Q3 2021 Pangaea Logistics Solutions Ltd Earnings Call
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Good morning, My name is Ashley and I will be your conference operator today at this time I would like to welcome everyone to the Pangaea logistics solutions third quarter 2021 earnings teleconference.
For today's call are Mr. Marcelino, <unk> interim Chief Executive Officer, and Mr. Gianni Delsignore Chief Financial Officer.
Today's call is being recorded and will be made available for replay beginning at 11, a M. Eastern standard time, the recording can be accessed by dialing 808 39 five for nine two domestic where before you go to T. T zero to 551 International all lines are currently muted and after the prepared remarks, there will be.
A live question and answer session.
Like to ask a question during the Q&A segment. Please press star one on your phone. If your question has been answered you may remove yourself in the queue by pressing the pound key.
After you please pickup your handset for optimal sound quality. It is now my pleasure to turn the floor over to MS. Emily Bloom with Prosek partners. Please go ahead.
Thank you Ashley and thank you for joining us for this mornings third quarter 2021 earnings conference call for Pangaea Logistics solutions with US today from the company are interim CEO, Mr. Marc fill analyses and Chief Financial Officer, Mr. Gianni Delsignore.
I turn the call over to Mark 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 are statements that are not based on historical facts such forward looking statements are based upon the current beliefs and expectations of Pangaea 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 disclosed in Pangaea logistics solutions filings with the Securities and Exchange Commission.
Amazing set forth herein should be understood in light of such risks Pangea.
Pangaea logistics solutions does not assume any obligation to update 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 isn't which is available on the investors section of W. W. Dot N J I'll ask dot com under company filings or on the SEC's website at SEC Gov.
Gov.
Now I would like to turn the call over to Mr. Mark filling out Mark.
Thank you Emily Hello to all who have joined US today for Pangea, Yes, third quarter 2021 earnings call.
This morning, I will 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 third quarter 2021 financials.
And then open the line for questions.
First I'm happy to report that Ed Cole, our Chief Executive Officer, who is out on sick leave is recovering well.
We're in constant touch with them and I can tell you. He is proud of our performance this quarter.
The timing of his return to the office is not yet determined but I can tell you we all greatly miss his presence here.
We hope you've had time to review our press release and accompanying presentation issued last evening, our third quarter results reflect both rising freight levels not seen in over a decade and the additional ship capacity that came on stream for us this year, including the three new building ships delivered to us and the three secondhand ships purchased.
Okay.
The third quarter, which is seasonally one of our strongest we saw the average published market rates for Superman and Panamax vessels increased over 200% from an average of $10286 per day in the third quarter of 2020 to $32033 per day in the same period of two.
'twenty one.
This boosted our earnings further the arrival of the summer ice season allows us to deploy the full strength of our ice class capabilities to provide our clients with specialized services required for demanding conditions.
Our average net TCE earned 28707 $70 per day increased over 100% compared to the third quarter of 2020.
We report adjusted EBITDA of $33 million and adjusted net income of $21 7 million.
We are working very hard to extract the most out of this market and we continue to deploy our assets to serve our clients cargo needs and help us drive increased profitability.
While our earn TCE for the third quarter was the highest in many years.
The rapidly rising market resulted in no T C premium for us over the market averages.
This is a normal consequence of it rapidly rising market.
Our spot fixtures become old quickly and our contracted cargo tends to lag instead of lead the averages and this kind of market.
However, our TCE earnings continue to approve improve heading into the fourth quarter.
Through November eight we performed 2000 and 352 shipping days at an average TCE rate of approximately $32993 per day.
The physical market has softened over the past couple of weeks, but it's still well above rates of a year ago.
During the quarter, we took delivery of our third have four ice class new building vessel the fourth to be delivered to US later this month.
Today, we're pleased to announce that.
Purchase of a 2009 built panamax for $19 $9 million to support our core contract business.
The vessel is expected to deliver it to us in the first quarter of next year.
So far this year improving market has worked in our favor generating more operating profits, which will eventually turn into more cash earnings when.
When this happens our board of directors keenly aware of our industry's volatility.
We'll consider uses utilization of any cash in excess of business requirements to expand our fleet or make investments in strategic projects to.
To reduce this leverage or to return some excess cash to shareholders.
We don't have a dividend formula, but we do have a good business plan.
I'll hope the shipping markets remains strong for a while to provide cash to do it all.
I'd now like to turn the call over to Gianni to go over the numbers in more detail.
Thank you Mark and thank you all for joining us on today's call.
Before walking through our financials I'd like to expand on capital initiatives and highlight our results for the quarter.
This year, we have taken steps to deploy our capital focus on niches and capitalize on an improving dry bulk market to generate and return shareholder value.
We have used cash from operations to renew our own fleet decreasing the average age of the fleet by 25% to less than nine years.
Increase our short term chartered in fleet, which requires significant working capital investment with high charter rates and bunker prices.
Reduce debt as scheduled and pay dividends.
Turning to our third quarter financials, starting on page six of our presentation.
The continued improvement in the market during the third quarter drove increases in both voyage revenues in time charter revenues.
Voyage revenues increased approximately 90% to $186 4 million.
[noise] in charter revenues, which are opportunistic and more closely tied to market rates increased approximately 372% to $26 7 million.
The optionality of our charter in strategy allows us to expand or contract our chartered in fleet and in turn selectively release excess ship days into the market under spot time charter arrangements.
Our TCE rates earned increased 116% to 28770 for the third quarter of 2021.
Care to 13316 for the same period of 2020.
Charter expenses paid to third party ship owners increased to $103 7 million from $35 million or 197% increase due to increases in market rates to charter in vessels and an increase in charter chartered in days as part of our flexible chartering strategy, allowing us to supplement our own.
With short term chartering in tonnage at prevailing market prices when needed to meet cargo demand.
Unrealized gain on derivative instruments was $5 3 million for the third quarter of 2021.
As we've discussed we utilized Ford afraid agreements and bunker swaps to selectively hedge our exposure to the market on our long term cargo contracts and forward cargo bookings.
While this locks in future cash flows.
The mark to market gains or losses can lead to fluctuations in the Companys reported results on a period to period basis, while settlement of the position and execution of the physical will occur at a future date.
Net income for the quarter was $26 9 million or <unk> 60 per share compared to net income of $7 5 billion or 17 cents per share for the same period in 2020.
Moving on to the balance sheet and cash flows on page seven of our presentation. We ended the quarter with $49 1 million of total cash and cash equivalents. Following an active nine months of operating investing and financing activities.
As you will see in our cash flow statement in 2020. One we generated 42 million in operating cash flow, which includes $7 6 million used in dry dockings and approximately $9 9 million used for working capital on our chartered fleet.
We deployed $159 million in vessel acquisitions.
And generated 117 million in financing activities related to new debt facilities finance leased facilities.
Which were offset by repayments as well as dividend payments.
Further as Mark mentioned, we have declared another three and a half cent quarterly cash dividend payable on December 15th.
With that I will now turn the call back over to Mark for any additional remarks before we get to the Q&A portion of the call.
Mark.
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 coming quarters.
I will now open the floor for questions.
Yeah.
And at this time, if you would like to ask a question that is star one on your Touchtone phone once again to ask a question Thats Star one.
And we'll take our first question from Liam Burke with B Riley. Please go ahead.
Good morning, Mark Good morning Gianni.
Good morning Liam.
Mark on the dry bulk side, the iron ore with Chinese steel production declining over the last several months has been moderating.
And iron ore is an important commodity that you you transport, but looking at the fourth quarter.
At current rates that your earnings it doesn't seem to be affecting the business.
Is there something different that's going on in your iron ore demand.
Thanks Liam.
Just wanted to let everyone know that Matt Peterson from our <unk>.
Copenhagen Office, managing director of our Copenhagen Office is on the line for questions. Also so do you have any questions about.
That fleet is managed out of Copenhagen match.
<unk> will be able to to answer those.
In answer to your question Liam about the iron ore prices the physical market has dropped over the past couple of weeks the numbers that we put in the deck that I mentioned in the conference call where for voyages that have been.
Shipping days that have been performed so far this year. This quarter. So I think we were still feeling the strength of that that market.
When will those when we look at those numbers.
But looking forward.
We see continued strength in the physical market, but not as strong as it was one of the reasons is some tamping of demand for iron ore, but there is a strong demand for coal on the other hand.
So we don't see that the iron ore market will will.
Will.
Well, we will have it will.
We're really drag.
Spot rates going forward, but there will be some tempering of.
Of the.
The volatility.
Okay, that's fair.
And on the rates.
Spot rates have been pretty healthy has there been any interest on your customers part to come to you and say hey, we'd like to fix some of these rates on a longer term duration, rather than operating or or or operating in the spot market.
Uh huh.
In the in the in the third quarter going into the fourth quarter, we have seen some activity.
That's particularly in our ice business people coming to us to try to fix.
<unk>, the first and second quarter, maybe maybe offer us cargoes through the rest of 2022, so yes, it's been a little bit of that activity.
As deep as the rates have dropped a little bit but people still see.
Pretty good market going into 'twenty, two and and a little beyond that.
Great. Thank you Mark.
Yeah.
And once again Thats star one for questions. We'll go next to <unk> with noble capital markets. Please go ahead.
Good morning, Mark.
Good morning Gianni.
And if you would please pass along my my regards to add in here.
Here's hopes to a speedy recovery.
No.
One.
Just if we could look at the forward cover or you know the days that you booked for the quarter.
Do you have a guess or an estimate on what you're going to see in shipping days for the quarter.
And in the context of what you talked about booking it it seems like that potentially is less than half of the quarter.
But you might see in shipping days and I'm, just trying to understand what's going on whether you're not booking madkour in advance or just can you give me some context on that.
Well, we we do book some stuffed in advanced of these these are the numbers that we put down are the days that have been performed up to November eight.
So those are the voyages in process in voyages can take anywhere from 10 days to 40 days. So we're in the middle of some of the voyages were at the beginning or at the end of <unk> and others.
So that's it's just a snapshot in time.
That we.
But we we disclose.
In terms of the what we see for the rest of the quarter.
Our fleet has has dropped.
Drops just a little bit since the third quarter. So there won't be quite as many shipping days in the fourth quarter.
The third quarter is our busiest of the year.
Traditionally for.
Quarter is usually pretty good too so.
With the market rates, where they are today.
They seem to be had reached some kind of plateau here.
And.
We don't expect there'll be substantially different than our than the first few days of it.
Five weeks of the quarter.
Okay. So that's a hard stop mark as far as you know looking at November eight those are actually so it looks like you're running a fleet of about 51 right now.
Yeah.
Yes.
And then can you give me an idea of sort of what your you know.
What your last day of booking wise relative to that 33000, a day of that T C.
Yeah.
Hi, Paul.
What do you when you say the last day of bookings.
You're right.
Okay.
Well I'm sorry, so so you have an average right now that you've booked for the fourth quarter do you have a can you give me an idea of sort of what the range of that has been so far in the quarter.
So a lot of a lot of the.
Our businesses were performing contracts forward bookings and then from time to time, which also doing participating in the spot market. So what we're seeing so far in the fourth quarter is a run off of the business that we priced in the third quarter or completion of Baffin trade, which extends into the fourth quarter.
So what we tried to show in that in that graphic is basically what voyages we've performed through November eight.
That are basically spillover of the third quarter going into the fourth.
There could be some voyages in there that were priced.
Towards the end of the third quarter that performed early.
In the fourth quarter.
But it's it's a pretty wide, it's a pretty wide range how we.
Execute on board.
The contracted business.
The spa bookings and the forward bookings.
It's really difficult to pinpoint.
The exact time.
Booking those those voyages.
We're really trying to show is you know.
What is.
What is going on what are these.
The earnings as we entered in the fourth quarter and we really we would expect that increase in a rising market.
We tend to lag as the market rises.
I think we had said that.
It was it was a higher rate going into.
The fourth quarter, which settled a bit.
Pricing wise, but.
Fortunately, we are executing on business that we're where pricing you know a few months or.
Or longer and events.
Yeah, I guess I should just asked.
Do you think that the rest of the quarter will be at the same level that you're seeing right now that 33000 or do you think it will be higher or lower for the rest of the quarter.
Well.
Spot rates have moved down some physical spot rates have moved down some from where they were at the end of the third quarter.
So I would say if there's a trend for the market trending down a little bit.
But still well above where it was a year ago yeah.
Yeah.
Again, I just didn't want to.
People have the impression that you're going to be able to you know booked in full quarter 33000, I mean, if you do that then your you know your numbers look even stronger than they did in the third quarter.
So I was just trying to you know.
It may.
Make sure that people are in the same page well Gianni congratulations on the new acquisition.
It's the first quarter of band of 22 have you thought about how you're going to finance that right now.
Yes.
Actively looking at it.
Yes, I think our our history of previous acquisitions will still.
Hold true.
So where we're looking at various.
Relationship banks and other sources.
Yeah, I mean, we're pretty confident.
We'll be able to achieve in line with what we've done earlier this year.
So we're actively working on it and.
As we approach the <unk>.
First quarter.
Closer to delivery.
Certainly.
Vertical position.
And then any thoughts Marc on selling some.
Some of the older assets or.
Are you going to sort of ride out the market and see what happens into 'twenty two.
No decisions yet Paul.
The acquisition of this Panamax will give us a little bit of a floor.
<unk> ability.
With our fleet, that's that's dedicated to our.
Our bauxite trade in Jamaica. So that's all we're trying to do is they get a little bit more flexibility read the market, a little and decide what to do with it with the older assets.
When to do it.
Yeah and.
And then the last the last new build is either close to or getting deliberate or might have been delivered by now.
Johnny can you give us an idea of how much capex is going to be recognized in the fourth quarter on that aspect.
So unfortunately.
Our JV partner.
Be contributing their final.
Capital.
Commitment.
To take delivery, so there will be.
Final.
Delivery install it from.
Our partners that will.
We'll sort of make.
The cash impact of that delivery relatively neutral there will be some delivery cost.
750, maybe a $1 million of delivery cost to us.
Unfortunately, a lot of this was.
We tried to have it as buttoned up as possible.
When we entered into these contracts with these new builds.
Yes.
During the day.
Capital coming in from our JV partners.
It'll be a pretty.
Small capital outflow for us in the fourth quarter.
Okay, Great and then when we look at your derivatives book or your FSA bucket you know at the end of the quarter or September 30th it looks like it was $10 9 million as far as.
You don't want an asset in the balance sheet, how when will that run off but I mean could you give us an idea of sort of the.
The aging of that asset they book right now.
Yeah.
Sure.
Our position settles.
October.
In November and December.
We're covering.
It runs up until and through 2023, so there is.
If a runway there.
I'm.
Final settlement of these positions.
It's <unk>.
It does create noise on our on our P&L the way we recognize it right.
Recognize this year a substantial unrealized gain on asset base. We've also realized some gains through the P&L as reduction of charter hire.
Throughout this year, but are you looking at.
Point in time it does.
Certainly adds some volatility there to the to the P&L as we market to market.
So.
Yeah.
We've seen the market decline, we will see a reduction in our position both from <unk>.
Settlement of the near term position or the near term months like October November.
December but were also see.
The mark to market wherever the market may be December 31st of all we will certainly impact.
We will certainly impact our P&L as we recognize that that potential reduction.
And the value of that position.
Okay, and then just squeezing one last one if you wouldn't mind, how about charter hire expenses look for the quarter.
You know March said that Youre going to Brian probably a little less shipping days in the fourth quarter than third quarter, partly because of seasonality.
Can you give me an idea of how charter hire expenses look for the porch.
Well charters and the rates have decreased along with it with the market.
We're always.
We're not directly.
Correlated with the average market because we take ships all over the world at different places in different positions.
But we don't really.
Look at charter hire.
Expense as the number itself it's just.
It is what it is based on the chips that we need to move our cargos.
But those rates charter in rates have moved down along with the general market.
Great. Thanks, so much for your time.
Thanks, Paul.
Okay.
And we'll take our next question from Charles Charles <unk>, a private Investor. Please go ahead.
Well, thank you guys really been killing it.
Retail investors, so my question's, a little beyond the quarter and thanks for taking my call I'm, just curious I've heard a lot of news just macro as shippers are concerned about the emission requirements for for boat engines going forward. In next few years and I was just curious how for you know a relatively smaller firm you guys are going to.
Meet those challenges, especially since it seems like your your.
It seems to be pretty new but may be impacted by additional requirements in the U S and EU. Thanks, so much transparency.
Thank you Charles that's a really good question, we're talking about it a awful lot these days.
Matt Peterson has been watching those developments from Europe, So why don't I ask him too.
Try to answer that question.
Thank you Mark them. So the main thing I think to think about when you look at our feet.
And our company.
All of it is relatively young and actually are.
Combined with the with the close of the first round of the regulations coming in 'twenty two 'twenty three meaning that we can then we will meet those requirements. So.
But you know for the outcome that we are fully of course acknowledge that that the industry needs to do.
In terms of them are improving.
All emission sorry about the.
The the the the beetle put solution is there's still not available.
Yeah.
What we're doing in the meantime, this we're spending a lot of energy on how we run our ships how do we maintain all ships.
And essentially are you, saying, there's no choice in terms of optimizing all our maintenance program for instance, a bit foolish drag on the shifts by.
Do you think you'll put on US we are using various.
Aggregate them machine based machine learning based algorithms in terms of optimizing the boot and all of that goes into.
And so introducing all all of our carbon footprint.
Got it.
In terms of the alternative fuels.
The solution is simply not that all of that.
Potentially a power reduction, which will apply to its MTV Moshe.
Most ships less than I don't know 12 years old or something like that.
Come 2023.
Which in the short term would be the way to comply but of course, we are looking.
Looking at the time to follow all of the all the technological advances that are being made.
And in various embarrassed duration stuff right now.
Oh boy it where we don't have we don't have a solution.
No one really has that at the moment so.
Yeah.
I guess I can add two points one is that when we were looking at.
Our new ships are back in 2019, yeah. The answer generally was Oh LNG will be the fuel.
Fuel of the future well I think that's been discounted by our by the World LNG isn't really the answer we didnt do it at that time because of the restrictions of the Arctic trade. We couldn't we were not able to fuel ships away of LNG in the Arctic. So we didn't we didn't make that step I think it was ended up to be.
The right step.
Or for those ships.
The other comment I'd like to make is that efficient transportation, yes is.
He is good for the World and it's also for shipping companies. So we're trying to.
To make our shifts.
More efficient as efficient as possible so that we do burn less fuel and we do less.
Harmful emissions to the world.
Thanks, guys, but the key takeaway I guess as the whole industry is just going to have to wait until.
Standards in technology meet with I guess this ESG a push.
Push right I mean, we're we won't be able to upgrade something that hasn't been invented yet.
I take away from it.
Yeah.
And there are no further questions I will now turn the call back over to Mark <unk> for any final thoughts.
Well, thank you for participating in the conference call today.
We hope to to continue our progress and our performance throughout the rest of the year look forward to our next conference call.
Thank you very much.
Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
Okay.
Okay.
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