Pangaea Logistics Solutions, Ltd. (PANL) Q1 2016 Earnings Report, Transcript and Summary

Good morning. My name is Crystal and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions First Quarter 2016 Earnings Teleconference. Our host for today’s call are Mr. Ed Coll, Chairman and Chief Executive Officer; Mr. Anthony Laura, Chief Financial Officer; and Mr. Josh Clarkson of Prosek Partners. Today’s call is being recorded and will be available for replay beginning at 11:00 AM Eastern Time. The recording can be accessed by dialing 1800-585-8367 domestic or 404-537-3406 international and referencing ID number 5418729. All lines are currently muted and after the prepared remarks there will be a live question-and-answer session. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Josh Clarkson.

Thank you for joining us for this morning’s first quarter 2016 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. Tony Laura. Before I turn the call over to Ed, I’d like to read the Safe Harbor statements. This conference could contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 about Pangaea Logistics Solutions. Forward-looking statements are statements that are not 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 obligations to update the information contained in this conference call. Thank you. Also, please recall that this quarter a supplemental slide presentation that 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 Logistic Solutions’ Chairman and CEO, Mr. Ed Coll. Ed?

Thanks, Josh, and good morning to all of you and thank you for joining us on the call. This morning I will provide an update on our operations and the market at large before turning the call over to Tony, our CFO, to provide a more detailed overview of the first quarter financials, we’ll then open up the line for questions. In the press release issued last evening, and as you can see on slides three and four of the company presentation, we were very pleased to report net income of $1.2 million or $0.03 per share on a pro forma adjusted basis and revenue of $43.9 million for the first quarter compared to net income of $7.2 million or $0.22 a share on a pro forma adjusted basis and revenue of $95.1 million for the first quarter of 2015. We are pleased with our unique asset right strategy focused on servicing profitable voyages tied to contracts of affreightment or COAs with a mix of owned and chartered in vessels allows us to minimize the impact of low rates and generated a profit during the quarter. We deliver these results a mixed historically difficult operating environment that so many of our competitors are fretting at a loss. While our revenues and net income declined year-over-year, this was a function of our broader strategy to minimize our exposure to historically low market by reducing our overall shipping days and focusing on profitable business. Specifically in a weak market such as the current one, we hired vessels only if necessary to perform voyages under contract, and we therefore do not have excess ship days on which to earn revenue. While this element of our strategy naturally results in lower revenue, it more importantly allows us to support our operating margin, remain profitable, conserve our cash, and optimally position ourselves for when the cycle eventually turns. One topic that I would like to address is the bankruptcy of a customer of ours, Nuvanda [ph] which many of you may be well aware of. We recently announced an amendment to our contract with them and we look forward to continuing to support them. While on re-negotiated terms will result in a reduction of our revenues over the remainder of 2016, we’re optimistic that the contacts provisions that provide for rate increases tied to global aluminium rates, will allow us to participate in Nuvanda’s [ph] future of up-sight. Turning back to our border strategy and its success to-date, this can be summed up by highlighting that we’re nimble, have locked in contracts that generate revenue and adjust with the market and can insulate ourselves from the broader rate environment as a result. All of these elements of our company are underpinned by a prudent approach to using our balance sheet and world-class corporate governance in this management practices. Additionally, we believe that our unmatched fleet and expertise and less commoditized trades such as ice-class increases our likelihood of securing higher rates and margins than those available to others. Regarding our ice-class trades, that is carefully organized and executed strategy that shows great future potential and will continue to develop. During the first quarter, our ice-class 1A fleet generated a premium over 59% of the average comparable Baltic index vessel. Our ice-class capabilities comprising both our fleet which grow with the addition of our final ice-class 1A Panamax in January and we further boosted with two ice-class 1C ultra max new buildings – that we in January 2017. Along with our unrivaled expertise in these complex roots are truly without peer. Together these will allow us to capture significant share of the opportunities that will be presented by this new and dynamic area of dry bulk shipping. No discussion of that unique expertise would be complete without highlighting the invaluable contributions of our employees whose hard work and abilities have enabled us to deliver a profitable quarter, something few if any teams in our sector have been able to do. Looking ahead to reminder 2016, and what the markets may hold, we’ve been somewhat encouraged by the recent improvement in the rate environment, although it’s still too early to determine whether this is a durable recovery. While it’s premature to say the market is turning, we think that the market will eventually embark on a sustained recovery and we’re well positioned for this turnaround. Thanks to our unique strategy and this allowed us to navigating the recent turbulence at lower risk in many of our competitors. Our track record in profitability even during the most difficult dry shipping market in history, demonstrates the merits of our business model and approach to providing dry bulk logistic solutions. While we can’t predict the future rate environment, we’re confident that we have built a company that can successfully navigate a variety of market environments that’s well positioned to capitalize on the inevitable improvement in our core markets. Thank you for your time and attention. I’d now like to turn the call over to Tony Laura, our CFO to provide additional details on the financials. Tony?

Thank you, Ed. Turning now to our financials for the first quarter which began on Slide 7 of the presentation. As you can see, revenue for the first quarter was $43.9 million compared to $95.1 million in the first quarter of 2015. This decline was a result of the number of total shipping days decreasing 30% to 2,862 in the three months ended March 31, 2016 compared to 4,064 for the same period in 2015. Further breakdown of our revenue shows that voyage revenue which is derived from our COA and other cargo business decreased by 54% to $42 million compared to $90.6 million for same period in 2015. Meanwhile, charter revenue which is tied to market rates decreased to $2 million from $4.5 million or 57% for three months ended March 31, 2016 compared to first quarter of 2015. The quarter also saw us improve our gross margin to 23% from 18% from the prior period, an increase of 27%. The increase in our operating margin in turn was driven by lower costs for chartered-in vessels from a weak dry bulk shipping market, optimization of vessel days to minimize positioning cost and risk of losses in a weak market, decreased bunker cost and performing under fixed price COAs at average rates that are higher than the current market. To break those expense reductions down a bit further, voyage expenses for the quarter were $18.5 million compared to $45.3 million for the comparable period in 2015, a decrease of approximately 59%. The decrease in voyage expenses was primarily due to lower bunker cost, the decline in voyage days, and a reduction in cargo relet expense. Charter hire expenses for the quarter were $8.5 million compared to $24.7 million for same period in 2015. The 66% decrease in charter expenses was due predominantly to the 44% decrease in the number of chartered-in days from 2,875 days in the three months ended March 31, 2015 to 1,602 days for the three months ended March 31, 2016. This reflects the company’s strategy to charter-in only for committed contracts, limiting its exposure to losses or the market remains depressed. Adjusted EBITDA for the quarter was $7 million compared to $12.9 million in first quarter of 2015. The year-over-year decrease was predominately driven by reduction of net income. Net income attributable to Pangaea Logistics Solutions for the first quarter of 2016 was $1.2 million compared to $7.6 million in the first quarter of 2015. This decline was primarily due to the decrease in income from operations as well as unrealized losses or fuel swaps which were gains in the comparable of 2015. Moving on to the balance sheet and cash flows which you will find on Slide 8, cash and cash equivalents were $32.7 million as of March 31, 2016, compared with $37.5 million on December 31, 2015. Bank debt decline to $143 million as of March 31, 2016, compared with $149 million as of December 31, 2015. We expect that as we continue to grow, our relationships with these top-tier institutions will continue to grow as well enabling us to secure competitive financing going forward. For the three months ended March 31, 2016, the company’s net cash provided by operating activities was $4.1 million compared to $11.2 million at the end of the first quarter of 2015. But three months ended March 31, 2016 and 2015, net cash used in investing activities was $253,000 and $40.3 million, respectively. And net cash provided by financing activities was $8.7 million compared with $41.9 million during the prior year period. These decreases reflect the completion of ice-class 1A Panamax newbuild project. 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, Tony. In 2016 and beyond, we’ll continue to focus on the strategy that served us well to-date, operating the best-in-class efficiency, mitigating the risk of a low rate environment, controlling cost, selective expanding and adding to our COAs, strategically servicing our specialized markets, and most importantly maximizing utilization for backhaul. As you can see in our first quarter results, steadfast adherence to these simple principles should enable future sustainable growth for our company and by extension shareholder value. With that we’ll open up the call to your questions.

All right, then I guess we can wrap this up.

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

Thank you.

This concludes today’s conference call. You may now disconnect.