Pangaea Logistics Solutions, Ltd. (PANL) Q1 2020 Earnings Report, Transcript and Summary

Good morning. My name is Maria and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions’ First Quarter 2020 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 11:00 a.m. Eastern Time. The recording can be accessed by dialing 800-585-8367 or 404-537-3406 and referencing ID number 3289376. 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 Ms. Tiya Gulanikar with Prosek Partners.

Thank you, Maria and thank you for joining us for this morning’s first quarter 2020 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 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 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 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’s 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, Tiya 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 overall market before turning the call over to Gianni, our CFO, to provide a more detailed overview of the first quarter financials. We will then open the line for questions. We hope you have had time to review our press release and the accompanying presentation, which were issued last evening. First, I would like to begin by expressing good wishes to you and your families. I hope that everyone is healthy and safe and our thoughts are with all of those who have been impacted by COVID-19. We are very thankful to the healthcare professionals and essential workers for their work in the whole global community. We are especially thankful for all our crew members working onboard our ships for extra months who continued to do more than their part in making sure global supply chains continued to work properly. As always, Pangaea remains committed to the health and well-being of our employees and we as a company will continue to always follow all regulatory guidance and good practices when it comes to operating our business safely. First quarter of 2020, the shipping markets in which we participate continued on a path of volatility. Following the year 2019 with the Baltic dry index range from 595 to 2,518, the BDI averaged 549 during this year’s first quarter. Our quarterly results were negatively impacted by the slow market. The first quarter is typically a comparatively weak one for us and for the industry. This year, we experienced a warmer than normal winter in the Baltic Sea and the demand for ice class tonnage was impacted. Fuel costs decreased operating margins temporarily as we began to consume higher cost fuel that met IMO 2020 compliance requirements. And the precipitous drop in oil prices and bunker costs cost us to lose $2.8 million this quarter in bunker swaps that we had to hold to protect our future operating margins. Our TCE rate continued to outperform against the average of the Baltic, Panamax and Supramax indexes, despite a 13% decrease in our TCE rates from last year’s first quarter. We exceeded the average market rates by 78%, which is attributable to our long-term contracts of affreightment, specialized fleet and cargo focused strategy. I will now summarize our results for the quarter. Total revenue increased to $95.9 million for the 3 months ended March 31, 2020 from $79.5 million for the same period in 2019 due to an increase in shipping days. We reported a net loss of $6.8 billion during Q1 of 2020 as compared to $3.7 billion of net income in Q1 of 2019. Our TCE rates were down 13% from $12,029 in Q1 2019 to $10,500 in Q1 of 2020. Lastly, we hold cash, cash equivalents and restricted cash of $ 42.5 million. We simply do not know what’s in store for all of us in the short-term during the COVID pandemic, but we see signs of some loosening up of the lockdowns in some places, especially in Asia where the virus first hit. We are optimistic about the summer season, which is strong for us. And at this point, we expect our Baffinland business will be unaffected. We are also hopeful that business will pick up again for the Western countries in the second half of the year. We continue to be opportunistic as we always are and continuing to deliver best-in-class services for our clients, looking to acquire new vessels when opportunities arrives and to renew our own fleet. We look forward to updating you of developments in the coming quarters. And with that, I would like to turn the call over to Gianni to provide additional details on the financials.

Thank you, Ed and thank you all for joining us on today’s call. Again, we hope everyone remains healthy and safe as we all adjust to new work environments and we thank our employees and crew for their extra efforts during these unprecedented times. Before walking through our financials, I would like to expand upon Ed's earlier comments in how we navigated another challenging market. 2020 began with a significant environmental regulation change for the shipping industry in its switch to IMO 2020 complaint fuel. The collective move toward compliance in stemming bunkers for our fleet just prior to the start of the year resulted in increased bunker expenses during the first part of the quarter. Of course, this is not the market we like to be in. However, as we have said in the past, our business model is built to limit the downside risk as it did in 2016 and as we currently make our way through 2020. While we recorded a net loss for the period, our nimble cargo-driven charter strategy delivered a 78% premium over the average of the Baltic, Panamax and Supramax indexes. The market volatility also presented an opportunity for us as we capitalized on low rate environment to improve our cost of capital by fixing interest rates on the Bulk Endurance, Bulk Pride and Bulk Independence debt facilities in March. We were also fortunate to sell vessels prior to the decline in the market generating approximately $8.3 million in cash proceeds and ending the quarter with $42.4 million of cash and cash equivalents as we maintain our strong footing in these uncertain times. With that I will now turn to our first quarter financials. Voyage revenue, which are revenues generated from carrying cargo for our clients was $86.5 million, an increase of approximately 31% compared to $65.9 million for the same period in 2019. This was predominantly driven by a 25% increase in voyage days. Our TCE rates decreased 13% to $10,508 per day from $12,029 in the first quarter of 2019. However the company has achieved TCE rates continued to outperform against published market rates by approximately 78%. Charter revenue, which are opportunistic and tied to market rates, decreased to$9.4 million compared to $13.7 million in Q1 of 2019. This decrease in charter revenue was due to a decrease in market charter rates and a decline in charter days. Voyage expenses were $47.8 million compared to $32.2 million for the same period in 2019 and an increase of approximately 49% this was driven by a 25% increase in Voyage days and an increase in bunker expenses due to timing of bunker stands in late 2019 to comply with IMO 2020 field requirements charter hire expenses were $32.3 million compared to $24.9 million for the same period in 2019 a 30% increase this was primarily due to a 35% increase in charter days as we chartered in additional tonnage to replace own vessels that were sold as well as vessels in dry dock during the first quarter to meet cargo demand. As we continue to rebalance our fleet, we redeliver vessels to their owners in charter and new tonnage at lower costs. That’s how operating expenses on a per day basis were up by only 2.5% from $5098 a day in Q1 of ‘19 from $5229 in Q1 of 2020. Net loss for the quarter ended March 31, 2020 was $6.8 million or $0.16 per share compared to $3.7 million of net income or $0.09 per share for the same period in 2019. Moving on to the balance sheet and cash flows, restricted cash and cash equivalents were $42.4 million in Q1 compared to $61.6 million in Q1 of ‘19. Net cash used in operating activities was $6.8 million compared to $12 million of cash provided by operating activities in Q1 of ‘19. Net cash provided by investing activities was $7.5 million in Q1 of 2020 as a result of the sale of vessels compared to the use of cash of $11.6 million during Q1 of 2019 due to the acquisition of the Bulk Spirit in February of 2019. Finally net cash used in financing activities totaled $11.2 in Q1 of 2020 due to the early purchase option on the bulk payout at finance lease facility. Compared to $5 million provided by financing activities in Q1 of 2019 as a result of the financing of the Bulk Spirit in March of 2019. We continue to evaluate our dividend on a quarterly basis to ensure we are implementing a capital allocation strategy that optimizes our business and by extension maximizing shareholder value. For this reason, we are being conservative with our dividend policy and not to declare a dividend this quarter ultimately shareholders will benefit from improved earnings, which is what we believe we are positioning our company to achieve. 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. We thank our customers, our business partners and our shareholders for their continued commitment and partnership and we look forward to updating you further in coming quarters. I will now open the floor for questions.

Okay, thank you for taking the time to join us this morning and have a good day and everyone, please stay safe.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may now disconnect.