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Edited Transcript of PANL earnings conference call or presentation 13-Aug-19 12:00pm GMT

Q2 2019 Pangaea Logistics Solutions Ltd Earnings Call

NEWPORT Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Pangaea Logistics Solutions Ltd earnings conference call or presentation Tuesday, August 13, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edward Coll

Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO

* Gianni DelSignore

Pangaea Logistics Solutions, Ltd. - CFO & Secretary

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Conference Call Participants

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* Charles Kennedy Fratt

NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst

* Sean Silva

Prosek LLC - Associate VP

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Presentation

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Operator [1]

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Good morning. My name is Stephanie, and I'll 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 DelSignore, 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. (Operator Instructions)

It is now my pleasure to turn the floor over to Mr. Sean Silva with Prosek Partners. Please go ahead.

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Sean Silva, Prosek LLC - Associate VP [2]

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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'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 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 website at sec.gov.

Now I would like to turn the call over to Pangaea Logistics Solutions Chairman and CEO, Mr. Ed Coll. Ed?

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Edward Coll, Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO [3]

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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 second quarter financials. We'll then open the line for questions. We hope you had time to review our press release and 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 we're 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 provides clients with specialized services required for demanding conditions.

While the market has been challenging this year, we've 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.

Amidst this backdrop, we remain active. During the quarter, we declared and paid our first quarterly dividend, ordered 2 new ice-class post Panamax vessels and purchased 2 additional ships to advance our fleet renewal strategy.

In sum, we've generated strong momentum year-to-date, and we expect to build upon that going into the second half of the year.

I'll 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'll 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 (sic) [$43.7 million] compared to $56.1 million at the beginning of 2019. This was driven by our payment of our 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, a 58,000-ton dry bulk vessel, bringing our total owned fleet to 22 vessels. The ship, which we're naming the Bulk Friendship, will be delivered to Pangaea in September 2019. The purchase advances our efforts to renew our owned 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're also pleased by the progress made at Brayton Point Commerce Center and redevelopment project this quarter. With our JV partners, we've begun the process of transforming the site into a world-class logistic support, 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're optimistic about our business as we enter the summer ice season. Our ice-class fleet will be fully deployed in the Baffinland 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'll now turn the call over to Gianni, who'll provide additional detail on our financials and our strategy, after which we'll open the call for questions. Gianni?

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [4]

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Thank you, Ed, and thank you all for joining us on today's call. I'll 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've heard me mention on prior calls, we have been accumulating record level of cash flows from multiple quarters, and we're 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 paid down the final debt installments on the Nordic Barents and Nordic Bothnia vessels. And in July, we paid the final installment on the Bulk Newport. So as of today, that brings a total of 6 vessels which are debt-free, a feat we feel is impressive and reflects the strong health and growth of our company.

We're also actively deploying cash into accretive new projects to drive long-term growth. On our ice-class new builds, we've deposited the first installment of $7.8 million during the quarter, and we're committed to expanding our niche ice business, where we feel we have a leading market position and in which we see meaningful future demand and growth opportunities.

We are focused on developing the expertise in investing in the assets to expand our platform and enhance shareholder value.

With that, I'll 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 3,562 compared to 4,283 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, were $77.4 million compared to $81.8 million. The decline stemmed from a decrease in voyage days, specifically 3,228 compared to 3,053 this quarter, as well as decline in TCE rates, which decreased to $12,933 per day during the second quarter compared to $3,728 (sic) [$13,728] for the second quarter of 2018. With that said, our TCE rates fared significantly better than the broader market as we maintained an overall average premium over market rates of approximately $4,268 per day or 49%, driven by our long-term COAs, cargo-focused 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 a 52% year-over-year decline in time charter days. Total expenses during the second quarter decreased 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 decrease of approximately 2%, which was primarily driven by a 5% decrease in voyage days. Charter expenses paid to third-party ship owners decreased to $18.3 million compared to $30.7 million in Q2 of '18. This decline was driven by a decrease in the number of chartered-in days, which was 35%, to 7,742 days. Vessel operating expenses, excluding technical management fees paid, increased by $1.1 million to $11.1 million, driven by an increase in our owned days, which grew to 1,868 days as compared to 1,820.

Moving onto the balance sheet and cash flows. Total cash and cash equivalents of $43.7 million reflect final debt repayments and capital allocation initiatives that I'd referenced earlier, as we've selectively deployed cash into accretive projects, and we are well positioned to return value to our shareholders. This cash flow was compared to $52.5 million as reported at June 30, 2018.

As you can see, we're 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?

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Edward Coll, Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO [5]

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Thank you, Gianni. As you can see from our strong results and expansion of our platform, we have reason 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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Poe Fratt with NOBLE Capital Markets.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [2]

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I just wanted to sort of get a flavor for the drop in shipping days quarter -- in the second quarter versus the first quarter. When I look at the cargo that you've moved, it looked like you've moved about 6 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 chartered-in days or sort of what happened over the course of the quarter?

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Edward Coll, Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO [3]

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

(technical difficulty)

market -- it's just market-related opportunistic. Thanks.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [4]

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So it's more timing, Ed, then, and thank you for answering the next question I had was sort of where you are right now as far as your chartered-in days or your total fleet. Great. And then versus the -- when you look at the Brayton Point, if you could give me a little more color on -- are you an equity investor there? What sort of -- 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's a former power plant that's been redeveloped, but if you could just give us an idea of sort of the economic impact and whether you're making any equity investments over there?

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Edward Coll, Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO [5]

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Sure. I think we will be making some equity investments as the property improves. I don't know that it's going to be a tremendous amount. It depends on the opportunity. What we've 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, it would all be done. It's a real lack of space like that on the U.S. East Coast. So I would suspect that starting in 2020, you'll 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's 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 will be very helpful going forward. I think every year, we'll be able to count on some really good income from that project. And that's the model for what we were also doing in other places. And I think we'll see that going forward. We are working on several other things.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [6]

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

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [7]

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Sure. And actually just, Poe, on the previous point about Brayton Point, just to make it clear that we're a 50% JV partner in that operating agreement. And then as far as the Bulk Friendship, we expect delivery in second half of September. And historically, we've always been fortunate with financing, right? The banks have been there. We've slowly developed relationships in Japan. We have access to that market now. We've developed a very good relationship both with owners and operators and banks in Japan. So that's the expected route. We're going to look at a Japanese operating lease similar to the structures we've done recently with the Bulk PODS and the Bulk Spirit. And we expect to close that also for delivery -- in time for delivery in September.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [8]

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Great. You have plenty of unencumbered capacity in case, right, and that's...

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [9]

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Yes. As I said in the earlier prepared remarks, yes, we have now 6 vessels that are unencumbered. So we do have some capacity there as well.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [10]

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And then if we can shift to the 2 Panamax new builds, is there a potential down the road that you're going to bring in a partner there? Or is this -- you're going under loan on these 2 new builds? And then do you have any options to build additional Panamaxs?

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Edward Coll, Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO [11]

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

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [12]

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Great. And Gianni, you paid $7.8 million in the deposit, that's 10%. The next payment, I think, is 15%. When do you anticipate that would be due?

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [13]

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It's on launching. So I think this one is about 1 year away, at least 1.5 years.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [14]

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So like fourth quarter 2020?

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [15]

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Yes. Correct.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [16]

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Would that be fair?

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [17]

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Yes.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [18]

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And then the last payment would be upon delivery and right now that's March of 2021?

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Gianni DelSignore, Pangaea Logistics Solutions, Ltd. - CFO & Secretary [19]

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Yes. We want the ships ready for that summer ice season in 2021. And that was a big part of our decision to build, especially in the time frame that our clients wanted a ship. So that's the expected delivery, and that would be the final -- upon delivery would be the final installment.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [20]

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Yes, that's 75%. Okay. Great.

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Operator [21]

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

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Edward Coll, Pangaea Logistics Solutions, Ltd. - Co-Founder, Chairman of the Board & CEO [22]

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Well, I just thank everyone very much for all your support, and have a good day.

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Operator [23]

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