Q4 2021 Pangaea Logistics Solutions Ltd Earnings Call

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Todays conference Please press Star zero.

Yeah.

Good morning, My name is Catherine and I will be your conference operator today at this time I would like to welcome everyone to the Pangaea.

I'll just stick solutions fourth quarter.

And full year 2021 earnings teleconference.

Our hosts for todays call are Mr. Mark <unk>, Chief Executive Officer, Mr. Gianni Delsignore, Chief Financial Officer, today's call is being recorded and will be available for replay beginning at 11, a M. Eastern time, the recording can be accessed by dialing 8882251540 or.

Four zero to 2204973 for international.

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&A segment. Please press star one on your phone. If your question has been answered you may remove yourself from the queue at any time by pressing the pound key.

We do ask that you. Please pickup your handset for optimal sound quality. It is now my pleasure to turn the floor over to MS. Emily Blunt with Prosek partners.

Thank you and thank you for joining us for this morning's fourth quarter and full year 2021 earnings conference call for Pangaea Logistics solutions.

Today from the company our CEO , Mr. Mark So unhealthy CFO , Mr. Gianni Delsignore and recently appointed E. L. O. My voice here before 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 me yeah.

Forward looking statements are streams that are not based on historical facts such forward looking statements are based upon the current beliefs and expectations of future logistic solutions management and are subject to risks and uncertainties, which could cause the actual results to differ from the salaries line.

Such risks are more fully discussed in Pangaea logistics solutions filings with the Securities and Exchange Commission.

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

Yeah logistics 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 evenings.

But he is available on the investors section of Ww die and yeah, I'll ask dot com.

Under the company filings or on it.

Website, I think see dotcom.

Now I'd like to turn the call over to Mr. Mark.

Mark.

Thanks, Emily and thank you all for joining us today to discuss our 2021 annual results.

Before getting to that we want to express our deep and most sincere hopes that the tragic events in Ukraine will soon be over for the Ukrainian people Thankfully, we have no ships or cruise directly exposed in the war theater.

Pangaea, who did have a very good year in 2021.

Markets were favorable and that might be an understatement.

Our own fleet expanded with secondhand and new building vessels and with increased ownership of our ice class Panamax joint venture <unk>.

<unk> 10 ships added to our fleet over 15 months.

And we entered new terminal operations in the U S Gulf.

We took some aggressive steps leading into a business environment that included a strong world economic recovery limited fleet growth and new opportunities to be pursued and our financial results demonstrate we made some rate decisions.

Few weeks ago, our board increased our quarterly dividend distribution by 43% Johnny.

Johnny will go over the results in detail in a few minutes.

In the new year, we've been busy meeting with investors potential investors and analysts.

Ascribed bar business is one that is sustainable with a solid and proven business plan that does not require continued high market rates to be profitable.

We have a balanced approach to our business with shipping at its core.

When talking about our strategy compared to others one of our founding directors recently said, yes, we have shifts because we have customers they have customers only because they have ships.

And our approach customers always come first we serve niche markets like ice class.

Our customers have specific needs and we build ships for them.

We have built expertise and hard to carry cargo because our customers need it we're expanding our reach into more cargo areas like terminals can stevedoring, because we can provide a more full service to our customers.

When you look at our company you should understand that is how we operate and you can see how our consistent financial performance through all markets differs.

Differentiates us from other shipping companies we.

Have room for upside, but we protect the base.

I'm sure you want to know what we expect for the coming year.

2022 started out strong the ice season started early a bit of momentum in the overall market. It was lost in January but it was recovering in February before the Russians invaded Ukraine.

You and U S sanctions and then came into play.

We are in the process of absorbing the sanctions and reacting to them.

As a result of sanctions, we will make a change and technical managers on some of our ships and we have had to refocus some of our commercial attention away from Baltic seaports and cargos.

At the time of the invasion, we purposely had no ships in the Black Sea.

The overall market is in a state of disruption and reset and it is happening quickly.

Shipping markets evolve with disruption and they change with demand over the next few months, we expect the market to gain in strength in response to the disruptions over the long longer term.

Whereas unsure as anyone where worldwide demand will be.

Continuation of a low new building order book will restrict supply.

Most importantly, our contract portfolio will again provide profitable revenue streams.

In our other businesses will react to changes as they always have with resiliency, because we are always able to respond to changes quickly.

Johnny will now go over the numbers.

Yeah.

Thanks Mark.

And thank you all for joining us on today's call.

As Mark mentioned 2021 was a record year for Pangaea, driven by a strong market well.

Well timed expansion of our own fleet and executing on our chartering strategy.

Our average net TCE earned a 32000 and 563 per day increased over 100 per cent compared to the fourth quarter of 2020.

We reported adjusted EBITDA of $105 million for the year and our adjusted net income of $63.3 million.

Yeah.

We are working very hard to extract the most out of this market.

We continue to deploy our assets to serve our clients cargo needs look for ways to expand our platform and ultimately drive increased profitability.

During 2021, we utilized cash from operations.

And access to low interest debt facilities to expand our own fleet, adding four new build vessels and three secondhand vessels.

Kris our chartered in fleet, which requires significant working capital.

Pay down debt and increase our quarterly cash dividend.

Turning to our full year financials, starting on page six of our presentation.

The continued improvement in the dry bulk market during the fourth quarter and an increase in our total shipping days drove increases in both voyage revenues in time charter revenues.

Voyage revenues increased approximately 76% to $614 million.

In charter revenues increased approximately 213% to $103 million.

[noise] or TCE rates earned.

For the full year of 2021 increased to 102% to 25056 compared to 12433 for 2020.

Charter expenses paid to third party ship owners increased to $334 million from 128.

162% increase due to increases in market rates to charter in vessels and an increase in charter in days as part of our flexible chartering strategy, allowing us to supplement our own fleet with short term chartered in tonnage.

At prevailing market prices.

I needed to meet cargo demand.

The expansion of our owned fleet led to an increase in vessel operating expenses, which increased by 12% to $42 7 million for 2021 compared to $38 million for 2020.

However vessel operating expenses on a per day basis, excluding management fees decreased from 5432 per day to $5260 per day as a result of the Companys fleet renewal efforts.

Unrealized gain.

On derivative instruments was $3 8 million for 2021 .

As we've discussed in the past, we utilize Ford freight 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 our companies 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 year was $67 million or $1 50 per share compared to net income of $11.3 million or 26 cents per share for the same period in 2020.

Yeah.

Moving on to the balance sheet and cash flows on page seven of our presentation.

We ended the year with $56 2 million of total cash and cash equivalents.

As you will see in our cash flow statement in 2021 we've generated $62 million in operating cash flow, which includes 8 million used in dry dockings and approximately 26 million used for working capital on our total fleet.

We deployed $195 million of vessel acquisitions and generated $143 million in financing activities related to new debt facilities finance lease lease facilities offset by repayments as well as dividend payments.

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'll now open the floor for questions.

Okay.

But.

And if you would like to ask a question. Please press star and one on your Touchtone phone again that is star one if you would like to register to ask a question you can remove yourself from the queue at any time by pressing the pound key.

We can take our first question today from Liam Burke with B Riley. Your line is open. Thank you good morning, Marc Good morning Gianni.

Good morning.

Mark if you can talk about slide 12, where you're looking at your T C outlook.

It looks like you are back on pace to exceed the industry's understanding where an hour.

It's early in the year would you expect with a somewhat less volatile BSI to be able to continue to outpace the rest of the year or do you anticipate.

Geopolitical events to create a some sort of headwind there.

Thanks for the question Liam.

We're always looking forward at our Uh huh.

Our booked.

Cargoes that we have on hand at any point in time.

Comparing it to the market is difficult and.

Very volatile business, we're booking cargoes three four months ahead of time and performing them later and possibly a different market. So it does.

Do.

Move with the index over time, sometimes where we're below rarely but.

But generally where we're above we had that have that historical advantage of having a.

Ice class fleet fleet, which produces premium.

Earnings in most markets.

That helps quite a bit we're also taking a more difficult cargoes then than many other shifting shifting companies will take and we get paid a little premium for that they've got a great trading platform.

Including doing stuff.

On the side of the ship.

Sure and sometimes those are those revenues and extra extra.

Our margins come in the form of higher freight rates. So that helps push up push us up above the index as well. So yeah, we expect it to be above the index for the rest of the year on average, but maybe not every quarter.

Got it thank you.

And you invested $195 million in new vessels or your fleet renewal program.

This year.

Probably be safe to assume that you wouldnt match that numbers. So cash flows all things being equal it will be a lot stronger or you'll have more excess cash available what would your priorities be here.

You know in this business you never have excess cash right.

Sorry.

Mr Davis.

But yeah we.

We don't see us as a as much reinvestment this year as we as we did last year you know the new building ships. They were ordered two years before.

So they came on on on stream.

Last year, we saw enough opportunities last year to buy other ships and then an opportunity came up to buy.

To buy are effectively two ships from our joint venture partner.

Which which has turned out to be a great investment for us.

In the coming year.

We're always looking at new ships were always looking at the existing fleet, maybe we'll sell a ship or two or buy a ship or two but we are.

We don't have as big an ambition as we did.

Over the last couple of years and in this kind of market.

Great. Thank you Mark.

Yes.

Yeah.

And as a reminder, that is star and one for your questions. Today, We'll go now to your Po Frat with noble capital. Your line is open.

Yeah. Good good morning, Marc Good morning, Johnny and just you know remembering add today.

What if you look at the impact of what's going on in the market you know the shift away from Russian cargoes, you're changing your technical managers can you just talk about what potentially would be the impact looking into the second quarter. It looks like there's not much you been pegged in the first quarter given what.

Your Ford copper in your TCE rate is.

Yeah.

Thanks, Paul the changing the technical managers is unfortunate, but we don't believe it'll be it'll be costly, it's a little disruptive.

We realized early on that we needed to make that change if not because of the sanctions and maybe because of a perception, but then sanctions did did catch up with us.

So we'll move move.

Moving to management a two.

To another company that isn't subject to sanctions crew crew members will temporarily at least hopefully.

More permanent will remain on board, we don't have to change crews. We've made some arrangements with the existing crude is to stay on for the most part so that helps quite a bit and in the.

The disruption in terms of cargoes you know, we like I mentioned, we booked cargos well in advance and they've.

They've got commitments going forward, we've sorted through those commitments in response to the sanctions every one of the different story.

In some ways some cargos we've had to cancel.

And because of sanctions are other cargos.

There were where there is no sanction where we're committed to carry that cargo and were doing it.

Even if it's lifted out of a Russian part we're committed to do it there's no sanctions on that cargo or in the ownership change, we'll do that that's part of it we won't do any cargo which breaks sanctions.

Going forward.

Things will pivot <unk>.

Already pivoted, we see cargos moving from different places into.

Into Europe , and we will participate in that in that the shifts we have in in the trade that that move.

<unk> four out of the Baltic.

They are they are totally functional in every capacity and every measurement are in other markets. So that we will use them accordingly.

And then it sounds like the.

You know markets in reset mode, but it sounds like you're pretty comfortable that the market you know the the view the ton miles might lengthen or might increase.

Over the next year or so seems to be a reasonable assumption.

I think so oh, but we see them.

Coal cargos moving on on smaller ships from Indonesia back to Europe .

The far east market is very hot right now.

Taking cargo in different places than it used to take it a day before the war.

Yeah.

That used to come out of Ukraine, and out of Russia, and the AR and the Black Sea, it's still needed somewhere so it's coming from different places probably adding ton miles.

When all of this disruption gets all sorted out.

Like I said in my remarks, I don't know whats going to happen to <unk>.

Overall worldwide demand.

It will put us into a there's all these changes and disruptions.

We will put us into a.

Worldwide recession or not.

We're certainly hope not and so we think that overall it will be good for shipping.

Okay.

There's been a lot of disruption not necessarily in the cargoes. It seems like you carry but you know if you look at the nickel market or the energy markets.

There's been a spike.

A lot of pressure on some trading companies I.

I did notice that your provision for doubtful accounts went up.

Just.

It looked like it went up a million and half bucks in the fourth quarter can you.

Just talk about whether you're seeing any stress on counterparties.

We've always been a cognizant that.

You work hard to make a little bit of money, but if you'd never collect it.

It's not worth it so we've had.

A lot of focus on Counterparties over the last Oh forever, but why don't I, let Johnny talk to you about that specific question yes.

Yes, I think posted.

Good question I think if you look at our kind of one function of our reserve policy is a specific reserve and then the secondary is a general reserve in the General Reserve is.

Is largely based on the size of the receivable. So we've seen a significant increase in receivables a significant increase in freight.

Value. So I think there's there's a.

There is some increase in that general reserve, but I don't think there is theres certainly nothing specific or.

Oh that we're concerned of but we watch our customers closely and we watch credit risk very very closely.

Okay.

And then when you look at you know energy markets bunker.

Fuel prices had spiked.

Moderating a little bit it seems like but can you just address how you're managing that.

This current price environment with bunker fuels and weather.

You're you're able that to you.

Manage it how you're managing it mark.

Sure Paul.

You know, Matt is very close to that that hole.

Part of our business. So why don't I, let him explain to you what we do and where we are thanks, Marc and hypo.

So so essentially we have a hedging policy in place for all of you know commitments cargo wise, where we have exposure to rising.

Rising fuel costs and net of caution and imperatives over the last months has been extremely midstream.

Extremely beneficial for us that we have protection in place for fall.

For fall so the scenario that we have just gone through are not right. We don't expect any sort of less volatility and and and fuel and fuel prices. So so the combination of our hedge policy and I'll make a few ways, having ponca escalation clauses.

I'm sort of means that we don't have I would say any significant direct exposure fall from rising fuel costs and it's a pretty it's a pretty efficient way too soon to sort of the.

To manage the risk actually so.

Yes.

If I recall, you had 75% to 80% of your people need.

In general.

Yeah. That's that's all of them have been generally the number will go a little bit up a little bit down, but it's in that region typically.

And I missed I should congratulate you on became the CLO and moving to new court at some point mats.

Thank you Paul.

And then when you look at the fleet renewal as William talked about you know your Rebury active last year.

More on the buy side is this the time, where you start to look at some of your older assets. It may be.

Opportunistic.

Kinesthetically sell some of those assets could you just talk about you know the other side of the equation as far as fleet management.

Yes.

I think you are you hit.

One of the issues, we're looking at are right on the head.

With the values of the older ships having.

Come up.

Substantially.

Where we are looking at.

Taking advantage of that.

That rise, but at the same time.

Newer ships have risen in value to so we don't want to lose those those operating days and it's tough to give up that.

Debt free shifts to and in this kind of market. So where we are studying that <unk> made no decisions on them.

[noise] chips to sell and how.

How to sell them, but we are looking at it yes.

Okay, and then just one quick one Gianni you know the bulk Concord delivered the middle of February .

You typically get a finance, 60% of your acquisition costs any any comment on financing the bulk Concord.

Yes, sure. We can we can discuss at the transaction is complete we took delivery.

In February the purchase price was 19 nine and we.

We went back to the sale.

Sale leaseback market and raised $15 million of.

Sort of.

That facility structure is lease.

So it's a it's in line with some of our previous transactions.

You know it gives us a good runway to operate that ship.

So Greg So we will see that in the first quarter, then as far as well.

Well, we through okay, great. Thank you so much.

Thank you Bob.

And once again that is star and one for your questions today, we will pause to allow any further questions to queue.

And it does appear that we have no further questions at this time.

Thank you very much for attending our conference call today.

We hope you have it.

The rest of the day, thank you very much.

This does conclude today's program. Thank you for your participation you may disconnect at any time.

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