Pangaea Logistics Solutions, Ltd. (PANL) Q1 2019 Earnings Report, Transcript and Summary

At this time, I would like to welcome everyone to the Pangaea Logistics Solutions First Quarter 2019 Earnings Teleconference. Our host 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 11:00 A.M. Eastern. The recording can be accessed by dialing 800-585-8367 or 404-537-3406, and referencing ID number 7499725. 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, Maria, and thank you for joining us for this morning's first quarter 2019 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 fact. Such forward-looking statements are based upon the current beliefs and expectations of Pangaea Logistics Solutions' management team 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 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, Sean, and good morning to all of you, and thank you for joining us on the call. This morning, I'll provide an update of our operations and the overall market before turning the call over to Gianni, our CFO, to provide a more detailed overview of the first quarter financials. We'll then open the line for questions. We hope you had time to review our press release and the accompanying presentation, which were issued last evening. We're very pleased with our performance during the first quarter of 2019. Our TCE rates, while lower year-over-year still outperformed the market by 68%, net income of $3.7 million was consistent on a year-over-year basis, and for the second straight quarter, we reported record cash levels. This progress is notable considering that the average Baltic Dry Index or BDI declined by 46% during the quarter from 1282 to 689. Factors contributing to this recent downtrend appear to be seasonal, such as Lunar New Year and a weaker soybean trade due to a loss of U.S. shipments to China. However, the dry bulk market began to show signs of recovery immediately following the Chinese New Year celebrations with a normal flow of cargo and the supply side is expected to contract due to increased swapping and downtime associated with outfitting scrubbers. Amidst that backdrop, we attribute our consistent results to our long-term fixed rate COAs, a specialized fleet of Ice Class vessels and our cargo-focus strategy. As evidenced by our recurring business, with both newer and longer standing customers, we believe our nimble opportunistic model complemented by our core contract coverage carries us through all market cycles and is truly differentiated. I'll now walk through our first quarter results in more detail. We recorded total revenue of $79.5 million compared to $79 million during Q1 of 2018. Income from operations was $4.2 million compared to $7.8 million during Q1 of 2018. Net income for the quarter was $3.7 million compared to $4.3 million during the first quarter of 2018. I'll reiterate, in light of current market conditions we view these results quite positively. Lastly, cash levels increased to a record $61.6 million. This compares to cash levels of $32.2 million during Q1 2018 and $56.1 million at December 31, 2018. Gianni will go into more detail regarding the ways in which our operating strategy optimizes our balance sheet. We operated 44 vessels on average during the quarter, resulting in 6 million tons carry, and 116 voyages performed for 73 world-class clients. Our focus on specialty tonnage provides superior returns, particularly in the quarter, which as we mentioned earlier, we outperformed in the market by 68%. Turning now to company's strategy and business update. On our last call, I identified the expansion of our Ice Class offerings as a key priority for 2019. To that end, I'm pleased to report we've continued to fortify our fleet, which as of yesterday is up to 21 dry bulk vessels and one barge. During the second quarter, we signed a new 10-year contract with Baffinland. We also signed a contract to build two new post-Panamax dry bulk vessels to support this business. We currently hold options to build two more vessels at Guangzhou. The new ships to be delivered in April and May of 2021 will serve our 10-year contract with Baffin for the summer services in the Canadian Arctic; existing customers who depend on our fleet capabilities in the Baltic Sea winters; and old and new customers willing to use the most modern ships to utilize expanding trade routes in high northern latitudes. This new ship design is fuel efficient, making it competitive with non-Ice Class vessels when not trading in ice. Further, the ships will comply with all Polar Code requirements for safety and environmental demands. Our relationship with Baffinland is special, because of the extra challenges presented with high arctic shipping. The cargo contract, requiring the building of at least two new vessels with Ice Class 1A classification, marks a significant step in our leadership in the Ice Class part of our business. The new ships, with a building cost of approximately $38 million each, are Pangaea's first shipbuilding contracts in China. Guangzhou Shipyard has a long history of building ships for demanding owners, and they have experience building Ice Class and Polar Class vessels for demanding service. In closing, we are pleased with our progress thus far in 2019. We've continued to scale our differentiated platform, resulting in strong results even amidst market volatility. We believe our long-term fixed contract model combined with our opportunistic approach to managing our balance sheet positions us to remain industry leader to quest all cycles. We look forward to updating you further as the year progresses. I'll now turn the call over to Gianni to provide additional detail of our financials and our strategy, after which, we'll open the call for questions. Gianni?

Thank you, Ed, and thank you all for joining us on today's call. Before walking through our financials, I wanted to expand upon Ed's earlier comments about our strategy. We continue to optimize our fleet and remain opportunistic, while exercising prudence in the way we manage our balance sheet. We are able to be capital efficient by leveraging our owned fleet and chartering market vessels. Our short-term charters allow us to react quickly to challenging market conditions and take advantage of arbitrage opportunities, adding a meaningful level of flexibility to our platform. We also have a strong portfolio of loyal customers, who we are able to support through very specialized situations and flexible solutions. Having the balance of long-term customer contracts, while also strategically using equity in owned vessels to raise cash for investments in high-quality ships, provides us the stability and flexibility in our operating platform. We've seen a steady increase in working capital translate into significant increases in operating cash flows, which as Ed mentioned set a new company record for the second consecutive quarter. With that, I'll now turn to our financials, which begin on Slide 8 of the presentation. Total revenue for the first quarter of 2019 increased slightly to $79.5 million compared to $79 million. The total number of shipping days performed increased by 12% to 3,938 in 2019 compared to 3,524 during the first quarter of 2018. Voyage revenue, which are revenues generated from carrying cargo for our clients and represents 83% of our total revenues, was $65.9 million compared to $70.3 million. This was primarily due to two factors: first, a year-over-year decrease in TCE rates as Ed referenced earlier, a decrease in the number of voyage days, which were 2,905 in the first quarter of 2019 as compared to 2,945 in the first quarter of 2018. Charter revenues, which are opportunistic and tied to market rates increased to $13.7 million, a 58% year-over-year improvement. The increase in charter revenue was due to an increase in time charter days, which increased by 78% to 1,033 in 2019 compared to 579 days in the first quarter of 2018. The optionality of our chartering strategy allows us to selectively release excess tonnage into the market under time charter arrangements. Moving on to expenses, total expenses during the first quarter moderately increased year-over-year to $75.2 million as compared to $71.1 million during Q1 of 2018. The significant components are as follows: voyage expenses were $32.2 million during the first quarter of 2019 compared to $30.2 million for the same period of 2018, an increase of approximately 7%, which was primarily due to an 8% increase in the average cost of bunkers year-over-year. Charter expenses paid to third-party ship owners increased to $24.9 million compared to $22.7 million in 2018. The number of chartered-in days increased by 13%, this reflects the company's unique ability to adapt the changing market conditions by adjusting the chartered-in profile to meet its cargo commitments. Vessel operating expenses on a per-day basis, excluding technical management fee paid increased by only 3% to $5,098 per day. The slight increase was due to an increase in our owned days, which increased from 1,565 days to 1,718 days for Q1 of 2019. Moving on to the balance sheet and cash flows, which you will find on Slide 9, unrestricted cash and cash equivalents of $61.6 million set a new record for the second consecutive quarter. This compares to cash levels of $32.2 million during the first quarter of 2018 and $56.1 million at December 31, 2018. Net cash provided by operating activities was $12 million compared to $2.8 million during Q1 of 2018. Net cash used in investing activities was $11.6 million compared to a usage of $0.3 million during Q1 of 2018. This was due to the acquisition of the Bulk Spirit in February of 2019. Finally, net cash provided by financing activities was $5.1 million compared to usage of $8.7 million during the first quarter of 2018. This increase in cash from financing activities was due to the proceeds from our finance lease on the Bulk Spirit, which we completed in March of 2019. As you can see, we've experienced meaningful positive returns to our business over the past two quarters, due to opportunistic ways, which we manage our balance sheet and generate cash flow. As Ed mentioned, so far in the second quarter, we've extended a new 10-year contract with Baffinland, signed a contract to build two new Ice Class 1A post-Panamax dry bulk vessels. We've also taken delivery of our 21st vessel, the Bulk Independence yesterday, as a preferred partner with an existing lender. These exciting projects show our commitment to add value for our shareholders and our clients. 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. As you can see from our strong results amid current market conditions, the path forward for Pangaea is clear and we are well-positioned for the long-term. We look forward to providing you with future updates. And we'll now open the floor for questions.

[Operator Instructions] And at this time, we have no questions in queue. I would now like to turn the call over back over to Ed Coll for any additional comments or closing remarks. : :

Well, thank you very much for taking the time to join us today and listening. And have a good day.

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