Pangaea Logistics Solutions Ltd. — Q3 2020 Form 10-Q
Business context and period: The company provides global dry-bulk ocean transportation through owned and chartered vessels. This unaudited quarterly report covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $103.8 million | $118.9 million | $270.0 million | $281.7 million |
| Gross profit | $14.2 million | $15.9 million | $25.6 million | $36.4 million |
| Gross profit margin | 13.7% | 13.3% | 9.5% | 12.9% |
| Operating income | $10.0 million | $13.1 million | $11.4 million | $24.1 million |
| Net income attributable to Pangaea | $7.6 million | $8.3 million | $3.8 million | $16.1 million |
| Diluted earnings per share | $0.17 | $0.19 | $0.09 | $0.37 |
| Adjusted EBITDA | $15.1 million | $18.0 million | $28.7 million | $39.0 million |
For Q3, total revenue fell 13%, while shipping days rose 2%. TCE rates declined 16% to $13,316 per day, but remained about 29% above the reported market average. For the nine-month period, TCE rates fell 16% to $11,600 per day; management said they outperformed the relevant market average by about 60%. Adjusted EBITDA is a non-GAAP measure defined by the company.
Cash flow and liquidity: Operating cash flow was $22.4 million for the first nine months, versus $23.4 million in 2019. Investing activities used $6.0 million, compared with $48.2 million used in 2019; financing activities used $21.4 million, versus $5.3 million provided. Cash, cash equivalents and restricted cash totaled $48.1 million at September 30, down from $53.1 million at year-end 2019. Working capital was $17.3 million, compared with $37.1 million at year-end.
Debt and balance sheet: Secured debt, net of financing fees, was $97.1 million; finance lease liabilities totaled $59.2 million. Together these were $156.4 million, compared with $176.7 million at December 31, 2019. Current secured debt was $31.6 million. Total assets were $443.4 million and total stockholders’ equity was $227.1 million. The company reported compliance with its financial covenants at September 30.
Material changes and notable items
- Nine-month revenue decreased 4%; lower charter revenue and TCE rates more than offset higher voyage revenue. Nine-month attributable net income fell to $3.8 million from $16.1 million, including a $1.8 million vessel impairment charge, a $0.7 million loss on vessel sales, and less favorable derivative results.
- On September 28, the company acquired an additional one-third interest in Nordic Bulk Holding Company, raising its ownership to 66.7%. Consideration was $22.5 million: $15.0 million paid at closing and $7.5 million deferred in three annual installments.
- The company received $11.7 million from vessel sales during the first nine months and paid $15.0 million toward the NBHC acquisition. It also reported a $0.5 million Q3 loss on vessel sales.
- The company’s four newbuild vessels are expected to be delivered in 2021, at an estimated cost of approximately $37.7–$38.3 million each. It had deposited $15.4 million by quarter-end. Related proposed sale-and-leaseback financing would involve 15-year bareboat charters and purchase options.
- The dividend was temporarily suspended to preserve liquidity. The company also described reducing operating costs and using short-term charter-ins to limit exposure to market declines.
Outlook, risks and contingencies
Management stated that, if dry-bulk rates do not decline significantly from current levels, available capital and expected cash generation should fund operations for at least the next 12 months. This is conditional commentary, not formal earnings guidance. A November 2 nonbinding term sheet proposed up to $18.0 million of refinancing for NBHC at 2.95% for 84 months; the company intended to use part of the proceeds to repay the $10.6 million Nordic Odyssey/Orion facility due December 31, 2020. The filing does not establish that the refinancing was completed.
Management highlighted uncertainty from COVID-19 and dry-bulk market cyclicality. Possible effects include disrupted crew changes, cargo delays, reduced demand and cash flows, tighter financing access, lower vessel values, impairment charges, and covenant pressure. The company said the pandemic’s duration and financial impact could not be reasonably estimated. It reported ordinary-course claims and litigation, but management did not expect their ultimate financial impact to be material. No material changes in market-risk disclosures were reported.
Facts investors should verify
- Whether the proposed NBHC refinancing closed before the $10.6 million maturity, and the final terms and funding source.
- Liquidity and covenant headroom, including scheduled debt principal, balloon payments, and finance-lease obligations.
- Progress, remaining funding requirements, and financing costs for the four 2021 newbuild vessels.
- Whether TCE rates and vessel utilization remain above market benchmarks as dry-bulk demand and COVID-19 conditions evolve.
- The effect of the NBHC ownership increase on attributable earnings, non-controlling interests, and future cash distributions.