Pangaea Logistics Solutions Ltd (PANL) 2021 Q1 法說會逐字稿

Good morning. My name is Cristal, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions First Quarter 2021 Earnings Teleconference. Our hosts for today's call are Mr. Ed Coll, Chairman and Chief Executive Officer; and Mr. Gianni Del Signore, Chief Financial Officer.

Today's call is being recorded and will be available for replay beginning at 11:00 a.m. Eastern Standard time. The recording can be accessed by dialing (800) 585-8367, domestic, or (404) 537-3406, international and referencing ID #7074367. (Operator Instructions)

It is now my pleasure to turn the floor over to Sean Silva from Prosek Partners.

Thank you, and thank you for joining us today for this morning's first quarter 2021 earnings conference call for Pangaea Logistics Solutions. With us today from the company are Chairman and CEO, Mr. Ed Coll; and Chief Financial Officer, Mr. Gianni Del Signore.

Before I turn the call over to Ed, 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. 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 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. The information set forth hearing 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 8-K that was filed with last evening's release, which is available on the Investors section of pangaeals.com under Company Filings or on the SEC's website at sec.gov.

I would now like to turn the call over to Pangaea Logistics Solutions Chairman and CEO, Mr. Ed Coll. Ed?

Thanks, Sean, and thanks to all who have joined us today. I hope that you and your families are healthy and safe. This morning, I'll 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 the first quarter financials. We'll then open the line for questions.

We hope that you've had time to review our press release and accompanying presentation, which were issued last evening. Our first quarter results benefited from an unexpected increase in the dry bulk market for the first quarter of 2021 as we've seen freight rates rise to multi-year highs in the quarter that is usually weak for dry bulk.

Our quarterly results improved considerably year-over-year as our average net TCE earnings earned $16,524 per day, increased approximately 57% compared to the first quarter of 2020, and we generated net income of $5.8 million compared to a net loss of $6.8 million in the first quarter of 2020.

As we've said in the past, our client-focused business model that prioritizes cargo helps us to maintain profitability in volatile markets by reacting quickly to such changes. While our earned TCE for the first quarter is the highest earned in many years, and we continue to outperform the market, the rapidly rising market resulted in a smaller TCE premium over the market averages. This is a normal consequence of a rapidly rising market as spot fixtures become old quickly and our contracted cargo tends to lag instead of lead the average of this kind of market.

As you can see, both are still profitable even in this market. As the market started to show signs of improvement in the first quarter, we continued to position the company to capitalize on a recovery while adhering to our cargo-focused strategy. We operated a total fleet of 51 vessels during the quarter. And as of today, we're operating approximately 57 vessels in our combined owned and chartered-in fleet. We also timely deployed our capital in the first quarter with the acquisition of the 2013 built Bulk Courageous, which was delivered to us in April. And the 2013 built Bulk Promise, which is expected to be delivered to us within July. Gianni will discuss the financing arrangements on these acquisitions.

Further, we're happy to announce last night the acquisition of another 2013 built supramax vessel, which is also expected to be delivered to us in July. These 3 secondhand purchases, coupled with our new building program, which will soon deliver 4 new post-panamax ships to Pangaea will add almost 600,000 deadweight tons and over 2,500 annual shipping days to our own fleet this year. These are timely steps in our effort to improve our average fleet age, increase our efficiency and expand our operating leverage and an opportune time in the dry bulk market. Our first new building vessel will deliver in May, and the second will be delivered by July. Both expected to enter our cargo business this summer.

The third and fourth ships will follow in late summer or fall, and we'll be ready for the winter ice season. Collectively, we are encouraged by the steps we've taken to expand our platform in ways that add value for customers and in turn, to enhance shareholder value. As we look ahead, we're encouraged by the outlook of the dry bulk market. Newbuilding orders remain low, demand is improving following the COVID-19 lockdowns globally. The market disruptions from the container and commodity trades all favor the shipowner for net. The positive momentum in the first quarter has so far continued into the second quarter. And as of today, we have fixed 3,200 shipping days in the second quarter at an average TCE rate of approximately $21,500 per day. We feel confident in the market and our strategy to keep performing. We reinstated our dividend in December and today announced an increase in our quarterly dividend to $0.035 per share. We'll continue to be opportunistic as we have been in delivering best-in-class services for our clients, looking to acquire new vessels when opportunities arise and developing new business that complements our platform. We look forward to updating on developments in the coming quarters.

With that, I'd like to now turn the call over to Gianni to provide additional details on the financials. Gianni?

Thank you, Ed, 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.

As Ed mentioned, we are excited about our recent acquisitions, which resulted in one of the more active periods for Pangaea in recent years. We've deployed our capital opportunistically to renew our own fleet and expand our operating leverage as efficiently as possible. In April, we completed the financing on the Bulk Courageous with an existing lender for $12 million over 7 years with an interest rate of LIBOR plus 2.75%. We also finalized the refinancing of our 4 ice class panamax vessels, 2 new lenders. This new $53 million senior secured loan facility is payable over 6 years, and interest was fixed at 3.375%. Further, in April, we signed a term sheet with an existing lender to finance the Bulk Promise for up to $12.8 million, payable over 6 years at LIBOR plus 2.3%, which we expect to close in line with delivery of the vessel.

Turning to our first quarter financials, starting on Page 6 of our presentation. The welcomed improvement in the market during the first quarter resulted in increases in both voyage revenues and time charter revenues. Voyage revenues increased approximately 25% and charter revenues, which are opportunistic and more closely tied to market rates, increased approximately 79%. Our TCE rates earned increased 57% to $16,524 for the first quarter of 2021 compared to $10,508 for the same period of 2020.

Charter expenses paid to third-party ship owners increased to $53.6 million from $32.3 million due to increases in market rates to chartering vessels and an increase in chartering days due to the sale of vessels in 2020. The sale of owned vessels also led to a decrease in vessel operating expenses, which decreased 14% to $8.5 million. Excluding technical management fees, vessel operating expenses on a per day basis was $5,014.

Net income for the quarter was $5.8 million or $0.13 per share compared to a loss of $6.8 million or $0.16 per share for the same period in 2020.

Moving on to the balance sheet and cash flows on Page 7 of our presentation. We ended the quarter with $42 million of total cash and cash equivalents following an active quarter of operating, investing and financing activities. The decrease in cash from year-end was primarily due to cash used in investing activities for vessel acquisitions. Further, as Ed mentioned, after temporarily suspending our quarterly dividend in 2020 to maintain a strong liquidity position, we have since reinstated, in this quarter, increased our dividend to $0.035 per share.

Moving down the balance sheet. The improvement in working capital in the fourth quarter was due to the refinancing of our 4 ice class vessels, which moved $50 million of current debt to long term. As you can see, we are encouraged by our results so far this year. We will continue to position the company to capitalize on market improvements while adhering to our cargo-focused strategy as we drive growth and continue to generate shareholder value.

With that, I will now turn the call back over to Ed for any additional remarks before we get to the Q&A portion of our call. Ed?

Thank you, Gianni. We thank our customers, business partners and shareholders for their continued commitment and partnership, and we look forward to updating you further in the coming quarters.

I'll now open the floor for questions.

(Operator Instructions) Your first question comes from the line of Poe Fratt with NOBLE Capital Markets.

Ed, I was wondering if you could highlight any changes that you're seeing either in trade flows or any potential impact from the higher cargo or higher shipping rates that we're seeing?

Well, I think that you're in a situation, Poe, where I wouldn't want to call it a perfect storm, but a lot of things are hitting at the same time. And one of the things that you've seen is, for example, the just-in-time deliveries on container ships. It's been, of course, completely messed up logistically. And a lot of the cargo that used to flow into containers that now has flowed into the multipurpose ship market. And that's taken -- and even into bulk carriers. So you have that -- you have that going on, you have -- continued to have certain congestion in the market that helps take capacity out of the market. And you're seeing a lot of disruptions because of the logistics chain, and we have also a very large increase in commodity prices, which everyone is aware of. So it's certainly for the next 1 year or 2, it looks like things are going to be pretty robust in this business. There's no question about it.

And what happens beyond that, the fact that no one can really build ships at the moment. If you want to build a ship, you can't get a delivery from yard until 2024 because there are so many containerships ordered. We have a good runway. And on our own ships, we brought down the average age. So that's pretty good. And our timing has been pretty good. We'll pick up 7 ships this year on the owned side. And things are very promising.

Okay, great. And then when you look at how active you've been on the M&A side, Ed, do you see additional opportunities out there? Or when you previously talked about acquisitions, you've also talked about trying to identify a certain trade or a specific need. Have you identified that with the supra that you just acquired?

I think that's -- yes. I mean, we've -- there's enough business now that's coming to fruition from our regular customers that were quite comfortable bringing in another ship. Basic problem that you have now is there's very little for sale, except for junk. And you just don't won't do it. We won't buy bad ships. So as tempting as it may be in a rising market to do it. It's not our style. So that's one piece of it, but yes, but we can support the capacity. I mean -- and for me, the big thing is, if you -- we have a very low-priced owned fleet and roughly $10,000 a day breakeven. And in this market, it's a pretty good business.

And so that's -- I think that's where we're going. If we can find the right ship at the right breakeven cost, and it's a good ship from a good yard with a good survey position, then I think we would consider to do something, but it gets more and more difficult. The prices continue to rise now. And what's available, as I mentioned, is not -- it's not that intriguing. You're basically looking for a car that your grandmother drove to church once a week on a Sunday. And that's kind of hard to find in a market like this, but we're always looking.

And then conversely, Ed, is it -- is the market good enough where you could potentially sell some of your older assets? Or has that -- are you comfortable with where your -- the age profile of your fleet as it stands right now?

Well, I think we're okay with it because most of those ships have -- we know what we have. Our ships, even the older ones are in great shape. And again, they have low breakeven costs, and we need them in order to operate. So -- and the issue with the older ships is that you will not dollar-for-dollar get the benefit out of it. I mean these are round numbers. So if you were just to say on an L3 build ship, which is the older ship we have in the fleet, let's say, cost 10 and you can make 20, that's a lot of money. And -- but if you go to the secondhand market to sell it, you will not get the premium of the earnings. You might get $0.5 million more for it than you would have before. But it's not following dollar-for-dollar. So what we've done is you go down the value curve to get the best value in terms of aging and condition.

Similarly, if you go to the top of the chain, much more modern, very modern ships, you will be paying a very strong premium. So we go down across the board with those things and try to pick up the best value. I wouldn't be a seller of those ships now. You wouldn't get enough money to -- you make more money by keeping them.

Absolutely. And then Gianni, on the to be named supra that you just acquired, have you -- I know it's fairly early, but have you potentially lined up financing on that vessel?

So we're currently working on it, Poe, but my expectation is it will look very similar to what we did on the Bulk Courageous and the Bulk Promise. So I think we're in a good position. We're working with our relationships that we have with existing lenders. And I think that's the expectation on her.

Great. And then if you could talk about your forward cover, you have 3,200 days at $21,500. It's pretty healthy delta versus your average first quarter TCE. If you flow that through to all your owned fleet, the delta is about $8 million quarter-over-quarter. Will there -- of cash because your operating expense shouldn't change that much. Do you -- are there going to be offsets to that delta that you're seeing on the owned TCE rates? Can you just help me understand sort of how we should be looking at the second quarter? And then especially because you're running 57, so there isn't much of a drop-off at all in your chartered-in fleet. And then maybe you could comment on what you're seeing as far as chartered-in rates. And sort of an outlook for how that -- over the next quarter or 2 looks?

Well, one of the things just to say, and we said it in the release was that we've always had very strong premium margins. This year, I don't think that will be quite the same, but our earnings are going to be extremely good, in my opinion. The chartered fleet is market reactive. And our strategy has not changed with the chartered fleet. We get the business first and then we charter and make that judgment. And so we can still turn a healthy margin on the chartered fleet. So that's not a problem. One of the things that's actually happened in the trade, which I don't remember seeing it this way before. The market in the Far East is extremely strong.

And normally, that's a discounted market. And with all of the business that's coming into the U.S., the outbound market from the U.S. is actually softer. And so when you bring in backhaul, you're getting paid more to -- the backhaul now becomes the front haul, the money like, believe it or not. So you can fix business on supramaxs' from the East Med to the states in the high 20s coming in. And so it's just -- it's turned on its head a little bit. But those disruptions, that's where we live. We live in that market. So it's okay for us with that situation. And in terms of the earnings, again, with -- jumping to the A ships, we have a very low breakeven, our existing fleet. We have contract coverage for the summer. There's a premium -- even a premium to today's market. So -- and usually, as we get into the third quarter, that's where our Baffin business comes into fruition, it will be a very good time for us. So yes, I think we're pretty excited about the way this is unfolding at this point.

Okay. And then maybe, Ed, if we could look at it from the standpoint of are there any existing contracts or any time charters that you have on your owned fleet that would hold you back or not make you -- not enable you to realize the full benefits of the stronger market?

No. We tend to not put ships our on time charter. When we do, it's normally to position them or keep a -- do a second leg or something of that nature. So we don't have any long-term contracts where we put the ships on our period and -- own ships at all. And we don't -- we generally don't do that. We trade them ourselves. And as you know, we're not a tonnage provider. That's not our business.

Yes. And then if you wouldn't mind commenting on the charter hire expenses, what you're seeing and whether we should expect a light increase in charter hire expenses, in the second quarter over the first quarter just because of the stronger market, in general?

Yes. Poe, you certainly will see a slight increase. I mean, our strategy has always been reactive to the market. In a weaker market, we tend to charter for single trip charters. As the market improves, we do period charters, but they are generally shorter term, they are 3 to 6 months max. So as the chartered fleet renews, it stayed relatively stable, to your point, as far as our fleet size but vessels are being renewed. So we are -- we will be seeing slight increases as the market improves. But I think we'll stay on par or better because a lot of -- the other things to consider what our chartering strategy is and he's going back to do we think -- do we think our cargo book or contracts are holding us back. And the way we look at it is twofold.

One, if it's -- it's a dedicated COA, that's fixed price, we usually have a ship that's assigned to it. And some of the other contracts, they're usually backhaul in nature, and we're able to charter in a vessel that's positioned well for us, but maybe not necessarily in market. And we'll slaughter into one of these backhaul COAs or forward bookings, and that will put us in a pretty healthy market. So we'll -- on the round voyage, we'll still make a good, I mean, premiums are still -- we'll still make a good margin. We'll still make profitable -- be profitable. And that's sort of how we look at it. So yes, they may be priced a month or a quarter or a year in advance, but the nature of that voyage, generally, we're pretty comfortable because we will be able to capture on the second and third legs with our additional capacity.

Great. And then -- and I was trying to sort of calibrate your comments about just stronger market. And I think in the last call, you talked about how shippers are looking at shifting away from just-in-time or looking at vessel availability is really good and maybe trying to make longer-term commitments. Can you -- do you think the -- versus the last quarter, do you think the visibility in the market has improved?

Well, I think everyone is very bullish, I would say. That's part of that -- looking at it that way. I don't see -- once in a while, you'll see people go and take ships on a longer period. And that's really not what we do, but we watch it. And so you'll see some of the real big guys may do it. But it still hasn't clicked in that way. A lot of these guys were short in the first -- going into the first quarter, and now you have the strangle, you cut the cargo guys. We're sure because everyone expected the first quarter not to be great. And I think they're coming to the realization that it's a pass-through. So someone has to pay a lot more for a ship than that's just what it costs, and it gets passed to the customers.

So people can get used to that. Are they buying in long term? Not in a way that you would see really. And then if you're going to go out for a long period and you have -- at some point, you have a correction in the market, you really have to worry about counterparty risk. So that's why we would prefer to try to control our own destiny with these type of things.

Great. And then lastly, if you could talk about the dividend increase and sort of whether we should be viewing it as sort of a quarter-to-quarter review and then -- or is there a goal to try to increase it every year? And then maybe also talk about the dividend increase in the context of considering buying shares back, especially since there's been a major seller out there as far as who's been unwinding for the last 6 weeks or so?

Well, I think the share price has risen in our opinion, not nearly where it should be, but that's been our experience. The people that have been selling, I think they thought it would take them a lot longer to be sellers. And they've, I think, at this point, unwound quite a bit of shares. The shares are coming into -- in total there's many more holders. And I think it's creating a lot more volume and liquidity. So I think that part is okay. And with the dividends, I think we're cautious. We feel that we can do this, and we'll constantly review it to see if it makes sense to change it.

Poe, just to add on the share buyback, I think our views on share buyback has always been to not taking more shares out of the market and further reduce the liquidity and the sort of public float out there. So it's really never been a consideration for us historically. So yes, I think as we look forward to, I think that still remains true, but that may change depending on how we see the stock trade.

Yes. I was just thinking in the context of that they generally people that include those shares in the public float, just because they were so closely home, it's pretty long-standing transition. So I was just wondering if you have considered as they were unwinding, at least potentially even buying some shares back. So that's helpful.

There are no further questions at this time. I will now turn the call back to management for closing remarks.

Well, thank you all for taking the time to join us this morning, and everyone, have a very good day.

Thank you. This concludes today's Pangaea Logistics First Quarter 2021 Earnings Call. You may now disconnect.