Good morning. My name is Raza, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics First Quarter 2023 Earnings Teleconference. 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 800-723-0528 or 402-220-2654. [Operator Instructions]. It is now my pleasure to turn the floor over to Noel Ryan with Vallum Advisors.

Thank you, operator, and welcome to the Pangaea Logistics Solutions First Quarter 2023 Results Conference Call. Leading the call with me today is CEO, Mark Filanowski; Chief Financial Officer, Gianni Del Signore; and COO, Mads Petersen. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to Mark.

Thank you, Noel, and welcome to those joining us on the call and webcast today. After the market closed yesterday, we issued a release detailing our first quarter results. During a seasonally slower period for the global dry bulk shipping market where benchmark industry rates declined nearly 60% on a year-over-year basis, Pangaea delivered an average TCE rate that was approximately 50% higher than our broader market indices, resulting in another consecutive quarter of profitability. Our TCE earned was $14,372 per day for the 3 months ended March 31, 2023, compared to an average of $26,472 per day for the same period in 2022. Our long-term COAs, specialized fleet and cargo-focused strategy helped us to perform better than index rates in a slow market environment. Just yesterday, Vesselindex published its report on outperformance, and we again are at the top of the 5-year historical performance list of dry bulk public companies. Seasonal demand softness, combined with extended holiday schedules in the East, contributed to challenging market conditions in January and February. Since bottoming in February, market rates recovered materially as the market became more balanced, giving a combination of improved seasonal demand, increasing activity in Asia and tightness in global shipping capacity. We've seen some easing of congestion with the lifting of COVID restrictions in China. The result was a reset of market rates during the first quarter as vessel capacity expanded in a seasonably weak period. Despite global recessionary concerns, we are not seeing any material deceleration in cargo demand. We are strategically focused on positioning our business to capitalize on the expected growth in global dry bulk volume and favorable rate dynamics over the coming years. During April, market rates averaged more than $13,000 per day, up from $6,200 per day in February. Meanwhile, vessel supply remains highly…

Thank you, Mark, and welcome to all of those joining us today. Our first quarter financial results continue to emphasize the durability of our business model as we were able to maximize our operating leverage through our chartering strategy and deliver solid returns amid a seasonal weak dry bulk market. First quarter TCE rates were approximately $14,300 per day, a premium of 48% over the average published market rates for Supramax and Panamax vessels in the period, which is supported by our long-term COAs and our ability to opportunistically lock in short-term cargo business at rates above the prevailing markets. Our adjusted EBITDA declined by approximately 48% year-over-year in the first quarter, amid a 41% year-over-year decrease in total revenue attributable to lower market rates and a 17% decline in total shipping days versus the first quarter of 2022. Nonetheless, our adjusted EBITDA margins are up 14.3% and are above levels achieved in similar market environments due to the successful execution of our business strategy. During a seasonal weak period, we were able to flex down our chartered-in days which, coupled with lower market rates, served to reduce our charter hire expense by over 70% year-over-year. Vessel operating expenses increased by 3.2% year-over-year, driven by an increase in owned days and increases seen in crude travel costs, which have now begun to stabilize in 2023. Excluding technical management fees, vessel operating expenses on a per day basis were $5,632, down from an average of $5,805 for the full year of 2022. In total, our reported GAAP net income attributable to Pangaea for the first quarter was $3.5 million or $0.08 per diluted share compared to $20.2 million or $0.45 per diluted share in the first quarter of last year. Excluding the impact of derivative instruments as well as other non-GAAP…

[Operator Instructions]. And we'll take our first question from Liam Burke with B. Riley.

Mark, China steel production is up pretty nicely year-over-year for the first -- at least through the first quarter. How does that set you up if we're continuing to see inventories work down for your iron ore trade for the balance of the year?

Yes, Liam. I think China activity is sort of an indicator for us for the market. We're not really directly involved in a lot of trade in and out of China. But like we always say, all ships rise and fall with the tide in China. Our iron ore trade is mostly in the summer months, in the next few months, it's concentrated from Baffin Island, where we've got a 10-year contract to move iron ore from Baffin Island in the Arctic to Europe. So they -- those ships are fully spoken for during that period from August through October. And so any real iron ore activity going to China will mostly affect our other ships on the water. It will soak up more capacity in the Panamax trades that we generally see, and that flows down eventually into the Supramax trades. So more activity on steel in China will be good for everybody out there.

Great. And I know you have a sort of a flex strategy on how you handle your fleet. But do you see other assets out there that you may want to purchase similar to what you just announced on the recent vessel?

We're always looking at ships, Liam. We've probably got 3 that we're looking at records for right now. But we're -- with value so high, we're trying to be opportunistic here, find exactly the ship we want, one that will -- we think will perform well in all the emissions trades -- all the emissions regulations and within our existing trades. So we do see ourselves continuing to renew and gradually expand the fleet. Yes.

Our next question comes from Poe Fratt with Alliance Global Partners.

Just a couple of quick ones. Has the visibility in the business changed at all? You look at first quarter coverage of 2,635 days or 15,700, call it. If I look at the first quarter of last year, of '22, I think you had over 3,000 -- like 3,100 days booked at this point in the year. Is it just a function of the rate environment that you're less willing to go forward at low rates and waiting for the inflection point that a lot of us think will happen over the next couple of weeks? Or has the business changed?

Poe, Mads here. Thanks for the question. It is definitely what you're mentioning. There is a play, right? We are not sort of willing to take on sort of that shorter-term cover when the markets were trading like they were back in April. At that point, we sort of, of course, had our contract book, and that's fine, but sort of the short-term employment of our own ships, then it's exactly that, right? We don't fix more than one at a time, never really do any sort of sub charter to not log in at levels where we feel that these will come up as they did. So that is definitely part of it, yes.

Okay. Great. And then if you could talk about your financing plans for the bulk cruises. Traditionally, you paid cash and then finance either before the acquisition is completed or shortly thereafter. Can you just talk about sort of how you're approaching the financing for the Bulk Prudence?

Yes, Gianni here. Poe, thanks for the question. I think the way we're looking at her is it's good to have a debt-free vessel in the fleet to add to our current fleet. And it gives us a little bit more optionality. And we're looking at her in two different ways. One, if we target our next vessel, we have this vessel available to us to potentially finance. And then we have some balloons coming up later or early next year. So as those balloons approach us, we may use this vessel to help refinance those -- or extend those balloons. But for now, I think we're content. We're in a good position where we can buy the vessel. We can add her to our fleet. We can do it with the cash on hand and deploy it to take on this asset. And I think we'll have some optionality as we go ahead, but there's no pressing issue for us to add debt on that vessel.

Yes. I mean even after paying cash, you're still going to have a pretty healthy, if not over cap of cash balance. Mark, I think you said that you're assessing 3 opportunities right now, we're looking at the books on 3 different opportunities from a fleet expansion standpoint. Should we expect the fleet -- the owned fleet to expand? Or would you end up selling one of your older assets and keep the owned fleet sort of in that 25% range?

Poe, thanks. When we talk about fleet renewal, I guess, we're saying that trading in some older ships for some newer ships is probably the way we'll move forward and gradually in small steps, expand the fleet. So it's -- we do need to find the best ships that trade the best with -- under the new emissions rules, and that's generally ships that are built, say, 2014 and later. So we've got some ships that are older, that are approaching their next special surveys. And we'll make decisions as those surveys come up as to what to do with those ships. But we're constantly looking at ships that are available in the market. And if we think there's a good ship that comes up and a good chance for us to get that ship in a good position, in a good delivery time, one that fits our trades, we can move on it.

If you wouldn't mind highlighting when the next special survey is on one of your older assets? Is it a 2023 event or a 2024 event?

I think there maybe it depends on timing of where the ship is trading and where the opportunity is, but it's -- but I think it's generally in -- after the first of this year, there we've got 2, I think, coming up.

Yes. So early next year, the sort of the likely candidates are coming up for surveys.

Okay. So more of a sort of early '24 event, maybe late '23. And then you did the acquisition on the 4 different ports. Can you -- and it turned out to be a lot less than $10 million, more like 7 -- what, $7.2 million. Can you talk about the multiple cash flows that you paid? And then also what potential growth opportunities you see within not only those 4 locations that you acquired, but other opportunities you might be looking at in the past? You talked about deploying capital up to, I think, it was $25 million in that business. And can you just sort of talk about the acquisition in the context of growth profile, but then also other opportunities you might be looking at?

Yes. Poe, I think this is one we're really excited about. Some of the other ports that we operate, we do it under joint ventures. We have partners that are bringing expertise to the table. This one, we're acquiring an operating entity. It comes with people, equipment, it's ready to go and it's going to really supplement what we currently can offer our customers. So we'll have a full solution. We'll have real assets on the ground that are ours, 100% ours. We'll have a labor force that we can use. we'll have customers we're bringing on, some of which are already customers on our freight side. So the complementary nature of this and the sort of full ownership of these assets and these people we're bringing on, I think, is what we're really excited about. It gives us flexibility we've never had. The purchase price, we're happy to do it at a small scale to start. We're -- we don't want to deploy hundreds of millions of dollars. But if we can buy these types of operations, and expand our expertise, I think it's exactly what we're looking for. From an earnings perspective, we expect it to contribute $1 million, $1.5 million of EBITDA. And that's to start. And as we look to grow it and expand it and what -- the freight components that we can add to this, I think we expect that to grow. But at least to start, we have an operating business that's going to add to the company and really expand the offering that we're able to deliver.

Got you. So less than a 5x EBITDA multiple.

We hope so. That's what we're working hard to make sure.

Okay. And then if I -- instead of getting out of the queue and coming back, can I just ask a couple of modeling questions? One is that, Gianni, if you look at the OpEx and G&A, in total, $19.3 million for the quarter. That was flat with the fourth quarter of last year and up as you mentioned from the first quarter last year. But the mix changed, your OpEx versus G&A changed. Is that -- can you just help me understand what's going on there and sort of how to model out G&A versus OpEx going forward?

So operating expenses, the comments I made in our prepared remarks, I think we see a little bit more stabilization in those costs. I think our Q1 average, we expect that to remain consistent for this year. Crew costs was really the big driver in travel and moving people around. That's still an inflated sort of cost in the market, but we're seeing it sort of start to stabilize some of these other costs. And we're happy to see the average for Q1 drop below sort of our full year 2022 average and certainly below -- well below our Q4 of '22. So I think the cost for Q1, I think, are pretty reflective of what we expect for the rest of the year. And G&A, it's, I think, same thing. I think we'll see maybe a slight reduction, but not much. I think we're pretty -- I think that will probably be a run rate for the rest of the year. And it's just a function of there are some increasing costs. We do have more travel. People are out going to see customers and clients, and it's exactly what we should be doing. So -- but as far as expectations for increasing that, I don't think so. I think we'll be around that range, maybe a slight decrease in Q2 and the balance of the year.

Great. Just one last quick one is that your noncontrolling interest which you back out of net income to get net income to common shareholders, it's been trending down since the second quarter of 2022, when it was actually helpful this quarter. Can you just talk about how we should model that forward, not only in the second quarter but also the rest of the year?

So there's two sort of minority interests, right? There's a noncontrolling interest that's recorded as long-term liability, and there's a portion of those earnings that are kind of recorded above the line or above net income. And then below that is the noncontrolling interest from our JV on the 6 Ice Class 1A Panamaxes. Largely that -- the earnings of that joint venture are largely driven by profit share. The charter hire that we're paying to that joint venture, which is a consolidated entity is largely -- puts us at a cash breakeven to cover the debt, cover the operating expenses. And most of the earnings out of those companies are coming from profit share. So as we see increases in market, we'll see an increase in the allocation of profit to that joint venture. So that average earnings of Q1 '14 was just a tick below where that company will start generating significant profit. So as the market improves, the profit share, it's obviously beneficial for all of us, and we'll see probably that increase. But it is a variable number, and it's -- that joint venture is structured that way to be variable. We all take -- we're all taking ownership of the profits and losses of that company. So it's -- I hope that answered your question, but it is a variable number...

Yes, yes, no, it did. The trend hopefully will reverse because it means that there's more profits coming through the JV.

Right.

[Operator Instructions]. It appears we have no further questions at this time. I'll turn the call back to Mark Filanowski, CEO, for any additional or closing remarks.

Once again, thank you for joining our call. Should you have any questions, please feel free to contact us at investors@pangaeals.com, and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

And this does conclude today's program. Thank you for your participation, and you may disconnect at any time.