Pangaea Logistics Solutions Ltd. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are with FY2018. The filing was signed March 23, 2020. This is an annual report, not a standalone fourth-quarter filing.
Business context and financial performance
Pangaea provides drybulk shipping and logistics services, mainly through voyage charters, contracts of affreightment (COAs), and time charters. It combines owned and chartered-in vessels, with a focus on specialized ice-class trades, backhaul cargoes, and customized logistics. It operated an average of 48 vessels in 2019 and transported cargo across approximately 250 ports.
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Total revenue | $412.2 million | $373.0 million | Up 10.5% |
| Voyage revenue | $365.7 million | $319.8 million | Up 14%; voyage days rose 12% |
| Charter revenue | $46.5 million | $53.2 million | Down 13%; time-charter days declined |
| Gross profit | $50.1 million | $53.5 million | Gross margin 12.2%, versus 14.4% |
| Operating income | $23.3 million | $36.1 million | Operating margin 5.6%, versus 9.7% |
| Net income attributable to Pangaea | $11.7 million | $17.8 million | Down 34%; diluted EPS was $0.27 versus $0.42 |
| Adjusted EBITDA | $51.1 million | $54.6 million | Down 6.3%; non-GAAP measure |
| TCE rate | $14,199/day | $14,019/day | Up 1%; management said it exceeded the relevant market average by 41% |
Cash flow, liquidity, and debt
- Operating cash flow was $44.5 million, up from $40.1 million. Investing activities used $46.6 million, mainly for vessel acquisitions and $15.7 million of newbuilding deposits. Financing activities used $0.9 million.
- Cash and cash equivalents were $50.6 million; restricted cash was $2.5 million. Working capital was $36.1 million, compared with $34.5 million at year-end 2018.
- Debt and finance lease liabilities totaled $176.7 million at year-end, versus $166.6 million in 2018. This comprises $106.6 million of secured debt net of fees and $70.0 million of finance lease liabilities. The company reported compliance with its debt covenants.
- Cash dividends declared were $0.105 per common share in 2019. The board suspended the quarterly dividend on March 20, 2020, citing COVID-19 uncertainty.
Material changes and unusual items
- Revenue increased with higher shipping days, while operating costs also rose: voyage expense increased 14%, charter hire expense 14%, and vessel operating expense 14%.
- FY2019 included a $4.8 million impairment on the Bulk Patriot and $4.6 million of losses on vessel sales. These items contributed to lower operating income. The fourth quarter recorded a $0.9 million operating loss and a $4.4 million net loss attributable to Pangaea; vessel impairment and sale losses were key unusual items.
- Three vessels were acquired during 2019. The company also agreed to sell the Bulk Patriot and Nordic Barents; both sales were completed in February 2020. The filing reports that the company sold the Bulk Juliana and Nordic Bothnia in late 2019.
- Pangaea contracted to build four 95,000-dwt ice-class post-Panamax vessels, expected to be delivered in 2021. Estimated build costs were approximately $38.3 million each for two ships and $37.7 million each for the other two. Financing arrangements contemplate sale-leasebacks and long-term bareboat charters.
- Unrealized derivative results improved to a $2.8 million gain from a $3.9 million loss in 2018, largely reflecting fuel swaps. The filing cautions that derivatives can add period-to-period earnings volatility.
Outlook, risks, and contingencies
- Management provided no specific earnings or revenue guidance. It stated that cash on hand, expected operating cash flows, borrowing availability, and noncontrolling-interest contributions should cover operating and capital needs for the next 12 months and foreseeable future.
- COVID-19 had not materially affected operations as of the filing date, but management could not estimate its impact and warned it could be material in coming months. The pandemic may disrupt port calls, crew movements, customers, suppliers, and cargo schedules.
- For 2020, the company expected five special surveys costing approximately $5.7 million and three intermediate surveys costing approximately $1.5 million. Survey and repair work was estimated to cause 10–20 off-hire days per vessel. Ballast-water treatment systems were estimated to cost $0.5–$0.7 million per vessel.
- Key risks include volatile drybulk rates and vessel values, fuel-price exposure, customer and counterparty concentration, floating-rate debt and refinancing needs, covenant and collateral requirements, environmental and safety regulation, and potential operational disruption. One customer represented about 11% of 2019 revenue; the top ten customers represented 41%.
- The company disclosed no legal proceedings believed likely to have a significant effect on its business or financial position. The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Confirm current liquidity, debt maturities, finance-lease obligations, and covenant headroom, especially in light of market conditions after the filing date.
- Assess the effect of COVID-19 and the dividend suspension on operating cash flows, port access, vessel utilization, and customer demand.
- Review the economics, funding commitments, delivery schedule, and sale-leaseback terms for the four newbuild vessels.
- Evaluate the drivers of lower 2019 margins and whether the elevated operating costs, impairment, and vessel-sale losses are recurring.
- Verify customer concentration, receivable collectability, and exposure to fuel, freight-rate, interest-rate, and vessel-value movements.