Pangaea Logistics Solutions, Ltd.
Q2 2016 Earnings Call Transcript

Published: 16 Aug 2016

[Operator:]

Good morning. My name is Crystal and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Second Quarter 2016 Earnings Teleconference. Our host for today’s call are Mr. Ed Coll, Chairman and Chief Executive Officer; Mr. Anthony Laura, Chief Financial Officer; and Mr. Josh Clarkson of Prosek Partners. Today’s call is being recorded and will be available for replay beginning at 11

[Josh Clarkson:]

Thank you for joining us for this morning second quarter 2016 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. Tony Laura. Before I turn the call over to Ed, I’d like to read the Safe Harbor statements. This conference call could contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 about Pangaea Logistics Solutions. Forward-looking statements are statements that are not 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 obligations to update the information contained in this conference call. Also, please recall that this quarter 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?

[Ed Coll:]

Thanks Josh, 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 market at large before turning the call over to Tony, our CFO, to provide a more detailed overview of the second quarter financials, we’ll then open up the line for questions. In the press release issued last evening, and as you can see on slides three and four of the accompanying presentation, we reported another profitable quarter. Although our net income was relatively small at $100,000 or $0.004 per common share compared to net income of $5.5 million or $0.15 per common share in the second quarter of 2015. We are still operating profitability through the most distressed shipping market in history. While we saw revenues and net income decline year-over-year, we are still operating profitability and have generated $10 million in cash flow from operations thus far in 2016 compared to $12.8 million in the comparable period of 2015. The decrease in our revenue and net income was primarily driven by two factors. The ongoing weakness in the dry bulk market and a decrease in the rate earned on one of our contracts of affreightment or COAs. We also had one significant dry dock during the quarter. Regarding the broader market, rates continued to be low as reduced demand for bulk commodities coupled with an oversupply of vessels. However, this falling rate environment highlighted the differentiation of our business model. Reduced rates mean reduced frontal margins and given our strategy to chartered-in vessels to serve only contracted business, we deemed it best to limit our carried volume of chartered-in vessels. This shields us from losses that may have been incurred under long-term chartered-in strategies. Shifting to the decrease in the rate on a specific COA that was related to Noranda's bankruptcy. As we discussed on last quarter's call and in other disclosures, we've amended our contract with them and we look forward to continue to support them. While a renegotiated terms resulted in a reduction in our revenues this quarter, and will have a similar effect during the rest of 2016 we are optimistic that the contract's provisions that provide for rate increases tied to global aluminum rates will allow us to participate in Noranda's future upside. Stepping back and taking a broader view of our asset right strategy that focuses on nimbly and profitability servicing our book-of-business we continue to be encouraged by its success. Though this quarter demonstrates that it does not immunize us from the rate environment and market disruptions, it does meaningfully insulate us from them when compared to the traditional asset ownership focused business model employed by many other companies. All of these elements of our company are underpinned by a rigorous focus on expense management, a prudent approach to using our balance sheet and world class corporate governance along with risk management practices. These attributes have allowed us to continue to selectively expand our business with both existing clients and new partners. This was demonstrated by several recent successes that we announced during the beginning of the third quarter. As you may have seen, we secured a new COA that was made possible by our differentiated expertise. Upsized another COA with major European steel company and entered into an agreement to manage two Supermax vessels on behalf of an investment front. That last piece is a very attractive arrangement that will see us manage the vessels both commercially and technically with wide latitude in terms of the type of employment. This allows us to expand our fleet and our business on a lower risk basis with little capital investment and demonstrates that we continue to be viewed as a reliable partner by top tier financial institutions. That unique expertise that I just touched on also extends to our ice-class operations which in January of next year will be bolstered by two ice-class 1C Ultramax new buildings finalizing our fleet renewal program. While the second quarter is not traditionally a period of high activity in the ice-class trades, we continued to be very optimistic about the contribution of this venture which is truly without peer across the industry and will make our overall performance in the coming months and years. I'd be remiss if I didn't take the opportunity to thank our entire team at Pangaea who brings an unmatched level of skill, creativity, diligence and integrity to solve our clients' most pressing logistical challenges. Looking ahead to the second half of 2016 and what the markets may hold, we continued to be optimistic about the improvement in the rate environment which though admittedly tepid is directionally encouraging. While we are hopeful that the market has seen its trough, it is still too early to predict that with confidence especially given continued macroeconomic and geopolitical shocks such as Brexit. Our cautious optimism is reflected in our continued focus on selective, lower risk growth and expense management as we reduced G&A by 25% during the quarter. Regardless of the timing of the inevitable turn in the market, we remained well positioned to navigate a variety of rate environments and capitalize on that recovery once it begins thanks to our unique strategy, deep relationships and strong balance sheet. Thank you for your time and attention. I'd now like to turn the call over to Tony Laura, our CFO to provide additional details on the financials. Tony?

[Tony Laura:]

Thank you, Ed. Turning now to our financials for the second quarter which began on slide 7 of the presentation. As you can see, total revenue for the quarter was $57 million compared to $65.1 million for the same period in 2015. Although our total shipping days only decreased 1%, our TCE rate declined 18% to $8,734 per day for the three months ended June 30, 2016 compared to $10,634 per day during the second quarter of 2015. As I had mention this decline was driven by both market conditions and other renegotiated COA with Noranda - and our renegotiated COA with Noranda. Further breakdown of our revenue shows that voyage revenue which is derived from our COA and other cargo business decreased by 12% to $53.5 million compared to $60.9 million for the same period in 2015. Meanwhile, charter revenue which is tied to market rates decreased to $3.4 million from $4.2 million or 19% for three months ended June 30, 2016 compared to the second quarter of 2015. Turning to expense, voyage expenses for the quarter were $26.8 million compared to $28.1 million for the comparable period in 2015, a decrease of approximately 5%. Charter hire expenses for the quarter were $15 million compared to $15.2 million for same period in 2015. Adjusted EBITDA for the quarter was $4.3 million compared to $10.3 million in the second quarter of 2015. The year-over-year decrease was predominately driven by the reduction in net income. Net income attributable to Pangaea Logistics Solutions for the second quarter of 2016 was $100,000 compared to $5.5 million in the second quarter of 2015. This decline was primarily due to the decrease in income from operations. Moving on to the balance sheet and cash flows which you will find on slide 8, cash and cash equivalents were $32.4 million as of June 30, 2016, compared with $37.5 million on December 31, 2015. Total bank debt declined to $137 million as of June 30, 2016, compared with $149 million as of December 31, 2015. We have worked with our existing lenders to amend certain debt facilities and we continue expanding our banking relationships in order to maximize our financial flexibility as we grow. For the six months ended June 30, 2016, the company’s net cash provided by operating activities was $10 million compared to $12.8 million at the end of the second quarter of 2015. For the six months ended June 30, 2016 and 2015, net cash used in investing activities was $432,000 and $40.6 million respectively as we took delivery of two new buildings in the first half of 2015. During the first half of 2016, net cash used in financing activities totaled $14.6 million while during the first half of 2015 we saw $32.2 million provided by financing activities. This is due to debt incurred to finance the new building program in 2015. I will now turn the call over to Ed for any additional remarks before we get to the Q&A portion of the call.

[Ed Coll:]

Thank you, Tony. In 2016 and beyond, we’ll continue to focus on strategy that has served us well to-date, operating the best-in-class efficiency, mitigating the risk of a low rate environment, controlling cost, selectively expanding and adding to our COAs, strategically servicing our specialized markets, and most importantly maximizing utilization to backhaul. As you can see in our second quarter results, steadfast adherence to these simple principles should enable future sustainable growth for our company and by extension shareholder value. With that we’ll open up the call to your questions.

[Operator:]

[Operator Instructions]

[Operator:]

At this time there are no questions in queue.

[Ed Coll:]

Thank you all for taking the time to join us this morning. And have a good day.

[Operator:]

This concludes today's conference call. You may now disconnect.