Pangaea Logistics Solutions, Ltd. (PANL) Q2 2019 Earnings Report, Transcript and Summary

Good morning, my name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions’ Second 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 Standard Time. The recording can be accessed by dialing 800-585-8367 domestic or 404-537-3406 international, and referencing ID number 7487666.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. Please go ahead.

Thank you, Stephanie, and thank you for joining us for this morning's second quarter 2019 earnings conference call for Pangaea Logistics Solutions. Before I turn the call over to Ed, I would 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 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 will 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 second quarter financials. We will 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.Our strong results during the second quarter validate our hybrid nimble business model, we maintained a significant margin over the market despite a more challenging macro environment. Our TCE rates, while lower year-over-year still outperformed the market by an industry-leading 49%.This is significant not just to the quarter at hand, but also with considering that the end of the second quarter marks the beginning of our summer ice season, which is seasonally our strongest as ice class fleet provide clients with specialized services required for demanding conditions.While the market has been challenging this year, we have begun seeing improvements over the past several weeks. However, our adherence to our cargo first client focused business, we hope will keep us profitable in any market environment.And with this backdrop remain active, during the quarter, we declared and paid our first quarterly dividend, ordered two new ice class post Panamax vessels and purchase two additional ships to advance our fleet renewal strategy. In some we have generated strong momentum year-to-date and we expect to build upon that going into the second half of the year.I will now summarize our results for the quarter. We recorded total revenue of 83.3 million, compared to 96.8 million during Q2 of 2018, income from operations was 6.8 million compared to 8.4 million during Q2 of 2018. Net income for the quarter was $4 million compared to 5.8 million during the second quarter of 2018. I will reiterate that in light of market conditions during the quarter, we view these results quite positively.Lastly, we recorded cash levels of 43.6 million, compared to 56.1 million at the beginning of 2019. This was driven by our payment of a quarterly cash dividend debt repayments and installment payments on our new vessels all of which are positive value enhancing initiatives. Gianni will provide more detail on this shortly.Turning to other highlights for the quarter. During the quarter, we entered into an agreement to purchase the 2011 built Nantong/K the 58,000 ton dry bulk vessel bringing our total own fleet to 22 vessels. The ship which we are naming the Bulk Friendship will be delivered to Pangaea in September 2019.The purchase advances our efforts to renew our own fleet with high quality and efficient tonnage as we approach the new low sulfur fuel requirements in 2020. We also took delivery during the quarter of the Bulk Independence our 21st vessel.We are also pleased by the progress made at [breaking point] (Ph) commerce center and redevelopment project this quarter, with our JV partners we have begun the process of transforming the site into a world-class logistics port, loading our first project cargo recently and expect dry bulk cargo shipments during the second half of 2019. This exemplifies our differentiated approach to dry bulk shipping beyond the vessels.Looking ahead, we are optimistic about our business as we enter the summer ice season. Our Ice class fleet will be fully deployed in the back Finland trade during the quarter. The market is improving, and we continue to advance our differentiated strategy of maintaining a very specialized owned fleet supplemented with a chartered in tonnage fleet where we can dynamically adjust our market exposure while providing first-class service to our valued clients.We look forward to updating you further as the year progresses. I will now turn the call over to Gianni to provide additional detail on our financials and our strategy after which we will open the call for questions. Gianni.

Thank you, Ed and thank you all for joining us on today's call. I will first walk through a few operational highlights followed by our financials. The second quarter was marked by our first ever dividend payment which we were excited to deliver to our shareholders.As you have heard me mention on prior calls, we have been accumulating record level of cash flows from multiple quarters and we are pleased to have our investors share in that success in the form of a dividend.Another theme for the quarter was our prudent capital efficient balance sheet management, we pay down the final debt installment on the [Nordic Barance and Nordic Botnia] (Ph) vessels and in July, we paid the final installment on the bulk Newport. So as of today, that brings a total of six vessels which are debt free, a fleet we feel is impressive and reflects the strong health and growth of our Company.We are also actively deploying cash into accretive new projects to drive long-term growth. On our ice class new builds, we have deposited the first installment of 7.8 million during the quarter and we are committed to expanding on niche ice business, where we feel we have a leading market position and in which we see meaningful future demands and growth opportunities. We are focused on developing the expertise and investing in the assets to expand our platform and enhance shareholder value.With that I will now turn to our financials. Total revenue for the second quarter of 2019 were 83.3 million, compared to 96.8 million during the second quarter of 2018. The total number of shipping days performed decreased by 17% to 3562, compared to 4283 during the second quarter of 2018.Voyage revenues, which are revenues generated from carrying cargo for our clients and represents 92% of our total revenue was 77.4 million, compared to 81.8 million. The decline stem from a decrease in Voyage days specifically 3228 compared to 3053 this quarter.As well as declining TCE rates, which decreased to 12,933 per day during the second quarter compared to 3728 for the second quarter 2018. With that said, our TCE rates faired significantly better than the broader market. As we maintained an overall average premium over market rates of approximately 4268 prepay or 49%.Driven by our long-term COAs, cargo focus and specialized fleet. Our unique approach and dynamic business model is what allows us to maintain an industry-leading position in various market cycles. Charter revenues which are opportunistic and tied to market rate decreased year-over-year from 15 million to 5.9 million driven by 52% year-over-year decline in time charter days.Total expenses during the second quarter decrease year-over-year by 11.9 million the significant components of which are as follows. Voyage expenses were 37.2 million, compared to 38 million for the same period in 2018 a decreased of approximate 2% which was primarily driven by 5% decrease in Voyage days.Charter expenses paid to third-party ship owners decreased to 18.3 million, compared to 30.2 million in Q2 of 2018. This decline was driven by a decrease in the number of chartered-in-days which was 35% to [742] (Ph) days. Vessel operating expenses, excluding technical management fees paid increased by 1.1 million to 11.1 million driven by an increase in our own days which grew to 1868 days as compared to 1820.Moving on to the balance sheet and cash flows. Total cash and cash equivalents of 43.6 million reflect final debt repayments in our capital allocation initiatives that I had referenced earlier. As we selectively deployed cash into accretive projects and we are well-positioned to return value to our shareholders. These cash levels compared to 52.5 million as reported at June 30, 2018.As you can see, we are making tremendous progress in our platform expansion initiatives, our ability to continuously strengthen our financial position while also driving growth and expansion opportunities and rewarding our shareholders reflects the progress we have made since becoming a public Company.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 and expansion of our platform, we have reasons to remain optimistic about the path forward. We thank our customers, business partners and shareholders for their continued commitment and partnership, and we look forward to updating you further in the coming quarters.I will now open the floor to questions.

[Operator instructions] Our first question is from Poe Fratt with NOBLE Capital Markets.

Good morning Ed, good morning Gianni. I just wanted to sort of get a flavor for the drop in shipping days in second quarter versus the first quarter. When I look at the cargo that you moved it looked like you moved about six million tons in each quarter and while you had a slightly lower number of voyages and slightly smaller number of customers, could you just put a little flavor on sort of the timing of the reduction in charter been days or sort of what happened over the course of the quarter?

What I would is, generally what we are doing as you know it's opportunistic, when we see the chances of doing things we go ahead and do them and when we feel it is better to be a little less active then that what we do. I think this is a normal part of the cycle of what we are doing.So when the market becomes lower we are more reluctant to take cargo on the books. So I think that is probably the best explanation I can come up with, I could tell you now that the fleet has grown quite a bit and I think we currently are running about 62 vessels. So it is just market related opportunistic. Thanks.

So it is more timing Ed and thank you for answering the next question, I had sort of where you are right now. As far as your charter days for your total fleet great. And then versus when you look at the brighten point, if you could give me a little more color on, are you an equity investor there? Is there an economic impact that we should be looking for over the next year or so? Or just sort of Ed if you could just sort of conceptually - I understand it is a former power plant that has been redeveloped. But if you could just give us an idea of sort of the economic impact and whether you are making any equity investment there?

Sure. I think we will be making some equity investments as the property improved, I don't know that it is going to be a tremendous amount. It depends on the opportunity. What we have been doing with the guys here is to really develop to fill out the long-term space in the terminal and that has been quite successful.If you ask my opinion, I would say a year from now we would all be done. It is a real lack of the space like that on the U.S. East Coast. So I would suspect that starting in 2020 you will start to see things flow directly to the bottom line from that activity and I think the more interesting thing for us is many of the products that are going to come through that terminal are products that we can do the shipping on for our vessels. So it is going to have a double impact.And so as I said, I think that will and the contract there is up to 20-years long and so I think that would be very helpful going forward. I think every year we will be able to count on some really good income from that project and that is the model for what we are also doing in other places and I think we will see that going forward, we are working on several other things.

Great and then congratulations on the Friendship. Gianni if you could talk about sort of financing on that, sort of how you potentially will structure the financing of that.

Sure. Actually just to call on the previous point of our breaking point, just to make clear that we are a 50% the JV partner in that operating agreement. And as far as the Bulk Friendship, we expect delivery in the second half of September and historically we have always been fortunate with the financing, right, the banks have been there, we slowly develop relationships in Japan, we have access to that market now, we developed a very good relationship both with owners and operators and in banks in Japan.So that is the expected rule, we are going to look at Japanese operating lease similar to the structures we have done recently with the bulk pods and the bulk spirit and we expect to close that also for deliveries - in time for delivery in September.

Great. You have plenty of under covered capacity in the case right.

Yes as I said in the earlier prepared remarks, we have now six vessels that are unencumbered. So we do have some capacity there as well.

And then if we could shift to the two Panamax new builds. Is there a potential down the road that you are going to bring in a partner there or is this you are going into loan on these two new build and then do you have options to build additional Panamaxes.

You know I think it is something we are in the middle of, so we probably can't talk in detail at the moment, but what I would say is that we are always looking for good partners in whatever we are doing, so that is certainly a possibility, and as far as the additional shifts is something we are actively working on as well.The idea behind adding that capacity is really against long-term contract that we have and I think we are quite comfortable with the economics and what is most important for us is to retain our leadership in the ice business and I think this will be very helpful for the group going forward.

Great and then Gianni you paid 7.8 million in the deposit that is 10%. The next payment I think is 15%. When do you anticipate that we do.

It is on launching - so it is about a year away, at least year and half.

So like fourth quarter of 2020.

Yes, correct.

Would that be fair.

Yes.

Okay and the last payment would be upon delivery and right now that is March 2021.

We want the ships ready for that summer ice season in 2021 and that was a big part of our decision to build [Technical Difficulty].

Thank you Poe.

There are no additional questions at this time, I would like to turn it back over to management.

I would like to thank everyone very much for all your support and have a good day.

Thank you. This concludes today's conference. You may now disconnect.