Pangaea Logistics Solutions Ltd (PANL) 2020 Q2 法說會逐字稿

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Second Quarter 2020 Earnings Teleconference. Our host for today's call are Mr. Ed Coll, Chairman and Chief Executive Officer; and Mr. Gianni DelSignore, Chief Financial Officer.

Today's call is being recorded and will be available for replay beginning at 11:00 a.m. Eastern Time. The recording can be accessed by dialing (800) 585-8367 domestic or (404) 537-3406 international and referencing ID 8947025. (Operator Instructions)

It is now my pleasure to turn the floor over to Ms. Tiya Gulanikar with Prosek Partners.

Thank you, Stephanie, and thank you for joining us for this morning's Second Quarter 2020 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 DelSignore.

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 Relation Reform Act of 1995 about Pangaea Logistics 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 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 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 8-K that was filed with last evening's release, which is available on the Investors section of www.pangaeals.com under Company Filings or on the SEC's website at sec.gov.

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

Thanks, Tiya, and good morning to all of you, and thank you for joining us on the call. 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 second quarter financials. We'll then open the line for questions.

I'd like to begin by expressing well wishes to you and your families. I hope that you're all healthy and safe, and our thoughts are with all of those who have been impacted by COVID-19. We're especially grateful to our dedicated crew members working aboard our vessels as they support the global supply chain. Pangaea remains committed to the health and well-being of our employees. And as a company, we'll continue to follow all local and international regulatory guidance and best practices when it comes to operating our business safely.

We hope you had time to review our press release and accompanying presentation, which were issued last evening. Our strong second quarter results reflected a remarkable turnaround from the first quarter 2020. Adhering to our strategy, we navigated the drybulk market that tested historic lows in April and May. We limited our exposure to the market by adjusting our fleet composition. We redelivered chartered vessels to their owners and replaced them when needed at lower cost and sync with cargo demands.

As we said in the past, our client-focused business with a model that prioritizes to cargo, we continue to remain profitability in a volatile market environment, and we think the second quarter exemplified this.

Our TCE rate, while lower year-over-year, continued to outperform against the average of the Baltic panamax and supramax market indexes. We exceeded the average market rates by $5,185 per day, an industry-leading 93% premium to market indexes. This is significant as the second quarter is typically a transitional period for our ice class fleet as we prepare for our summer ice season, which is seasonally our strongest.

I'll now summarize our results for the quarter. Total revenue decreased to $70.3 million for 3 months ending June 30, 2020 from $83.2 million for the same period in 2019 due to the increase -- the decrease in market rates. We reported net income of $3 million during Q2 of 2020 as compared to $4 million for Q2 of 2019. Lastly, at June 30, 2020, we held cash and cash equivalents and restricted cash of $49.4 million.

During the quarter, as part of our fleet renewal plan, we also entered an agreement to sell the Bulk Beothuk in advance of dry docking, bringing our total fleet to 17 owned vessels. Further, we continued to see progress on our ice class new building project, in which we expect to take delivery of the first 2 vessels in the beginning of 2021.

Looking forward, we're positioned well as we enter our seasonally strong summer ice season. Although the market has recovered somewhat since June, we're watching global economic output and the disruptions caused by COVID-19 from changes to our working environment to rotating crews and border vessels. We sincerely appreciate the dedication of our people, assure and onboard our vessels. Our results are encouraging, but we expect and well prepared for continued uncertainty and turbulence in our markets over the next few quarters.

However, we continue to be opportunistic as we have always been in delivering best-in-class services to our clients, looking to acquire new vessels when opportunities arise and developing new business that complements our platform. We look forward to updating you on developments in the coming quarters.

With that, I'll turn the call over to Gianni.

Thank you, Ed, and thank you all for joining us on today's call. Again, we hope everyone remains healthy and safe as we continue to adapt or, in some cases, return to new normal work environments. We thank our employees and crew for their extra efforts during these unprecedented times.

Before walking through our financials, I'd like to expand upon Ed's earlier comments in how we navigated another challenging market that demonstrated our unique strategy. As Ed said, the second quarter tested historic lows in April and May with the BDI hitting 393. However, heading into the quarter, we were actively reducing our exposure to the market following our nimble cargo-driven chartering strategy.

We balanced our fleet by redelivering vessels to their owners on schedule and chartered in new tonnage at a lower cost to match our clients' cargo requirements. We reduced our chartered-in cost per day down to $7,690 in Q2 of 2020 from $10,764 in Q1 of 2020. We have also taken additional steps to renew our fleet, reduce our average fleet age and strengthen our financial position. In January, we accelerated our purchase option on the Bulk Beothuk finance lease facility to pay off 1 of our most expensive debt facilities.

During the quarter, we entered into an agreement to sell the vessel, which resulted in a noncash loss on impairment of $1.8 million. However, we are happy to report the sale was finalized in August, generating $4.6 million of cash.

With that, I will now turn to our second quarter financials. Voyage revenue, which are revenues generated from carrying cargo for our clients was $66.8 million, a decrease of approximately 14% compared to $77.4 million for the same period in 2019. This was predominantly due to lower average market rate. Our TCE rates decreased 17% to $10,733 per day from $12,933 in the second quarter of 2019. However, the company's achieved TCE rates continued to outperform against the published market rates by approximately 93%. Charter revenue, which are opportunistic and tied to market rates, decreased to $3.5 million compared to $5.8 million in Q1 of 2019. The decrease in charter revenue was due to a decrease in market charter rates and the decline in time charter days as we've limited our exposure to the market.

Voyage expenses were $31.7 million compared to $37.2 million for the same period in 2019, a decrease of approximately 15%. The decrease was primarily due to a decrease in bunker expenses, a result of the COVID-19 triggered decline in market prices for bunkers in the second quarter of 2020 compared to the second quarter of 2019.

Vessel operating expenses on a per day basis, excluding technical management fees, were down 4% from $5,398 in Q2 of 2019 to $5,167 in Q2 of 2020. Net income for the quarter ended June 30, 2020 was $3 million or $0.07 per share compared to $4 million or $0.09 per share for the same period in 2019.

Moving on to the balance sheet and cash flows. Total cash and cash equivalents, including restricted cash, were $49.4 million at June 30, 2020 compared to $43.6 million at June 30, 2019. For the 6-month period, net cash provided by operating activities was $6.9 million compared to $19.5 million through Q2 of 2019. Net cash provided by investing activities was $5.8 million as a result of the sale of vessels compared to usage of cash of $33.5 million through Q2 of 2019 due to the acquisition of vessels as well as deposits on new buildings during the first 6 months of 2019.

Net cash used in financing activities totaled $16.2 million through Q2 of 2020 due to the early purchase option on the Bulk Beothuk finance lease facility compared to $1.5 million provided by financing activities in Q1 of 2019 as a result of the financing of 2 vessels during the first 6 months of 2019.

As you can see, we continue to make progress in our platform expansion initiatives and implementing a strategy that optimizes our assets. Our ability to continually strengthen our financial position while also driving growth and expansion opportunities will, by extension, 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 the 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.

Your first question comes from the line of Poe Fratt with NOBLE Capital Markets.

I had a couple of questions just about the ton of business right now and it's sort of -- Ed, if you could describe -- you sort of talked about a little bit, but the markets rebounded quickly. We did see very low levels in the second quarter, but we're seeing a much stronger market in the second -- in the third quarter. Do you -- what would you attribute some of the turnaround to? And then also, if you could sort of see -- talk about any changes in trade routes or trade flows or anything that you potentially took advantage of in the second quarter and then potentially is durable into the second half of the year?

Okay. So what I can say is that a lot of the rebound has to do, as usual, with China. They didn't sit still while all this stuff was going on. They stimulated their economy. There's a lot of stockpiling there because I think that they are nervous about their relationship with the United States. And so the price of iron ore delivered in China is still over $100, which is very healthy. So I think there's that piece of it. And I think so it's a lot of Chinese growth.

We have lots of continued problems in United States. But it's -- the market is much healthier. And in the second quarter, we do what we normally do when we have a dramatic change in the market. We go to ground. We use the fleet. We deliver vessels. And that's what we've done. The third quarter, which I think we've mentioned in the release, that's normally our strongest quarter, and I think that's playing out that way because we have Baffin Island in the summer, and we have a lot of ships in there that are very profitable.

And the number of ships we have on the water now has grown quite a bit going into third quarter. The fourth quarter, I would say, we're cautiously optimistic that, that pattern will continue. So I believe that at the end -- by the end of the year, we'll end up with a decent year, certainly compared to our competitors, I would say.

Great. That's helpful, Ed. And can you put a little more -- maybe quantify sort of what you're expecting as far as the third quarter? Have you lengthened your chartered-in book? What kind of -- what kind of expectations should we have for shipping days? And then even -- I know it's always hard to forecast or predict. But do you think the TCE outperformance, it typically narrows as the market goes up, any reason to think that's not going to happen in the third and fourth quarter?

In the third quarter, I would say it probably isn't that [spread] is going to continue to be very wide because of what we are able to achieve in the ice class fleet and what we were able to achieve in our Jamaica business. So in the fourth quarter, I can't say. But you're right. Normally that spread, which for the second quarter, was over 90%, that probably over time, will narrow. But that's actually healthier for the business. If you have a $5,000 market and you're outperforming it by 90-something percent, it's nice, but it doesn't really get you where you want to be. And so it's better if you have a $12,000 market and you maybe outperform it by 70%.

So one of the things that we see, a lot of the project business that we've been working on has gotten stalled because of the COVID. And that will come back but the uncertainty that we've had in the economy here, has made it difficult for people to make decisions on any longer-term projects. And we've had some stuff that we're doing with the -- for example, with the Air Force and with the government, and they just stopped, right? And you're in that situation. So hopefully, there can be some normalization in our domestic economy here that will help with some of those projects because they have to happen eventually. In the meantime, our clients are healthy. As I mentioned, the iron ore prices is very healthy, and that's good for our clients in Baffin. The aluminum business is very healthy as well. So that's good for our guys in Jamaica. So -- and we see all sorts of projects coming. But again, it's hard for them to get going until we have political stability here. So it's gratifying that you have things in, let's say, in China that have supported the market at the moment.

Great. And then as far as the level of shipping days in the third quarter, typically, it picks up. Have -- and I guess, if we could just talk about your charter-in book. Has it lengthened at all to allow you to take advantage of some of the low rates that you saw in the second quarter? Or is typically, you don't go too long out, but were you able to capture some low rates and potentially charter in some tonnage at some -- at attractive rates, Ed?

Yes, we were. I mean the easiest way to look at that is, I checked this morning, and I think we're running 59 ships on the water. And that's a lot more than it was 2 months ago. And that's a natural evolution.

Okay. Great. And when you look at -- Gianni, if we could look at any potential refinancing activity that you're looking at over the second half of the year, I think at some point, you're going to have to talk about the joint venture debt maybe pushing out maturities there or refinancing some of the joint venture debt. Can you just talk about any potential activity we're looking at over the second half of the year?

Yes, sure. And you hit it right on the head, right, with the joint venture. But luckily, we do have -- we're fortunate we have some flexibility. We can sort of choose our own path. And we're certainly looking at the very low rate environment right now, but we don't really see any upward pressure there. And yes, we're going to choose a point to certainly refinance. But the big one ahead of us is within the joint venture. We have some flexibility there. But I expect in the second half, we certainly will look to do some refinancing.

Okay. And then you highlighted OpEx. Can you talk about OpEx over the second half of the year? And then also, you mentioned in your comments, bunker fuels was -- bunker fuel prices were very favorable. My sense is they haven't recovered. So potentially, they could be favorable into third quarter, too. Is that a reasonable expectation?

I think who knows what the market goes. But yes, as of today, I think that's what we're expecting in the future. And as far as your comment on OpEx, we did have a plan to renew our fleet, and we've sort of -- we followed through on that plan. We completed the sale of Bulk Beothuk that we -- here in August. But yes, I think that's a natural evolution of the fleet. As we look to lower the average age and find a little more efficiency in the fleet, that we did see the OpEx come down. So we're happy to -- that our efforts are actually paying off. And we'll look for new tonnage. We're always looking for new opportunities to acquire vessels that fit our profile. And as we renew the fleet, we hope we can keep that number at a reasonable point.

Okay. And then Ed mentioned this morning, you're running 59 vessels. Is that -- do you -- is that -- do you have an average for the quarter yet? Or is that a reasonable number to use as far as your potential shipping days for the quarter? As far as an average fleet of 59? Or is it going to be -- maybe if you can give a little color on that.

We're already halfway through the quarter, right? So I would suspect that that's probably the right number to work on, give or take a couple of ships. And as you know, [from these] redelivering and pulling in ships, et cetera, et cetera. So I think that's probably a reasonable assumption because, again, we're halfway through the quarter.

I apologize. The Q3 ice season, we do charter in additional tonnage to support that contract. So I think we'll see that number stay pretty steady for Q3.

At this time, there are no additional questions. I'd like to turn it back over to management.

Well, thank you, everyone, for joining us today, and please continue to stay safe and all the best to your families.

Thank you. This concludes today's conference call. You may now disconnect.