Pangaea Logistics Solutions, Ltd. (PANL) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Paula, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Second Quarter 2017 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 a.m. Eastern. The recording can be accessed by dialing 1800-585-8367, domestic, or 404-537-3406, for international and referencing ID number 68208235. 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, Paula. And thank you all for joining us for this morning’s second 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 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 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 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 press release, which is available on the Investors section of 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 second quarter financials, and then we’ll open the line for questions. We hope you had time to review our press release and accompanying presentation, which were issued last evening. As you know, our industry is in a much better place today than it was 12 months ago. The Baltic Dry Index remains on an upward trajectory, having increased to an average of 1,096 compared to 563 for the same period of 2016. Ship values are increasing again and cargo volumes are strong. However, while our industry is present to rebound, a full recovery will be neither linear nor immediate, and this recovery is not immune interim doubts of market volatility. This is important when considering the search we have seen in new building orders as a result of the early phases of this recovery. A sharp increase in new building orders is creating the same oversupply problem that troubled our industry in recent years. That said, we felt the rest of the market begin to stabilize and are optimistic on how our industry will perform for the rest of the year. With that backdrop, I will now turn to our results for the second quarter. During the quarter, we reported the net loss of $4.7 million or negative $0.13 per share. This compares to net income of $0.1 million during the second quarter of 2016. This quarter’s loss was largely caused by how a specific transaction as well as changes in our balance sheet where we’re pushing for loan payments and monetize the equity in our ships which are needed in our trades. The Bulk Beothuk transaction, which I will provide more detail on shortly, was a key driver in the loss we took this quarter as we recognized the loss on book value as part of this transaction. Excluding that loss, we saw a significant increase in operating income and less pronounced increase in net income. Revenue increased 61% year-over-year from $57 million to $91.4 million. TCE rates increased by 30% and total shipping days increased by 35%. We also announced a few notable business updates during the quarter. On June 26, we completed the private placement transaction that generated proceeds of $8.9 million. We intend to use these proceeds for acquisition of drybulk vessels, expansion of the Company’s logistic services and general corporate proposes. As mentioned, we sold one of our existing vessels, the Bulk Beothuk to a third party for $7 million in cash, having bareboat charter of the vessel back into our fleet for continued operation. The result of this sale of charter, we used to retire existing bank mortgage and debt finance, and as equity to purchase a second hand vessel. The new ship, a 2005 built Supermax bulk carrier, named Bulk Freedom was purchased for a total price of $8.7 million. And while we reported higher year-over-year expenses for the quarter, just like we did last quarter, this is the continued sign of improving business climate, evidenced by our significant corresponding search and revenue. We continue to exercise cautious optimism about the path forward for both our Company and our industry. We look forward to updating you on your progress as we execute upon our strategic initiatives that will establish the foundation to sustain long term growth. With that I would like to 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 our call today. Turning now to our financials for the second quarter, which begin on slide seven of the presentation. As you can see, total revenue for the quarter was $91.4 million, compared to $57 million for the same period in 2016. The total number of shipping days increased by 35% to 4,661 in the three months ended June 30, 2017, compared to 3,457 for the same period in 2016. The average TCE rate was $11,333 per day for the three months ended June 30, 2017, compared to $8,735 per day for the same period in 2016. The increase is predominately due to the increase in total shipping days and to the overall improvement in the drybulk market. Further breakdown of our revenue shows that voyage revenue which are revenues generated from carrying cargo for our clients, increased 50% to $80.2 million compared to $53.5 million for the same period in 2016. The increase in voyage revenue was predominately driven by the 25% increase in the number of voyage days which was 3,719 in the second quarter of 2017 as compared to 2,972 in the second quarter of 2016. Voyage revenues were also bolstered by the increased rates in the drybulk market over the comparable quarter. Charter revenue, which is tied to market rates, increased to $11.2 million from $3.4 million. The increase in charter revenue was due to the improvement in drybulk market rates as indicated above and to an increase in the number of time charter days. Turning to expenses. Voyage expenses for the quarter were $38.6 million, compared to $26.8 million for the comparable period in 2016, driven by an increase in voyage days and the increase in the cost of bunker fuel consumed. Charter hire expense for the quarter was $33.2 million compared to $15 million for the same period in 2016. And vessel operating expenses increased to $9.1 million compared to $7.9 million over the same timeframe. The increase in vessel operating expenses is due to the increase in owned and bareboat charter base which were 1,615 for three months ended June 30, 2017, compared to 1,274 for the same period in 2016. For the three months ended in June 30, 2017, we reported a loss from operations of $1.2 million, compared to income from operations of $0.8 million for the three months ended June 30, 2016. This is due to the $4.9 million loss on the sale of the Bulk Beothuk without which there would be income from operations of $3.7 million. Moving on to the balance sheet and cash flows, which you will find on slide eight. Cash and cash equivalents were $29.4 million as of June 30, 2017 compared to $22.3 million on December 31, 2016. For the six months ended in June 30, 2017, the Company’s net cash provided by operating activities was $8.3 million, compared to $9.9 million at the end of the second quarter of 2016. For the same time period, net cash used in investing activities was $47.7 million during Q2 2017 and $0.4 million during Q2 of 2016. For the six months ended in June 30, 2017, net cash provided by financing activities totaled $46.4 million compared to $14.6 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. Ed?

Thank you, Gianni. We remain encouraged by the continuing market improvements we have seen over the last few quarters. That said, we remain focused on supporting strategic initiatives that drive efficiency, risk management, cost control, and long-term growth which collectively advance our ultimate goal of maximizing shareholder value. With that, we will open the call up to your questions.

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