Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL) Q1 2024 Earnings Call Transcript May 10, 2024
Pangaea Logistics Solutions, Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Britney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions First Quarter 2024 Earnings Teleconference. Today’s call is being recorded and will be available for replay beginning at 11:00 a.m. EST. The recording can be accessed by dialing (877) 856-8964 for domestic and or (402) 220-1608 for international. All lines are currently muted and after the prepared remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to turn the floor over to Stefan Neely with Vallum Associates.
Stefan Neely: Thank you, operator, and welcome to the Pangaea Logistics Solutions first quarter 2024 results conference call. Leading the call with me today is CEO, Mark Filanowski; Chief Financial Officer; Gianni Del Signore, and COO, Mads Peterson. 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. With that, I would like to turn the call over to Mark.
Mark Filanowski: Thank you, Stefan, and welcome to those joining us on the call today. After the market closed yesterday, we issued a release detailing our first quarter 2024 results. Our flexible cargo focused business model continued to deliver premium TCE rates over the prevailing market. During the first quarter, it also allowed us to drive improved operating leverage compared to the prior year, which resulted in higher adjusted EBITDA and improved margins year-over-year. While the first quarter is normally a seasonally soft period for global dry bulk demand, we benefited from elevated long haul voyage demand across our ice class fleet together with a solid base of premium long term COAs. As market rates began to rise later in the quarter, we added to our cargo commitments to increase utilization of our owned fleet and chartered in more vessels, which positioned us to optimize our TCE returns.
When combined, these factors resulted in our TCE rates for the quarter, exceeding the benchmark index by nearly 30%. We reported adjusted net income of $6.6 million for the first quarter and adjusted EBITDA of $19.9 million. Adjusted EBITDA improved by 23% year-over-year as our adjusted EBITDA margins strengthened by 400 basis points compared to the first quarter of 2023. Our improved profitability was supported by a 41% year-over-year increase in published market rates for Supramax and Panamax vessels, which also supported the 23% increase in our own earned TCE rates year-over-year in the first quarter. At a macro level, the global demand for dry bulk remains strong and the supply of vessels remains constrained. These dynamics give us confidence in both the near-term and long-term outlook for our business.
Specifically, in the near term, geopolitical disruptions have resulted in an increase in ton mile demand with certain shipping channels. We are also seeing regionally strong demand in key bulk trades associated with the current level of infrastructure investment in North America. On the supply front, the number of new builds coming into service remains limited relative to historical levels, which will continue to put pressure on dry bulk capacity. In combination, we see the supply and demand factors for dry bulk being structurally supportive for higher market rates for the remainder of 2024 and beyond. With that said, volatility will continue to be a prevailing theme but one that our cargo focused business model uniquely positions us to successfully navigate.
While certain aspects of the dry bulk markets have seen pricing moderate since late in the first quarter, others have continued to progressively improve. Through today, we’ve booked over 2,890 shipping days at an average TCE rate of $16,200 per day versus a market rate of approximately $15,000 per day so far in the second quarter 2024. Strategically, we continue to prioritize capital investment in fleet expansion and renewal while continuing to scale our onshore logistics capabilities. In addition to these organic and inorganic investments, we’ll seek to further fortify our balance sheet, all while continuing to support a consistent return of capital program as demonstrated by our consistent quarterly cash dividend. Regarding our current fleet of owned vessels, we have been focused on refreshing our fleet to keep an average vessel age of approximately 10 years, while continuing to ensure that we are able to meet unique cargo needs of our customers.
We continue to strategically evaluate additional vessel acquisitions and divestitures through this line. And last night, we announced we had entered into an agreement to purchase two 58,000 deadweight ton sister ships built in 2016. We are purchasing these ships for a combined price of $56.6 million and we expect to take delivery during the third quarter of this year. Within our port and logistics business, we have made strides to organically expand that business in the U.S. Gulf Coast region through strategic joint operations, partnerships and site leases. During the first quarter, we executed a long-term lease agreement in the Port of Tampa to handle dry bulk commodities that are complementary to those carried on our fleet vessels. In conjunction with signing this lease, we also committed investment capital in some port operations infrastructure in partnership with JV partners at the port.
This investment will allow us to expand our ability to offer a wider scope of cargo focused services across the strategically important Gulf Coast region to both new and existing customers. The investment will provide a meaningful growth avenue for our terminal and stevedore business, which we expanded into Florida in June of last year. In summary, our cargo focused business model continues to deliver strong premium returns, which we are strategically investing in key growth opportunities, both in our logistics business and in our owned vessel fleet. Coupled with a supportive macro environment for dry bulk rates, we believe that we are well positioned to continue to deliver attractive shareholder returns through opportunistic capital deployment.
I’ll now hand it over to Gianni for a discussion of our first quarter financial results.
Gianni Del Signore: Thank you, Mark, and welcome to all of those joining us today. Our first quarter financial results continue to emphasize the flexibility of our business model, as we were able to deliver premium returns despite a year-over-year reduction in total shipping days. Our results highlight the value that our chartered-in strategy and cargo focused model creates within the context of our overall operating leverage. First quarter TCE rates were approximately $17,697 per day, a premium of approximately 29% over the average published market rates for Supramax and Panamax vessels in the period which is supported by long haul ice class performance early in the quarter and forward bookings, which locked in rates for cargo performance.
Our adjusted EBITDA increased by nearly 23% year-over-year to $19.9 million. Our adjusted EBITDA margin also improved year-over-year to 19%, as we managed our vessel utilization in accordance to the prevailing market rates to maximize our TCE rate returns and operating leverage. While our chartered-in days decreased by 14% year-over-year, our total charter hire expense increased by 20% compared to the first quarter of 2023 due to the 41% increase in the prevailing market rates. Our charter-in cost on a per day basis was $17,580 in the first quarter of 2024. And through today, we’ve booked approximately 1,400 days at approximately $16,700 per day. As I mentioned, we pushed some of our cargo commitments forward toward charter hire vessels intra quarter in the face of higher market rates, which allowed us to maximize our returns on our total fleet in accordance with our short-term charter-in strategy.
Furthermore, our improved profitability for the first quarter was bolstered by lower vessel operating expenses, net of technical management fee, which decreased by 6% year-over-year from an average of $5,632 per day last year to $5,300 per day in the first quarter of 2024. The decrease continues to highlight the success of our efforts to manage vessel operating costs. As we have mentioned in the past, we utilized forward freight agreements and bunker swaps to selectively hedge our exposure to the market on our long-term cargo contracts and forward bookings. This approach helps us lock in future cash flows and minimize the impact of market volatility, but can lead to fluctuations in our reported results on a period-to-period basis. Given the market volatility during the first quarter, our reported net income reflects an unrealized gain of approximately $5.1 million relating to mark-to-market adjustments of bunker swaps, forward freight agreements and our interest rate cap.
In total, our reported GAAP net income attributable to Pangaea for the first quarter was $11.7 million or $0.25 per diluted share compared to $3.5 million or $0.08 per diluted share in the first quarter of last year. When excluding the impact of the unrealized losses from derivative instruments that I mentioned as well as other non-GAAP adjustments. Our reported adjusted net income attributable to Pangaea during the quarter was $6.6 million or $0.14 per diluted share, an increase of $1.5 million or $0.03 per diluted share versus the first quarter of last year. Moving on to cash flows. Total cash from operations decreased by $2.6 million year-over-year to $9 million as the improvement in profitability was offset by the timing of customer receipts and supplier payments reflected in net working capital.
At quarter end, the company had $95.9 million in cash and total debt, including finance lease obligations of approximately $258 million. Of the $258 million in debt, approximately $20 million represents a balloon payment that is due this month at maturity of the loan, this credit facility is currently locked in at a fixed rate of 3.96%. Once paid, the Bulk Pride, Bulk Independence and Bulk Endurance will be debt free vessels in our fleet, and we are actively working with a new lender to refinance the Bulk Endurance only, which will generate approximately $15 million of cash and is expected to be finalized in the coming weeks. During the quarter, we continued to see relatively muted impact from higher interest rates due to our fixed rate and cap rate debt, as well as benefits from interest-yielding deposits, which generated nearly $1 million in interest income.
At the end of the first quarter, the ratio of net debt to trailing 12 month adjusted EBITDA was 2 times. As Mark mentioned, our capital allocation focus in 2024 is investing in growth by expanding our onshore footprint and owned vessel capacity, and our current balance sheet and liquidity profile allows us the flexibility to deploy capital in ways that maximize overall returns on investment. Importantly, I would reiterate that we continue to prioritize a consistent return of capital strategy. We believe that our current dividend is one that can be sustained through the market cycle. With that, we will now open the line for questions.
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