Q2 2022 Pangaea Logistics Solutions Ltd Earnings Call
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Good morning. My name is Katie and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangea Logistics Solutions second quarter 2022 earnings teleconference.
Our host for today's call will be Mr. Mark Filanowski, Chief Executive Officer, Mr. Gianni del Signori, Chief Financial Officer, and Mr. Mads Boyd Peterson, Chief Operating Officer. Today's call is being recorded and will be available for replay beginning at 11 a.m. Eastern.
The recording can be accessed by dialing 800-938-2490 Domestic or 402-220-9028 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 1 on your phone.
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It is now my pleasure to turn the floor over to Ms. Emily Bloom with Prozac Partners. Please go ahead.
Thank you, operator, and thank you for joining us for this morning's second quarter 2022 earnings conference call for Pangea Logistics Solutions. With us today from the company are CEO , Mr. Mark Zielanowski, CFO , Mr. Gianni Del Signori, and COO, Mr. Mads Boy Peterson. Before I turn the call over to Mark, I'd like to read the Safe Harbor Statement. This conference could contain further key statements within the meaning of the private securities litigation reform act of 1995.
about pangiologistic 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 pangiologistic 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 Pandeya Logistics Solutions filings with the Securities and Exchange Commission.
The information set forth herein should be understood in light of such risks.
Pangaea 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 8K that was filed with last evening's release, which is available on the investor section of PangaeaLS.com under company filings or on the SEC's website at SEC.gov. Now I'd like to turn the call over to Mr. Mark Filonowski. Mark? MR.
Thank you, Emily, and thanks to all who have joined us today for Pangea's second quarter 2022 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 our second quarter financial results.
We will then open the line for questions.
After the market closed yesterday, we issued a release and accompanying presentation highlighting our record second quarter results.
We continue to demonstrate strong execution on our long-term strategy that emphasizes profitable growth within niche, higher margin dry bulk shipping and logistics markets.
An elevated TCE environment, together with more owned shipping days from our expanded fleet, contributed to significant year-over-year growth in revenue, net income, adjusted EBITDA, and free cash flow during this second quarter.
Total revenue increased 34% to $195 million in the second quarter. Net income increased 30% to $25 million. And adjusted EBITDA increased 107% to a record quarterly result of $44.2 million.
Our cash position also reached an all-time high of $102 million, providing us with the balance sheet optionality to support the ongoing growth of the business and to continue our dividend policy.
While the macro environment remains volatile, our delivery of a unique integrated shipping and logistics model positions us to support our customers with a more complete supply chain offering, ensuring reliability and on-time delivery.
We continue to focus on higher margin.
niche markets including ICE class where cargo requirements are highly specific for our customers. Given the high level of specialization required we experience excellent customer retention together with longer duration COAs.
our four post-Panamax ICE Class 1A vessels built by us and delivered during 2021.
We're fully deployed in Q2, and all four will be fully utilized to serve our customer as we enter the third quarter.
In June , we completed the sale of bulk Pangea after taking delivery of bulk Concorde earlier this year, completing renewal of our bauxite shuttle fleet. The ships comprising this shuttle fleet of three vessels, which continuously serve an important customer's industrial needs, are planned to fulfill the remaining 10 years under the customer contract.
In an environment where the global supply chain remains in flux, the services we provide our clients have never been more valuable. More of our customers are discussing long-term cargo relationships as they seek to mitigate rate volatility and inconsistent delivery capabilities.
Importantly, these contracts not only provide Pangea with long-term visibility into future cash flows, they provide a base of profitable business from which we can arbitrage other open shipping days in the market.
On the supply side, overall dry bulk fundamentals are favorable, as new building orders remain low and global shipping capacity constrained.
We expect global capacity will be further restricted by upcoming IMO emissions requirements coming into effect in January 2023, which could result in structurally higher shipping rates over an extended period of time.
Pangea is prepared for the new emissions regulations and we are happy to play our part in reducing harmful emissions from our ocean transportation and logistics business.
Our efficient and well-maintained fleet will not require large CAPEX to meet regulations, and we do not expect significant negative impact to our operations as a result of EEXI and CII requirements.
In the current market, Panjaya is advantaged given its specialty shipping and logistics niche. We are far removed from the commoditized models of the CAPES players and tonnage providers. Our contracts are longer term, are in trades that allow for premium pricing, our fleet is efficiently utilized, and we have the balance sheet to sustain investment in organic growth together with an attractive return of capital profile through a sustainable quarterly cash dividend.
During a period of macro volatility, our business is positioned for consistent performance, long-term profitability, and value creation.
I'd now like to turn the call over to Johnny to review our financial performance in more detail. Johnny? Yeah, thanks.
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 a few recent transactions and highlight our results for the quarter.
This year, we have taken steps to deploy our capital, focus on issues, and capitalize on the dry bulk market to generate and return shareholder value.
We have used cache from operations
To renew our own fleet, which as Mark mentioned, we completed the sale of the bulk Kangia after taking delivery of the bulk Concorde earlier this year.
renewing our bauxite shuttle fleet and generating $8.4 million of cash from the sale of the bulk Pangaea.
Reduced debt as scheduled, paying $9.6 million in long-term debt and finance lease obligations.
and consistently pay dividends reflecting our continued confidence in the outlook of our business.
We believe that our business model and operating leverage position us favorably to maximize our profitability through the cycle. And as Mark mentioned, our ability to deploy capital in a prudent yet opportunistic manner has been integral to our track record of value creation.
In what remains a volatile market, we believe a balanced approach to capital deployment is appropriate, one that includes a consistent return of capital program, together with debt reduction and investment in high-return organic growth investments.
reflecting our continued confidence in the outlook for our business.
Turning now to our second quarter financial starting on page six of our presentation, you will see a year-over-year increase in our total revenues driven by a 29% increase in our achieved TCE rate to $27,139 per day, which represented a 4% premium to the average published market rates. For more information, visit www.fema.gov
Voyage revenues increased approximately 48% to $173.2 million and charter revenues decreased approximately 21% to $22.4 million as our fleet was deployed on more voyage charters compared to time charters during the quarter.
Charter expenses paid to third-party ship owners increased to $65.7 million from $62.6 million in the second quarter of last year, a 5% increase. Due to increases in market rates to chartering vessels, the number of ships that were sold in the first quarter of last year was
However, total charter in days decreased 20% as a result of the expansion of our own fleet during 2021, which reduced the number of vessels needed to supplement the own fleet at prevailing market rates.
Further, the expansion of our own fleet throughout 2021 led to an increase in vessel operating expenses which increased by 32% to $12.9 million compared to $9.8 million.
Vessel operating expenses on a per day basis, excluding management fees, decreased from $5,254 per day to $5,198 per day.
unrealized loss on derivative instruments for 3.5 million during the quarter.
representing the change in market value of open derivative positions from March 31 to June 30.
Within other current assets, we recorded FFAs of $3.1 million.
fuel swaps of 1.9 million dollars, an interest rate cap of 2.8 million dollars.
As we've discussed in the past, we utilize forward 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 unrealized gains or losses can lead to fluctuations in our 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 $25 million or 56 cents per share compared to net income of $19.2 million or 43 cents per share for the same period in 2021.
Moving on to the balance sheet in cash flows on page 7 of our presentation.
We ended the quarter with $102 million of total cash and cash equivalents, an increase of $45.9 million from year-end.
driven by $69 million in positive operating cash flow, $8.4 million from the sale of the bulk Pangea, and offset by acquisitions of the bulk Concord and related financing activities.
We ended the quarter with $305 million in long-term debt and finance lease liabilities.
which 51% is fixed at an all-in rate of 3.7%.
39% is capped and a LIBOR rate of 3.25%.
and 9% is floating at LIBOR plus approximately 2.1%.
Collectively, we are encouraged by the steps we've taken to efficiently expand our fleet, strengthen our financial position, and return value to shareholders through a consistent quarterly dividend.
Our liquidity position has never been stronger as we look to expand our platform through asset right vessel acquisitions complementary to our cargo strategies
opportunities in stevedoring and logistics businesses.
continued debt repayment, and a consistent return to shareholders.
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. We look forward to updating you further in coming quarters.
I will now open the floor for questions.
Thank you. At this time, if you would like to ask a question, please press star 1 on your touch tone phone. As a reminder, we do ask that you please pick up your handset for optimal sound quality. Once again, that is star 1 to ask a question. We will pause for a moment to allow questions to queue.
Our first question will come from Liam Burke with B. Riley. Your line is now open. Your line is now open.
Thank you. Good morning, Mark. Good morning, Johnny.
Hi Liam, it's nice to hear from you this morning. Thank you. It's nice hearing the results. You opportunistically added the four ice class vessels last year. You essentially swapped out the new acquisition with the sale of an older vessel. So we looked forward, rates remain attractive. How are you balancing chartered in versus
possibly adding fleet assets.
Fleet assets for us, when we add them, they're a little bit opportunistic, a little bit planned. In fact, right now we're taking advantage of an opportunistic deal that we've been involved with for a while. We've got a ship on Charter Inn for about a year and it's...
I guess it's a little bit, it's about the average age of our current fleet, but what the plan would be is to acquire this vessel from its owners who want to sell it. They've come to us on a private basis and we'll, in the final negotiations of purchasing that ship, with probable plan to sell an older vessel that's due for docking in about six months.
Fleet renewal, like I said, is constantly ongoing.
But that wouldn't be a net new addition to our fleet. Pretty happy right now with the size of the existing owned fleet. And we charter in for needs when cargo opportunities come along. So we're about.
where we have been over the past year in terms of chartered in fleet and owned fleet right now.
look to stay there.
for the remainder of the year, probably.
Fair enough. The rates are really attractive, even when we're looking at the partials for third quarter. They're a little off sequentially, but then having said that they're very, very high. Directionally, how do you see rates going through the balance of the year?
I guess we see mostly blue skies with a few thunderstorms on the horizon.
Hopefully they pass us by. But if they do, we think any decreases in demand or any pressure on demand, I think it will be...
only temporary in our in our
in our segments.
Spot market has been pretty good. As you said, rates are high compared to historical numbers, not as high as they were a few months ago, but everybody I think in our business is comfortable with rates where they are today, and maybe we see a little bit more upside than downside.
Great. Thank you, Mark. Our next question will come from Mike Heim with Noble Capital Markets. Your line is now open.
Good morning, thank you for taking my question. Let me talk about the other side of the organic growth and that's returning proceeds to stakeholders. You do have a lot of debt that looks like it's coming due in 2024. Can you just talk about your thoughts about paying that down or restructuring or refinancing that?
Sure Mike, I don't think we have any really significant balloons coming up. We do have a couple of ships that are coming up for renewals and we'll probably renew those financings when time comes, whether it's with same lenders or in different packages and there's some opportunity to roll that debt forward. Always looking at ways to return capital to shareholders.
We, uh, we're looking at this ship, um, it, it, it's financeable, uh, and maybe even with its potential sale of another ship, we can generate some cash for, from that purchase and sale opportunity. Um, we're looking at other organic investments in, in our logistics business today that, uh, would be, you know, low double digits, uh, but at profitable operations. Um, we do have a capital interest and slightly less large agricultural rel Wait, excuse me,
Working capital is always a little bit of a concern for us because rates can move and bunker prices can move very fast and very hard. So we always like to have a little bit of cushion there. Dividends, we're paying a consistent dividend. We've increased it twice this year already.
We're always looking at other alternatives too.
It seems like some of your counterparts have gone to a fixed dividend policy. Is that something you'd ever think about?
You know, their business model is a little bit different than ours. And we look for consistency in performance. We look for consistency in distributions to our shareholders.
a formula dividend doesn't really fit our business model right now that Board has decided.
Okay, all right. Thank you.
Thank you for our next question.
Thank you. Our next question will come from Po Frat with Alliance Global Partners. Your line is now open.
Good morning, Mark. Good morning, Gianni. Good morning, Matt. I had a couple of questions.
First of all, just to follow up on the dividend, you had increased the dividend in the previous two quarters and you didn't change it this quarter. Your dividend is still fairly low relative to your earnings record quarter. Can you just talk about the outlook for the dividend and more in the context of what you did this quarter?
Paul, I think it's our Board's approach to...
have a consistent sustainable dividend. And one quarter doesn't mean we can increase the dividend and keep it going for a long time. So I think the board has a little longer term approach and wants to look at dividends that way. Not try to increase it every quarter because there may come a quarter where we've got to decrease it.
afraid of the shock of any decreased dividend, might have on everyone's perception.
Seems a little unlikely, but who knows. Can you, so, Mark, will we be looking at sort of an annual dividend review or, you know, is it just a quarter to quarter and more sporadic? I mean, that just tends to, you know,
bring in a little less credit than you'd get for a dividend if you don't have sort of a more consistent policy.
you know, po-
The board discusses dividends and other ways to get capital back to shareholders at every meeting.
especially active discussions when we have results like this.
So I can't say we have an annual plan, but we discuss it at every board meeting.
Great. And you talked about the fleet renewal in the context of this potential opportunity. Before you said that, you said you potentially were chartering in something for a year. Is this the same situation? Or can you just...
clarify that statement a little bit? I'm sorry, it is a ship we've had on charter for a year, so we know the ship pretty well, we know the performance, we know what we can do with the ship, and the owner, opportunistically, wants to sell the ship now. And so we said we'd be interested in buying the ship and we've arranged that with the owner. We're in the final negotiations for the, on the terms of the purchase and hope to sign something in the next few days.
And my assumption is because you've chartered it in for, you know, longer than average period, that, you know, it's part of one of your longer term COAs. Is that sort of the case where you're matching your COA book with owned assets?
Well, that's always part of the puzzle, right? We've got a fixed...
amount of cargo on the book and we need to manage the fleet properly in order to serve those contracts most efficiently. This particular ship was chartered in on an index basis so we've been able to put it in and out of our COA business as we see fit and do any active spot business additionally with that ship. Thank you.
under the COAs except for the ICE class business, they're not specifically identified to any contracts. We use the ship that's most available and best suited for that contract. And if one of ours doesn't fit, we chart it one in from the market if that gives us a better result.
Okay, great. And then in the context Mark, you know, you've emphasized that you have a pretty efficient fleet, you've renewed it. But in the press release, you were talking about studying ways to make your fleet even more efficient. Can you highlight, you know, some of those measures that you take, how much capital it would, you know, entail, and then also the timing?
of that energy efficiency boost.
Sure, you know some of the, some of the...
efficiencies come out of the way we operate the ships. The tracks we take, the speed at which we perform the...
the cargo movement and those things can be optimized with software and study of whether and there's more interaction between our operations department and the people who are performing the voyages on the ship. And even when we consider business, we might be able to do a better job of assigning a ship one ship.
versus another for a particular cargo. To take maybe more cargo and therefore make the whole movement more efficient. So there are a lot of different ways to improve your performance in small measures. And that's done mostly with use of data.
You get weather data, you get data back from the ships, and then you act on that data to make your ship, make your voyages a little more efficient.
So that's not a lot of capital investment in those shifts, maybe some software investment and maybe the way we do that business in-house. There are other ways we might take advantage of a shift in a dry dock to add some better paint systems on the shift that reduce friction that maybe that's not a significant increase.
it's usually done when the ship is in dry dock so you don't take a lot of out of service time.
So those are some of the things that can be done with the existing belief that can make measurable but small improvements in the way the shifts perform.
Okay, great. And just two quick ones. One is that the Nordic bulk acquisition of the additional third interest was structured $15 million cash and then $7.5 million over three years. It looks like in the last two years you've pretty much said that you're going to pay off the remaining $5 million in the third quarter. Can you just highlight the decision to do that and is there any carrying costs there?
these. And we have the cash so we decided to instead of waiting for another year and letting the interest rate reset we'll we'll just pay the entire the entire amount off. And it also cleans up.
some legacy Agreements around Nordic bulk holdings, so it'll it'll put that basically to bed
Is that part of the reason you pay down the $240,000 of related party to or?
Yeah, it's all you know, so that one's somewhat just balance sheet cleanup. It's noise on our balance sheet having related party payable for that amount of money. $140,000 was, it was about time that that went away.
Okay, great. And then you added the brand new assets before.
JV assets. Any way, Gianni, to quantify that, you know, the impact in the second quarter in your operating results? Was that a major driver, you know, for brand new assets, they're more efficient than the rest of the fleet? Any way to give us color on how we into servers to, you know, even indoor bars. challenges, no.
you know, that how that potentially impacted the quarter.
Well, I think the performance of the vessels, we fully consolidate the entity. So you'll see the EBITDA generated by those vessels in our quarterly results. You'll see the implications of the debt, the interest. All of that flows 100% into our results. I think we'll also see those vessels more impactful in the third quarter as they actually are now starting the BAF and trade.
in the summer ice season. So to quantify it, I think we get the full benefit of their performance. We have the Ibadai increases based on their trading. And they're within the fleet. To separate four specific vessels out of 60, or even four out of the 24 owned vessels.
It's harder to provide that color to you, but what we can say is that they are performing, they're earning, and we're getting what we believe is more of the benefit out of those vessels.
Okay, sorry, just one quick one just as far as your forward cover 3026 days.
already booked in the quarter, you know, at 25, you know, six roughly. Can you, I took a stab and I calculated that potentially is about 60% of your third quarter days. Is that in the ballpark? And then where are you booking days right now? Is it, you know, I assume it's a little bit lower than that 25.6.
Yes, so we're still booking a Befenland voyages that on average generate a higher return than that. So the numbers we saw didn't include all of our Befenland activity for the quarter. And yes, when we on in certain parts of the market, the...
The number is probably lower than that, but then we also have a cargo book that also gives us a good cushion and balances out with cargo that I've booked in the last six months, which obviously has a higher return than the spot market. So that sort of is the model, right?
We unwind the part of the charter in fleet and you know consistently booking cargo with our customers and of course The cargo we booked three four months ago are in the money now.
I don't foresee a wild change in the difference numbers for that reported for the rest of the quarter to be honest.
Okay, great. Thanks for your time.
Thanks Bob. Thank you Bob.
Thank you. Our next question will come from Clement Mullins with Value Investors Edge. Your line is now open.
Good morning and thank you for taking my questions.
Despite your strong operational performance, you are trading at one of the biggest discounts in the sector. I was wondering, following up on the capital allocation questions, is there any appetite to pursue share repurchase at prevailing pricing? Considering trading liquidity could become a limitation, is a tender offer something that could potentially be considered?
Like I said, the board is constantly talking about the best use of capital.
For any excess cash we have and people do mention stock buybacks. We talk about dividends all the time. And as management we're concerned about ongoing operation and reinvestment of the fleet. So it's an active discussion all the time. Board has made no decision at all on share buybacks, but like I said, it is an active discussion. We're concerned about ongoing operation and reinvestment of the fleet.
Alright, thank you for the call.
Would you provide some additional insight on this and whether we should expect a similar contribution going forward? Or was this more of a one-off given the softening rate environment?
Paul, I think, talked a little bit about the impact of the new shifts on the quarter basis. Last year at this time we had one, maybe two shifts in operation for only part of the second quarter, those four new buildings. This year we've got all four active in the second quarter.
Those additional own shift days are adding to our EBITDA performance.
But also to add a little color, I think part of the question was quarter versus Q1, Q22 versus Q2.
And I think what you're seeing in the margin expansion is just really our chartering strategy in practice.
showing the results.
the market declined and what in that type of environment we reset we have the opportunity to reset the cost of our own excuse me, our chartered in fleet.
So we'll redeliver vessels and we'll charter in new ones.
So.
If there is declines, it also presents opportunities to us. Yes, you know our
TCE earned may decline slightly, but also our chartered in per day cost declines. And that is our chartered in per day cost.
with a book of fixed cargo and some forward bookings does does provide a margin expansion in that type of environment.
That's very helpful. Thank you. That's all from me. Thank you for taking my questions and congratulations for this quarter. Thank you. Thank you.
Thank you. Our next is follow-up from POFRA with Alliance Global Partners. Your line is now open.
Sorry, I have two more questions. One is, can you just highlight the dry docking schedule for the next two quarters in 2022, and then maybe give us a preview of the 2023 dry docking activity?
So we have no further ground-learning activity scheduled this year. We have one shift coming up in the first quarter of next year.
Thank you.
Okay, which one is that, Matt?
It's about Nupaul.
Okay.
Great.
And then Mark, in your comments, you talked about customers coming to you with, you know, the desire to lock in longer term agreements.
Is this something that, you know, on the margin is you're seeing more of?
Can you just highlight, you know, expand on that comment and just how you potentially could structure long-term agreements where, you know, you don't take the, you know, where you have some risk mitigation measures?
So Paul, the way we saw this playing out was that in a very sort of a bull market that is continuously rising and going into maybe on the spot levels into the 30s during parts of last year and this year as well, the customers tend to also look at this sort of in a historical view, right? And are maybe not as inclined to go out and...
and make those contracts at those higher levels, especially not the long term ones.
We see more interest and we see generally...
And bigger exceptions towards doing that at levels where we are today plus minus a little bit we're still in a historical picture, we're presenting pretty good value for us.
So I think that that part sort of is the mental aspect of it from our customer side makes it a little bit more likely that it happened in this type of rate environment versus
you know, at the peak we've seen in the last 18 months or so. And in terms of the risk...
Because we do have a pretty big own fleet that is here mainly to service those contracts, the main risk we have essentially is on the fuel pricing, where we either use bug adjustment clauses to sort of reset the freight rates according to whatever we're buying the fuel at the time we perform, or alternatively hedge. Thank you.
using fungal swaps typically, right? So that's the way we look at that.
Great, that's helpful. Thanks, Matt.
Thanks, Matt. No problem.
Thank you. It appears there are no further questions at this time. I would now like to turn the program back over to our presenters for any additional or closing remarks.
Thanks everybody for attending today. We like this active discussion and we hope to have better news, even better news next quarter. Thanks again.
Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.