Pangaea Logistics Solutions Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2024

There are 7 speakers on the call.

Operator

Good morning. My name is Savannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Second Quarter 2024 Earnings Teleconference. Today's call is being recorded and will be available for replay beginning at 11 am Eastern. The recording can be accessed by dialing 800-938-2378 domestic or 402 2201 129 International.

Operator

All lines are currently muted and after the prepared remarks, there will be a live question and answer session. It is now my pleasure to turn the floor over to Stefan Neely with Valem Advisors. Please go ahead.

Speaker 1

Thank you, operator, and welcome to the Pindea Logistics Solutions Second Quarter 2024 Results Conference Call. Leading the call with me today is CEO, Mark Filanowski Chief Financial Officer, Gianni Del Signore and COO, Mads Petersen. 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.

Speaker 1

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.

Speaker 2

Thank you, Stefan, and welcome to those joining us on the call today. After the market closed yesterday, we issued a release detailing our Q2 2024 results. Our results for the quarter represent consistent execution of our cargo focused business model amid a seasonably stable period for the dry bulk market. While the second quarter is typically one of our softer quarters in terms of demand, our fleet was well utilized on cargo contracts with key customers in Atlantic trade routes. Our strong utilization and consistent execution resulted in earned TCE rates exceeding the benchmark index by 7%.

Speaker 2

We reported adjusted net income of $4,600,000 for the 2nd quarter and adjusted EBITDA of 15,900,000 dollars Our adjusted EBITDA was about flat with the Q2 of last year as our achieved TCE rates improved 4% year over year, but were offset by higher charter and vessel operating expenses. At a macro level, the global demand for dry bulk remains strong and has proven to be resilient in the face of ongoing political disruption and bottlenecks in key trade routes. Nonetheless, the overall supply of newbuild vessels remains constrained, which we believe will continue to put upward pressure on dry bulk rates in the near and intermediate term. The second half of the year represents a seasonal peak for our business due to heightened demand within our niche Arctic trade routes. Combined with our differentiated cargo focused business model, we are well positioned to continue delivering consistent premium TCE returns relative to the prevailing market, while also navigating any potential market volatility.

Speaker 2

While certain parts of the market have been under pressure since the end of the second quarter, we are seeing strong demand as the Arctic trade season begins to accelerate. Through today, we booked over 3,298 shipping days at an average TCE rate of $17,978 per day. Strategically, we were very focused on capital allocation during the Q2, continuing to fortify our balance sheet and opportunistically build our fleet of owned vessels. As we announced last quarter, we expanded our owned operating fleet of vessels by entering into an agreement to purchase 2 58,000 deadweight ton sister ships built in 2016 for total consideration of $56,600,000 We took delivery of the first of these 2 ships, the Bulk Brenton in late July and we will receive the Bulk patients next week. Johnny will provide more specifics around our balance sheet here shortly, but I am happy to report we arranged financing for these 2 ships and refinance balloon payments with a new $50,000,000 credit facility with DNB Bank, another strong capital partner to our lending portfolio.

Speaker 2

During the quarter, our terminal and stevedore business delivered its highest level of profitability since we acquired the business in June of last year. We continue to focus on building out this segment with our Port of Tampa activity scheduled to begin expanded production in the second half of twenty twenty five. As we enter the peak demand season for our business in the second half of the year, we are well positioned to weather market volatility and deliver consistent return premiums over the prevailing market. Over the longer term, our cargo focused business model, expanded fleet of vessels and strategic presence in niche trade routes will enable us to continue delivering above market returns, while our lean balance sheet supports our ability to utilize opportunistic growth capital investment and provide our shareholders with a consistent dividend program. With that, I will turn it over to Johnny for further discussion of our 2nd quarter results.

Speaker 1

Thank you, Mark, and welcome to all of those joining us today. Our Q2 financial results are highlighted by continued premium TCE returns and strong operating cash flow generation. 2nd quarter TCE rates were approximately $16,223 per day, a premium of approximately 7% over the average published market rates for Supramax and Panamax vessels in the period, which is supported by strong demand within our key Atlantic trade routes and our contracts for affreightment, which locked in rates for cargo performance. Our adjusted EBITDA for the quarter was flat compared to the prior year at $15,900,000 Our adjusted EBITDA margin decreased 137 basis points to 12.1 percent as higher charter hire and vessel operating expenses offset higher market rates and growth in total shipping days year over year. Our total charter hire expense increased by 12% when compared to the Q2 of 2023 due to a 3% increase in total charter in days and a 45% increase in the prevailing market rates for Panamax and Supramax vessels.

Speaker 1

Our charter in cost on a per day basis was $16,583 per day in the Q2 of 2024. And through today, we've booked approximately 1674 days at $14,505 per day for the Q3. Vessel operating expenses net of technical management fees increased by 13% year over year from an average of $5,517 per day last year to $6,246 per day in the Q2 of 2024. The increase in expenses per day was primarily driven by timing of expenses incurred in the Q2 of 2020 4 versus 2023. However, for the 6 month period ended June 30, vessel operating expenses net of technical management fees increased by only 3.5 percent from $5,575 to $5,773 per day.

Speaker 1

In total, our reported GAAP net income attributable to Pangaea for the 2nd quarter was $3,700,000 or $0.08 per diluted share compared to $2,800,000 or $0.06 per diluted share in the Q2 of last year. When excluding the impact of the unrealized loss from derivative instruments as well as other non GAAP adjustments, our reported adjusted net income attributable to Tangia during the quarter was $4,600,000 or $0.10 per diluted share, which was flat when compared to the Q2 of 2023. Moving on to the cash flows, total cash from operations increased by $6,900,000 year over year to approximately $9,000,000 as stable profitability was bolstered by improved cash generation by net working capital. At quarter end, the company had $77,900,000 in cash in total debt, including finance lease obligations of approximately $253,000,000 dollars As Mark mentioned earlier, the 2nd quarter was an active one from a financing perspective as we paid off the final balloon payment on the bulk endurance, Bulk Pride and Bulk Independence credit facility of approximately $20,000,000 We subsequently entered into a new $50,000,000 facility which was initially utilized to refinance the bulk endurance only for $17,600,000 The remaining capacity of this facility will be used for the delivery financing of the bulk Brenton, which delivered in July and the bulk patients, which will be delivered in August.

Speaker 1

The initial drawdown of $17,600,000 is payable over 5 years with a balloon payment at maturity of $9,700,000 and an interest rate based on 3 months sulfur plus 2 50 basis point spread. Further in July, we refinanced the bulk prudence with a new lender generating $15,200,000 of cash payable over 5 years with a balloon payment at maturity of $8,600,000 and an interest rate based on 3 months SOFR plus 190 basis point spread. On a pro form a basis after completion of these financings, our total debt to vessel book value is approximately 54 percent, which is flat when compared to the prior year period. And when adjusted for fair market value of our vessels is approximately 43%. During the quarter, our overall interest expense remained flat relative to the prior year interest rates due to our fixed rate and capped rate debt, as well as benefits from interest yielding deposits, which generated nearly $700,000 in interest income.

Speaker 1

At the end of the second quarter, the ratio of net debt to trailing 12 month adjusted EBITDA was 2.1 times. In the near term, our capital allocation focus will be on maintaining our nimble balance sheet in order to continue opportunistic investments in growth through the expansion of our onshore footprint and owned vessel capacity. 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 all phases of the market cycle. With that, we will now open the line for questions.

Operator

Thank Our first will come from Liam Burke with B. Riley. Please go ahead.

Speaker 3

Thank you. Good morning, Mark. Good morning, Gianni. Good morning, Mads.

Speaker 4

Hello, Lee.

Speaker 5

Mark, you just added 2 vessels.

Speaker 3

And on the fleet renewal program, you're balancing between chartered in and owned. Right now, the way you're looking at the market, depending on asset prices, would you be more inclined to stand pat or would you add or subtract vessels here?

Speaker 4

I think we want to stand pat for just a little bit, Liam, see where the market is headed. We were we've been looking for good ships for a while. Maybe we watched the market move up in front of us. We've been on a few ships late last year early this year and we're just behind the market a little bit and we finally found a couple of ships that really fit our fleet nicely. So we were impressively aggressive in getting those ships and that satisfies us for a little while, I think, not long term.

Speaker 4

But right now, I think we can take a breath.

Speaker 3

Okay. Thank you. Johnny, you still have vessels under finance leases. Is there any opportunity to refinance those to further take down your debt your interest expense?

Speaker 1

Some of them are actually one is coming due in September, Liam, and then others, I think we're pretty comfortable. And I gave that pro form a sort of look at our debt balances against our asset, both from a book value and a fair value perspective. I think right now, we were fortunate to be able to be flexible in our acquisition process, both last year with the port acquisition and then this year with a couple of ships. So I think that still remains important to us to have that flexibility. And I think where we look at our sort of total balance sheet, I think we're pretty comfortable.

Speaker 1

Not to say we won't attack that in the future if it presents itself, but I think where we are right now and I think ultimately having that flexibility I think is still important to us.

Speaker 3

Great. Thank you, Mark. Thank you, Jan.

Speaker 5

Yes.

Operator

Our next question will come from Poe Fratt with AGP. Please go ahead.

Speaker 5

Hey, good morning. The macro question I have is, a little I'm just highlighting in your presentation that you talked about the Arctic trade accelerating. And I'm just wondering whether that's any different than previous years when you typically see an upturn in activity in the market in the Q3 or is there something different happening this year? Yes.

Speaker 6

I think the difference, though, is mainly an earlier start than we've had in previous years. I think that was what we were referring to there. The fleet of our IS Class ships is fully committed to that trade for Q3 and a little longer than that. So, yes.

Speaker 5

Does that mean that's still a little end earlier? Is it a finite timeframe or is that just a benefit this year that you'll see?

Speaker 6

I think it's a little bit too early to say. You know, it's obviously dependent on the ice conditions up there in the end of October, right? But we certainly expect to have the same amount of business there this year. The timing of it might move a little bit.

Speaker 5

Okay. And then in the same sentence or the same section, you say that market rates are mixed. Could you just expand on that comment?

Speaker 6

Yes, I think if you look at the overall market for the quarter, it's been it's sort of been remarkably stable, but individual pockets of the market, so geographical regions still had volatility, right? So I think when the quarter started, the Pacific was trading higher than the Atlantic, which is sort of an anomaly if you look at it in the longer view. That trend has sort of reversed in the last couple of months. So back to something that reflects the normal situation. So that's what is what we're referring to there.

Speaker 5

Okay. And are you seeing, Matt, any change in demand? There's a lot of concern about just the macro economic picture out there. Any change in demand that you're seeing from your customers at this point in time?

Speaker 6

I think our customers in our trades are still pretty optimistic in our Atlantic trade for sure around our construction materials, cement and aggregate and that stuff. Same on metallics, pretty optimistic still. And I think macro sort of overall demand is up quarter on quarter compared to last year, right? So for reasons that also has to do with sort of the trade lane disruptions that we have talked about before, I think. So

Speaker 5

yes. Sounds good. And then, Mark, when you look at the overall fleet expanded to 26, is that sort of something we should look at stability going forward? Or do you is there potentially opportunities to sell some older sites and improve the age profile?

Speaker 4

We're constantly looking at the fleet and waste to maintain the average age post. So I think you'll see us over time sell off some older ships and add newer ships. Of course, we do have an appetite to grow the fleet as well. So, we're looking for opportunities to do that in the right way at the right time.

Speaker 5

Okay. And then, Tierney, on the refinancing and just the financing front, the prudence I think you've refinanced and it looked like you paid down about 4,600,000

Speaker 1

dollars of

Speaker 5

one of the facilities. Could you highlight which facility that 4,600,000 came out of?

Speaker 1

Yes. We had the balloon, the final maturity on the bulk endurance, bulk pride and bulk independence facility that came due in May within the quarter, right around the end of May. We subsequently took only the Endurance and we refinanced her. So the balloon payment was around $21,000,000 and we refinanced the Endurance for about 17 and kept the Pride and the Independence debt free as of today. So that was in reference to that transaction.

Speaker 1

And then part of that transaction with the Endurance basically was the first step in that $50,000,000 facility we put together in the quarter and that gave us a lot more sort of flexibility going into the year where we could acquire those the Brent and the Patience. So yes, that debt reduction was as part of that sort of transaction.

Speaker 5

Okay. And then the $50,000,000 seen in the secured facility, it looks like you've drawn down $32,800,000 with the latest financing. Is that correct? And what would the remainder be used on? Is that

Speaker 1

So the first tranche was the Endurance at 17.6%. And then the bulk Brenton delivered on July, I think it was July 26 around, it delivered and we used around $15,600,000 for the Brenton. And now the bulk patients is coming next week, August between August 15 August 20, she's coming and we'll use the balance of the facility for that. So we're basically we added a little capacity right on that facility, so we could sort of have a somewhat of a hunting license to go out and acquire ships, but we were pretty quick to fill it. And after the delivery of the patients, the facility is basically full.

Speaker 5

Okay. I guess I'm looking at the subsequent events in the 10 Q and it references the $15,200,000 senior secured term loan was financed with bulk prudence. Is that Right.

Speaker 1

That was a separate yes, that was a separate

Speaker 5

Okay. Totally separate.

Speaker 1

The bulk prudence, correct. The Bald Prudence was a different facility, also closed late sorry, early in the Q3, right around the 2nd week of July. So a sub event for the Q2. But in our remarks just a few minutes ago, Paul, I do give sort of a pro form a after completion of all these financings, what does our balance sheet from a leverage perspective look like from asset value, debt versus vessel asset value? And also we gave a comment about, from a fair market perspective as well, what we think what we believe the leverage profile looks like as well.

Speaker 1

So that was and those numbers are all after we complete these financings that we've discussed at subsequent events.

Speaker 5

Yes. So, Gianni, if you have it handy, could you run through the Brenton, how much you drew down, what the interest rate spread, the amortization and then the bloom payment and the same with patients, if you have that handy?

Speaker 1

Sure. Yes, no, absolutely. So the Brenton was a drawdown of 15,600,000 dollars and it's part of the facility. So it's sulfur plus 2.5%. And it amortizes over 5 years to a balloon of about $8,000,000

Speaker 5

Okay. And then the prudence, I know that will that be roughly the same? So that will be

Speaker 1

the 30%. Prudence is actually quite similar to that.

Speaker 5

I'm sorry, the patients.

Speaker 1

Patients will be very similar, correct. It falls into the same facility. It has the same 5 year amortization and the balloon will be very similar.

Speaker 5

To the brand, so roughly the Correct. Okay. And so you're not going to actually fully draw down that $50,000,000 a big you'll have a little bit of just a little

Speaker 1

bit of capacity. We'll have a little bit of capacity. Obviously, we're not going to keep that capacity open. We'll cancel the remaining $1,000,000 or $2,000,000 that's there and then we'll work with that bank on future deals, which is good. So we have another option at our disposal.

Speaker 5

And then can you just talk about the Ford logistics business, really healthy increase in the Q3. Is that seasonal or is it something that will continue into the Q4 and into 2025? And then what's the impact of the expansion in Port Everglades and how much capital are you putting into that expansion?

Speaker 1

So as far as the margins in that business this year, we did we have the operation in Baltimore, which is pretty consistent, right? It's a monthly sort of a fee that we're being paid to operate that port, and it's pretty consistent volume. But with Everglades, it can be lumpy. There are seasonal peaks. The second quarter, we did have some dry bulk vessels come support, which do drive higher margins.

Speaker 1

So and it was decent volume through the Q2. We want to grow that business and we're happy to see that there is some increasing volume there. But it's a focus for us and we'll keep doing it. But it is lumpy business and it's seasonally driven. So and then as far as the Madsul will comment on the a bit on the expansion.

Speaker 6

But the expansion, Paul, just want to clarify, did you mean the Tampa expansion?

Speaker 5

Yes, I'm sorry, the one that hits in 2,000 second half '25 was referenced, right? I thought it was put out of the way it's taken.

Speaker 6

No, that's in the Redwing terminal in Tampa. It is not something that is expected to be a big draw on our capital. I think we're $3,000,000 to $5,000,000 maybe. We will be operating that facility with JV Partners. So it's a shared investment.

Speaker 6

So it's we again we expect that operation to be up and running in, I don't know, maybe Q3, late Q3 next year, second half for sure of the year.

Speaker 1

Yes. So far in Tampa, what we do have and what you're seeing in maybe in our financials is the ground lease. We have we leased 2 acres of space at the port and it ends up on our balance sheet as right of use asset and a lease liability, pretty small number, but it is that is the 2 acre property that we're leasing there in Tampa.

Operator

And this will conclude today's question and answer session. I'd like to now turn the call back over to Mark Filanowski for closing comments.

Speaker 2

Thank you all for joining us on a summer Friday morning. Please enjoy the rest of your day. Thanks. Thanks again.

Operator

And this will conclude today's conference. Thank you for your participation and you may now disconnect.

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Earnings Conference Call
Pangaea Logistics Solutions Q2 2024
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