Pangaea Logistics Solutions, Ltd. (PANL) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Christine, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions' First Quarter 2017 Earnings Teleconference. Our host for today’s call are Mr. Ed Coll, Chairman and Chief Executive Officer; 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 Time. The recording can be accessed by dialing 1800-585-8367, domestic or 404-537-3406, internationally and referring ID number 19144375. 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. Sean Silva with Prosek Partners.

Thank you, Christine. And thank you all for joining us for this morning's first quarter 2017 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 about Pangaea Logistics Solutions. Forward-looking statements are statements that are not based historical facts; such forward-looking statements are based upon current beliefs and expectations of Pangaea Logistics Solutions management and are subject to risks and uncertainties, which could the cause 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. 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 press release which is available on the investors section at www.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 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 market at large before turning the call over to Gianni, our CFO to provide a more detailed overview of the first quarter financials and then we'll open the line up for questions. We hope that you had time to review our press release and accompanying presentation which were issued last evening. Over the past few quarters, you've heard us express cautious optimism that the headwinds our industry was facing would have eventually reverse course. We began seeing signs of this during the first quarter. Demand for drybulk tonnage increased during the first quarter as did drybulk market rates. The increase in freight rate is due to various factors including higher bunker fuel prices, increasing demand across all regions and to the South American grain cargo season. The Baltic Dry Index, a measure of drybulk market performance increased over 150% from the first quarter of 2016, when it was at its historic low to the first quarter of 2017. Additionally, market freight rates increased to an average of 140%. With that backdrop, I'll now turn to our highlights for the quarter starting on Slide 3 of our earnings supplement. During the first quarter, we reported net income of $1.3 million, or $0.04 per share, compared to net income of $1.1 million, or $0.03 per share during the first quarter of 2016. We also incurred a nonrecurring loss during the quarter of $4.3 million on the sale of one of our Ultramax new buildings delivered in early January. This loss overshadowed what was otherwise the strong quarter which I'll now detail further. Total revenue increased from $42 million in the first quarter of 2016 to $77.7 million for that period ending March 31, 2017. This was driven by increases in several key metrics including total shipping days and our TCE rates, as well as growth in the drybulk market over the comparable time period. We also reported hire expenses for the quarter. Compared to the first quarter 2016 we saw increases in voyage charter hire and vessel operating expenses for the period ending 2017 March 31. These increased expenses however were driven by factors that indicate elevated activity and an improving business climate including more favorable market conditions, increases in shipping days, voyage days, charter days, port expenses and charter hire expenses, a rebound in energy markets which drove up the cost of fuel. And notably our addition of five new ships to our owned fleet over the past 12 months, including two new buildings delivered towards the beginning of the first quarter. Essentially, while cost of doing business has increased as market conditions improved so have our corresponding revenues. Looking ahead, we are optimistic about the market's current trajectory. Our strategy of charting vessels to serve only contracted business remains unchanged. This strategy provides us with the flexibility of downside protection, while still allowing us to generate favorable returns in the improving market environment we take vessels from the market for longer period. I'll now provide a brief update on our long-term strategy. The current market cycle opens many opportunities for our company. However, our primary focus to any market cycle is to carefully deploy capital in ways that add value for us and for our clients. We continue to look for cargo that compliments our business and we are constantly evaluating ways to add value for the supply chain. Strengthening drybulk market also presents opportunities in the capital markets. As is the case for any company, it is our responsibility to consistently conduct our due diligence in evaluating growth opportunities for Pangaea. We are carefully monitoring for opportunities that may allow us to participate in capital markets but only under favorable conditions that earn the best long-term interest of our company and our shareholders. We look forward to updating you on many corresponding developments should they arise. During the quarter, we appointed Gianni Del Signore as our Chief Financial Officer, replacing Tony Laura who retired after over 20 years of service for the company. We are excited to see Gianni, who had previously served as controller, continue to make impactful contributions to Pangaea in its new role as CFO. With that I'll 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 the call. I am excited to take on the role of CFO and look forward to continuing to build upon our progress that our team has made to date. Turning now to our financials for the first quarter which we began on Slide 7 of the presentation. As you can see total revenue for the quarter was $84.5 million, compared to $43.9 million for the same period in 2016. The total number of shipping days increased by 52% to 4,342 in the three months ended March 31, 2017, compared to 2,863 for the same period in 2016. The average TCE rate was $9,943 per day for the three months ended March 31, 2017, compared to $8,888 per day for the same period in 2016. The increase is predominately due to the improvement in the drybulk market. Further breakdown of our revenue shows that voyage revenue which is revenues generated from carrying cargo for our clients increased by 85% to $77.7 million compared to $42 million for the same period in 2016. The increase in voyage revenue was predominately driven by 51% increase in the number of voyage days which was 3,668 in the first quarter of 2017 as compared to 2,424 in the first quarter of 2016. Voyage revenues were also bolstered by the growth in the drybulk market over the comparable quarter. Now charter revenue which is tied to market rate increased to $6.8 million from $2 million, compared to the first quarter in 2016. This was also driven by an improvement in drybulk market rate and an increase in the number of time charter days. Turning to expenses. Voyage expenses for the quarter were $41.3 million, compared to $18.5 million for the comparable period in 2016, driven by an increase in voyage days and as I referenced an increase in cost of bunker fuel consumed due to our rebound in the energy market. Charter hire expenses for the quarter were $23.2 million compared to $8.5 million for the same period in 2016. And vessel operating expenses increased to $8.6 million compared to $6.9 million over the same timeframe. This results from taking short period ships from the market instead of trip charges in a less robust market. For three months ended in March 31, 2017, we reported a loss from operations of $0.4 million, compared to income from operations of $3.5 million for the three months ended March 31, 2016. This is predominately due to the $4.3 million loss on sale of one of our Ultramax new buildings delivered in January of 2017. Moving on to the balance sheet and cash flows, which you will find on Slide 8. Cash and cash equivalents were $21.7 million as of March 31, 2017 compared with $22.3 million on December 31, 2016. For the three months ended in March 31, 2017, the company's net cash provided by operating activities was $2.4 million, compared to $4.1 million at the end of the first quarter of 2016. For the same time period the net cash used in investing activities was $17.7 million during Q1, 2017 and $0.2 million during Q1 of 2016. For the three months ended in March 31, 2017, net cash provided by financing activities totaled $14.7 million compared to $8.7 million used for financing activities during the same period in 2016. I'll now turn the call back over to Ed for any additional remarks before we get to the Q&A portion of the call.

Thank you, Gianni. While we are optimistic about the recent improvements in market conditions, we'll stay the course as it pertains to our strategy. We believe that a focus on efficiency, risk management and cost control, capital market access were appropriate and selected business expansion opportunities will collectively advance our ultimate goal of maximizing shareholder value. And with that we'll open the call for your questions.

[Operator Instructions]

Okay. Well, thank you all for taking the time to join us this morning. And have a good day.

Ladies and gentlemen, thank you for your participation in today's program. You may now disconnect your line.