Q4 2020 Pangaea Logistics Solutions Ltd Earnings Call
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Forward looking statements are statements that are not based on historical facts such forward looking statements are based upon the current beliefs and expectations of Pangaea logistics.
<unk>.
<unk> management and are subject to risks and uncertainties, which could cause the actual results to differ from the forward looking statements.
With are more fully discussed in Pangaea logistics solutions filings with the Securities and Exchange Commission.
The information set forth herein.
Should be on this side in light of such risks Pangaea logistics solutions does not assume any obligation to update the information contained in this conference call on.
Also please recall that a supplemental slide presentation will accompany this call those slides can be found attached to the 8-K that was filed with last evening's release, which is available on the investors section at Www Dot Tien W. L. S Dot com under company filings or on the SEC.
I'd say at SEC Gov.
Now I would like to turn the call over to put in jail logistics solution, Chairman and CEO, Mr. Ed Coll head.
Thanks, Tia and good morning to all of you and thank you for joining us on the call.
This morning, I'll provide an update of our operations on the overall market before turning the call over to Gianni our CFO to provide a more detailed overview of the fourth quarter.
In fiscal year 2020 financials, we'll then open the line for questions.
I'd like to begin by expressing well wishes to you on your families I hope that.
You are healthy and safe and our thoughts are with all of those who have been impacted by COVID-19.
I'm, especially proud of our entire team this year, both onshore and on our vessels.
Performance to keep the company moving forward against the challenges of the global pandemic is remarkable and the efforts to work as a team.
And to adjust to rigorous safety standards and still perform at best in class results.
Truly appreciate it.
We are also pleased to see attention from the entire industry to see fair well being and.
And the recent Neptune Declaration, which we are proud signatories of.
Pangaea remains committed to the health and wellbeing of our employees and as a company. We will continue to follow all local and international.
Regulatory guidance on best practices when it comes to operating our business safely.
We hope you've had time to review our press release and the accompanying presentation, which were issued last evening.
Our strong fourth quarter results capped off another profitable year with full year net income of 11 point.
$4 million and earnings per share of <unk> 26 cents.
As we said in the past our client focused business model.
Prioritize prioritized as cargo.
Alps us domain profitability in volatile markets, and we think 2020 exemplified this.
Our nimble strat strategy allowed us to limit our exposure to the poor markets we experienced.
In the first quarter by we delivering vessels to their owners early in the year.
And replace them when needed at lower cost and sync with cargo demand that returned in the second and third quarters.
Our average fleet contracted to 40 vessels in the second quarter and expanded back to 53 vessels by year end.
As of today, we are operating close to our average high of 60 vessels.
Our average cheves TCE rate, while lower year over year continued to outperform against the average of the Baltic Panamax Super Max indexes.
We exceeded the average market rates by 44 $113 a day.
A 55% premium to market indexes.
In addition to keeping the company's base business moving successfully.
We worked hard on the strategic opportunities by expanding our terminal services.
We're doing our fleet and solidifying our position in our ice class niche.
In late September we increased our ownership in our six ice class one eight panamaxes from 33% to 67% solidifying our position in this strategically important ice class sector.
Leading to additional refinancings, which Johnny will cover later.
We continue to see progress on our ice class New building project in which we expect to take delivery.
Of the first two of four vessels from the next few months.
We sold four of our older vessels entering 2020 prior to the market decline.
And we're also pleased to recently announce the acquisition of a 2013 built ultra Max to be renamed bulk courageous.
In 2013 built panamax too.
To be renamed bulk promise.
Both are expected to be delivered in the second quarter.
These sale on purchase transactions are additional steps in our effort to improve our fleet age and efficiency.
Collectively we are encouraged by the steps we've taken to expand our platform in ways that add value for our customers.
And in turn to enhance shareholder value as.
As we look ahead, the coming year appears to be bright for Drybulk shipping and for us.
We hope as COVID-19.
It's mitigated and the world economy.
The world economy will recover increasing demand for dry bulk capacity.
Simultaneously painlessly, we continued to see restraint in new building orders.
Which should have a long term positive effect on the dry bulk industry.
The first quarter of 2021 grades have been a welcome surprise to many and perhaps an indication for the year ahead how's.
However, we're always prepared for uncertainty in our markets.
And we will continue to react quickly.
We will continue to be opportunistic as we have been and delivering best 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 of developments in the coming quarters.
With that I.
Like to turn the call over to Johnny to provide additional thoughts on the financials Johnny.
Okay.
Yes.
Thank you Ed and thank you all for joining us on today's call.
Again, we hope everyone remains healthy and safe as we continue to adjust to new restrictions or in some cases return to some normal work environment.
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 a few recent transactions.
As Ed mentioned, we were excited to complete the acquisition of an additional one third interest in our partially owned consolidated subsidiary subsidiary Nordic Book, holding company, which owns six ice class <unk> Panamax vessels.
Bringing our ownership interest from 33% to 67 per cent.
This led to refinancing opportunity opportunities on the six vessels.
As you will see in our year end financials in December we completed the first financing trends transaction for $18 million on the Nordic Odyssey and Nordic Orion vessels.
The debt will be paid back over a seven year term to a $4 $4 million balloon and interest is fixed at $2 95 per cent.
Separately on March 8th 2021 we obtained a commitment letter from two new lenders for a six year $53 million senior secured loan facility to be used to refinance the remaining four ice class vessels, which is expected to close in the next couple of weeks.
We have also taken additional steps to renew our fleet reduce our average fleet age and strengthen our financial position.
As Ed mentioned, our upcoming acquisition of the bulk reagents also led to additional financing opportunities in February we signed a term sheet for up to $12 million.
Payable over seven years with an interest rate of LIBOR plus 275 per cent.
We expect to close simultaneously with delivery of the vessel in April.
With that I'll now turn to our full year financials, starting on page six of our presentation.
Voyage revenue, which are revenues generated from carrying cargo for our clients was $349 $7 million a decrease of approximately 4%.
<unk> $365 7 million the same period in 2019.
This was predominantly due to lower average TCE rates.
Although our TCE rates decreased 12% to $12433 per day from $14199 per day in 2019.
Tracking the market declines from year on year.
However, the company has achieved TCE rates continued to outperform against the published market rates by approximately 55%.
Charter revenues, which are opportunistic and tied to market rates decreased to $33 $2 million compared to $46 5 million in 2019.
The decrease in charter revenue was due to a decrease in market charter rates and a decline in time charter days, which were down 5% as we limited our exposure to the market.
Charter expenses paid to third party ship owners decreased to $127 8 million from $133 million.
Our nimble chartering strategy allows us to charter in vessels typically on short term basis to supplement our own fleet when needed to meet clients cargo commitments.
Due to the sale of vessels in early 2020, we increased our chartered in days by 14%, which was offset by a 16% decrease in charter in rates.
The sale of owned vessels also led to a decrease in vessel operating expenses, which decreased 16% to $38 million.
Excluding technical management fees.
Total operating expenses on a per day basis was $5432 per day.
Net income for the year was $11 $4 million or 26 cents per share compared to $11.7 million sports 27 cents per share for the same period in 2019.
Moving on to the balance sheet and cash flows on page seven of our presentation.
We ended the year with $48 $3 million of total cash and cash equivalents, including restricted cash.
Following an active year of operating investing and financing activities.
In early 2020, we temporarily suspended our quarterly dividend to maintain a strong liquidity position.
However in December we announced the reinstatement of a two cent per share dividend.
Moving down the balance sheet cash portion of long term debt reflects approximately $51 million of debt, which is due on our four ice class.
Vessels.
Which as mentioned earlier is expected to be refinanced with a new $53 million loan facility.
As you can see we continue to expand our platform and focus on a strategy that puts our clients cargoes needs first optimizes, our assets and adds value.
We are excited by our new projects in 2021, as we drive growth and expansion opportunities and 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&A portion of the call.
Ed.
Thank you Gianni, we thank our customers business partners and shareholders for their continued commitment and partnership.
And we look forward to updating you further in the coming quarter.
We will now open the floor.
Questions.
Yeah.
Thank you as a reminder, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad again that is star one.
Our first question comes from the line of per Frac noble capital market.
Good morning, Ed Good morning Gianni.
Good morning.
I wanted to.
You talked about the market.
I'm being a little bit stronger than expected to say the least over the first part.
The first quarter of the year and I just wanted to ask a couple of questions just from two.
Two perspectives one.
From your owned fleet perspective are you doing anything to try to lock in or where do you see.
Current rates right now.
For your own fleet.
And then secondly, if you could.
Highlight any changes in customer cargo on.
And that had been triggered by the higher rate environment are you seeing any.
Any you know.
Less volume, if you will or any any changes on your customer behavior because of the the change of the rate environment.
Okay.
Okay, well, thank you I mean the.
I mean, the reality is we keep our.
We approach this.
Same so we benefit from.
The increase rates because we have we do have an exposure of course too.
To what's going on.
But in this environment, we tried to very much support.
Our customer base.
And.
And basically tried to stay out of.
Doing business at discounted levels. So that's worked out pretty.
Pretty pretty well you know and book.
So our general businesses backlog related.
That's that's been quite helpful.
It's.
We continue on.
With things and but the but the rates are higher the projects are on.
We're continuing to.
Evolve in <unk>.
Go go forward and I think that we what we see is that.
With everything that's going on and we're going to come out of this situation.
The situation with a lot of pent up demand.
Across the board across the world, So, it's probably that and in line with.
The issue with new buildings being muted.
It gives us a great window for.
Seemingly for at least a couple of years.
So we're in the process of redoing some.
Some of the longer term contracts, we've done some things with the obviously, we have the new buildings.
Theyre coming.
And Thats.
Been fortuitous that those ships are going to come in in and do.
And do quite well.
I think what we're seeing is.
The world is waking up.
And so it's taken a little bit of time.
But I think all the people.
That we deal with around the world start to understand that this is a new environment.
And they have to adjust so if the price of.
Commodity is.
Pick a number of its 40% more than they realized that's what they have to say that's what it what it is.
But people are.
Coming out of the weeds I would say in that sense, we see a lot of demand coming up across the board and for US. We will we will capture the benefit of that and we're well.
Well positioned.
To take advantage of the increase.
And the rates and also to protect the downside, which we've always always done.
Okay have you so you haven't seen it.
Pretty much the shippers or you know adjusted the current rate environment, you're not seen any change in volume it sounds like the you know you're running currently.
Total fleet of about 60.
Well as we look into the second quarter, you know the rest of the first quarter in the second quarter and maybe even you know, particularly on the second half.
Where do you think the current fleet will be.
It was 60, a good number to use for the full year I know, it waxes and wanes, a little bit but.
Could you just give us tonight.
Sort of how how the the fleet looks for the full year.
Sure I think.
The answer to that its opportunistic.
In its nature.
So.
When you get in an environment like we're dealing with now on.
Being non contract business.
Things will come up and you do them and it makes the operating environment.
A little bit easier.
Those people need to move there.
Their cargo on their commodity so.
Is it going to be 60 ships.
I don't know if it's at 55 I don't know if its 65 I don't know.
But I think we will probably be around this level for the balance of the year and if things.
If things change in the market.
Our chartered fleet will change accordingly.
To get the best mix of of.
Of earnings.
And.
Got going forward so.
Some of the rates that we're seeing are.
Extremely high.
And.
The market has got people having it in their dirty.
It's just a super cycle, we get asked that question.
A lot, but we've been around long enough to know that we don't know.
But we will take advantage of it while we can and will continue to work on our projects to build long term stability into the into our shipping model.
<unk> a lot of the things that we're doing with them.
With terminals et cetera, which provide a base for the business.
Good earnings going forward and then leads you to other other cargo business. So.
The number of ships I can't.
<unk>.
Say, it's very opportunistic.
Okay great.
Maybe Ed would you expand.
Talked about just you know it was a surprising can you can you the strength in market with a surprise can you sort of highlight what surprised you. The most so far this year.
Sure you know.
Are there any and then are there any.
Temporary factors that we should consider.
That might have moved the market one way or another.
Well I think you ended up you know, there's a lot of different pieces of that but.
The world quote unquote decided that.
Q1 was going to be.
Terrible for.
For dry bulk shipping right and what I mean by that is you get all the big grain companies all the big mining people.
<unk> not only kept themselves.
Short of tonnage they double down and took.
Third party business, often at a discount to the market.
And you have also a lot of these.
The operators.
That took us took positions in the same way.
And so now they struggled to come from reverse their position.
And a lot of it was historic that people looked at it and said this is what it was last year or the year before et cetera.
And.
But for us.
We've always kept.
Yeah.
And even keel with these things.
And so we continue to be able to.
Make.
Good returns.
Because we we didn't.
Largely by on too.
Making giant bets on the market, we just run our business and we make our make our money.
That way.
And.
So now you come out of it and we talked about this internally quite a bit.
And now you're coming out of a situation, where I think trade.
<unk>.
Very restricted.
Because of the policies of the government.
And now that's changing and we're starting to see the affected people.
That there is some stability, let's say in our trading.
Worldwide in basically in trade and people feel comfortable to do.
To go and do projects and go and do things in the pandemic of course is <unk>.
Had a huge effect on everybody as effect on us.
The most.
Difficult part about that is that.
The people onboard the ships it's.
It's a terrible situation.
For them.
And.
We bought these two ships recently.
And one of the biggest things that we had to work our way through was.
Are we going to be able to replace the crew where can we do it how can we do it and you have these guys that are stuck on the ships.
For a very long time.
So and then everybody has the same.
<unk> in.
And there are offices, where you can't get.
You have to adjust.
Two peak getting people on the office and people working from home that's been the big adjustment of this for every company not just in.
In shipping and trading.
So in the world is going to come out now differently.
I'm not sure.
Exactly how but it definitely will be a different.
Environment so.
I think we.
Have successfully so far net.
Navigated that that situation.
<unk>.
I think we're pretty.
Pretty excited for what is actually going to come in the next couple of years, especially on a lot of the projects we.
<unk> been working on which we have not been able to.
To drive to a conclusion because of this pandemic situation, where no one can travel and that's a big that's a big problem in our business.
Great.
One one thing that.
Another shipping company had mentioned to me is that you know it seems like that the shippers or you know the people moving to cargo will have.
I have had the luxury over the last several years have seen wonderful you know tonnage availability.
There was really never an urgency to lock in and you know maybe they manage their business on adjusted time basis.
Now it's shifted more to just in case business is that something you'd agree with that statement.
Have credibility right now.
Look I think I think probably what you end up with us.
It goes on the same way I mean people get comfortable with the status quo.
And you know on our companies to kept themselves short.
Alright, because they think they can always find the ship.
And.
But you get an environment that is going on right now.
And it's not that easy and if you have if you have an old, let's say pure commodity trader or whatever the commodity is in.
And you are short on the freight.
Then.
You're in a world of <unk>.
Of her right I can give you. One example of this a big aluminum companies it.
Good day run things spot.
And one of the in one of their trades.
And they've always managed in recent years to get what they wanted.
So they kept themselves that way and now it's going to cost some 25 or $30 million extra for ocean freight.
That's what's going to happen.
This year.
And so you.
Multiply that because.
No.
That's what.
What's going on and if you have again I'll go back to.
People like the grain companies, who are basically their traders and in the end.
They're trading a pay per positions.
There.
Makeup is that theyre short by nature.
Tonnage.
And they try to work around it and.
Our new double down not only you have your own short position.
Then you have.
Additional cargo you've taken on that terrible rates so.
It's like turning around a supertanker, when you're really on the wrong side of it.
You can't it's hard to be nimble.
Our structure allows us to be.
To be pretty nimble.
And.
Take advantage of these things but.
Yeah. There are a whole lot of people that were short that have to change there.
Change their position.
So it's.
It's good for the general shipping industry, it's good for the.
Commodities that have all risen if you look at the price of iron ore in.
China it's.
It's doubled what it what it.
What it was.
And and so on and so forth around the board.
You also come to a situation now where.
Are you going to have inflation, that's always a good thing for shipping.
And that could.
Take place.
They would they would like to have that happen because you can pay back your debt and cheaper dollars.
But.
All the things are lining up together.
Uh huh.
For a better market for the foreseeable future.
Just one final point is.
If you wanted to build a new bulk.
Bulk carrier.
Talk about 2024.
Was it containership guys.
A lot have ordered so many ships.
To be built.
And I'm not an expert in that market, but that's what they've done it's better for the shipyards to do more complicated chips. They make more margin so, but if you want to actually build a ship.
Bulk carrier.
It's going to be.
A long time before you get one so that is also going to help the balance of supply and demand.
Great and then and it seems you're.
You're timing it seems fortuitous on not only the newbuild that you're committed to a couple of years ago, but also on the recent acquisitions can you talk about how your approach to those acquisitions and and and you know how quickly that came about.
And then maybe you also give us an idea of what the tone of the you know Emma.
M&A market or the resale market looks like right now.
Sure look I think.
Our view toward toward ships is.
It's fairly.
Generic when it comes to ships that are not.
Ice class special specialty built right. So we're not doing things unless we have a reasonable.
The expectation.
Yeah.
Employing the asset in our trading.
Vis vis contracts et cetera, so on the.
The new buildings.
Yes.
We have contract.
Total contract we saw the need to believe in the business.
We.
Have a partner and the.
And total colleague used to say that ship values are like a bird on our wire.
But currently.
We see that.
The value of those ships that we've ordered current value is much higher than.
And will be contracted for.
And no ships will now start to come in come into service and on the other ships it's really.
Having sold the.
Several older ships and what drives that.
To me as you know.
You get an older ship, that's coming up against a survey where you're gonna have to.
Make it and further investment in it.
Or you can dispose of them and <unk>.
And start fresh so I think by the time this process has ended.
Our fleet age will have from.
Around 13 years to around eight years.
And that was always part of the plan of our fleet renewal.
And.
On the ships are all delivered the ice fleet will be a dozen chips and.
Quite modern.
And you know what.
Other ships.
And trades are.
Well, so getting getting younger so it's a combination of things, but we're not.
Generally the ships that we just bought a more of a replacement for the ships that we sold but they're younger.
Okay great.
And then G&A.
If I could ask a couple of financing questions. One is that you know many companies use a sort of poured cupboard number.
It gives us that sort of an idea of how the bid the next quarters coming whether it's you know number of shipping days booked at a certain rate is that possible for you to give us.
And the idea of sort of how the first quarter has developed so far from that perspective.
Okay.
So.
We've.
Historically never given that from ratio.
I think what.
But we typically point to.
Is basically our premium that we've earned over various market.
And downs.
As the market improves certainly there is no I'd, rather make a smaller premium on a much healthier.
Higher market than a 50% premium on.
Low market, but.
No I think I think for for Q1 <unk>.
<unk> commentary I think.
The market is healthy.
Healthy the rates we're earning.
These are some.
Some all time highs on some of the stuff. We're seeing so we're excited about Q1, we're excited about 2021 and even more importantly, I think we're looking ahead and as I've said about newbuild orders tonnage supply and.
Pent up demand I think we have the pieces sort of falling in place for the next the.
The next year or two.
To have a healthy run.
Yep and it sounds like your financing plans or our pretty well along the line and falling in place too.
Oh, I'm, sorry, Jenny can you can.
Can you give us the the balloon payments on the debt refinancing for the Nordic book holding company.
The maturity date in the balloon payment would be on that.
Yeah. So on as I said earlier in my previous comments our balance sheet.
Flex the.
The upcoming balloon payment on the existing facility on those four.
Ice class vessels, we are in the process of refinancing them I expect it to be completed.
Few weeks.
So that that current debt that we see on our balance sheet as of December 31.
It will be refinanced so it's.
It's in current but it should really be on long term long term obligation.
The new $53 million loan facility with a six year facility with a balloon.
$25 million.
On your six and it's at LIBOR, plus 235%, so what caused that.
Hopefully in the next day in the next few weeks.
Great and then it sounds like you would wind up another 12 million on.
You know term loans could you can you run through the same details there and then share.
Do you expect to finance the <unk>.
Are there acquisition with a similar facility.
Yeah the other.
The book loan.
The loan that we have.
<unk> for the bulk courageous.
I was with an existing lender, it's a seven year term.
With a balloon of $3 3 million.
Seven and it carries a LIBOR plus 275 per se.
And then on the on the bulk promise we're looking we're looking for the best.
Solution for her I.
I expect it will be in line with what we're doing on the bulk reagents.
[noise] terms to be quite similar.
On on that on that vessel so.
We're deploying our capital we have some.
We have capital on the balance sheet, we're positioned to do it.
We're renewing the fleet.
We're doing it as efficiently as we possibly can so.
We're looking forward to closing those two vessels as well.
Great and then just one last one.
If you could address the the board met the board composition change and just maybe give us a little color on what's going on there.
Sure.
Well as you know that debt.
The guys from Cartesian.
We had two guys on on the Board poll.
And.
They've left Cartesian remains a big shareholder.
And I would say it's part of their.
That's what they do they have been in the business from <unk> at least 12 years and.
They've been quite helpful.
Across the board, but.
They're going to basically.
Tried to position themselves differently that those guys Cartesian is not that big.
And those guys have other things to do they trust us to to.
On the business and they will be.
Involved is a big is a big shareholder and in terms of.
The replacement I don't think we need to do anything right away.
Well.
Save a bit of money by working in a reduced number of directors and.
Yeah, I think that's that's pretty.
Pretty much the answer they.
They trust us to do what we've done.
For a lifetime.
And.
If they have something to.
To add then they will certainly look at it.
Great. Thank you for your time look forward to seeing how the rest of 2021 unfolds.
Thanks, Bob Thank you. Thank you.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
I'm showing no further questions at this time Sir.
Yeah.
Okay. Well then thank you very much to everyone for taking the time to join US This morning and have a good day.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
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Yes.
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