Pangaea Logistics Solutions Ltd. — Q1 2020 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2020. Pangaea provides global dry-bulk shipping through owned and chartered vessels, including specialized ice-class capacity.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $95.9 million | $79.5 million; up 21% |
| Operating income (loss) | $(2.3) million | $4.3 million |
| Net income (loss) attributable to Pangaea | $(6.8) million | $3.7 million |
| EPS, basic and diluted | $(0.16) | $0.09 |
| Adjusted EBITDA | $2.9 million | $9.3 million |
| Operating cash flow | $(6.8) million | $12.0 million |
| Cash, cash equivalents and restricted cash | $42.5 million at March 31 | $53.1 million at December 31, 2019 |
| Secured debt and finance lease liabilities | $166.1 million | $176.7 million at December 31, 2019 |
| Working capital | $28.4 million | $37.1 million at December 31, 2019 |
Margins and rates: Gross profit was approximately $1.6 million, or 1.7% of revenue, versus $8.3 million, or about 10.5%, in Q1 2019. TCE rate was $10,508 per day, down 13% from $12,029, but about 78% above the reported market average.
Changes versus Q1 2019
- Revenue growth reflected a 16% increase in shipping days. Voyage revenue rose 31% to $86.5 million, while charter revenue declined 32% to $9.4 million.
- Voyage expense increased 49% to $47.8 million, reflecting more voyage days, bunker-lifting timing associated with IMO 2020 fuel requirements, and higher port-related expenses. Charter hire expense rose 30% to $32.3 million as chartered-in days increased 35%.
- Results shifted from profit to loss. Management cited higher voyage and charter-hire expenses; the $2.9 million net unrealized derivative loss, compared with a $2.3 million net unrealized gain in Q1 2019, also affected results.
- Operating cash flow fell to an outflow, which management attributed primarily to the net loss and higher dry-docking costs. Investing cash flow was positive $7.5 million, including proceeds from two vessel sales; financing cash flow was negative $11.2 million, including finance-lease payments.
Outlook, risks and unusual items
- Management said the COVID-19 pandemic’s overall financial impact could not yet be determined. Risks include reduced cargo demand, operational and crew disruptions, delays, weaker vessel values, liquidity pressure, and possible covenant effects. The company reported no impairment trigger at March 31.
- Management reported compliance with applicable financial covenants. It stated that available capital resources and cash expected from operations should fund operations for at least 12 months if dry-bulk rates do not decline significantly from current levels.
- The company temporarily suspended its dividend to preserve liquidity, reduced exposure to the market by redelivering chartered-in vessels when possible, and said it would continue using short-term charters as needed.
- Balloon payments for two vessel loans were due in September 2020; the company said it would refinance or pay them off. Four new high-ice-class vessels are under construction for expected 2021 delivery, at an estimated cost of $37.7–$38.3 million each, with sale-and-leaseback financing arrangements planned.
- Fuel-swap fair-value losses were approximately $2.6 million and interest-rate-cap fair-value losses approximately $0.4 million. Management noted fuel-derivative declines may be offset by lower underlying fuel costs. The company also completed an early $5.5 million buyout of the Bulk Beothuk lease and sold two vessels during the quarter.
- Ordinary-course claims and cargo disputes are disclosed; management expects their ultimate financial impact not to be material. No specific earnings or rate guidance was provided.
Important facts for investors to verify
- How COVID-19 affects freight demand, operating days, charter rates, and cash generation after quarter-end.
- Plans and funding for the September 2020 balloon payments, and ongoing covenant and liquidity headroom.
- Timing, remaining funding requirements, and final financing terms for the four newbuild vessels.
- Whether derivative valuation changes are offset by movements in actual fuel and freight costs.