Pangaea Logistics Solutions Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. Pangaea transports dry-bulk cargo worldwide using owned and chartered vessels.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $113.7 million | $191.8 million | Down 41% |
| Income from operations | $6.5 million | $20.0 million | Down 68% |
| Net income attributable to Pangaea | $3.5 million | $20.2 million | Down 83% |
| Diluted earnings per share | $0.08 | $0.45 | Down $0.37 |
| Adjusted EBITDA (non-GAAP) | $16.2 million | $31.3 million | Down 48% |
| Operating cash flow | $11.6 million | $32.1 million | Down $20.5 million |
| TCE rate per day | $14,372 | $26,472 | Down 46% |
| Total shipping days | 3,958 | 4,779 | Down 17% |
Voyage revenue fell 39% to $108.0 million; charter revenue fell 63% to $5.7 million. Lower freight rates and fewer shipping days drove the revenue decline. Gross profit was $13.4 million, or approximately 11.8% of revenue, compared with $28.3 million, or 14.8%, a year earlier. Operating margin was approximately 5.7%, versus 10.4%.
Cash and cash equivalents were $129.1 million at March 31, 2023, compared with $128.4 million at year-end 2022. Working capital was $132.6 million. Operating activities generated $11.6 million; investing activities generated $8.8 million, including $8.9 million of vessel-sale proceeds; financing activities used $19.6 million, including debt and lease repayments and dividends. Cash increased by $0.8 million during the quarter.
Secured debt, including finance lease liabilities, totaled $289.9 million, down from $299.5 million at December 31, 2022. This comprises $108.9 million of secured debt, net, and $181.0 million of finance lease liabilities, net. The company reported compliance with applicable debt covenants at quarter-end.
Material changes and unusual items
- The dry-bulk market weakened: the Baltic Dry Index averaged 1,020 in Q1 2023, approximately 47% below the prior quarter; published Supramax and Panamax market rates were down approximately 57% year over year. Pangaea said its achieved TCE rate exceeded the average of relevant market indexes by approximately 48%, attributing this to contracts of affreightment, its specialized fleet, and cargo-focused strategy.
- Charter hire expense declined 71% to $22.6 million, reflecting lower market charter rates and a 33% reduction in chartered-in days. Voyage expense fell 13% to $56.8 million, while vessel operating expense rose 3% to $13.6 million amid crew and inflation-related costs.
- The company recorded a $1.2 million loss on sale of the m/v Bulk Newport; it reported no additional vessel impairment in Q1 2023. Q1 2022 included a $3.0 million impairment charge.
- Net derivative results were a $0.4 million loss in Q1 2023, including an approximately $0.8 million loss on interest-rate caps, compared with a $7.5 million net gain in Q1 2022. Management cautions that mark-to-market changes can cause period-to-period earnings volatility.
- The company paid $5.0 million to a non-controlling interest holder and $4.6 million in common-stock dividends during the quarter.
Outlook, risks, and contingencies
Management said current cash and anticipated cash generation should be sufficient to fund operations for at least 12 months, provided dry-bulk shipping rates do not decline significantly from current levels. The filing provides no numerical earnings or revenue guidance.
Management expects continued volatility due to freight demand, vessel supply, competition, and seasonality. Inflation is affecting crew, equipment, stores, spares, and drydocking costs. Management expects crew payroll costs to stabilize over the near to medium term; it noted that fuel-cost increases are generally passed through to customers or covered under long-term contract terms. It also said fixed or capped rates on much of the debt and finance leases limit exposure to higher interest rates.
On March 24, 2023, Pangaea agreed to acquire marine port-terminal operations for $7.2 million. After quarter-end, it agreed to buy a 2014-built Ultramax vessel for $26.6 million, with expected delivery in June 2023. The board declared a $0.10-per-share quarterly dividend on May 9, payable June 15 to holders of record June 1.
The company disclosed ordinary-course claims and litigation, principally cargo claims; management believes any ultimate financial impact would not be material to consolidated financial position, results, or cash flows. It reported effective disclosure controls and no material changes in internal control over financial reporting. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether freight rates and shipping demand stabilize, and whether Pangaea can maintain its TCE outperformance as market conditions change.
- How the terminal acquisition and planned vessel purchase will be funded and affect liquidity, debt, and returns.
- Cash generation relative to debt and finance-lease payments, including scheduled debt payments of about $30.8 million in 2024 and $40.0 million in 2027.
- Whether operating costs, derivative mark-to-market results, and vessel-related contingencies materially affect future margins and earnings.
- Whether the declared quarterly dividend remains supportable under the company’s stated assumption that shipping rates do not decline significantly.