Q1 2022 Pangaea Logistics Solutions Ltd Earnings Call
And the audio system send your call today, Please press star zero.
Uh huh.
[music].
Good morning, My name is Ashley and I'll be your conference operator today at this time I would like to welcome everyone to the pans and logistics solutions first quarter 2022 earnings teleconference.
Your host for today's call are Mr. Mark <unk>, Chief Executive Officer, Mr. Gianni Delsignore, Chief Financial Officer, and Mr. Matt Peterson, Chief operating 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 893.
8158 for domestic or four zero to 2201542 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 move move yourself in the queue at any time by pressing the pound key we do ask that you. Please pick up your handset for optimal sound quality.
It is now my pleasure to turn the floor over to MS. Emily Bloom with Prosek partners.
Yeah.
Thank you operator, and thank you for joining us for this morning's first quarter 2022 earnings conference call for Pangaea Logistics solutions.
Today from the company, our CEO , Mr. Mark somehow ski CFO , Mr. Gianni Delsignore and C. O O Matic Boy Peterson 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 Pangaea.
Logistics solution for looking statements are statements that are not based on historical facts.
As far as 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 discussed in Pangaea logistics solutions filings with the Securities and Exchange Commission.
Information set forth herein should be understood in light et cetera.
Pangaea logistics solutions does not assume any obligation to update the information contained in this conference call.
So please you call it 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 of Www P. J O O dot com under company filings or on the SEC's website.
Dot Gov.
Now I would like to turn the call over to Mr. Mark filling ASCII Mark.
Thank you Emily and thanks to all of her joined US today for <unk> first quarter 2022 earnings call.
This morning, I'll provide an update on our operations.
Overall market before turning the call over to Gianni our CFO to provide more detailed overview of the first quarter of 2022 financials. We will then open the line for questions.
We hope you've had time to review our press release and accompanying presentation, which.
Were issued last evening.
Volatile markets within the quarter.
But overall, improving dry bulk market fundamentals timely expansion with our fleet and an early winter ice season resulted in another strong quarter to start 2022.
Led by market strength pushed by our business plan and our people navigating sessions operating challenges and trade lane disruptions caused by the war on Ukraine.
We reported quarterly net income of $21 million or <unk> 45 per share.
Market strength continues to build in most geographic areas, where we operate at the end of the first week of May our second quarter time charter equivalent booked indicates a rate of $29400 per day, an increase from our actual Q1 time charter equivalent rate.
As we move towards the third quarter seasonally our strongest we don't see a reason for a weakening market supply of new ships is constrained for years and the existing global fleet and use is stretched by high fuel prices congestion and increases in ton mile demand.
We reiterate our tempered enthusiasm. This is shipping after all by announcing our board has decided to increase our quarterly dividend by 50%.
For the June payment date, our second increase this year and our sixth consecutive dividend payment.
We want our shareholders to participate in the results of a good market and the hard work our people put in every day from decks and desks.
We have also tried to differentiate our business model and our performance from our peers.
One way is to examine results that matter how productive as a company are making the best use of the assets at its disposal.
We think time charter equivalent through cycles is an excellent measure of how effective a shipping company is in its market.
I am pleased to tell you that we learned last week that Pangea you outperformed 20, other publically listed dry bulk shipping owners and operators in the annual measurement performed by vessel index, finishing in second place. This year after placing first for the previous three years. It really is hard to be number one.
Every year, especially in the movie market, we had last year.
Over the last four years since the statistics have been published by vessel and text Pangaea has outperformed all other companies included in the survey.
We more than doubled the performance of the second place entrance.
Over four years Pangaea has averaged an outperformance of 36.6% or $3372 per day per one vessel over the industry index and $1397 per day per vessel over the second place finisher.
Independent measurement of Pan J S outperformance demonstrates the power of our business strategy and trading platform over a long term business cycles.
As we look ahead, we remain encouraged by our strategic position and our ability to capitalize on improving market fundamentals.
We continue to supplement our successful business model by ramping up our efforts in logistics at ports, we operate in the U S.
We are participating in infrastructure cargos and projects, meaning we are stevedoring break-bulk solar components and cement in bauxite and.
And we are bidding on projects to support wind farm installations. There is no doubt. This service is complementary to our base shipping business.
We have attracted a veteran of this space Brent Mehanna to work with us to expand our efforts we.
We hope to make this part of our business a real contributor over the next few years.
I'd now like to turn the call over to Gianni to go over the numbers in more detail Johnny.
Thank you Mark and thank you all for joining us on today's call.
2021 was a record year for Pangaea, and our momentum continued into 2022, despite a volatile rate environment during the first quarter.
With the average of the Panamax and supermax indexes.
Ranging from 16000 to a high of over 30000.
We generated adjusted EBITDA of $31.3 million and adjusted net income of $15 7 million.
Our average net TCE earned of 26472 per day increased over 60% compared to the first quarter of 2021 and exceeded the market by approximately 17%.
We believe we are well positioned to extract the most out of any market that may be ahead.
We continue to deploy our assets to serve our clients cargo needs within the quarter took delivery of the bulk Con court in 2009, built panamax, giving us the flexibility to sell the bulk LNG a 1999 built panamax vessel.
Although we recognized a $3 million book loss on impairment during the quarter.
The sale of the bulk LNG at one completed in June will result, approximately $8 5 million in positive cash from investing activities.
Turning to our full year financials, starting on page six of our presentation you.
You will see a year over year increase in our total revenues driven by an improving market and an increase in our achieved TCE rates.
Voyage revenues increased approximately 62% to $176 million in charter revenues decreased approximately 5% to $15 4 million.
Our fleet was deployed on more voyage charters compare to time charters during this quarter as compared to Q1 of 2021.
Charter expenses paid to third party ship owners increased to $77 7 million from 53.6 million a 45% increase.
Due to increases in market rates to charter in vessels.
However, total charter in days decreased 19% as the expansion of our owned fleet during 2021 reduce the number of vessels needed to supplement the owned fleet at prevailing market rates.
Further the expansion of our own fleet throughout 2021 led to an increase in vessel operating expenses expenses, which increased by 55% to $13 2 million compared to $8 5 million.
Vessel operating expenses on a per day basis, excluding management fees increased 7% from 5014 per day to $5345 per day.
Unrealized gains on derivative instruments was $7 5 million representing the change in market value of open derivative positions from December 31 to March 31.
Within other current assets we recorded.
S Fei assets of $4 9 million fuel swaps of 4 million and interest rate cap of $2 4 million.
As we've discussed in the past, we utilize for trade 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 unrealized 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 $20 2 million or <unk> 45 per share compared to net income of $5 8 million or 13 cents.
For share for the same period in 2021.
Moving onto the balance sheet and cash flows on page seven of our presentation.
We ended the quarter with $69 9 million of total cash and cash equivalents and.
An increase of $13 7 million from year end.
Driven by $32 million in positive operating cash flow offset by the acquisition of the bulk Concorde and related financing activities.
Collectively we are encouraged by the steps we've taken to strengthen our financial position and return value to shareholders. As we have increased our quarterly dividend by 50% to seven and a half cents for the June payment date.
Our second increase this year and our sixth consecutive dividend payment.
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.
Now open the floor for questions.
And at this time, if you would like to ask a question. Please press star one on your Touchtone phone you may withdraw your question at any time by pressing the Pouchy once again that is star one.
And we will take our first question from Liam Burke with B. Riley. Please go ahead. Your line is open. Thank you good morning, Mark morning, Johnny Good morning, Matt.
Hi, Liam thanks for joining us.
Thank you.
Mark you mentioned in your prepared statements. If there is a fair amount of scarcity and assets and your asset class if I'm looking at volumes of traffic in the northern sea routes they are growing pretty pretty rapidly.
What is that mean for future rates and asset values going forward.
Liam we're seeing a lot of tightness in the markets almost everywhere we look.
Market rates are.
Really good.
I mentioned that for the third quarter, the second quarter year to date were over $29000 a day booked.
And.
The market looks favorable from there for the rest of this quarter, which is about halfway done.
For the rest of the year, we move into our our summer ice season, and that's always good for us and it keeps us busy at at ice premium rates.
Yeah, four 410 of our ships at least.
And.
The rest of the market seems still seems pretty firm for the rest of the year. The forward numbers look good.
For the rest of this year.
In terms of ship values ship values have increased substantially over the past.
Two years or so are ratcheting up very nicely.
The ships that we ordered in 2019 delivered in 2020.
'twenty one.
Were ordered for $38 million, each we think they've.
Probably 20 at least 20%.
Higher in value today.
But there aren't a lot of these ships trading because they are valuable.
Due to the current owners.
In terms of.
Values of the rest of the fleets around the world I think anything that floats is up substantially from where it was two.
Two years ago older ships are multiples may be careful of what they were back then.
Two years ago newer ships that are way above where the values were.
Some time ago.
New building costs are rising but.
Some people are our brave enough to order new buildings at the current prices, but you've got to wait a while for your ships. So that's pushed up the prices up.
Of secondhand ships.
Looking at our net asset value, which we don't think it's a good way to measure where your stock trades compared to net asset value but.
Our net asset value has increased substantially over the past couple of years, if you look at it.
Today, it's a little bit hard to.
To decipher on our balance sheet because of the consolidated joint venture assets, you've got to do a little adding than subtracting.
And then you've got to consider I guess, maybe adding a little bit more because our trading platform does add has as I mentioned in my prepared remarks and substantial extra values when.
When we trade our assets in the market so.
We think we're trading today.
Hmm.
The value of our shares is substantially under.
Our net asset value.
That's.
A good indicator for the future of our company.
Where we stand.
Great. Thank you and you did show a vastly the bulk pangaea.
What motivated you to sell it if asset prices are so but even if the current asset group is so valuable.
That ship was purchased maybe about 10 years ago for specific trade for our our bauxite business Jamaica two.
To Gramercy, Louisiana.
In that trade for over 100, well over 100 voyages.
And as she was due for for docking in.
Early this year and installation of a ballast water treatment system.
Again, that's a 10 year contract. We have we are 10 years more of that left to go we thought it was better to trade that ship for a newer vessel that we purchased we committed to purchase back in November and put it into the into the trade just very recently.
It's really a trade.
Oh, okay.
So I just want to clarify that the contracts still exists and youre still going to move that cargo you just trading up on the vessel correct. Okay, great pre investing in AR and a 1999 built ship, we one replacement shifts.
Be it through the next 10 years.
Great. Thank you Martin.
Yeah.
We will take our next question from climate Mullins with value Investor's edge. Please go ahead. Your line is open.
Good morning, Thank you for taking my questions.
You provided some interesting commentary regarding your exposure to both ports and terminals and I was wondering if you could expand on the new projects you mentioned, especially on the wind side should we expect incremental capex or the port facilities ready for these additional business.
The the important terminal business is complementary to what we're doing we try to make it complementary to what we're doing.
We can find them.
Stevedoring business for instance that that also.
Complement ocean freight that's really what we're trying to do we are involved in one specific project in Brayton point, Massachusetts.
Been identified as as.
They are very valuable property for support of wind farm installations offshore.
Don't have a specific we don't have a fixed contract to use that space for this business right now, but we are working on it.
It will take some capex too.
To improve that area, but that's all built into the into the funding for the for the contract the way it's been contemplated.
We're also in.
In one of our terminals in Sabine, Texas, we're taking break bulk solar.
Parts.
Components into our.
Sabine and taking them off ships that come in.
And distributing them.
In the area.
So.
We we are involved in that kind of business, we expect it to grow substantially over the next few years, it's not a large part of our operation today, but it is a focus that we have to.
To complement our basic shipping business.
Alright, that's very helpful.
The board approved a significant increase to the dividend which comes on top of other recent increases how should we think about your capital allocation priorities going forward and I was just wondering regarding shareholder returns is there any appetite for potentially formalizing a dividend policy.
To beat free cash flow or net income or does the board preferred to retain more optionality.
To date, the board has preferred to retain Optionality always looking forward to capital.
Capital expenses capital expenditures, including fleet renewal.
And and considering that this is a pretty volatile volatile business.
But also on the other side, where we have a business plan that does protect us from the downside through contracts we have in place that go for long term.
So to date the board has always considered a debt that it should be a quarter to quarter decision rather than a long term decision to to commit to any formula.
That could change in the future.
But right now the board considers our flexibility to be to be the key.
Makes sense, that's all for me congratulations for this quarter and thank you for taking my questions.
Thank you.
And once again as a reminder to ask a question today that is star and one on your Touchtone phone.
Go next to Poe Frat with Alliance Global Partners. Please go ahead.
Good morning, Mark Good morning, Johnny Good morning, Matt I, just had a couple of quick questions. One is.
When you look at the both Pangea, what would've been the scrap value on that vessel right now.
We'll probably.
$6 million plus minus.
Can you just walk me through given the scrap value you know and.
The potential cash that you would have been generating on an annual basis, which probably has north of 4 million bucks or so.
How are you you know why you wouldn't have kept that in the freight in and run it out until you know until it was and then eventually scrap it as opposed to selling it into the market.
I guess a couple of things one is the.
The time and cost to to put the ship through a docking.
And.
And then looking at the trading value of that ship them.
As a ship gets older it becomes a little more difficult to trade it becomes a little more difficult to get the premiums we talk about.
When we when we.
When we study our our income statement so.
The best use of that asset would be in the in the bauxite trade that I talked about but that's that.
That contract has another 10 years of life and we didn't think that the debt. The bulk Pangaea has another 10 years of life, even if even after we did.
Did the dry dock and maintenance and improvements on the ship. So it was really just a trade up.
To make a long term.
Fulfillment of our contract obligations under that contract.
Okay and then when you look at the you know the ancillary businesses relaxed with better word speed during another other services that you're providing did that have a material impact on the quarter and then maybe you could just give us an idea of sort of if you as you look into 2023 and 24.
Potentially we might see you know.
A more material impact.
It's not a material impact on the quarter yet it is a focus of our efforts.
We try to do to increase our I guess participation in the throughput of the cargo.
The eventual.
Goal that we wanted.
Achieve here is to go to a customer and say.
Give us your entire.
And give us control over the entire.
Supply chain.
We will take your product from the mine mouth, we'll put it into your production process onshore.
Sure.
And we'll move the cargo and all in all places and it will be better for you because it will simplify your operation maybe cost you less overall.
Take inefficiencies out of the out of the.
Supply line and will take on a little more risk, but we want to get a little bit more for it.
So.
That's the whole concept.
We've done it.
In some places.
But we want to make it.
A part of a real part of our business to go out to people and maybe make some.
Joint venture or our operating agreements with some barge lines with some steep doors, we've done some of that but we want to do more.
How long that will take.
Can't.
To give you a timeline on it but we're concentrating on it where we're successful at it in Sabine we're working out what we're successful at it in Gramercy and the in the Mississippi River, we've been successful at it and breaking point and in Massachusetts, and we're working on Florida, and other spots in Texas, now and and.
The northeast so.
Yes.
Something we're concentrating on a lot and we've got this new guide Brent Who's an expert at at attracting cargo and making these kinds of <unk>.
<unk> really work for customers.
So we're very hopeful there.
Great and then.
You talked about the ice class market a little bit.
Earlier in the call can you quantify the premium that.
You bet.
It was realized in the first quarter for ice class and.
And potentially what's built into the second quarter forward cover.
That's a pretty healthy premium over the market scale and then you know you said the third quarter is going to be the strongest so should we does that imply that the tc rate premium could expand into the third quarter or two.
Yes.
Why do I like mass address the premium we saw in the first quarter in terms of ice class.
These shifts when they when they trade ice and are in the winter season.
I've put on time charter days when they're in the ice we get an additional premium for those days that the shifts trade in the ice what that average is I'm going to let Matt talk about that going into the third quarter under our bathroom land Contra.
Contract, we have a fixed rate.
It's not totally fixed but it is it's a commitment to use the ships for a certain number of a.
Dave.
No.
Per vessel.
Specific contract right. So why don't I, let Matt address that the premium that we see on those ice class ships.
Thanks Mark.
Paul.
Overall premium for the Jefferies was 17%.
For the quarter right, we don't usually break out the individualized premium.
But budd.
No.
It is it is higher than 17% and it was a bit of a.
So they've got an unusual season in the sense that it actually started quite early we started to earn premiums earlier than we usually do.
And then of course, there was a bit of them.
To say least disruption was the fallout from the Ukrainian situation, but still overall, we actually managed to get a pretty good season and of course for Q2 does we never really had.
Much of a nice premium there historically and of course now we're gearing up for the bedroom Atlanta summer season, which.
Which we have high hopes for of course.
Okay, Great and then Mark you talked about the dividend.
You bumped in it two and a half cents a quarter.
<unk> percentage, but you know we should how should we be looking going forward on the dividend it seems like given your.
No your strong financial position the outlook for the market.
Additional increases should be you know or are likely at least in my mind can you talk about.
Are you looking at.
Sat increase per quarter per share or and ignoring the percentage increase or sort of how you're looking at that and then maybe you know if you could talk about share buybacks in the context that your public market float has no change.
Changed over the last year from the standpoint of a you know a.
Board member Associates are holding associated with board member you know bear out.
You also have other circumstances.
You know maybe your public float go up can you just talk about share buybacks in the context of the public market float it's still not it's constricted as it was in the past.
Sure.
Thoughts on all of these things are evolving as cash starts to accumulate on the balance sheet.
And we think a seven 5%.
The dividend that we declared the other day that will be.
Be paid in June is a pretty nice reward, we certainly hope you're right that the <unk>.
Cash keeps building that the market stays strong and we can increase the dividend.
Four.
We've always.
Thought of buybacks as a.
As a way that we would further restrict.
That's public trading.
Trading element of our of our shares we've always been reluctant to do that.
It's been only about nine months since the since the.
The large shareholder Cartesian, who will pay a hell of a third of the shares.
And their fund.
It started to get out.
This stock it.
Got it pretty easily absorbed into the market over the following months.
And over.
Bye Bye summer of last year, they got they work.
Totally out.
I think.
As we look forward and get a little more comfortable with the trading volume of the stock maybe will.
Think of stock buybacks, a little differently, but.
It hasnt been.
On the top of our priority list and the way to.
To get to.
Uh huh.
Funds and rewards back to shareholders at this point.
Paul if I could add just one one thing on the dividend I think one of the one of the most important factors for us and our board as we assess the level each quarter.
To make sure it's sustainable as possible I think what we want to do is have a dividend that.
He is not going to fluctuate significantly.
Quarter to quarter, we wanted to be as sustainable as possible for a longer term and I think that's one factor that we continue to to pay close attention to as we make that decision.
Great and just to check the box on the macro.
Are you seeing any.
Any you know things that concern you at in the marketplace from the standpoint of you know rates are higher bunker prices are high.
You know the there's been disruption from Ukraine.
Ukraine.
Anything that concerns you from the standpoint of what's going on in the end.
You know in the market or even.
In other places around the world.
Well I think I mean.
The driver market has set a sort of an extremely dynamic and fluid place. So so well.
What tends to happen when there are disruptions, whether that is COVID-19 or whether that is.
The situation in Ukraine that the market is just actually pretty quickly right.
You know we have been very busy helping our customers who were previously for instance, sourcing the raw.
Raw material.
You know to help them as they.
Look for alternative places to go get.
The iron ore for instance, all the anthracite.
That drives up the ton miles. So we think those you know the overall uncertainty in the world at the moment is sort of as it appears from from our perspective at least.
It is very much being balanced out by by actually increased ton mile demand. We're seeing I think youll hear the same story from from most of the drop our guys on the on their calls right and that we are really seeing it.
Grace.
Didn't exist.
[noise] ago suddenly.
Sort of back end fashion right and so a lot of things are being turned on its head.
Overall, I think our as you know travel recent out in a pretty good and pretty good in a pretty good situation right Mark.
Two of them.
Yeah.
The new building across the high the sensor keep the overall supply of ships and.
But.
No. It is shaping US also you'd never know whether that was sort of on demand side.
Generally from what we're seeing them or we are hearing from our customers is that.
You know general generally the sort of the mood is pretty upbeat to be honest.
Great gentlemen, thank you for your time.
Thank you Paul.
And there are no further questions at this time I will turn the call back over to Mark <unk> for any closing remarks.
Thank you for joining us today to talk about our earnings and our prospects I wish you all a great day and hope to see you here you again next quarter.
Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
Yes.
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