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spk00: Good morning. My name is Savannah. I will be your operator today. I would like to welcome everyone to the Pangea Logistics Solutions second quarter 2024 earnings teleconference. Today's call is being recorded and will be available for replay beginning at 11 a.m. Eastern. The recording can be accessed by dialing 800-938-2378, domestic, or 402-220-1129, international. All lines are currently muted, and after the prepared remarks, there will be a live question and answer session. If you would like to ask a question during the Q&A segment, please press star one on your phone. If your question has been answered, you may remove yourself from the queue at any time by pressing star two. We do ask that you please pick up your handset for optimal sound quality. It is now my pleasure to turn the floor over to Stephan Neely with Balaam Advisors. Please go ahead.
spk02: Thank you, Operator, and welcome to the Pangea Logistics Solutions second quarter 2024 results conference call. Leading the call with me today is CEO Mark Filanowski, Chief Financial Officer Gianni Del Signore, and COO Mods 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 risk 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.
spk06: Thank you, Stephan, and welcome to those joining us on the call today. After the market closed yesterday, we issued a release detailing our second quarter 2024 results. Our results for the quarter represent consistent execution of our cargo-focused business model amid a seasonably stable period for the dry bulk market. While the second quarter is typically one of our softer quarters in terms of demand, our fleet was well utilized on cargo contracts with key customers in Atlantic trade routes. Our strong utilization and consistent execution resulted in earned TCE rates exceeding the benchmark index by 7%. We reported adjusted net income of $4.6 million for the second quarter and adjusted EBITDA of $15.9 million. Our adjusted EBITDA was about flat with the second quarter of last year as our achieved TCE rates improved 4% year-over-year but were offset by higher charter and vessel operating expenses. At a macro level, The global demand for dry bulk remains strong and has proven to be resilient in the face of ongoing political disruption and bottlenecks in key trade routes. Nonetheless, the overall supply of new-built vessels remains constrained, which we believe will continue to put upward pressure on dry bulk rates in the near and intermediate term. The second half of the year represents a seasonal peak for our business due to heightened demand within our niche Arctic trade routes. Combined with our differentiated cargo-focused business model, we are well positioned to continue delivering consistent premium TCE returns relative to the prevailing market, while also navigating any potential market volatility. While certain parts of the market have been under pressure since the end of the second quarter, we are seeing strong demand as the Arctic trade season begins to accelerate. Through today, we've booked over 3,298 shipping days and an average TCE rate of $17,978 per day. Strategically, we were very focused on capital allocation during the second quarter, continuing to fortify our balance sheet and opportunistically build our fleet of owned vessels. As we announced the last quarter, we expanded our owned operating fleet of vessels by entering into an agreement to purchase two 58,000 deadweight ton sister ships built in 2016 for a total consideration of $56.6 million. We took delivery of the first of these two ships, the Bulk Brenton, in late July, and we will receive the Bulk Patience next week. Johnny will provide more specifics around our balance sheet here shortly. But I am happy to report we arranged financing for these two ships and refinanced balloon payments with a new $50 million credit facility with DNB Bank, another strong capital partner to our lending portfolio. During the quarter, our terminal and stevedore business delivered its highest level of profitability since we acquired the business in June of last year. We continue to focus on building out this segment with our port of Tampa activity scheduled to begin expanded production in the second half of 2025. As we enter the peak demand season for our business in the second half of the year, we are well positioned to weather market volatility and deliver consistent return premiums over the prevailing market. Over the longer term, our cargo-focused business model Expanded fleet of vessels and strategic presence in niche trade routes will enable us to continue delivering above-market returns, while our lean balance sheet supports our ability to utilize opportunistic growth capital investment and provide our shareholders with a consistent dividend program. With that, I'll turn it over to Johnny for further discussion of our second quarter results.
spk05: Thank you, Mark, and welcome to all of those joining us today. Our second quarter financial results are highlighted by continued premium TCE returns and strong operating cash flow generation. Second quarter TCE rates were approximately $16,223 per day, a premium of approximately 7% over the average published market rates for Supermax and Panamax vessels in the period, which is supported by strong demand within our key Atlantic trade routes. and our contracts refraining, which locked in rates for cargo performance. Our adjusted EBITDA for the quarter was flat compared to the prior year at 15.9 million. Our adjusted EBITDA margin decreased 137 basis points to 12.1% as higher charter hire and vessel operating expenses offset higher market rates and growth in total shipping days year over year. Our total charter hire expense increased by 12% when compared to the second quarter of 2023 due to a 3% increase in total chartered in days and a 45% increase in the prevailing market rates for Panamax and Supermax vessels. Our chartering cost on a per day basis was $16,583 per day in the second quarter of 2024. And through today, we've booked approximately 1,674 days at $14,505 per day for the third quarter. Vessel operating expenses net of technical management fees increased by 13% year-over-year from an average of $5,517 per day last year to $6,246 per day in the second quarter of 24. The increase in expenses per day was primarily driven by timing of expenses incurred in the second quarter of 2024 versus 2023. However, for the six-month period ended June 30, vessel operating expenses net of technical management fees increased by only 3.5%, from $5,575 to $5,773 per day. In total, our reported GAAP net income attributable to Pangea for the second quarter was $3.7 million, or $0.08 per diluted share, compared to $2.8 million, or $0.06 per diluted share in the second quarter of last year. When excluding the impact of the unrealized loss from derivative instruments, as well as other non-GAAP adjustments, our reported adjusted net income attributable to Tangier during the quarter was $4.6 million, or $0.10 per diluted share, which was flat when compared to the second quarter of 2023. Moving on to the cash flows, total cash from operations increased by $6.9 million year-over-year to approximately $9 million annually. as stable profitability was bolstered by improved cash generation by net working capital. At quarter end, the company had $77.9 million in cash in total debt, including finance lease obligations of approximately $253 million. As Mark mentioned earlier, the second quarter was an active one from a financing perspective, as we paid off the final balloon payment on the Bulk Endurance, Bulk Pride, and Bulk Independence credit facility of approximately $20 million. We subsequently entered into a new $50 million facility, which was initially utilized to refinance the bulk insurance only for $17.6 million. The remaining capacity of this facility will be used for the delivery financing of the bulk Brenton, which delivered in July, and the bulk patients, which will be delivered in August. The initial drawdown of $17.6 million is payable over five years with a balloon payment at maturity of $9.7 million and an interest rate based on three months SOFR plus 250 basis points spread. Further in July, we refinanced the bulk prudence with a new lender generating 15.2 million of cash payable over five years with a balloon payment at maturity of 8.6 million and an interest rate based on three months SOFR plus 190 basis points spread. On a pro forma basis after completion of these financings, our total debt the vessel book value is approximately 54%, which is flat when compared to the prior year period. And when adjusted for fair market value of our vessels is approximately 43%. During the quarter, our overall interest expense remained flat relative to the prior year interest rates due to our fixed rate and cap rate debt, as well as benefits from interest yielding deposits, which generated nearly $700,000 in interest income. At the end of the second quarter, the ratio of net debt to trailing 12-month adjusted EBITDA was 2.1 times. In the near term, our capital allocation focus will be on maintaining our nimble balance sheet in order to continue opportunistic investments and growth through the expansion of our onshore footprint and owned vessel capacity. We are also continuing to prioritize a consistent return of capital strategy as evidenced by our consistent dividends, which we believe can be sustained through all phases of the market cycle. With that, we will now open the line for questions.
spk00: Thank you. And at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. And once again, that is number 1 to ask a question. Our next question will come from Liam Burke with B Reilly. Please go ahead.
spk03: Thank you. Good morning, Mark. Good morning, Gianni. Good morning, Mads. Hello, Liam. Mark, you just added two vessels, and on the fleet renewal program, you're balancing between chartered in and owned. Right now, the way you're looking at the market, depending on asset prices, would you be more inclined to stand pat, or would you add or subtract vessels here?
spk06: I think we want to stand pat for just a little bit, Liam, see where the market's headed. We've been looking for good ships for a while. Maybe we watched the market move up in front of us. We bid on a few ships late last year and early this year. And we were just behind the market a little bit. And we finally found a couple of ships that really fit our fleet nicely. So we were aggressively aggressive in in getting those ships and that satisfies us for a little while. I think not long term, but right now I think we can take a breath.
spk03: Okay, thank you. Johnny, you still have vessels under finance leases. Is there any opportunity to refinance those to further take down your interest expense?
spk05: Some of them, actually, one is coming due in September, Liam, and then others, I think we're pretty comfortable. I gave that pro forma sort of look at our debt balances against our assets, both from a book value and a fair value perspective. I think right now, we were fortunate to be able to be flexible in our acquisition process, process both last year with the port acquisition and then this year with a couple of ships. So I think that still remains important to us to have that flexibility. And I think where we look at our sort of total balance sheet, I think we're pretty comfortable. Not to say we won't attack that in the future if it presents itself, but I think where we are right now and I think ultimately having that flexibility I think is still important to us. Great.
spk03: Thank you, Mark. Thank you, Janet.
spk00: Again, that is star 1 if you would like to ask a question. Our next question will come from Poe Fratt with AGP. Please go ahead.
spk04: Hey, good morning. The macro question I have is, you know, I'm a little, I'm highlighting in the presentation that You talked about the Arctic trade accelerating, and I'm just wondering whether that's any different than previous years when you typically see an upturn in activity in the Arctic in the third quarter, or is there something different happening this year?
spk01: Yeah, I think the difference is maybe an earlier stop than we've had in previous years. I think that was what we were referring to there. The fleet of our class ships is fully committed to that trade for Q3 and a little longer than that.
spk04: Does that mean that's the end of the year? Is it a finite timeframe or is that just a benefit this year that you'll see?
spk01: I think it's a little bit too early to say. It's obviously dependent on the ice conditions. up there in the end of October, right? But we certainly expect to have the same amount of business there this year. Timing of it might move a little bit.
spk04: Okay. And then in the same section, you say the market rates are mixed. Can you just expand on that comment?
spk01: Yeah. I think if you look at the overall market for the quarter, it's sort of been remarkably stable. But individual pockets of the markets or geographical regions still have volatility, right? So I think when the course started, the Pacific was trading higher than the Atlantic, which is sort of an anomaly if you look at it in the longer view. That trend has sort of reversed in the last couple of months. So back to something that reflects the normal situation. So that's what we're referring to there.
spk04: Okay. Are you seeing, Mads, any change in demand? There's a lot of concern about just the macro economic picture out there. Any change in demand that you're seeing from your customers at this point in time?
spk01: I think our customers in our trades are still pretty optimistic. In our venture trade, for sure, around our construction materials, cement and aggregate and that stuff. Same on metallics, pretty optimistic still. And I think macro overall demand is up more and more compared to last year, right? So for reasons that also have to do with the trade-in disruptions that we've talked about before, I think. So, yeah.
spk04: Sounds good. And then, Mark, when you look at the overall fleet expanding to 26, is that sort of something we should look at stability going forward or do you, is there, you know, there are potentially opportunities to sell some older, sell some, you know, improved age profile?
spk06: We're constantly looking at the ways to, you know, maintain the average age post. So I think you'll see us over time sell off some older ships and add newer ships. Of course, we do have an appetite to grow the fleet as well. So we're looking for opportunities to do that in the right way at the right time.
spk04: Okay. And then, Jeremy, on the refinancing of the financing plan, you know, the produce, I think, was refinanced and it looked like you paid down there. you know, about 4.6 million of one of the facilities. Could you highlight which facility that 4.6 came out of?
spk05: Yeah, we had the balloon, the final maturity on the bulk endurance, bulk pride, and bulk independence facility. That came due in May, within the quarter, right around the end of May. We subsequently took only the endurance, and we refinanced her. So the balloon payment was around $21 million, and we refinanced the Endurance for about $17, and kept the Pride and the Independence debt-free as of today. So that was in reference to that transaction. And then part of that transaction with the Endurance basically was the first step in that $50 million facility we put together. in the quarter and that gave us, you know, a lot more sort of flexibility going into the year where we could acquire those, the Brenton and the patients. So yeah, that reduction was as part of that sort of transaction. Okay.
spk04: And then, you know, the $50 million seed and secured facility, it looks like you've drawn down, you know, $32.8 million with the latest financing. Is that correct, and what was the remainder being used on? Is that the endurance?
spk05: So the first tranche was the endurance at 17.6, and then the bulk Brenton delivered on July, I think it was July 26th, it delivered, and we used around 15.6 million for the Brenton, Now the bulk patience is coming next week between August 15th and August 20th. She's coming and we'll use the balance of the facility for that. We added a little capacity on that facility so we could have somewhat of a hunting license to go out and acquire ships, but we were pretty quick to fill it. After delivery of the patients, the facility is basically full.
spk04: Okay. I guess I'm looking at the subsequent events in the 10-Q, and it references the 15.2 million seniors to return that was financed with full prudence.
spk05: Is that correct? That was a separate, yep, that was a separate. Okay. The bulk prudence, correct. The bulk prudence was a different facility, also closed late, no, sorry, early in the third quarter, right around the second week of July. So a sub-event for the second quarter. But in our remarks just a few minutes ago, I do give sort of a pro forma. After completion of all these financings, What does our balance sheet from a leverage perspective look like from asset value, debt versus vessel asset value? And also, you know, we gave a comment about from a fair market perspective as well, what we think, what we believe the leverage profile looks like as well. So that was, and those numbers are all after we complete these financings that we've discussed at subsequent events.
spk04: So Gianni, if you have it handy, could you run through the Brenton, you know, how much you drew down with the central short spread, the amortization, and then the bloom point, and the same with patients, if you have that handy? Sure. Yeah, no, absolutely.
spk05: So the Brenton was a drawdown of $15.6 million. And it's part of the facility, so it's SOFR plus $2.5 million. And it amortizes over five years to a balloon of about $8 million.
spk04: OK. And then the Prudence on there, will that be roughly the same? Prudence is actually quite similar.
spk05: The patients. Oh, patients will be very similar, correct. It falls into the same facility. It has the same five-year. five-year amortization and the balloon will be very, very similar.
spk04: So roughly there? Correct. Okay. And so you're not going to actually fully draw down that $50 million? You'll have a little bit of just a little bit of capacity?
spk05: We'll have a little bit of capacity. Obviously, we're not going to keep that capacity open. We'll cancel the remaining million or $2 million that's there and and then we'll work with that bank on future deals, which is good. So we have another option at our disposal.
spk04: And then can you just talk about the third logistic business, a really healthy increase in the third quarter. Is that seasonal or is it something that will continue into the fourth quarter and into 2025? And then what's the impact of the expansion in Port Everglades, and how much capital are you putting into that expansion?
spk05: As far as the margins in that business this year, we have the operation of Baltimore, which is pretty consistent. It's a monthly fee that we're being paid to operate that port, and it's pretty consistent volume. With Everglades, it can be lumpy. There are seasonal peaks. The second quarter we did have some dry bulk vessels come to port which do drive higher margins. It was decent volumes for the second quarter. We want to grow that business and we're happy to see that there is some increasing volume there. It's a focus for us, and we'll keep doing it. But it is lumpy business. It is seasonally driven. And then as far as the, and Maxwell will comment a bit on the expansion.
spk01: But the expansion, Paul, I just want to clarify, did you mean the Tampa expansion?
spk04: Yeah, I'm sorry. The one that hits in 2025. I thought it was put out of date, but.
spk01: No, that's in the Red Wing Terminal in Tampa. It is not something that is expected to be a big draw on our capital. I think 3 to 5 million maybe. We will be operating that facility with JV Partners, so it's a shared investment. We expect that operation to be up and running in, I don't know, maybe Q3, late Q3 next year. Second half, for sure, of the year.
spk05: Yeah, so far in Tampa, what we do have and what you're seeing maybe in our financials is the ground lease. We've leased two acres of space at the port, and it ends up on our balance sheet as a right-of-use asset and a lease liability. pretty small number, but that is the two-acre property that we're leasing there in Tampa.
spk04: Great. Thanks for your time. Thanks, Paul.
spk00: And this will conclude today's question and answer session. I'd like to now turn the call back over to Mark Filanowski for closing comments.
spk06: Thank you all for joining us on a summer Friday morning. Please enjoy the rest of your day. Thanks. Thanks again.
spk00: And this will conclude today's conference. Thank you for your participation, and you may now disconnect.
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