Pangaea Logistics Solutions Ltd. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. The company provides drybulk shipping and logistics services using owned, leased, and short-term chartered vessels.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $382.9 million | $412.2 million |
| Gross profit | $38.3 million | $50.1 million |
| Income from operations | $19.7 million | $23.3 million |
| Net income | $12.7 million | $17.0 million |
| Net income attributable to Pangaea | $11.4 million | $11.7 million |
| Diluted earnings per share | $0.26 | $0.27 |
| Adjusted EBITDA | $41.6 million | $52.9 million |
| Operating cash flow | $20.8 million | $44.5 million |
| Cash, cash equivalents and restricted cash | $48.4 million | $53.1 million |
| Working capital | $2.2 million | $37.1 million |
| Secured debt, including finance leases | $159.4 million | $176.7 million |
Revenue declined about 7%; gross profit fell about 24%, and gross margin narrowed to approximately 10.0% from 12.2%. TCE rates fell 12% to $12,433 per day, but remained about 55% above the reported average Panamax and Supramax market rate of approximately $8,020. Shipping days increased 2% to 17,777.
Voyage revenue declined 4% to $349.7 million; charter revenue fell 29% to $33.2 million. Lower fuel costs, charter-in rates, vessel operating expenses and administrative expenses partly offset weaker TCE rates. Cash from operations more than halved year over year. Investing cash use was $6.9 million, while financing cash use was $18.6 million.
Material changes and balance-sheet matters
- Working capital fell to $2.2 million, primarily because $57.4 million of debt was classified as current, including balloon payments due in 2021.
- On March 8, 2021, the company obtained a commitment for a new six-year, $53 million secured term loan intended to refinance specified vessel-loan balloon amounts. The filing expected completion in March 2021.
- In September 2020, Pangaea paid $15 million and agreed to $7.5 million of deferred consideration to acquire an additional one-third interest in Nordic Bulk Holding Company, raising its ownership to 66.7%.
- The company recorded $1.8 million of vessel impairment and $0.7 million of vessel-sale losses in 2020, compared with $4.8 million of impairment and $4.6 million of sale losses in 2019.
- Cash dividends were suspended in March 2020 and a $0.02-per-share quarterly dividend was declared in December. The company reported $1.0 million of dividends payable at year-end and cautioned that future dividends are not assured.
Outlook, risks and unusual items
Management said the drybulk market showed signs of improvement late in 2020, citing recovering demand and fewer newbuilding deliveries, but provided no quantified earnings or revenue guidance. It expects operating results to remain volatile with freight rates, commodity demand, seasonality and vessel supply. Management believes cash on hand, operating cash flow and borrowing availability will cover operating and capital needs for the next 12 months and foreseeable future.
- COVID-19 disrupted trade and crew rotations, causing additional costs, operational delays and off-hire exposure. Management reported lower rates in 2020 partly due to pandemic-related disruption and weaker demand for some cargoes.
- Four high-ice-class Post-Panamax newbuildings were expected in 2021, at an estimated cost of $37.7–$38.3 million each. The company had paid $15.4 million in deposits and arranged planned sale-and-leaseback financing. It also agreed in early 2021 to purchase two secondhand vessels for $16.5 million and $18.3 million.
- Management expected five special surveys costing about $6.3 million and three intermediate surveys costing about $1.4 million in 2021. Ballast-water treatment systems were estimated to cost $0.5–$0.7 million per vessel.
- Debt agreements include minimum liquidity, leverage, debt-service and vessel-collateral covenants, and can restrict dividends and other actions. The company reported compliance at year-end; vessel-value declines or refinancing difficulties could pressure covenant compliance and liquidity.
- Other principal risks include volatile freight and fuel prices, floating-rate debt and LIBOR transition, customer and counterparty concentration, environmental and emissions regulation, vessel incidents, and access to financing. One customer represented about 10% of 2020 revenue; the top ten customers represented 44%.
The auditor issued an unqualified opinion on the financial statements and identified vessel impairment assessment as a critical audit matter. Management concluded internal control over financial reporting was effective; the auditor did not provide an internal-control attestation because of the company’s filer status.
Important facts for investors to verify
- Whether the $53 million refinancing closed on the anticipated terms and adequately addressed the 2021 balloon maturities.
- Current liquidity, covenant headroom and the effect of scheduled debt and finance-lease payments on cash available for operations and investment.
- Delivery timing, total funding needs and actual financing terms for the four newbuildings and the two secondhand vessel purchases.
- Whether freight rates, TCE performance and customer demand improved after year-end, and whether COVID-related crew and operating disruptions persisted.
- The sustainability of operating cash flow and the dividend, given the 2020 decline in cash generation and the company’s debt restrictions.
- Key impairment assumptions for vessel cash flows and values, which the auditor described as involving significant management estimates.