Pangaea Logistics Solutions Ltd.

Good morning. My name is Madison and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangea Logistics Solutions fourth quarter and full year 2024 earnings teleconference. Today's call is being recorded and will be available for replay beginning at 11 a.m. Eastern Standard Time. The recording can be accessed by dialing 800-723-0532 or 402-220-2655. 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 Valum Advisors.

Thank you, Operator, and welcome to the Pangea Logistics Solutions fourth quarter and full year 2024 results conference call. Leading the call with me today is CEO Mark Filanowski, Chief Financial Officer Gianni Del Signore, and COO Mads Pedersen. 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.

Thank you, Stephan, and welcome to those joining us on the call today. After the market closed yesterday, we issued a release detailing our fourth quarter and full year 2024 results. Our fourth quarter performance was a strong finish to a transformational year for Pangea, one in which our strong base of long-term contracts and premium rate model supported a greater than 20% year-over-year increase in adjusted EBITDA, despite pronounced softness in the broader dry bulk market. Our differentiated cargo strategy and leading market share across global ice class trades have enabled us to drive consistent PCE rate outperformance, versus the broader market, culminating in significant growth in fourth quarter profitability. On December 30, we successfully completed our previously announced merger with Strategic Shipping's fleet of 15 handy-sized dry bulk vessels. This complimentary transaction will allow us to expand our business into a smaller size segment of the market, leveraging these smaller ships to grow our stevedoring and terminal services offerings. In connection with this transaction, we issued 18.1 million common shares to SSI in exchange for the 15 vessels, and we assumed approximately $100 million in vessel indebtedness, all of which have now been incorporated into our balance sheet. Following the conclusion of this transaction, we now have a total fleet of 41 owned vessels, supplemented by short-term chartered-in ships that bring our operating fleet into a range of 60 to 70 vessels at any given time. With the larger fleet, we're in a strong position to materially expand our logistics and terminal services across a broader footprint of high-traffic ports consistent with our strategic focus. While we continue to experience robust demand across all our bulk trades, supported by ongoing economic expansion and domestic infrastructure investment, we recognize the potential headwinds posed by proposed tariffs and new port entry fees in the U.S. These factors could introduce near-term volatility in market rates, and they may drive structural shifts within the global shipping and dry bulk landscapes. We remain vigilant in monitoring developments and trade policies that have potential implications for our business. Importantly, our asset-light, cargo-centric operating model designed to leverage a strategic mix of owned and chartered-in vessels, remains a competitive key advantage. This model enhances our flexibility, cost efficiency, and scalability through market cycles, positioning us to effectively manage potential volatility while continuing to drive profitable growth, generate free cash flow, and deliver premium TCE returns. For the fourth quarter of 2024, we reported adjusted net income of $7.6 million and adjusted EBITDA of $23.2 million, representing significant year-over-year growth despite prevailing market rates decreasing by 22.6% during the quarter. Our adjusted EBITDA growth of approximately $4 million compared to last year's fourth quarter reflects the performance of our active operating model and a full quarter of operations from the two ships we purchased earlier this year, which drove a more than 20% increase in our voyage days. Our TCE exceeded the benchmark index by 48% in the fourth quarter. Looking ahead to the first quarter of 2025, dry bulk demand has been seasonally soft across all major trade routes. Market prices have been volatile over the last few months, due to anticipation, uncertainty, and anxiety over international trade, although demand remains consistent. Through today, we've booked 4,982 shipping days, generating a PCE of $11,412 a day for the current 2025 quarter. As we move further into 2025, we'll continue to exercise a balanced return-focused approach to capital allocations. Our recent vessel acquisitions, fleet combination, and JV buyout are a testament to our confidence in our business plan and our disciplined capital allocation strategy that seeks to maximize long-term shareholder returns. With that, I'll hand it over to Johnny for a discussion of our fourth quarter and full year financial results.

Thank you, Mark, and welcome to those joining us on the call today. Our fourth quarter financial results are highlighted by strong earnings growth, sustained TCE premiums relative to the prevailing market, and strong free cash flow generation, all during a period where broader demand and market prices softened. Fourth quarter TCE rates were approximately $15,941 per day, a premium of approximately 48% over the average published market rates for Supermax and Panamax vessels in the period. which was driven by strong fleet utilization within Arctic trade routes and our broad base of long-term contracts of our freightment. Our adjusted EBITDA for the fourth quarter was $23.2 million, an increase of approximately $4 million relative to the prior year period. Our adjusted EBITDA margin increased 180 basis points to 16.7%, as strong growth in the total shipping days year-over-year and lower charter end rates drove operating efficiencies. This dynamic is enabled by our flexible cargo-focused business model, which allows us to focus on meeting customer cargo obligations in the most efficient possible manner based on prevailing market conditions. Our total charter hire expense increased by 1.7% compared to the fourth quarter of 2023 due to a 33% increase in total charter in-days that was almost entirely offset by a 23% decrease in the prevailing market rates for Panamax and Supermax vessels. Our charter in cost on a per day basis was $13,787 in the fourth quarter of 2024. And through today, we've booked approximately 1,736 days at $10,243 per day for the first quarter of 2025. Vessel operating expenses net of technical management fees increased by approximately 9% year over year. from an average of $5,971 per day last year to $6,525 per day in the fourth quarter of 2024. However, for the full year of 2024, vessel operating expenses, net of technical management fees declined by 7% to $5,820 per day. In total, our reported GAAP net income attributable to Pangea for the fourth quarter was $8.4 million, or $0.18 per diluted share, compared to $1.1 million, or $0.03 per diluted share in the fourth quarter of last year. When excluding the impact of the unrealized losses from derivative instruments as well as other non-GAAP adjustments, our reported adjusted net income attributable to Pangea during the quarter was $7.6 million, or $0.16 per diluted share. which was consistent with the fourth quarter of last year. Moving on to cash flows, total cash from operations decreased by $4.6 million year-over-year to approximately $19.2 million due to a decrease in cash generated by network and capital, which offset improved operating earnings. At quarter end, the company had $86.8 million in cash and total debt, including finance lease obligations, of approximately $404 million. Our finance leases at the end of the quarter include approximately $100 million of lease obligations associated with the strategic fleet combination, which closed on December 30th. During the quarter, our overall interest expense was $4.7 million, an increase of 10.5% due to new debt facilities entered into during the third and fourth quarter of 2024. When factoring in the interest expense from leases assumed from the SSI merger, our interest expense would have been approximately $1.3 million higher, which is the approximate run rate we expect going forward, barring material changes in interest rates. Through the successful completion of the SSI acquisition, the strategic deployment of equity to expand our fleet, and the recent buyout of the remaining 50% equity interest in our post-Panamax ICE Class 1A vessels, we have taken a disciplined and opportunistic approach to capital allocation. These initiatives are designed to maximize long-term capital return potential while positioning the company for continued growth. In the near term, our capital allocation strategy will remain focused on targeted investments in our stevedoring logistics operations, the renewal and modernization of our dry bulk fleet, and the continued reduction of our debt. Additionally, we remain committed to a consistent and sustainable return of capital strategy. With that, we will now open the line for questions.

Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. And we will pause for a moment to allow questions to queue. And we will take our first question from Liam Burke with B Reilly Securities. Please go ahead.

Yes, thank you. Good morning, Mark. Good morning, Johnny. How are you today?

Good morning, Liam.

Mark, on your partial fixtures for the first quarter, obviously the rates in general have been bad, but you've really outdistanced them. I mean, that's, on a relative basis, a pretty impressive number. Is it just your COAs and contracts? What's contributed to that 40% boost?

Well, Liam, we always look for work that pays a little bit more than market. We've always prided ourselves on taking tough cargoes, making our ships work hard for what we do. We take dirty cargoes. We go into... icy waters. We go to places where other people don't really want to go because the costs that manage the risks, they're not willing to pay. So we will do that. We've got an excellent operating platform. We've got really ship managers that really contribute to the bottom line for us. So You know, in addition to the COAs, the contracts that we enter into, we look for things that add value. That's our whole business plan in a nutshell.

That's great. Just as a follow-on to that, you've added new vessels on the year-end acquisition. How quickly do you think you can roll those vessels from their traditional chartering to the Pangea chartering platforms?

We've made great progress already. I think we've done half a dozen different voyages on these ships or planned voyages on these ships in trades that they haven't done so much of. I'm talking about taking the ships into the icy waters and taking the dirtier cargoes and visiting places where they haven't been before. So we are making progress already, but But in this difficult market, the margins to do all that stuff have shrunk as well as the rates themselves. So we hope when the market bounces, we've seen a little greener numbers in the last couple of weeks on the dry bulk side and on the indexes. We hope to make that happen quickly. Great. Later this year, we should see some growth. improvement in that.

Great. And if I could slide in one more quickly. Your port services business generated a little more profitability than you had in the past on similar type revenue levels. Is there anything going on there that allowed you to eke out a little more profitability?

Yeah. What we've done is we've done more dry bulk voyages, dry bulk business in some of our our terminals that pays a little bit more than some of the other stuff we do. But the port side is really bright for us. We've opened up a new port and operation in Aransas near Corpus Christi, a fast-growing place that we think we'll be able to do some really nice business with. We've started the actual construction down in In Tampa, Tampa Red Wing Terminal, where we'll bring 20 ships this year loaded with aggregate to discharge and store on that site, that's a big step for us in the terminal side. So we're looking at other business in Lake Charles. So it's really starting to come together for us.

Great. Thank you, Mark.

Thank you. And we'll take our next question from Poe Fracht with AGP. Please go ahead.

Glad you're all well. When I look at the capital allocation, you highlighted two things, one, fleet renewal and then debt reduction. And with the fleet renewal, you added, you know, with the SSI, you added handings. Can you help me understand how to frame the capital allocation and fleet renewal. Do you think that you have an optimal number of owned vessels right now? Or do you think that, you know, it might be, you know, worthwhile to scale back and pay down debt, you know, by selling some of the older assets?

Oh, boy. Paul, like every ship owner, we are always trying to grow our fleet, you know. But we want to do it cautiously. We want to do it thoughtfully. We just took on a big slug of new ships, the 15 Andes. That brings us a long way toward our growth goals. There is some renewal to do. We've got some older ships reaching the 20-year age. So we will sell off some of those ships as they come up to 20 years in age. What we do with the proceeds, it really... We haven't decided yet where we should put that money, whether we should pay down debt. We don't think we're over-leveraged today. Although, and if rates trend down, that might not be the best use of capital. We want to be opportunistic in buying ships, so we'll wait for the market to drop a little bit, and we will want to take advantage of that. going forward, but not 15 more this year for sure.

Paul, if I could add on the debt service side for 2025, we basically have steady repayments only, no balloon repayments on our debt facilities. So it's around 11 million of debt service per quarter. pretty steady right until 2027 when we have our first meaningful balloon payment. But then if we look at our debt structure as a whole, you know, we're fixed on a large portion, about 34% of our debt is fixed, and then about 27% of our debt is capped or is fixed through an interest rate cap. And then the remaining is floating. So there is, I think, opportunity if we wanted to attack some. But when I look at debt service for 2025 and even right through 2026, we have a pretty steady repayment forecast ahead. And we can be opportunistic if we want to. We're not forced necessarily to repay anything unless we choose to.

And on that balloon that comes up in 2027, that debt is on shifts that are readily refinanceable.

Great. Those metrics are really helpful. So just on the margin, you're more of a buyer than a seller with where asset values are right now.

Well, we'd like to see asset values come down a tick more before we jump in.

Great. Jamie, can you highlight the operating leverage that you that you, with the acquisition of SSI, maybe one way to look at it would be your G&A level. Can you highlight, you know, your current per day G&A level or maybe an absolute level for the first quarter of 2025?

Sure. From a G&A perspective per day for 2024, the number was around about 1,200 per day was our overall GNA cost. The addition of the vessels, you know, our platform is quite scalable when you look at the vessel operation side. The incremental GNA to add, you know, the number of vessels that we did is not really a significant increase. So on a per-day basis, I do expect it to be relatively consistent. Per shipping day. Per shipping day, correct. On a per-ship day, I do expect it to remain relatively consistent or maybe even come down a little bit as we see some of that sort of economy of scale and our operation really kick in. So I don't expect, while the number is certainly, there'll be incremental G&A with the number of people we've onboarded as part of the acquisition. It's about 10%. 10 people that were brought onto the team. But on a per day basis, we're still pretty comfortable. So I think we have, you know, we can deploy our operating model in a really efficient way.

Great. Do you have sort of, what's the target for absolute G&A in the first quarter then?

Probably an incremental amount of, you mean from a, Paul, just to clarify, from $1

Yeah, dollar, just total dollar at this point in time. What's your sort of run rate for the first quarter?

I'd say what we have there in the fourth quarter, what we're showing there is probably a – it's actually probably a good indication for a quarterly rate for next year.

So just to clarify, so G&A in a total dollar amount is going to be fairly flat, maybe up a little bit. but your shipping days are obviously going to be a lot higher. You're running right now, you know, you're in, you ran a fleet of 62, you're 42 owned or 41 owned. Is that a fair way to look at it, Gianni?

I think for the full year, like I said, I think we'll probably see an incremental amount. In that number, we have not necessarily disclosed yet, but For the full year compared to 24, I would say it's an incremental amount of probably $1 to $2 million of incremental G&A.

The other thing that impacts the number you're looking for, Poe, the cost per shipping day is the number of chartered-in ships we have at any point in time. So that can cause that product to move up and down.

Great. And then it looked like at the year end, you're running 62. And can you give me sort of either a snapshot right now on how many, what's your total operating fleet or potentially, you know, what we should use for an average for the first quarter as far as the operating fleet?

So, Matt, we're probably a tick lower than that now, maybe around 60, which is not, you know, that it fluctuates a little bit. We tend to shrink the fleet a little bit when, when the market is depressed. So, um, of course the, uh, the hope is that, that, um, as the market picks up where that, you know, the chartered in business also grows and the rest of the year.

Great. And then, um, Jenny, or maybe Matt, you can highlight, you know, first quarter dry docking and maybe dry docking for the year as far as idle time on the fleet.

Yeah. So, so it's a, For us and for many others in the business, it's a busy year for dry docking, right? We have four ships in dry dock right now. We will have 12 in total for the year. So that's the situation. The ship spends about 25 to 30 days in dry dock these days.

Great. Congratulations on closing the transaction. and also buying in the 50% Nordic folks.

Thank you, Paul. Thanks, Paul. It's busy here.

Thank you. And we will take our next question from Nils Tomlinson with Fernley Securities. Please go ahead.

Good morning. There's been quite an extensive amount of questions on capital allocation, but I'd just like to add one more. The market is where it is, and I guess you're looking at quite a big reduction in earnings for Q1, and with your amortization profile being what it is, how should we think about dividends as earnings are, you know, a bit suppressed over the coming, let's say, one, perhaps two quarters? Do you expect to maintain that level, or could we see amendments to the run rate dividend that's been paid over the past couple quarters?

Thanks for the question. You know, dividend consideration is a quarterly one by the board every meeting. And we look at the market. We look at the cash flow generation capability of our fleet, upcoming capital expenditures like dockings. So we don't have a fixed formula, but we look at it every quarter. It is our... hope to, we strive to have a consistent and sustainable dividend. That's what we talk about every quarter when dividend discussion comes up.

Yeah, okay, understood. And a bit on your terminal operations. You're saying that you expect to be complete with expanding those operations in the second half of 2025 in Tampa and I'm just wondering what sort of earnings level we can expect as a run rate when you're at, you know, full operations. And are you seeing any incremental investment opportunities in that space currently?

Johnny, you want to talk about the upcoming year, what we think an income is when we're – For ports and terminals?

Yeah. Yeah, for ports and terminals, what Mark had said earlier, I think, you know, we're seeing a lot of opportunities there. It was a good fourth quarter that was identified. It was good margins, especially in our dry bulk side in Port Everglades and the amount of volume there. But next year, if projects are coming online over not really in a straight line manner, they can be somewhat lumpy. But we do expect it to grow in 2025, and especially as we get towards the end of the year. But I think the fourth quarter is a good indication of, you know, a decent run rate of operations for our ports and terminals. And then as projects come on, they will be incremental EBITDA generated, especially towards the second half of next year.

Sorry, excuse me, second half of 2025, rather. Okay, that's great. Thanks for the good call.

Thank you. And we will take our next question from Michael Matheson with Sidoti & Company. Please go ahead.

Good morning, you guys, and congratulations on the quarter.

Thanks, Michael.

In your earnings presentation, you pointed out that near-term growth in shipping capacity is going to be pretty limited, obviously benefiting TCE rates. But looking ahead to the medium term, are there enough ships being delivered to potentially reduce TCE, and does the specialized nature of your business and your port calls kind of insulate you a bit from competitive pressures?

Well, Michael, you hit sort of right on one of our plans to lean a little bit more toward ports and terminals to get us away from the volatility of the shipping business. We think we've done that and demonstrated that it works over the past few years where our performance is a little bit better than the general market. So that is a goal of ours, to be a little more consistent, show a little more sustainable income on the bottom line. Regarding the number of ships, I think you're talking about the industry, new building deliveries into the business. That was identified a couple of years ago as a real strength behind the dry bulk industry, that the order book was low and that as time went on, there would be some tightness in the market because of the restricted deliveries of new ships into the market. New building orders have increased some, but they're still relatively low compared to historic delivery book. And we expect that over the next couple of years that will continue to have a little, cause a little tightness in the market and keep rates a little bit higher.

Great. If you'll permit a follow-up, you stated earlier that you're planning to be pretty thoughtful and disciplined about capital allocation, particularly debt pay downs. Is there sort of a target ratio for leverage?

I guess we like to see, we look at it in a couple of different ways. We look at debt as it relates to shareholders' equity on the balance sheet. We look at it going forward in terms of the cash needed to service the debt. We look at it compared to debt outstanding compared to the actual vessel values, fair market values of ships we have in our fleet. So we look at it in a lot of different ways, and at this point, we don't think we're over-leveraged. We think we're somewhere around 50% if you look at all those ratios together.

Yeah, just a comment. When we look at it from a debt-to-vessel value perspective, yeah, we're around 50% to 55% from a book value perspective. And then if it's adjusted, we also look at it from a fair market value perspective. And I think we're generally comfortable where we stand. And, yeah, and then ultimately when we look at new debt facilities, we set certain thresholds that we don't want to exceed a certain leverage amount when entering into a new facility. But when we look at corporate leverage now, I think we're pretty comfortable where we stand and what our As I mentioned, our repayment forecasts for the next couple of years were very comfortable.

What's helped us a little bit in terms of the cash necessary to make debt service is that we fixed interest rates on a significant part of the debt a few years ago, and that's paid off for us.

Well, thank you. That's very helpful. Congratulations again on the quarter.

Thank you. Thanks.

Thank you. And we will take our next question from Clement Molins with Value Investor's Edge. Please go ahead.

Good morning. Thank you for taking my questions. You've already provided ample commentary on how costs should move going forward. But as we think about the handy sizes, is there any potential for OPEX per day to come in below your figures for Supermaxes and Panamaxes? Any additional color you can provide on that would be greatly appreciated.

Thanks for the question, Clement. I think our estimate is that the OPEX will be fairly similar to our Supermax. We don't use it for the operating cost.

Makes sense. Thank you. And final question from me. This one is more on the modeling side. Could you quantify the amount of operating list liabilities you had on the balance sheet as of year end?

Sorry, Clement, could you ask that again? What was the liabilities?

Yeah, the amount of operating lease liabilities you had on the balance sheet as of year end.

Operating leases?

Exactly, yeah.

Oh, operating leases. So if I understand the question correctly, we don't have any operating leases on the balance sheet? I'm assuming you're referring to maybe chartering in the chartered-in vessels that may be, from an accounting perspective, be classified as leases. But all of our chartered- I was referring to that. Yeah, yeah. So our chartered-in vessels, we don't charter in vessels for greater than a year. Typically, our average is three to six months, sometimes a little bit longer. Sorry, sometimes longer or shorter, depending on where the market is. Currently, we're obviously chartering it on a shorter-term basis for trips and short charters. So none of our chartered-in vessels would be considered an operating lease and capitalized on the balance sheet, considering our chartering strategy.

Makes sense. Thank you for the call. Thank you for taking my questions.

Thank you. And we do have a follow-up question from Pofrat with AGP. Please go ahead.

Hi. I just have two more. Mark, you talked about increasing the Steve Doherty business to smooth out the volatility of earnings. You've been talking about that for a couple of years, but right now it's 2% of revenues in the fourth quarter, roughly. That percentage is likely to go down with the acquisition you made at the end of last year. Are there any big opportunities out there to bulk up that business? No pun intended. But are there any big opportunities out there, or is it just going to go slow and steady and never really get above 5% of total revenues?

Well, we were looking at the Panama Canal deal before it was taken away from us by BlackRock, I guess. But there are big deals out there to do, Poe, but right now we're trying to do it without spending a lot of money up front. We're making progress. We're doing it without buying land, which is an expensive way to do it. But as we grow and as we show up in more and more places, more and more opportunities are coming to us. So I think there's a little bit of momentum that we're building here that we'll be able to – we're working on.

And, Paul, just a comment also that a big part of the value of this operation shows up in our TCE, right? It's that ability to package services, Fred and Stephen, into one package. So that part of the business also drives a TCE premium that has been mentioned a couple times on the call.

Okay. And then you made a big acquisition at the end of last year. There was extensive discussions and negotiations and due diligence leading up to that because it took a while for that deal to get across the finish line. You're 70 days into it. Can you give me an idea of, you know, how it's going so far, whether there's been any surprises integrating that fleet? Any, you know, either positive or negatives that you want to highlight on how that, you know, transaction is panning out so far?

I think it's all been positive for us, Paul. You know, it's not a totally different business for us, but it does give us a little different look at some of the cargos that are available and ways to offer more service, more of an expanded service to our customers. So our participation has been welcomed by the market. The people that came with us are doing a great job of providing you know, considering our business plan and doing things a little differently with their fleet. And, you know, it's our goal to have people cross-trained in the different segments and bring different thoughts to each of the pieces of business we do. So it's been nothing but positive, actually.

Great. Very helpful. Thank you. Yep.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Mark Filanowski for any additional or closing remarks.

Thank you for joining us on the call today. If you've got follow-up questions, we're always available through our links online. Thanks very much.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.