Pangaea Logistics Solutions Ltd. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Pangaea operates drybulk vessels and provides ocean transportation worldwide. Amounts below are in U.S. dollars.
Financial and operating performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $70.4 million | $83.3 million | $166.3 million | $162.8 million |
| Operating income | $3.8 million | $6.8 million | $1.5 million | $11.1 million |
| Net income (loss) attributable to Pangaea | $3.0 million | $4.0 million | $(3.8) million | $7.7 million |
| Diluted earnings (loss) per share | $0.07 | $0.09 | $(0.09) | $0.18 |
| Adjusted EBITDA | $10.7 million | $11.7 million | $13.6 million | $21.0 million |
| Operating cash flow | Not stated separately | Not stated separately | $6.9 million | $19.6 million |
Q2 gross profit was $9.8 million, or about 13.9% of revenue, versus $12.2 million, or about 14.7%, a year earlier. Operating margin was about 5.4%, versus 8.2%. For the first half, gross profit was $11.4 million (about 6.9% of revenue), versus $20.5 million (about 12.6%); operating margin was about 0.9%, versus 6.8%.
At June 30, cash and cash equivalents were $47.0 million, with restricted cash of $2.5 million, for total cash, cash equivalents and restricted cash of $49.5 million. Working capital was $37.3 million. Secured debt, net of financing fees, was $100.3 million; finance lease liabilities totaled $61.0 million. The company reported total secured debt and finance lease liabilities of $161.2 million, down from $176.7 million at year-end 2019. Total assets were $439.5 million and stockholders’ equity was $241.0 million.
Material changes versus comparable periods
- Q2 revenue declined 15% year over year, primarily because average time charter equivalent (TCE) rates fell 17%, to $10,733 per day. Q2 shipping days increased 1% to 3,600.
- Q2 operating income and attributable net income declined; the quarter included a $1.8 million vessel impairment charge and a $0.3 million loss on vessel sales.
- For the first half, revenue increased about 2% as shipping days rose 9% to 8,176, but lower TCE rates and higher voyage and charter-hire costs contributed to sharply lower operating income and a net loss.
- First-half operating cash flow fell to $6.9 million from $19.6 million. Investing activities provided $5.8 million, versus $33.5 million used in the prior-year period, including $8.1 million of vessel-sale proceeds. Financing activities used $16.2 million, compared with $1.5 million provided.
- The Baltic Dry Index averaged 979 in Q2 2020 versus 1,154 in Q2 2019. Management reported average Supramax and Panamax market rates down about 36%. Pangaea’s Q2 TCE rate nevertheless exceeded its cited market average by about 93%.
Outlook, risks and unusual items
- Management said current resources, including expected cash generation, should fund operations for at least 12 months if drybulk rates do not decline significantly from current levels. This is conditional and not formal earnings guidance.
- The company temporarily suspended its dividend to preserve liquidity and described cost-control measures, including redelivering chartered-in vessels when possible and using short-term charters selectively.
- Management said COVID-19’s duration and financial effects were not reasonably estimable. Risks cited include weaker cargo demand, operational and crew disruptions, reduced cash flow or access to capital, lower vessel values, impairment charges, and potential covenant pressure.
- The company recorded a $1.8 million impairment on the Bulk Beothuk following an agreement to sell it for $4.6 million less brokerage commission. Delivery to the buyer occurred August 4, 2020, after quarter-end. Management reported no additional impairment for other asset groups.
- Approximately $11.4 million of balloon payments on the Nordic Odyssey and Nordic Orion facilities were due in September 2020; the company said it planned to refinance or repay them. It was compliant with applicable financial covenants at June 30, 2020.
- Four new high-ice-class vessels are expected to be delivered in 2021 at stated build costs of approximately $37.7 million to $38.3 million each. Deposits totaled $15.4 million at quarter-end. Related sale-and-leaseback arrangements contemplate 15-year bareboat charters and purchase obligations.
- Ordinary-course claims and litigation exist; management believes any ultimate financial impact would not be material to consolidated financial position, results or cash flows. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the September 2020 $11.4 million balloon payment was refinanced or repaid, and the resulting financing terms.
- Subsequent drybulk rates, cargo demand and COVID-19 impacts relative to management’s conditional 12-month liquidity assessment.
- Liquidity and covenant headroom, including the effect of vessel valuations and restricted cash.
- Funding needs, delivery timing and final financing terms for the four newbuild vessels and their sale-and-leaseback commitments.
- Whether vessel impairment assumptions, derivative valuation changes and vessel-sale proceeds materially affect later-period results.