, the first purchase options available to us in May of this year, but we we accelerated that and for an exercise our option.
Two.
Or essentially pay off you know the lease a in January so we did that and she was shows unfortunately, one of our highest.
Interest what are the highest interest bearing facilities that we had so we thought we.
We could.
Get out of that facility and then.
Reduce our our interest cost on that one and then the other one that we did [noise] was with.
The facility, we have with NBC bank, it's broken up across three vessels the bulk independence, the bulk pride and the bulk endurance Ah. So there's three different tranches that we fixed.
Over the course of.
In March or early March we.
We locked in the interest rates across those three tranches.
And because I think they were at LIBOR plus two for do you think or maybe so right now they're Florida. They were floating at LIBOR plus 1.7 for the first three quarters of those loan if [noise] increases to LIBOR plus 2.4.
After the quarter through the duration of the of the facility. So we fixed the LIBOR portion I'm in the little ones.
For the duration of the facility now.
For the duration, okay yeah.
And then how much was the does a finance lease buyout [noise].
It was a it was 5.5 million.
Okay.
Great and then when you look good and when you look at the the.
The shift from you know the I guess.
The not declaring a dividend this quarter in reviewing it per quarter or each quarter and then the implementation of the stock buyback, what what would what would get you did too.
Clarify a dividend again can you just sort of walk us through sort of what you're thinking on that it's is it.
Is it.
From a hold or something that you know if you do see the pent up demand.
Materialize over the second half of the year. They did you.
No you be more inclined to declared the dividend.
No I think it's a defensive move right and to me what would what it.
It means is there's so much uncertainty out there.
We're better off.
According our cash I think that's you know because we will have a better use for it I mean from as Johnny said you know with.
Are you going out to.
To borrow money so most free.
Really.
Gonna stay that way.
For for a little bit, but we want to order cash and look for opportunities that's something that number one.
And it's very cloudy out there at the moment and.
We wanted to make sure that we're not in a situation.
That there's a.
So we have to deal with that same time.
We.
We will.
Buying back shares if that's the right thing to do.
You know, but we really don't have any.
Immediate plans to do that because its counter intuitive.
We rather.
Keep.
Keep the cash from the time being you know we know we have to.
The place.
A couple of the shifts that we sold.
That that publicly and buy back at that cheaper prices.
You know so our timing was fortuitous there with what we did.
But coming back to the dividend yeah sure Theres some stabilization.
You know, we'll consider reinstating.
I don't be quarter by quarter.
Great that's interesting Schwartz with how much lower do you think you could require the vessels at this point in time is it you know order magnitude and personnel, 20% Ed can you sort of give me an idea.
You know how much.
Asset values might have dropped.
Okay well.
Just thinking about what the right percentage is I would say just intuitively, it's probably something like 15%.
So far.
But when we buy chef we look at it completely differently and you know, we don't want them, but we want to buy a good ship, which generally means for us fine.
No one Japanese built ship.
And we want to buy more modern ship you know as I mentioned were gone going down from 13 years down to nine years, and I think we would like to focus and that in that range.
Probably something from.
I don't know 2011, 2015 and take advantage of.
That that piece of it and you know, we just want to buy a good chip right. So it's like buying a used car you know from the old Lady who goes church on Sunday, you know, that's where you end up so it sounds like we're going out in buying fleet. You know, we just need a couple of ships. So and you know it'll one something will fall into.
Sure I laugh, we'd expect regularly.
You know, we're not going to buy junk you know, we're not gonna by Chinese felt.
Chips, which a lot of people gunshot we're doing.
Great. Thanks for your time.
Thank you thanks boat.
At this time there were no further questions I'll now return the call to management for any additional or concluding remarks.
Okay, well. Thank you everyone for joining us this morning, and stay stay safe for you and your family.
Thank you that does conclude today's conference call. You may now disconnect your lines and have a wonderful day.
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