Q3 2024 Pangaea Logistics Solutions Ltd Earnings Call

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Recorded on June 15, 2021

Attendee, Gianni Signore, Stefan Neely, Mark Filanowski

Speaker Change: Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero.

Shelby: Good morning. My name is Shelby and I will be your conference operator today.

Shelby: At this time, I would like to welcome everyone to the Pangea Logistics Solutions 3rd Quarter 2024 Earnings Teleconference.

Shelby: Today's call is being recorded and will be available for replay beginning at 11 o'clock a.m. Eastern Standard Time.

The recording can be accessed by dialing 800-839-9374 or 402-220-6087.

Shelby: All lines are currently muted and after the prepared remarks there will be a live question and answer session.

Shelby: If you would like to ask a question during the Q&A segment, please press star 1 on your phone.

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Speaker Change: Thank you, Operator, and welcome to the Pangea Logistics Solutions 3rd Quarter 2024 Results Conference Call. Leading the call with me today is CEO Mark Filanowski, Chief Financial Officer Gianni del Signore, and COO Matt Peterson.

Speaker Change: 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.

Speaker Change: 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. With that, I would like to turn the call over to Mark.

Mark Filanowski: Thank you, Stefan, and welcome to those joining us on the call today.

Mark Filanowski: After the market closed yesterday, we issued a release detailing our 3rd quarter 2024 results.

Mark Filanowski: During the third quarter, we continued to advance our value creation strategy through a combination of targeted fleet expansion.

Mark Filanowski: Strong operational execution and accretive inorganic growth, all while continuing to deliver consistently strong financial results amid a seasonal peak in Arctic dry bulk demand.

Mark Filanowski: As we announced in September, we've entered into a definitive agreement to merge 15 handy-sized drybulk vessels.

Mark Filanowski: owned by MT Maritime into our dry bulk fleet, which will number 41 ships after the transaction. This strategic acquisition is accretive to both our net asset value and also to our adjusted EBITDA.

Mark Filanowski: Once complete, we expect that the MTM transaction will add materially to our annualized adjusted EBITDA.

Mark Filanowski: We look forward to having the MTM transaction closed by year-end.

Mark Filanowski: Subject to the approval of our shareholders, positioning Pangea to deliver an expanded portfolio of services across a growing customer base in the year ahead.

Mark Filanowski: And two weeks ago, we acquired the remaining 50% interest in our post-Panamax Ice Class 1A vessels from a joint venture partner, solidifying our position in our Ice Class niche.

Mark Filanowski: In addition to these two transactions, during the quarter ended September 30, we took delivery of two 58,000 deadweight ton sister ships built in 2016, which expanded our own fleet of vessels to 26 ships.

Mark Filanowski: We also continue to make progress on the expansion of our terminal and stevedore operations in the Port of Tampa.

Mark Filanowski: With the added scale provided by these transactions, we expect to materially increase both our shipping days and logistics operations at both new and existing ports of operation over the coming year, consistent with integrated shipping and logistics model.

Mark Filanowski: Our asset-light, cargo-centric model continues to leverage a combination of owned and chartered-in vessels, consistent with our long-term strategy.

Mark Filanowski: Given fluctuations in global dry bulk capacity and demand, we believe our model provides superior durability, cost efficiency, and scalability throughout the cycle.

with an emphasis on free cash generation and profitable growth.

Mark Filanowski: For the third quarter of 2024, we reported adjusted net income and adjusted EBITDA of $11.1 million and $23.9 million, respectively.

Mark Filanowski: Our adjusted EBITDA declined by approximately $4 million compared to last year as lower market volatility flattened margins.

Mark Filanowski: Higher realized TCE rates and more shipping day activity help to offset the decline.

Mark Filanowski: At a macro level, the global demand for dry bulk remains strong and has proven to be resilient in the face of ongoing geopolitical disruption and softening economic activity in some regions.

Mark Filanowski: Nonetheless, as global supply of new-build vessels remains constrained, we expect to see upward pressure on dry bulk rates over the near to intermediate term.

Mark Filanowski: Looking ahead to the fourth quarter, we expect to see the typical seasonal slowing in dry bulk demand.

Mark Filanowski: Notably, due to wetter and warmer than normal weather conditions in the Arctic regions in which we operate, we do expect that Arctic demand in the fourth quarter will be less than what we experienced last year.

Mark Filanowski: Through today, we've booked 3,378 shipping days and generated a TCE of $16,629 per day for the fourth quarter.

Mark Filanowski: As we move into 2025, we will continue to exercise a balanced, return-focused approach to capital allocation.

Mark Filanowski: Our recent vessel acquisitions, Fleet Combination and JV Buyout are a testament to our philosophy of deploying cash in a manner that creates sustainable returns on capital.

Mark Filanowski: At the same time, we remain committed to maintaining a stable recurring quarterly cash dividend consistent with our long-standing return of capital program.

Mark Filanowski: Importantly, we believe our dividend policy is sustainable through the economic cycle, given the proven consistency of our business.

Mark Filanowski: With that, I'll hand it over to Gianni for a discussion of our third quarter financial results.

Thank you. Bye. Bye.

Speaker Change: Thank you, Mark, and welcome to those joining us on the call today.

Speaker Change: Our third quarter financial results are highlighted by sustained TCE premiums relative to the prevailing market and strong free cash flow generation amid peak demand within our niche Arctic trade routes.

Speaker Change: Third quarter TCE rates were approximately 16,324 per day, a premium of approximately 19 percent over the average published market rates for Supermax and Panamax vessels in the period, which was driven by strong fleet utilization within Arctic trade routes.

Speaker Change: Our adjusted EBIT for the third quarter was $23.9 million, a decline of $4 million relative to the prior year period.

Speaker Change: Our adjusted EBITDA margin decreased 15.6% as higher charter hire expenses offset higher market rates and growth in total shipping days year-over-year.

Speaker Change: Our total charter hire expense increased by more than 40% when compared to the third quarter of 2023 Due to a 7% increase in total chartered in days and a 30% increase in the prevailing market rates for Panamax and Supermax vessels

Speaker Change: Our charter end cost on a per day basis was $14,494 in the third quarter of 2024. And through today, we've booked approximately 1,651 days at $14,271 per day.

Speaker Change: Vessel operating expenses net of technical management fees decreased by approximately 3% year-over-year from an average of $5,706 per day last year to $5,520 per day in the third quarter of 24.

Speaker Change: For the nine-month period, Vessel Operating Expenses of Technical Management Fees remained relatively flat at $5,686 per day.

Speaker Change: In total, our reported GAAP net income attributable to Pangea for the third quarter was $5.1 million or $0.11 per diluted share, compared to $18.9 million or $0.42 per diluted share in the third quarter of last year.

Speaker Change: When excluding the impact of the unrealized losses from derivative instruments, as well as other non-gap adjustments,

Speaker Change: Our reported adjusted net income attributable to Pangaea during the quarter was $11.1 million or $0.24 per diluted share, compared to $14.4 million or $0.32 per diluted share in the third quarter of last year.

Speaker Change: At quarter end, the company had $93.1 million in cash, in total debt, including finance lease obligations, of approximately $293 million.

Speaker Change: During the quarter, our overall interest expense decreased 6.6% due to new debt facilities entered into during the period to finance the bulk Brenton, the bulk Patience, and the bulk Prudence vessels.

Speaker Change: At the end of the third quarter, the ratio of net debt to trailing 12-month adjusted IBRA was 2.5 times.

Speaker Change: In the near term, our capital allocation focus will continue to be on investing in our stevedore and logistics operations, expanding and refreshing our dry bulk fleet, and repaying our debt.

Speaker Change: We are also continuing to prioritize a consistent return of capital strategy as evidenced by our consistent dividend, which we believe can be sustained through the market cycle.

With that, we will now open the line for questions.

Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad.

Speaker Change: You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. We will pause for a moment to allow questions to queue.

Speaker Change: And we'll take our first question from Liam Burke with B. Reilly. Your line is open. Thank you. Good morning, Mark, Gianni, Mods.

Hiya Liam

Liam Burke: Mark, you outdistanced the relative indices by 19% in the third quarter. If you can look forward, and I don't want to anticipate a merger, but let's say we add the 50 and handy size.

Speaker Change: Is there any transition period or can you consistently outperform adding that many assets at one time?

Thanks, Liam.

Speaker Change: We've thought a lot about this and we're planning already to try to get those ships into our business plan as quickly as possible.

Speaker Change: We'll finish off those voyages and we'll begin to fix those ships that are already being fixed into businesses that are trying to match ours, but yeah, it will take a little bit of time to transition into our business, find the way we operate the ships a little bit different than the way they're operated today.

Thank you. Bye.

That is a very good question.

and Mark Wilson. Thank you. Thank you.

Speaker Change: Not bad, but not great. How do you see the second half of the quarter shaking out?

Speaker Change: I think it's generally trending down, the market is trending down and we're seeing that a little bit in...

Speaker Change: If the pictures that we're making if you look at the numbers we put out there, you know, you can

Speaker Change: not going up in the first half, they're about flat with the third quarter. But the general market is trending down a little bit toward that first quarter, that's always a little bit lower than the fourth quarter.

Great. Thank you, Mark.

Speaker Change: Thank you. We'll take our next question from Poe Fratt with AGP. Your line is open.

Poe Fratt: Good morning. I have a couple of questions. First of all, can I just follow up on the transition period as you add the 15 handies? Can you just

Give me a little more color on...

Poe Fratt: Is that going to mean lower, you know, dampened profitability into the first quarter as you work through assimilating those handies into the fleet?

Poe Fratt: No, I don't think it's dampened profitability, Po. It's that I don't think we can expect to move 15 ships directly into our business, which does a lot of premium.

business.

Poe Fratt: immediately. Those ships will be, like I said, on current voyages.

Poe Fratt: they've got other customers to serve, we've got to get to know those customers, introduce them to our capabilities, but we hope within a short period of time that we'll be able to start to move

Poe Fratt: the returns on those ships into a premium space above the market like we do on our Panamax fleet and our Super and Ultra fleets.

Attendee, Gianni Signore, Stefan Neely, Mark Filanowski

Okay.

and then Gianni.

Gianni: There's always something in the quarter that, you know, it's hard to calibrate. This quarter, it seemed like the TCE revenue was lower than I expected.

Speaker Change: not because of gross revenues, but because of voyage expenses being higher. Was there anything in particular in voyage expenses that that hit during the quarter?

Speaker Change: So I think it was just a function of costs for the quarter, but one thing on

Speaker Change: On your question about the 15 Handys, I do just want to point out that, you know, from a cost perspective, what we're looking at on these ships.

Speaker Change: They are they are currently financed at good levels and their break-evens

are very, you know, reasonable and...

Speaker Change: structure of those 15 handies, I think, is certainly going to dampen profitability. I think we're taking on ships at very good cost levels, both from a cash break even and from a P&L perspective.

Speaker Change: So I think that it's a function of incorporating them into our trading model that may take time, but we're not taking on vessels that would be at a higher break-even level than our current fleet of owned vessels.

Okay, great.

Speaker Change: Will there be higher G&A in the fourth quarter because of the transaction? Could you just sort of help me calibrate, you know, G&A for the fourth quarter and just the potential impact of the transaction?

No, there won't be higher GNA in the fourth quarter.

Timing of the closing is looking like...

Speaker Change: We're hoping, and it's all, you know, up in the air currently, depending on the date of our shareholder meeting, but

Assuming I close within December of 2024, the period...

Speaker Change: Post-closing will be relatively short and if you're referring to cost attributable to completing the transaction

Speaker Change: The cash would not be an expense in the fourth quarter, it would be capitalized as a cost of the transaction. So I think our G&A run rate would be relatively consistent for Q4 as we've seen so far this year.

Yeah, the date's been set, right? December 6th?

Speaker Change: No, it has not been set. We filed a preliminary proxy, and we're just waiting to clear that, and then we would start setting dates, the final dates. That was our preliminary estimate, but we're still ... Okay.

Speaker Change: So it's still moving around, yeah it's still moving, but December 6th was the preliminary date in the proxy that was filed.

Correct.

Speaker Change: Okay, and again, the shareholders are not approving this transaction, they're just approving the issuance of stock that allows you to, you know, issue the stock to the seller.

Speaker Change: Correct. Yeah, the question that's being proposed is the issuance of stock.

Speaker Change: so that that's what they're that's what's being voted on obviously it's being issued for this transaction so we can assume that they're

Speaker Change: They're connected, but it's really just the proposals. It's just the issuance of the shares. Yep, and then can you just help me understand your dry docking schedule for the fourth quarter of 24 and then looking out into 25?

Speaker Change: Hi, Matt here. We will have four dry doggies in Q4, and for the next year, sort of a little bit depending on where we are, we could be looking at, I'm just looking at a number here.

Six.

Thank you.

Speaker Change: and spread out pretty evenly, just build them in over the course of a year. That's roughly over the year. That includes a couple of intermediate dockings as well. So does one of the ones we're doing in Q4, so they are a little bit shorter in nature.

Speaker Change: Okay, great. Thank you, Matt. And then going back to your Ford, you know, Ford cover, you have, you know, 3378 days booked.

Speaker Change: and that equates to about 37, you know, vessels 26 owned and then, you know, 11 chartered in to this point in the quarter. What do you think your chartered in fleet will land for the for the quarter?

Speaker Change: All right, so we're actually coming into the fourth quarter. I think our average fleet is around I-50s going into the quarter. I'm not sure how you calculate that number, Paul.

I think you're

Speaker Change: That was just performance through yesterday, is what we indicated. So that's not for the full quarter, obviously, but so far, yes, we did 3,378 days. We've chartered in 1,651 days.

Speaker Change: for the fourth quarter. But I think the fleet is averaging in the 50s still today, and I think we're expecting that for the balance of the fourth quarter.

Speaker Change: Great, and then Gianni, you know, the comment was made, you had weather potentially issues in the fourth quarter, you know, lower demand in the Arctic, also the third quarter was impacted by

Speaker Change: You know, lower volatility, the flattened margins. Will that lower volatility, the flattened margins still be prevalent in the fourth quarter?

Speaker Change: I think the reference we were making there is if we look at if we look at entering Q4 of 2023

Speaker Change: Our cost to charter in was $10,800 and the reason that was so was low is there was volatility in prevailing rates in Q3 of 23 going into Q3 of 24. The market was in the tens

Speaker Change: And then in Q4 of 23, the market popped into the 16. So we did benefit from that upward volatility, whereas if we look at Q2 of 24 going into Q3 of 24,

The market was flat, very little volatility, so...

What we were we were trying to point out was

Bye.

Speaker Change: Going into last year, Q3, we entered the Q3 from a lower market position benefiting our Charter-in-Fleet. Now, our Charter-in-Fleet still generated an $1,800 a day margin if you look at what we were paying versus what our average TCE was.

Speaker Change: But it did squeeze that charter in margin a little bit

in Q3 of 23 and it's about 1,800 a day.

in Q3.4. But going forward, yes, the market...

Speaker Change: is trading a little bit flat, which is not a bad thing. It's still trading at pretty decent levels and the indication on our charter infleet was 14.2, so it's coming down a little bit from where it was in Q3 of 24, but it's pretty stable.

Speaker Change: at around 14,000 a day, and our TCE, we indicated was 16.6 versus 16.3 of Q3, but the balance of the fourth quarter, Mark did make the comment, and it's being a little bit of slowness, but...

Speaker Change: So far, what we've done, I mean, those are just the numbers that we've actually booked through yesterday.

Speaker Change: If I could just ask a question about the balance sheet. I noticed in the queue that there was, in your other asset categories, Gianni, you had something called base dividoring.

Speaker Change: as an investment, and while it's small at $2.9 million, you know, it's up over $1 million since the end of last year. Is that the Tampa... I think you might have the Tampa JV in there. Is that...

Can you just help me understand what base stevedoring is?

Speaker Change: We talk about our Stevedoring business in Gramercy discharging bauxite for one of our clients. Bay Stevedoring is our vehicle that owns the joint venture for that investment.

Speaker Change: and that is the, that is a function of our equity method.

income flowing into that account.

Speaker Change: this year, which has been just the profits of that joint venture on an equity basis into that investment account. So that, I'm not sure if you recall, but that is the, it's part of our, you know,

Fundamentally, it's part of our terminal and stevedoring business.

but because it's a joint venture that is not consolidated.

The income from that business is just recognized on...

Speaker Change: are pro rata share in that base student account that's part of our other.

and other assets.

If we have consolidated that entity...

Speaker Change: What would happen is terminal revenue would go up and terminal expenses would go up and we would recognize the full P&L. But because it's a joint venture that's not consolidated, that account will fluctuate with the profitability of that joint venture.

Speaker Change: and it essentially is the undistributed earnings plus the initial capital we put into the company.

Speaker Change: Great and they can you Whoever would like to address this. Can you talk about the opportunities in the terminal business? You highlighted them on the call that you're still looking for opportunities

Speaker Change: Even with the handy acquisition, your dry powder is still very high. Can you just talk about the opportunities in the terminaling business as you look into 2025?

Speaker Change: through our freight business, but also just stuff that comes across our screen. And so we are, you know, working very hard to expand that portfolio. We will get...

Speaker Change: Tampa, our operations in Tampa will be running next year, which will be a significant operation, and we're looking at a couple of other possibilities that we have.

Speaker Change: Pretty high hopes for so it all pretty similar to what we do today

We'd like that link between our...

Speaker Change: Our Ocean Freight offering and the Steve Adorn, so terminals in the sort of in the same shape or form as we do today. We are quite excited about what we're looking into now.

Great. Thanks a lot.

Thanks, Tom.

Speaker Change: Thank you. And once again, if you would like to ask a question, please press star one on your telephone keypad. We'll take our next question from Clement Mullins with Value Investors. Your line is open.

Good morning. Thank you for taking my questions.

Most of it has already been covered.

Speaker Change: Most has already been covered, but I wanted to ask about the acquisition of MVP.

Speaker Change: Could you talk a bit about the trade-off between exercising the option now instead of, let's say, in a year? And secondly, is there any potential to do something similar with NVHE?

Well, thanks Clement. Interesting questions.

Speaker Change: We did see an opportunity here to capture that interest in the post-Panamax ships and clean up the balance sheet a little bit before year-end.

Speaker Change: thought it was it worked out well for us. It was the right timing for our partner and we think it simplifies our story here and consolidates our

Speaker Change: in the ice class trade. On the NBHC deal, we think we have a very

Speaker Change: satisfied partner. That entity has been going on now for over 10 years.

Speaker Change: and it's been profitable throughout. If we do see an opportunity to purchase that additional share, we will pursue it, but right now there's nothing on the table here that makes us have to do it.

Speaker Change: That's helpful, thank you. I also wanted to ask a bit about the strategy going forward on the services side.

Speaker Change: I mean, it's been a strategic priority for you to grow that side of the business, but lately you've mostly focused on acquiring ships. Is there, let's say, any potential for Bolton acquisitions going forward or should we expect the business to simply grow organically?

Thank you.

We've been doing it organically for the most part.

Speaker Change: The acquisition of the host terminals in Fort Everglades and Baltimore

Speaker Change: was an acquisition in an area that we weren't involved in, but we saw some potential. And we're realizing some of that potential with...

those areas, however

Speaker Change: Those terminals really are serviced more by HandiFleet, and we hope to

Speaker Change: capitalized on the strategic fleet and its capabilities more in the Baltimore and and the Port Everglades areas.

We are opening up the Tampa facility.

Speaker Change: that we're building at this time next year, probably. There's work going on there now.

Speaker Change: That will provide more opportunity to utilize both Handy and Supra voyages. We've already got booked for next year, probably at least 20 or 25 voyages into Tampa.

Speaker Change: addition to that part of our business. We're looking at other areas in Texas right now. We hope to to achieve a contract, a long-term contract, within the next few months in in southern Texas.

Speaker Change: to do some stevedoring business for an important customer there. So it's been mostly organic growth.

Speaker Change: We haven't come to terms yet with buying a big piece of land to really expand that business.

Speaker Change: Again, as we mentioned, as we get more and more into this business, we see more opportunities. So that could come at some future point.

Speaker Change: Thanks for the color. That's really helpful. That's all from me. Thank you for taking my questions.

Thank you.

Speaker Change: Thank you. The Q&A has now concluded. I will now turn the program back over to Mark Filanowski for any additional or closing remarks.

Mark Filanowski: Thanks again for joining our call. Should you have any questions, please feel free to contact us at investors at panjayals.com. And a member of our team will follow up with you. This concludes our call today. You may now disconnect.

Speaker Change: Thank you. That concludes today's teleconference. Thank you for your participation. You may now disconnect.

Thank you. Thank you.

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