Q1 2021 Pangaea Logistics Solutions Ltd Earnings Call

Good morning, My name is Crystal and I'll be your conference operator today.

At this time I would like to welcome everyone to the Pangaea logistics solutions first quarter 2021 earnings teleconference.

Our hosts for todays call, Alright, and Mr. Ed Coll, 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, a M. Eastern standard time.

And recordings can be accessed by dialing 805, 858367 domestic or four zero for 537, and 3406 international and.

And you're referencing I D number 707 for 367.

All lines are currently muted and after the prepared remarks, there will be a live question and answer session.

If you would like to ask a question during the Q and a segment. Please press star one on your telephone.

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It is now my pleasure to turn the floor over to Sean Silva from Prosek partners.

Thank you and thank you for joining us today for this morning's first quarter 2021 and earnings conference call for Pangaea logistics solutions with.

With us today from the company are chairman and CEO, Mr. Ed Coll, and Chief Financial Officer, Mr. Gianni Delsignore.

Before I turn the call over to Ed I'd like to read the Safe Harbor statement.

And this conference could contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Forward looking statements are statements that are not based on historical facts.

Such forward looking statements are based upon the current beliefs and expectations are for JD 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 and Pangaea logistics solutions filings with the Securities and Exchange Commission.

For information set forth herein should be understood in light of such risks.

And Jay and logistic solutions does not assume any obligation to update the information contained in this conference call.

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 on page.

J L. L S dot com under company filings or on the SEC's website at SEC Gov.

I would now like to turn the call over to Pangaea Logistics solutions, Chairman and CEO, Mr. Ed Coll and.

Thanks, Sean and thanks to all who have joined us today.

I hope that you and your families are healthy and safe.

This morning, I'll provide an update on our operations and the overall market before turning the call over to Gianni our CFO to provide a more detailed overview of the first quarter financials.

And then open the line for questions.

We hope that you've had time to review our press release and accompanying presentation, which were issued last evening.

Our first quarter results benefited from an unexpected increase in the dry bulk market for the first quarter of 2021.

We've seen freight rates rise to multi year highs and a quarter that is usually weak for dry bulk.

Our quarterly results improved considerably year over year as our average net T C, earning earned 6000 and 16524 per day.

Increased approximately 57%.

Compared to the first quarter of 2020, and we generated net income of $5 $8 million.

Compared to a net loss of 6.8 million and the first quarter of 2020.

As we said in the past our client focused business model that prioritizes cargo helps us to maintain profitability and volatile markets and we.

Acting quickly to such changes.

While our own TCE for the first quarter. This is the highest earned and many years and.

And we continue to outperform the market.

The rapidly rising market resulted in a smaller T C E premium over the market averages.

And this is a normal consequence of a rapidly rising market at spot fixtures become old quickly.

And our contracted cargo.

Tends to lag instead of bleed the average of this kind of market.

As you can see both are still profitable even in this market.

As the market started to show signs of improvement and the first quarter, we continued to position the company to capitalize on a recovery.

While adhering to work for our focused strategy.

We operated a total fleet of 51 vessels during the quarter.

And as of today, we are operating approximately 57 vessels and our combined owned and chartered in fleet.

We also timely deployed our cap on the first quarter.

The acquisition for 2013, built bulk courageous, which was delivered to us and April.

And the 2013 built bulk promise, which is expected to be delivered to us within July.

Gianni will discuss the financing arrangements on these acquisitions.

Further we're happy to announce last night the acquisition of another 202013 built supermac vessel.

Which is also expected to be delivered to us in July.

These three secondhand purchases, coupled with our new building program.

Which will soon deliver for new post Panamax ships to Penn Jr. Will add almost 600000 deadweight tons.

And over 2500 annual shipping days to our own fleet this year.

These are timely steps and our effort to improve our average fleet age increase.

Increase our efficiency and expand our operating leverage.

And an opportune time and the dry bulk market.

Our first new building vessel will deliver in May and the second will be.

Levered by July both expected to enter our art Arctic cargo business. This summer.

The third and fourth ships will follow and late summer or fall and won't be ready for the winter ice season.

Collectively we're encouraged by the steps we've taken to expand our platform and ways that add value for customers and in turn to enhance shareholder value.

And so we look ahead, we are encouraged by the outlook of the dry bulk market.

New building orders remained low demand is improving following and the COVID-19 lockdowns globally.

And market disruptions from the container and commodity trades, all favor the ship owner for NAV.

The positive momentum and the first quarter is so far continued into the second quarter and as of today.

We have fixed 3200 shipping days and the second quarter.

And an average TCE rate of approximately 21 500 per day.

We feel confident and the market and our strategy to keep performing.

We reinstated our dividend in December and today announced an increase and our quarterly dividend to three and a half cents per share.

We will continue to be opportunistic as we have been and delivering best in class services for our clients looked.

Looking to acquire new vessels when opportunities arise and developing new business that complements our platform.

We look forward to updating you on developments in the coming quarters.

With that I'd like to now turn the call over to Gianni to provide additional details on our financials.

Johnny.

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

Before walking through our financials I'd like to expand on a few recent transactions and highlight our results for the quarter.

As Ed mentioned, we are excited about our recent acquisitions, which resulted in one of the more active periods for Pangaea and recent years.

We've deployed our capital Opportunistically to renew our own fleet and expand our operating leverage as efficiently as possible.

And April we completed the financing on the Volcker aegis with an existing lender for $12 million over seven years wood and interest rate of LIBOR plus 275 per cent.

We also finalized the refinancing.

Of our for ice class Panamax vessels, two new lenders this new $53 million senior secured loan facility is payable over six years and interest was fixed at 3.37 and five per cent.

Further in April we signed a term sheet with an existing lender to finance the bulk promise for up to $12 8 million payable over six years at LIBOR, plus two 3%, which.

Which we expect to close in line with delivery of the vessel.

Turning to our first quarter financials, starting on page six of our presentation.

And we welcomed improvement and the market during the first quarter resulted in increases in both voyage revenues and time charter revenues boy.

Voyage revenues increased approximately 25 per cent and charter revenues, which are opportunistic and more closely tied to market rates increased approximately 79%.

Our TCE rates earned increased 57 per cent to $16524 for the first quarter of 2021 for $210508 for the same period of 2020.

Charter expenses paid to third party ship owners and.

Increased to $53 6 million from $32 3 million due to increases in market rates to charter in vessels, and an increase and charter and days due to the sale of vessels and 2020.

The sale of owned vessels also led to a decrease and vessel operating expenses, which decreased 14% to $8 5 million.

Excluding technical management fees vessel operating expenses on a per day basis was $5014.

Net income for the quarter.

It was $5 $8 million for 13 cents per share compared to a loss of $6 8 million for 16 cents per share for the same period and 2020.

Moving on to the balance sheet and cash flows on page seven of our presentation. We ended the quarter were $42 million of total cash and cash equivalents following and active quarter of operating investing and financing activities. The decrease in cash from year end was primarily due.

Cash used in investing activities for vessel acquisitions.

Further as Ed mentioned after temporarily suspending our quarterly dividend and 2022 maintain a strong liquidity position, we have since reinstated and this quarter increased our dividend to three and a half cents per share.

Moving down the balance sheet the improvement in working capital and the fourth quarter was due to the refinancing of our for ice class vessels, which moved $50 million of current debt to long term.

As you can see we are encouraged by our results. So far this year and we will continue to position the company to capitalize on market improvements, while adhering to our cargo focused strategy as we drive growth 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 our call.

Net.

Thank you Johnny.

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 quarters.

I'll now open the floor for questions.

At this time, if you would like to ask a question. Please press star one on your Touchtone phone and.

Once again that is star one to ask and audio question.

Yeah.

Your first question comes from the line of Perl Frat with noble capital markets.

Good morning, Ed Good morning Gianni.

And.

I was wondering if you could highlight any changes that you're seeing either and trade flows or any potential.

Impacts from the higher cargo or higher shipping rates that we're seeing.

Well I think that youre in a situation where.

I wouldn't want to call it a perfect storm, but a lot of things are hitting at the same time.

And one of the things that we've seen.

As for example, the just in time deliveries on container ships.

That spend and of course completely messed up logistically and.

And all but a lot of the cargo that used to flow into containers that now has floated the multipurpose ship market.

And that's taken.

And even then to bulk carriers and so you have that you have that going on and you have.

Continue to have certain congestion and and the market that helps.

And take capacity out of out of the market.

And you're seeing a lot of.

Disruptions because of the logistics.

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Well so.

Every large <unk>.

Increase and commodity prices, which everyone is.

And is aware of.

So it's.

Certainly for <unk>.

The next.

Year or two.

It looks like things are going to be.

Pretty robust.

And this and this business there's no question about it and you.

What happens beyond that.

And the fact that no one can.

And really build ships at the moment, if you want to build a ship you can't get a.

You can't get a delivery from the yard till 2024.

As there are so many container ships ordered.

We have a good runway.

And on on our own ships.

You know we brought down the average age so that's pretty pretty good and our timing has been pretty good will pick up seven ships this year on.

On the owned side.

And things are very promising.

Okay, Great and then.

When you look at you know how active you've been on the M&A side.

Ed.

And you see additional opportunities out there or.

And when do you previously talked about and acquisitions, you've also talked about.

Tried to identify a certain trade ori and <unk>.

And specific need and have you identified that with their super that you're.

You just acquired.

I think thats, yes, I mean, we have.

And there's enough business now thats coming.

And to fruition for more regular customers that were quite.

Comfortable bringing.

And you can get another ship.

The basic problem that you have now is there is very little for for sale.

Except for junk and you just don't won't give it you know we won't buy.

Bed ships, so as tempting as it may be and a rising market to do it.

It's not our style. So that's one one piece, but yeah, but we can we can support the.

The capacity and then.

And for me the Big thing is if you.

We have a very low priced.

Owned fleet.

And you know.

Roughly $10000 a day.

Breakeven.

And in this market it's a.

And it's pretty pretty good.

Business.

And so that's.

I think that's where we'll go and if we can find the right ship with the right breakeven cost and that's a good ship.

Some are good yard with a good survey position than I.

I think we would consider to do something but it gets more and more difficult the prices continue to rise now and.

And what's available as I mentioned, it's not.

It's not that are intriguing.

Basically you're looking for.

A car that your grandmother joke to search for once a week on a Sunday and that's kind of hard to find and a market like this but we're always looking.

And then Conversely, and as it is it.

And as the market good enough, where you could potentially sell some of your older assets or is that are you comfortable with where.

Your day.

You know the age profile for your fleet as it stands right now.

Well I think we were okay with it because most of those ships have a.

We know what we have our ships even the older ones are in great shape.

And.

Again, they have low breakeven.

Cost and we need them and in order to to operate.

So.

And the issue with the older ships.

Is that.

We'll not dollar for dollar get the.

The benefit out of it.

Moving on diesel round numbers on it.

If you were just to say.

On an old rebuilt chip.

Which is the oldest ship we have and the fleet.

And then let's say cost 10, and you can make 'twenty.

That's.

Out of.

A lot of money and.

And but if you go to the secondhand market to sell it and you will not get the premium.

Of the earnings you might get a half million dollars more for it.

And then you would have before but it's not following a dollar for dollar.

So what we've done as you go down the value curve.

To get the debt.

And the best value in terms of aging and condition.

Similarly, if you go to the top of the chain much more modern and very modern ships you will be paying.

And very strong.

Premiums so we go down and down across the board with those things and.

And to pick up the best value I wouldn't be a seller of those those.

And those ships now you wouldnt get enough money to.

And you would make more money by keeping them.

Absolutely and then.

On the you know to be named the Super that you just acquired have you I know it's fairly early but.

Have you.

Potentially lined up financing on that vessel.

So we're currently working on it and.

Co, but my expectation is it will look very similar to what we did on the brokerages.

And the bulk promise.

So I think we're in and we're in a good position, where we're working with.

With our.

And relationships that we have with existing lenders and.

I think that's that's the expectation on a on her.

Great and then if you could talk about you know your forward cover.

You have 3200 days.

And 1500 and it's.

Pretty healthy Delta versus your average first quarter TCE.

If you flow that through to all your owned fleet debt.

The Delta is about 8 million quarter over quarter will bear.

Cash because your operating expense shouldn't change.

And that much.

And you are never going to be offsets to that day.

And that you're seeing on the owned TCE rates.

Can you just help me understand sort of how we should be looking at the second quarter and then.

Especially because you're running 57, so there isn't much of a drop off at all and your chartered in fleet.

And then maybe you could comment on what you're seeing as far as chartered in rates and.

And outlook for how that.

And the next quarter or two looks.

Well one of the things.

Just to say and we said that and the release was that you know we've always had.

Very strong premium margins. This year I don't think that will be quite the same but our earnings are going to be.

Extremely good and my opinion.

The chartered fleet.

And as market.

Reactive and and our strategy has not changed with the chartered fleet.

And we get the business first and then we charter and make that judgment and so we can still.

Sure and a healthy margin on on the chartered.

Chartered fleet.

So that's.

That's not a problem one of the things that's at sits actually happened and the trade.

Which I.

I don't remember seeing it this way before the either the market and the far east.

Extremely strong and normally and such a discounted market.

And with all of the.

Business, that's coming into the U S.

The outbound market from the U S is actually softer and so when you bring in backhaul and you're getting paid more.

Two.

On the backhaul and now becomes the front haul the money like.

Believe believe it or not so you can fix business on.

On Super Max is from.

From the east med to that to the states and the high Twenty's. It's.

Coming in and.

So it's just.

It's turned on its head a little bit, but those those disruptions.

And that's where we live and we live and that and that market. So it's okay for us.

No.

With that situation and in terms of the.

The earnings again with jumping to the ships.

Ships, we have a very low breakeven for our existing fleet we have contract.

Contract coverage for the summer that's a premium even premium to today's market.

So and usually as we get into the third quarter.

And that's when our Baffin business comes into fruition and it'll be a very good.

Time for us.

So.

Yes, I think we're pretty excited about.

On the way this is unfolding at this point.

Okay, and then maybe and if we could look at it from the standpoint of our.

Are there any existing contracts or any time charters that you have on your owned fleet that would.

Hold on hold you back or not make you not enable you to realize the full benefits of the stronger market.

No we tend to.

And our ships out on on.

On time charter.

When we do it's normally two.

Position on where keep a.

And do a second leg or something of that nature.

So we don't have any long term contracts, where we put chips on a on period.

And.

On chips at all.

We generally don't do that we'd be trade them.

Ourselves.

And as you know, we're not a tonnage provider that's not our business.

Yes.

And then.

If you wouldn't mind, commenting on the charter and charter hire expenses, you know, what you're seeing and whether we should expect a like increase and charter hire and.

Expenses.

And the second quarter over the first quarter, just because of the stronger market channel.

Yes, I'd say, you certainly will see a slight increase.

Increase I mean, our strategy has always been.

Reactive to the market and a and a weaker market we tend to to charter.

For single trip charters as the market improves we do period charters, but they are generally shorter term.

You know that three to six month, Max so as the chartered fleet renews. It stayed relatively stable to your point.

As far as our fleet size.

But vessels are being renewed so we are.

We will.

We will be.

Seeing slight increases the market improves.

But I think we'll stay.

We will stay.

And on par or for better because a lot of the other thing to consider what our chartering strategies.

And he's going back to do we think the do we think our cargo book or contracts are holding us back and the way we look at it is twofold one.

If the dedicated Coa that's fixed price, we usually have a ship that's that's.

And.

Assigned to it.

And some of the other contracts, they're usually backhaul and nature and.

And we're able to charter and the vessel.

That's positioned well for us.

Maybe not necessarily and the market.

And we'll slot or into one of these backhaul.

And see a ways or forward bookings and.

And that'll put us in a pretty healthy market. So we'll on the round voyage, we'll still make AR will still make a good.

I mean premiums are still we'll still make a good margin will still make profit will be profitable.

And that's sort of how we look at it so yes, they may be priced.

On a month or a quarter or year and advance, but the nature of that of that voyage generally we're pretty comfortable because we will be able to capture on the second and third legs what are.

And our additional capacity.

Great and then.

And just trying to sort of calibrate your your comments about just strong market.

And I think and the last call you talked about how you know.

Shippers or are looking at shifting away from just in time or looking at and.

Vessel availability is really good and and maybe trying to make longer term commitments.

To you.

Do you think the.

Versus last quarter do you think the visibility and the market has improved.

Hello, and thank everyone is.

Just very bullish I would say.

Part of that look at it that way.

I don't see.

Once in awhile, and you'll see people go and take ships on longer period.

And.

And that's really not what we what we do but we watch it and.

So youll see.

Some of the really big guys.

May do it, but it still hasn't clicked and that way.

Lot of these guys for.

And with short and.

First going into the first quarter and they had to scramble.

Cargo business.

Sharp because everyone expected, the first quarter and not to be to be great.

And I think they are coming to the realization that.

It's a pass through so if someone has to pay.

A lot more for a ship and that's just for the cost and it catch cash too.

The.

And customers, so people, who couldn't get and used to that are they buying and long term.

And not in a way that you would you would see.

Really and then if you go out.

Sure.

Long period.

And you have and at some point you have a correction.

And the market you really have to worry about counterparty risk.

So that's why we would prefer to try to control.

On our own destiny.

These types of things.

Great and then lastly, if you could talk about the dividend increase and and.

And sort of whether we should be viewing it as sort of and.

Quarter to quarter review and then.

Or is there a goal to try to increase it every year and then maybe also talk about the dividend increase and the context of considering.

Buying shares back.

And especially since you know theres been a major seller out there as far as who has been on widening for the last six weeks or so.

Well I think the share price has risen.

And in our opinion, not nearly where it should be but that's been our experience.

And the people that have been selling.

I think they thought it would take them a lot longer to be sellers.

And Dave.

I think at this point on Mt.

And quite a quite a bit of shares and the shares are coming into.

So and to holders moving money.

Anymore and.

And I think it's creating and a lot more volume and liquidity.

So.

I think that that part is.

Okay and with the dividend.

I think we're cautious and we feel that we can.

And you can do this and we'll constantly review it to see if.

If it makes sense to change it.

And Paul just to.

And on the share buyback I think are.

Our views on share buyback has always been to not take more shares out of the market and.

Further reduce the liquidity and.

The sort of public float out there.

So it's really never never been a.

Consideration for us historically.

On.

So yeah, and I think as I think as we look forward to I think thats still remains remains true, but that that may change depending on how and.

How do we see that.

Talk trade.

Yes, yes, I was just thinking and the context of debt.

Generally people out and included those shares and public well just because they were so closely held its a pretty long.

And long standing position. So I was just wondering if you had considered as they were unwinding at least.

Potentially.

Brian and some chairs back so that's helpful.

Great. Thank you so much.

Thank you thanks, Bob.

Yeah.

There are no further questions at this time I will now turn the call back to management for closing remarks.

Well. Thank you all for taking the time to join US This morning, and everyone have a good day.

Thank you. This concludes today's Pangaea logistics first quarter 2021 earnings call you may now disconnect.

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