Q3 2020 Pangaea Logistics Solutions Ltd Earnings Call

[music].

Good morning, My name is Stephanie and I will be your conference operator today at this time I would like to welcome everyone to the pen JD logistics solution.

<unk> third quarter Twentytwenty earnings teleconference. Our.

Host for todays call Mr., Ed coal, Chairman and Chief Executive Officer, and Mr., Gianni Delsignore, Chief Financial Officer Jude.

Today's call is being recorded and will be available for replay beginning at 11 am eastern time.

A recording can be accessed.

Yes by dialing eight by 58592, 056, domestic or 4045373, 406 international and referencing I'd number 5847439.

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Now my pleasure to turn the floor of Jim is tee. It go on occur with Prosaic partners. Please go ahead.

Thank you Stephanie and thank you for joining US. This morning third quarter 2020 earnings conference call for pay in jail logistic solutions with US today from the company are chairman and CEO Mr. Ed.

It it'll and Chief Financial Officer, Mr. journey, Delsignore before I turn the call over to Ed I'd like to read the Safe Harbor. This conference could contain forward looking statements within the meaning of the private Securities Litigation Reform Act or 19, 95000 dialysis solution for that doesn't seem as though.

Clients that are not based on historical facts such forward looking statements are based upon the current beliefs and expectations of Sanjay logistics solutions management and are subject to risks and uncertainties, which could cause the actual results to differ from the forward looking statements such risks are more fully discussed in jail logistics solutions filings with the securities.

The Exchange Commission information set forth herein should be understood in light of such risks and jail logistics solutions does not assume any obligation to update the information contained in this conference call also please recall that a supplemental slide presentation. Both company. This call those slides can be found attached to the eight.

Okay that was filed with last evenings release, which is available on the investors section of Www Dot had Jaya LS outcome under company filings or on the SEC web site at SCC Dot Gov now I would like to turn the call over to 10 day logistic solutions, Chairman and CEO Mr. Ed called.

[music].

Thanks to you and good morning to all of you and thank you for joining us on the call.

This morning, I'll provide you an update on our operations and the overall market before.

Before turning the call over to Giovanni our CFO to provide a more detailed overview of the third quarter financials.

Well then open the line for questions.

I'd like to begin by expressing well wishes to you and your families. I hope that you are all healthy and safe.

Church with or with all laws.

I've been impacted by COVID-19.

We are especially grateful for our dedicated crew members working aboard.

For vessels, especially support the global supply chain.

Sanjay remains committed to the health and well being of four employees and as a company. We will continue to follow all local and international.

Regulatory guidance and best practices when it comes to operating our business safely.

We hope you've had time to review.

Border or press release, and the accompanying presentation, which were issued last evening.

Our strong third quarter results reflected the continued turnaround from the first quarter of 2020.

Validates our business model.

Our long term contracts of affreightment.

Specialized fleet.

View on cargo focused strategy.

Allowed us to Maine to maintain strong margins.

During the quarter, which is seasonally one of our strongest we benefited from both improved market conditions and the survival of the summer ice season for specialized fleet.

Once again.

We deployed the full strength of our interest industry, leaving ice class capabilities.

To provide our clients with specialized services required for demanding conditions.

Art achieved Tc rate for the full fleet for the quarter.

While lower year over year continue to outperform against.

Average of the Baltic Panamax and Supramax.

Indexes.

We exceeded the average market rates by $3030 per day.

A 29% premium to market indexes.

We also continue to execute on our strategy.

By prudently allocating.

Our capital across various initiatives.

During the quarter as part of our fleet renewal program.

Completed the sale of the bulk Bayeux tuck in advance of dry docking.

Bringing our total fleet to 17 owned cells.

We continue to see progress on our ice class.

Building project in which we expect to take delivery of the first two goals.

Yes.

In the spring of 2021.

Further in late September we increased our ownership.

In our six ice class one day panamax vessels from 33%.

67%.

And to the refining our position in.

In the strategically important ice class sector.

And leading.

Two additional refinancings, which Johnny will cover later.

Collectively we're encouraged by the steps we've taken as refocus on niches where.

We add value and enhance.

That shareholder value.

Furthermore, as we look ahead, we continue to watch the rapidly changing conditions caused by COVID-19 from changes to our working environment to rotate inclusive of a border vessels.

Our results year over year remains strong in a longer term we're encouraged.

The decline in Newbuilding orders and its impact on the supply side of the dry bulk industry how.

However, we expect.

And have prepared for caution a continued uncertainty in our markets over the next few quarters.

Continue to be opportunistic as we have been.

And delivering best.

It's in class services for our clients looking to acquire new vessels when opportunities arise and developing new business that complements.

Our platform, we look forward to updating you have developments in the coming quarters with that I will now turn the call over to Johnny to provide it.

Best funnel details of the financials.

Gianni.

Thank you Ed and thank you all for joining us on today's call.

Again, we hope everyone remains healthy safe as we continue to adjust to new restrictions or in some cases returned to normal.

Thermal work environments.

We thank our employees and crew for their extra efforts during these unprecedented times.

Before walking through our financials I'd like to expand on our recent acquisition.

As discussed on prior calls we have been focused on effectively allocating our cash resources into operating.

Reading initiatives and expansion opportunities.

We are selectively deploying our capital in ways that complement our current business in secure our position for the future.

As Ed mentioned, we were excited to complete the acquisition of an additional one third interest in our partially owned consolidated subsidiary Nordic.

Bulk holding company, which owns six ice class one day panamax vessels, bringing our ownership interest from 33% to 67%.

As you will see in our cash flow statement 15 million of the total 22.5 million acquisition price was paid at closing.

On the balance will be paid in three annual installments of $2.5 million.

Further on November Threerd, we signed a nonbinding term sheet to refinance the Nordic Odyssey in order to Ryan for up to $18 million.

With a seven year term at a fixed interest rate of 2.95%.

We expect to close within December end use part of the proceeds to pay down the existing balloon installments, which come due on December 31 2020.

We have also taken additional steps to renew our fleet reduce our average fleet age and strengthen our financial position.

In January we accelerate our purchase.

Okay and on the bulk biotic finance lease facility to pay off our most expensive debt facility.

During the third quarter, we completed the sale, which generated $4.6 million of cash.

With that I'll now turn to our third quarter financials.

Voyage revenue, which are revenues generated.

From carrying cargo for our clients was 98.1 million a decrease of approximately 5% compared to 103.8 million for the same period in 2019.

This was predominantly due to lower average Tc rates.

Our Tc rates the decreased 16%.

13316 per day from 15915 in the third quarter of 2019.

Tracking the market declines from year to year.

However, the company has achieved Tc rate continue to outperform against the published market rates by approximately 29%.

Charter revenues, which are opportunistic and tied to market rate decreased to $5.6 million compared to 15.1 million in Q3 of 2019.

The decrease in charter revenues was due to a decrease in the market charter rates and a decline in unchartered days, which were down 35% as we limited our exposure to the market.

Voyage expenses were $40.7 million compared to 45.1 million for the same period in 2019, a decrease of approximately 10%.

The decrease was primarily due to a decrease in bunker expense as a result of the COVID-19 triggered decline in market prices for bunkers in the third third quarter of 2020.

Compared to the third quarter of 2019.

Vessel operating expenses on a per day basis, excluding technical management fee were up by 4% from 5313 to 5548 in Q3 of 2020.

Net income for the quarter was 7.5 million or 17.

Cents per share compared to $8.3 million or 19 cents per share for the same period in 2018.

Moving on to the balance sheet and cash flows total cash and cash equivalents, including restricted cash were 48 million compared.

Compared to 36.6 million at September 32019.

For the nine month period net cash provided by operating activities was 22.4 million.

Compared to $23.4 million in 2019.

Net cash used in investing activities was $6 million as a result of the acquisition of Noncontrolling interest offset by the sale of vessels compared to 40.

48.2 million used in Q3 of 2019 due to the acquisition of vessels as well as deposits on Newbuildings. During the first nine months of 2019.

As you can see we continue to make progress in our platform expansion initiatives in implementing a strategy that optimizes our assets.

Our ability to continually strengthen our financial position, while also driving growth and expansion opportunities will by extension continue to generate shareholder value.

With that I will now turn the call back over to Ed for any additional remarks before we get to the Q and a portion of the call Ed.

[music].

Thanks.

Thank you Johnny we thank our customers our business partners and shareholders.

For their continued commitment and partnership.

And we look forward to updating you further in the coming quarters.

Ill now open the floor for questions. At this time, if you would like to ask a question. Please press Star then the number one on your telephone.

Keypad that star wine.

Please hold for your first question.

Your first question comes from the line of Poe Fratt with noble capital markets.

Hi, good morning, and good morning Gianni.

In April.

And if you wouldn't mind.

Now I would like to ask you sort of how you are seeing in the market.

How any changes in your customer activity and.

Anything you like to highlight and then also if you could just expand a little bit on your comment.

That you're preparing for.

Added volatility.

The Earth.

Potential volatility.

Over the next quarter or so if you could just maybe talk about what kind of measures you're taking to.

To handle that potential volatility.

Okay. I think we will we will we end up in its perhaps a bit.

Lucky for us but the.

The third quarter.

It's traditionally a good quarter for us fourth quarters, Okay, but as you get into the first quarter. It's generally.

Yes.

For the market, it's a slow slow quarter.

And.

So naturally as we come out of the Ace.

Season Redeliver spec.

Especially the the chartered a space ships.

Our fleet will naturally go down, but we were very careful not to take on heavy commitments on the tonnage side.

[music].

For that for that period, so I suppose that's like you know what we're.

Preparing for I think that you know we have two big problems right and one is the Covance which is.

Really out of control.

With very.

He here.

You know we set policies.

And thank goodness known as the SEC.

And device on board, we've been Lucky there, we haven't had and.

Yeah.

Real problems, we paid creating.

Siemens the people have had that.

That's fortuitous for.

For us.

But now we're going to go through this period and no one knows where it ends second the second problem.

Is the political problem.

And this has been this way for a while and.

The instability in our political.

Situation.

Means that people can make decisions and they can't go forward and that's that's not helpful. Not just for our business for any business.

Until things stabilize.

My view is.

That if it stabilizes and you know.

This carrier carries through.

There will be a lot more business that comes through as people feel that.

That now they can invest and now they can do do things and even regardless of the Cove it.

And you're going in I think you're going to see a push.

In demand in the market.

For that.

Once that is resolved.

Same time, it's a seasonally.

Seasonally poor.

Situation so.

And if it can be balanced by the.

By some stability and and we've been working on other projects for.

For quite some time.

But bhavan stalled and part of its Cove it.

And part of it is really the instability of our government.

And hope we can.

Who.

I mean, no we can't control the Cove in but we can control getting some stability in the government. So I think on balance what you end up with is.

The supply demand book.

Looks pretty.

Pretty decent we just need to have stability.

Okay.

And then if I could just expand on that when you when you talk about.

On potentially maybe because the question should be under advisement and administration would you do you think that less adversarial trade discussions would be helpful is that the kind of change that you're talking about.

I.

I think the.

The confrontational, it's not just the confrontational style. It's just the fact that you wake up every morning.

The next thing is and I think that's.

That's the basic problem not getting political if you.

If you don't necessarily see.

Hiccup everyday and there is some other crazy things going on and people just look at it in a.

Yes.

How can how can we make capital decisions.

Let's say the coal industry I think people in the coal industry and understand that that field is not.

Last forever.

Regardless of what the government has done too.

So Don you don't see any of those guys, making investments in new coal fired plants that's for sure.

[music].

But it it to the alternative energy market.

Which is a giant growth market if they let it let it happen that's helpful for us in Europe, and a lot of ways. You know those are just two two examples and but I think if you take out.

All of this.

Great stuff.

And then.

Things will release really start to flow.

Smoothly.

And so I think Thats I think we are hopeful that thats that.

It's going to be to be the case then.

At least for the first quarter.

Maybe that gets us.

Over the top to being.

You know generally a bit more bullish.

But going forward, but beyond the first quarter I think it is.

Supply and demand is pretty good and.

People aren't building ships.

Different reasons.

But.

Also the same in a way the same thing no stability.

No one knows what's going on with trade and so thats a real.

Real issue and.

Our economy here, we haven't seen the worst.

It's going to happen that's for sure.

But I think.

You know I think we are cautiously optimistic thing in Washington will get settled.

Optimistic.

The Cove and no one knows how.

How that affects the economy.

And.

No.

So beyond that.

You know I think it's okay for us I mean, we're pretty well balanced with.

With our freedom with what we're what we're doing and.

I think we're going to be in a situation where.

So five ships and Permian.

Yes.

Years.

So and.

We'll continue.

We'll end up looking to.

We knew the fleet pick up a couple of modern ships, along the way and.

And I think you know with the new buildings coming.

Starting to come next year incur.

I think our.

Average.

Age of the fleet will fall from something like 13 down to something like eight.

And I think that's a long term.

A long term goal for us and here in.

The i. ships or.

It's a different.

Way looking at it those ships, we need the ships to on the ice businesses that simple and the other ships tend to be.

More commodity based.

Well, we need them to to expand our business.

Yes, that's it.

Great all right. Thank you read my mind on sort of what you're doing on an asset side and and because certainly it's going to.

Ask that question about just how your overall fleet's contracted fit it has it has shifted a little more towards the the because the Nordic bulk acquisition and also just the selling the.

Older assets and the Reibel Newbuilds should you will have the.

A better fleet and then potentially it does expand next year, if you do find the right opportunities.

I think so and again we're.

You know.

We're quite hopeful that some of that.

Next will come to fruition now and.

You know we were doing other things in their logistics space.

That will come.

Come out.

Pretty soon.

And they are added value things to our services and.

I think we're spending a lot of time on on doing that sort of.

Sure to Scott.

And when you talk about the logistics space is that associated with the the fall River terminal or is there.

Another element to that and.

Well, we're you know we're already doing certain.

Things I don't know like I, probably shouldn't talk about it yet, but but we are already doing things in the Gulf.

No no.

That will come out.

Yeah, we just have some paperwork there finalized but it's actually.

Seems like its already at its already operating.

And we're seeing a lot of opportunities around LNG terminals.

To.

Things from Canada into there and working with partners.

No.

You know, we're not experts said.

It everything.

So we know where were not and we like to have partners.

Complementary.

To what we do.

And you know and that's worked out we've done some good things and.

Yeah, Hi, there.

You know it's not.

Stuff that really.

Kind of protects the.

You know contributes significantly to the bottom line.

And that's really a self.

So for us and them and the more we do.

And that's that space the more.

Demand we have for our own ships are chartered ships that we can.

Place in those programs.

Yeah, I mean, it's Oh.

On the risk spectrum very low risk.

Right.

Very low risk.

Awesome.

Some capital, but it's not a lot.

Great and then on <unk>.

Gee I mean, if you could talk about the new builds and you know that.

You're going to have to that arrived sometime around the spring you know I'm, calling it April.

And then the other two later in the year can you talk.

Brad Pitt capital you know if my math is correct that you had 15 million at the ended the quarter.

Of the 76 million paid can you talk about the timing of the 60 million that's left.

And then how the financing works when will it be a pie.

Good for delivery, where you can close on the financing or will there be a little bit of a lag there.

Yeah, no no problem, so that when we've actually because we were doing it in a joint venture.

What a partner PNG has already completed its capital costs.

Fusions to that project.

Going forward our.

Partners will will will come in with capital.

Upon launching of the vessels and then we're also getting pre delivery financing. So the actual financing will kick in at launching well.

So.

So.

From our perspective, I think we're in a good position we get to you know we got to take on.

Strategically important assets the company and.

You know as of today, we're in a comfortable position, we'll have some delivery costs that will be borne by by Pangaea.

But.

We're talking you know two to $2 million to $3 million of.

But delivery cost and then obviously, we'll be operating them. So it will be the commercial management and positioning of the vessels, but from a capital perspective to complete the project.

We are we're basically.

Were basically.

Committed our capital fully.

Okay, and then when you look at how you're going to treat that from an accounting standpoint.

It sounds like it may be consolidated or will that be reported they couldn't equity in income.

So the FCC has already consolidated so it'll be a fully consolidated.

Well capture 100% of.

Of Oh, the assets and liabilities and this will be back in I think in Q2.

Our four that actually when we when we entered into the agreement with our partners.

Theres, a new line item on our balance sheet, which is the other long term liability.

Which represents our view the.

Equity contribution of.

Our partners.

But for accounting purposes, it's recorded at liability due to.

At a purchase purchase obligations in the outer years with that with that joint venture. So yes, we will we will do.

It it it'll it'll be fully consolidated in the entity. Currently is obviously doesn't that doesn't have much assets yet.

But it will towards the middle of next year.

Okay, Great and then can you give us.

An idea of sort of where you stand for current activity this quarter, where we sit.

Look at sort of your overall fleet or you're shifting days and and then if you could comment on any changes in the <unk> and on the cost structure, whether its charter hire op ranks or dry docking activity in the quarter.

Yes, no problem.

You know what what Ed.

I said earlier the ice season is it is very busy season were fully deploying our assets plus chartering in additional vessels. So we will re deliver some I still expect will average somewhere in the in the fifties.

For the quarter.

From vessel fleet size.

That.

Composition.

Is obviously, there's only a few more chartered in vessels due to sales of owned vessels, but now we're still expecting about the same level of activity.

From a fleet perspective.

And the market. The market is is what it is and what would that have said earlier in our.

We're preparing I think we basically do what what we do in any any.

Is there any other market cycle, and we have the flexibility to redeliver vessels and reduce our exposure to the market.

And we can adjust our cost basis.

So I still think.

Our chartering.

Pete will mean.

Slightly lower than it was for Q3, but.

I still expect to around 50 for the for the quarter.

And dry docking we do have we do have some drydocking in two.

2021.

Actually two of our.

Two of our ice class vessels will complete towards the end of this year.

But nothing nothing that.

No unusual I would say, it's just normal normal drydockings in two the two ice class vessels actually the the Arsenal Rialto ballast water treatment installations.

But I think we're.

We're assuming.

Around $5 million to $6 million next year to allocate to.

To drydocking.

Okay.

Yes.

[noise], maybe Ed if you could talk about.

Im going to managed care access.

Yes, yes.

And.

And how that presented itself.

And.

So obviously you know the operating history there.

No problem good down secured debt.

Diligent but.

And then if you could just sort of describe that and then.

Maybe you can look at the potential to acquire the rest of the JV is that something that is possible.

Are you talking about the logistics, our north sea okay. The.

That's you know basically he came out the way it was structured.

It.

Was on really a one of the partners wanted to get out of the spent the time.

Setting setting the right pricing.

And we were able to.

To increase our stake substantially.

Right and that because of the way the structure as we are.

Capture more of the the upside.

Because you know the Nordic guys.

Captured.

As a matter of course, 25% of it to begin with so now we caption recapture.

The more we have better control.

And.

And the people and assets that they are getting out of the.

Tribal business, so it suits us and sort of us to to do it.

The other the other partner so.

Yes, and also be able to do on a go and they said no.

Only shipping investment we make money with so we want to stay.

And.

Yes, so I think it gives us it gives us way more.

More control and.

I think it's always.

It's always difficult when you it's hard enough. If you have one partner, we've got more than that you know.

It's pretty difficult I mean.

In my early days in shipping you know we ran the shipping pool.

And that was like a nightmare.

Anything and should you have decided.

Despite.

Oh, Yeah 10 people you know 20 opinions you spend all your time managing.

Managing the the partners and so.

You know, it's the same thing with the.

The other projects, we're doing that or less.

Just.

Spaced.

We partnered up with.

With people that we know we've done business with before.

And we have a mutual trust so that's.

I think that's still the way to go you shape your expertise.

Hi.

That's it.

Eric and Deanna <unk> I'm not sure. What you are hearing the train crews back I am, but I apologize I'm sorry.

Yeah on the on the refinancing.

Can you talk about the potential for repaying or refinancing they they facilities on the four other one.

Oh.

<unk> that or do you know in late 2021, and then early 2022.

Sure actually but we will we did.

On that facility with the existing lenders.

Hey, what you've seen I think are in our two we.

We actually amended the.

The repayment date of the Odyssey know Ryan. So originally the balloon payments were due in September we moved them after negotiating with the lenders to end of December.

I see a writer done we're happy to move forward what are what we think is a very attractive.

Package the company on those two vessels you.

We've developed a good relationship with the lenders and we're happy we we have access to capital.

Or financing in in that range.

The remaining four we're actively working on I expect we will complete.

[music].

Well complete that financing as well and.

Late 2020 early 2021.

We have not signed a term sheet, but we are we're very very close and we expect that.

We'll refinance those four ships as well as early well before they are a balloon payments come due.

As far as the leverage for leverage profile on the other four ships.

It'll probably be close to existing levels of debt.

There is no intention to to lever those ships up.

Any further than than they currently are so we want to have now we will have a longer runway reduce.

Our quarterly amortization will benefit the company and paying lower.

The lower cash breakeven on our vessels will have a longer runway and.

A little more stability in our financing for.

Six and seven years.

Great. Thank you so much.

I would like to ask Jim Please.

I didn't want I guess I'll keep it at that Star Wars as well.

We'll pause for just a minute.

Yes.

I thought I'd, there and as I said to you.

Oh.

Thank you Matt.

<unk>.

Yes.

Thank you very much for joining us this.

This morning and stay safe.

Thank you Ladies conference call you May now.

Connect.