Pangaea Logistics Solutions Ltd. — Q2 2021 Form 10-Q
Business and period: The company provides global dry-bulk ocean transportation through owned and chartered vessels. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods unless otherwise noted.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $145.5m | $70.4m | $270.5m | $166.3m |
| Operating income | $16.2m | $3.8m | $22.5m | $1.5m |
| Net income (loss) | $19.6m | $3.3m | $26.1m | $(3.5)m |
| Net income (loss) attributable to Pangaea | $19.2m | $3.0m | $25.1m | $(3.8)m |
| Diluted EPS | $0.43 | $0.07 | $0.56 | $(0.09) |
| Adjusted EBITDA (non-GAAP) | $21.4m | $10.7m | $33.2m | $13.6m |
| TCE rate per day | $21,053 | $10,733 | $18,802 | $10,607 |
Q2 gross profit was $22.2m (about 15.3% of revenue, versus about 13.9% in Q2 2020); operating margin was about 11.1%, versus 5.4%. Revenue rose 107% in Q2, driven by higher TCE rates and 31% more shipping days. Voyage revenue increased 76%; charter revenue increased to $28.1m from $3.5m as charter days and market rates rose. Q2 voyage and charter-hire expenses were $46.1m and $62.6m, respectively. For the first half, voyage and charter-hire expenses were $94.0m and $116.2m.
Six-month operating cash flow was $19.5m, up from $6.9m. Investing used $108.7m, mainly for vessel purchases; financing provided $81.3m, including debt and finance-lease proceeds. Cash and cash equivalents were $40.6m at June 30, down from $46.9m at year-end 2020. Working capital was $46.6m, compared with $2.2m at year-end. Secured debt plus finance-lease liabilities totaled $242.7m, versus $159.4m at year-end. The company reported compliance with its debt covenants.
Material changes, outlook and risks
- Dry-bulk market conditions improved sharply: the Baltic Dry Index averaged 3,001 in Q2 2021 versus 979 a year earlier; published Supramax and Panamax rates averaged $24,185/day versus $5,548. Management said achieved TCE rates lagged the market partly because of voyage timing and fixed-rate cargo contracts.
- The company acquired vessels and expanded its fleet; Q2 investing included $105.4m for four vessels. Two post-Panamax newbuildings were delivered in Q2, with two more expected in Q3 and Q4 2021. The two remaining newbuildings carry approximately $76m of commitments and are subject to finance leases. Bulk Promise was delivered July 12, 2021 for $18.3m, partly financed with a $12.8m loan.
- Management said current resources, including expected operating cash flow, should fund operations for at least 12 months if dry-bulk rates do not decline significantly. This outlook is conditional, not a formal earnings forecast. Management highlighted the sector’s rate volatility, vessel supply and cargo demand, seasonality, and ongoing COVID-19 uncertainty.
- Derivative mark-to-market gains materially affected reported results: $6.3m in Q2 and $8.3m for the first half, including forward freight and fuel-swap gains. Management cautioned that these instruments can create period-to-period earnings volatility.
- New finance leases and debt increased leverage; some vessel lease rates are floating, although the Bulk Courageous lease rate was fixed after quarter-end. The company also cited potential drydocking and regulatory costs, including estimated ballast-water-system costs of $0.5m–$0.7m per vessel. Ordinary-course claims and litigation were disclosed; management did not expect a material financial impact.
- After quarter-end, the board declared a $0.035-per-share quarterly dividend, payable September 15, 2021 to holders of record September 1.
Important facts for investors to verify
- The statements report Q2 diluted EPS of $0.43, while the MD&A highlights list $0.44; verify the intended diluted figure.
- Check the reported earnings figures across the statements and MD&A: the statements show Q2 net income of $19.577m and parent-attributable income of $19.227m, while the MD&A selected-data table shows $19.552m and $19.202m.
- Monitor freight rates and charter-in costs, which are exposed to rapidly changing dry-bulk markets, as well as the timing and financing of the remaining newbuild deliveries.
- Assess liquidity and leverage after vessel investment and lease commitments, and distinguish derivative mark-to-market gains from operating performance and realized cash results.