Pangaea Logistics Solutions Ltd. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Pangaea operates drybulk vessels through ownership, chartering and operation. At quarter-end it owned or operated a fleet spanning Panamax, Ultramax and Supramax vessels, including through joint ventures.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $213.0 million | $103.8 million | $483.5 million | $270.0 million |
| Operating income | $25.5 million | $10.0 million | $48.1 million | $11.4 million |
| Net income attributable to Pangaea | $27.0 million | $7.6 million | $52.1 million | $3.8 million |
| Diluted earnings per share | $0.60 | $0.17 | $1.16 | $0.09 |
| Adjusted EBITDA (non-GAAP) | $33.6 million | $15.4 million | $67.1 million | $29.7 million |
| TCE rate per day | $28,770 | $13,316 | $22,400 | $11,600 |
Q3 gross profit was $30.0 million (14.1% of revenue); operating margin was 12.0%. For the nine-month period, gross profit was $62.8 million (13.0% of revenue) and operating margin was 9.9%. These margins are calculated from reported amounts.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $42.7 million, versus $22.4 million in 2020. Investing cash use was $159.8 million, primarily reflecting $159.7 million spent to purchase six vessels. Financing provided $117.9 million, including debt and finance-lease proceeds.
- Cash and cash equivalents were $49.2 million at September 30, 2021. Working capital was $63.3 million, compared with $2.2 million at December 31, 2020; management attributed the improvement in part to refinancing debt that had been due in October 2021.
- Secured debt, net of issuance costs, was $124.4 million, and finance-lease liabilities totaled $156.8 million. The filing’s selected balance-sheet data reports total secured debt including finance leases of $281.3 million. The company reported compliance with applicable financial covenants.
- Stockholders’ equity was $284.4 million, compared with $234.4 million at year-end 2020. Total assets were $656.8 million, up from $450.4 million.
Material changes and management commentary
Revenue rose 105% in Q3 and 79% for the nine months, reflecting higher freight rates and more shipping days. Q3 TCE increased 116% year over year. Management cited a Q3 Baltic Dry Index average of 4,197, versus 1,515 a year earlier, and Supramax/Panamax market rates averaging $32,033 per day. Pangaea’s achieved TCE lagged that market average because of voyage timing and fixed-rate cargo contracts.
Higher market rates also drove charter-hire expense up 197% in Q3 and 167% for the nine months. Voyage expenses increased with bunker, port and canal costs. Vessel operating expense rose in Q3 as acquisitions increased owned vessel days. The company reported $13.7 million of nine-month unrealized derivative gains, including $11.0 million on forward freight agreements; these mark-to-market gains can make reported results fluctuate.
Outlook, risks and unusual items
- Management stated that existing cash and expected cash generation were expected to fund operations for at least 12 months, provided drybulk rates did not decline significantly from then-current levels. This is conditional, not formal earnings guidance.
- The company described drybulk shipping as cyclical and volatile, with results exposed to cargo demand, vessel supply, competition and seasonality. It also discussed COVID-19 uncertainty and measures to manage costs and protect employees and crew.
- A newbuilding, Nordic Siku, was expected to be delivered in Q4 2021, with approximately $35 million of NBP delivery commitments noted. In November, after quarter-end, the company agreed to buy a 2009-built Panamax vessel for $19.9 million, expected to deliver in Q1 2022.
- After quarter-end, the board declared a $0.035-per-share quarterly dividend payable December 15, 2021. Ordinary-course claims and litigation were disclosed; management believed their ultimate financial impact would not be material, though it gave no assurance.
- Several vessel transactions were accounted for as failed sale-and-leasebacks and recorded as finance leases. Finance-lease obligations included $202.6 million of future minimum payments before imputed interest. Some lease rates are floating-rate based, although certain rates were fixed during 2021.
Important facts for investors to verify
- Whether freight rates and TCE remain strong enough to support management’s conditional 12-month liquidity outlook, particularly given elevated charter-hire costs.
- The cash-flow and balance-sheet effects of vessel purchases, newbuilding delivery commitments, and the substantial finance-lease payment schedule.
- How much reported earnings depend on unrealized derivative gains and how derivative positions perform when settled.
- Current debt maturities, floating-rate exposure, covenant headroom and the effects of refinancing and lease financing.
- Whether subsequent vessel acquisition and dividend commitments affect liquidity and capital priorities.