Q3 2022 Pangaea Logistics Solutions Ltd Earnings Call

Ladies and gentlemen, greetings and welcome to the Pangaea Logistics solutions third quarter 2022 results conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Noel Ryan from Vallum Advisors. Please go ahead.

Thank you operator, and welcome the Pangaea Logistics solutions third quarter 2022 results conference call, leading the call with me today is CEO mark someone else ski cheese.

Chief Financial Officer, Gianni Delsignore N C O L Maj Peterson.

Today's discussion contains forward looking statements about future business and financial expectations.

Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC.

Except as required by law, we undertake no obligation to update our forward looking statements.

At the conclusion of our prepared remarks, we will open the line for questions and with that I'd like to turn the call over to Mark.

Thank you know welcome to those joining us on the call today.

After the market closed yesterday, we issued results for the three months and nine months ended September 32022.

During a period of broader market volatility our diverse portfolio of stable long term transportation contracts, leading positions in higher margin ice class trade routes and larger owned fleet culminated in a strong third quarter performance, one highlighted by significant year over year growth in operating.

Cash flow and adjusted EBITDA.

Together with another consecutive quarter of profitability, that's our realized TCE rates outperformed the market index by 41%.

As the largest owner and operator of ice class one eight vessels globally, we have the scale technical capabilities and contractual relationships.

To support consistent above market returns that regularly exceed those of less demanding trades.

During the third quarter, all 10 of our modern ice class one eight vessels were active within premium rate Arctic ice trades.

While most dry bulk trades experienced typical levels of seasonal softness during the summer months demand within our core ice class contract routes was solid.

Resulting in a strong third quarter performance.

While the current geopolitical environment remains volatile.

It has created new opportunities for our businesses.

Our usual ice Baltic ice trade is export from Baltic areas. This year, we made important commodities to non Russian ports in this area coal imports to European ports and other commodities worldwide.

From longer distances.

We anticipate the continued disruption of many dry bulk trades may result in more ton mile demand.

Especially in the sub Capesize markets, where we operate.

We're seeing increased demand for shipping and cargo handling of commodities, such as cement and aggregate smoothing Indeed U S sports.

Support infrastructure spending.

With our customer focused agile approach and efficient fleet, we are in a great position to take advantage of new opportunities in the market.

Looking ahead we.

We remain committed to further developing our leading dry bulk logistics and transportation services company of scale, providing our customers with specialized shipping supply chain and logistics offerings and commodity in niche markets, all of which positions us to deliver premium returns.

During the third quarter.

We continue to expand our logistics offering to new and existing customers.

Collaborated with multiple third party freight and logistic providers.

Transport 140000 tonnes of coal to a power plant operator in the northeastern United States.

He provided stevedoring, a terminal services to an offshore cable installation vessel.

Discharged 13000 tons of cement, it's super psyched bags in Texas.

Provided labor and support services for a wind farm commissioning service operations, that's all under our birth that breakpoint in summer said, Massachusetts.

And we were awarded a stevedoring license to begin operating in the port of Freeport, Texas.

In October we took delivery of the newest edition to our owned fleet the motor vessel bulk such west.

58000 deadweight.

Superman.

With this acquisition, we now own 25 ships, while continuing to operate a total fleet of approximately 50 to 55 vessels and worldwide trades.

Bulks ACH West is currently in service and is currently contributing positively to both operating cash flow and net income.

Before I turn the call over to Jonny for his remarks allow me to share a few words on our balance sheet and capital allocation.

With more than 90% of our long term debt sitting at a blended fixed rate of less than five 1%. We are well insulated from the rising interest rate environment.

We ended the third quarter with cash and equivalents of $118 million, an increase of nearly $70 million versus the year ago period, while our ratio of net debt to trailing 12 month. Adjusted EBITDA was 1.2 times at third quarter and down from two nine times in the prior.

Per year period.

Our board of directors constantly considers the best use of capital our business generates.

As such our board has approved a 33% increase in our quarterly dividend our second increase in the past year from 7.5 cents per share it 10 cents per common share.

We remain committed to a balanced capital allocation strategy.

That includes investments in organic and inorganic growth initiatives.

Targeted debt reduction.

Stable quarterly cash dividend and reserves for opportunistic opportunistic expansion and protection from volatile market swings.

With that I'll hand, it over to Johnny.

Thank you Mark and welcome to all of those joining us today.

Our third quarter financial results continue to emphasize the durability of our business model.

We were able to recognize sizable margin expansion from our expanded suite of own ships during the peak Arctic ice season.

Third quarter TCE rates for $24107 per day.

A premium of more than 40% to the average published market rates for Super Max and Panamax vessels.

Which is supported by our long term C O ways and a seasonal ice class demand during the quarter.

Despite TCE rates declining on a year over year basis, adjusted EBITDA grew $4 9 million to $38 5 million.

The third quarter.

The growth was driven by the increase in adjusted EBITDA margins.

Even as total revenue declined by $28 6 million or 13% versus the prior year.

The decline in revenue was more than offset by lower charter hire expenses, which declined by $53 million year over year to $56 million during the quarter.

Driven by a decrease in charter in days due to the expansion of our own fleet and our flexible charter in strategy, allowing us to supplement our own fleet with short term chartering in tonnage.

Prevailing market rates when needed to meet cargo demand.

The decline in charter hire expenses was partially offset by a 37% increase in vessel operating expenses.

Mainly due to an increase in owned days from the acquisition of our four ice class post Panamax new building vessels during 2021.

And the bulk Concord, which delivered in Q1 of 2022.

On a per day basis.

Net of technical management fees vessel operating expenses for the nine months period were up 875% to $5667 per day.

As we've discussed in the past we.

We utilized four trade agreements and bunker swaps to selectively hedge our exposure to the market on our long term cargo contracts enforced cargo bookings.

While this approach 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.

As such during the quarter our reported net income reflects an unrealized loss of approximately $3 2 million relating to the mark to market on bunker fuel swaps.

And unrealized loss on forward freight agreements of approximately $3 8 million.

And an unrealized gain of approximately $2 5 million associated with our interest rate derivatives.

In total our reported GAAP net income attributable to Pangaea for the third quarter was $18 8 million or 42 cents per diluted share.

A decrease of $8 2 million or.

Or 18 cents per diluted share relative to the third quarter of last year.

Excluding the impacts of the derivative instruments as well as other non-GAAP adjustments our reported adjusted net income attributable to Pangaea during the quarter was $23 3 million or <unk> 52 cents per diluted share.

An increase of $1 6 million or four cents per share compared to the third quarter of last year.

Moving on to the cash flows.

Total cash from operations increased 41% year over year to $32 6 million in the third quarter of 2022.

As a result, the company had $118 million in cash and cash equivalents.

And total debt, including finance lease obligations of $298 1 billion.

Of our total long term debt and finance leases, 52% is fixed at an all in rate of three 7%.

40% is capped at an all in rate of six 8% and 8% is floating at LIBOR plus two 1%.

At the end of the third quarter 2022, the ratio of net debt to trailing 12 month. Adjusted EBITDA was 1.2 times in conclusion, our dynamic business model generated strong performance during the third quarter as we continue to focus our efforts and capital investment on expanding our fleet strengthening our balance sheet.

And generating returns for shareholders through our quarterly dividend.

Looking ahead, our liquidity position has never been stronger as we look to expand our platform through asset right vessel acquisitions in renewables.

Growing our stevedoring and logistics businesses and.

And continue to pay down debt, all while continuing to deliver consistent returns to our shareholders.

With that we will now open the floor for any questions.

Thank you.

Ladies and gentlemen at this time, we will be conducting a question and answer session.

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Ladies and gentlemen, we will wait for a moment, while we poll for questions.

Yeah.

Yeah.

Okay.

Our first question comes from the line of Paul Frac from Alliance Global. Please go ahead.

Hi, Good morning, Mark Good morning Gianni.

Am I coming through clearly.

We can hear you Paul.

Okay great.

Another solid quarter.

Yeah.

Briefly good market conditions for the third quarter, but the fourth quarter. Your Ford cupboard looks reasonably good at about 20800 <unk>.

Or I'm calculating about 63% of the days.

55 vessels right now.

Is that would you comment on that please.

Yeah, that's about right a poll.

As we book voyages, yet earlier in the quarter performed at later in the quarter and that's how we take this measurement. So so you're.

Right and those are in those estimates.

And then.

You mentioned chartering costs could come down in the third quarter.

You know your your chartering in about 30 vessels right now because your own fleet is back up to 25.

Can you just give us a flavor for what your charter in cost is right now.

Is it more along the lines of the market and the 15000 range or so or can you just give.

Give us an idea of sort of how.

How the maybe the higher cost charter Dan over the course of today.

The last couple of quarters had fallen off and now you are chartering and at current rates.

Idaho is mess yeah, yeah, you're absolutely right I mean, the business model is sort of a flexible in that sense.

The market dropped we can we can redeliver them.

You know the chartered in fleet and replace that with cheaper tonnage.

So that trend for sure.

That's what we're seeing as we as.

As we have progressed through the quarter and of course, all childhood in cost now is.

Probably.

I'd have to say what it is on average there's various other positional and depending on the route you need to shift but but.

In the 15 to 20000 range depending on this right.

Okay.

And Matt's will you sorry, I Should've said Hello.

Would you is there any.

You know impact of the ice season in the fourth quarter or is that just specific to the third quarter.

Understanding that generally goes into sort of the October timeframe.

So so there is like the actually it's sort of it's just out of the winter season, we stopped so to collect a little bit of a premium on that business already from mid November early December .

Especially for the business that we're doing in the St. Lawrence on the Canadian.

In the eastern part of Canada.

And of course.

Out of the Bakken voyages that.

Competing during.

Later cohort in November of course also has a premium component to it as well. So there is a little bit of Q4.

Okay, Great and then Mark you highlighted the balance sheet strength.

The barrel being cash the dividend going up can you just talk about a couple things one is your investment opportunities you've highlighted sort of in the past the area.

Steve, but going import logistics too.

Great.

The ability.

Versus the dry bulk market.

And then secondly, how.

How should we be looking at dividend your dividend policy.

Going forward is it I know you've said in the past quarter to quarter.

Can you given an.

An idea of sort of how youre thinking about the dividend and whether theres, a target payout ratio or or just sort of any color on the dividend policy would be helpful.

Sure.

Did I address it the dividend are you know what.

It's always been our our approach with the dividend to put out it.

Sustained sustainable dividend number through good markets and bad markets.

Throughout the years, we've been pretty consistent in terms of performance of the company in good markets and and not so good markets.

Hmm.

Consistently outperformed market indexes and continually.

Reported profit.

So.

When it comes to dividend I think.

We have the same approach.

Cautious, but but we want to we want to share some of the cash we're generating with shareholders. So we'd do it carefully through our through the dividend.

We haven't to date are wanted to do a formulaic dividend.

Maybe we consider that a little bit too.

Volatile.

Against our planned it to be a little bit more consistent.

And so we've consistently increase the dividend.

Over the past, what 18 months or so when we restarted it after COVID-19.

And we started out at three and a half since I think and it's now up to 10 cents.

We're pretty comfortable with that number right now, but looking forward if we keep generating the cash we're generating and I'm sure. The board will consider other adjustments in terms of.

The investments, we see going forward.

I think we'll see a little bit of market weakness.

In the forecast at least FFA rates, our are pretty low for a 2023 I think it will sit and wait and look at the market.

Which way to S&P values go and if we see an opportunity. We've got some cash on hand will will maybe pick up a ship or two depending on where the market is in terms of logistics.

So far we.

We've done what we've accomplished.

[noise] accomplished on the logistics side with relatively little capital investment we are today, though focusing on a couple of different projects that would would be.

A little bigger step than than we've taken in the past.

So I think I can see us maybe doing something on that side.

In the next 12.

12 months or so.

Great. Thank you.

Yeah.

Thank you.

Ladies and gentlemen, if you wish to ask a question. Please press star one.

Our next question comes from the line of full Fracked from Alliance Global. Please go ahead.

Go ahead, yes that would have kept on asking but I thought that maybe.

Maybe liam might have flipped over from the Genco call.

What.

Can you just talk about you know Marc you just said you might.

Depending on what the S&P market does.

Pick off an asset or two you know you have the Newport coming up in the first quarter of 2023 with our survey.

Is that.

Is that a potential sales candidates or have you.

Can you just tell me.

Alright.

What do you think youre going to do with the Newport at this point in time.

It is a potential sale candidate a po.

You mean, the ship is generating nice cash flow right now.

But when it comes up it comes to reinvesting in the ship of that age we always.

Ask ourselves twice weather at least twice, whether that's something we want to do whether it makes sense going forward, especially looking forward at some.

Some kind of.

New propulsion that will become.

Available.

Rather than investing in an older ship, maybe we should hold.

Hold are.

Cash on hand, and and wait for that.

Chip start to fall in terms of what kind of ship will be in a ship in the future.

Or maybe just a more efficient ship.

More eco ships.

Be able to trade a little bit longer.

Okay, and then Gianni.

You gave the nine months operating Opex at like 5700, Bucks or just a little bit under that.

Looked like the third quarter might've, Brian a little bit higher than that can you just talk about sort of what.

Either on the fourth quarter basis, or what 2023 should look like on the Opex line.

Yeah sure Paul.

And I know, sometimes I don't like presenting that Opex on a you know on a quarter on a quarterly basis. It is more I think reflective of what we're seeing costs. When we look at it on a year to date basis, but the third quarter itself was impacted by some.

Some one time costs as you know we changed our technical managers.

From Socgen plot to Bernard <unk>.

As part of that changeover there were some costs that were incurred during the third quarter that drove our operating expenses are up.

But I think the year to date is more reflective.

We're certainly seeing some some inflationary pressure I think year to date.

Compared to the prior year its about an 8% increase.

You know, we're seeing increases in some travel crew changeover, but I think that number year to date is more reflective of what what we would probably expect for the balance of the year and going into into next year and the number for Q3 is really was really affected by some one time events.

Great. Thanks, a lot.

Yep.

Yeah.

Thank you.

Again, ladies and gentlemen, if you wish to ask a question. Please press star one.

Okay.

Yeah.

Okay.

Okay.

Ladies and gentlemen, a reminder, if you would like to ask a question. Please press star one.

Okay.

Since there are no further questions I would now like to hand, the conference silver.

Our CEO Marc Polonsky for closing comments.

Thank you all for attending and.

Have a great rest of the day.

Thank you.

The conference has now concluded. Thank you for your participation you may now disconnect your lines.

Uh huh.

Okay.

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Okay.

Okay.

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