Pangaea Logistics Solutions Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Pangaea operates drybulk vessels worldwide through owned and chartered-in tonnage. Results are unaudited and consolidated.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $125.0 million | $95.9 million |
| Operating income (loss) | $6.4 million | $(2.3) million |
| Net income (loss) attributable to Pangaea | $5.9 million | $(6.8) million |
| Diluted earnings (loss) per share | $0.13 | $(0.16) |
| Adjusted EBITDA | $11.7 million | $2.9 million |
| Net cash from (used in) operating activities | $4.9 million | $(6.8) million |
Revenue increased 30%, primarily reflecting stronger realized freight rates. Voyage revenue rose 25% to $108.2 million; charter revenue increased 79% to $16.7 million. Total shipping days rose about 2% to 4,668, while TCE rate increased 57% to $16,524 per day. Gross profit was $10.7 million versus $1.6 million; operating margin was approximately 5.1% versus negative 2.4%, and attributable net margin approximately 4.7% versus negative 7.1%. Adjusted EBITDA and net transportation and service revenue are non-GAAP measures as defined by the company.
Liquidity, debt and cash flow
At March 31, cash and cash equivalents were $42.0 million, down from $48.4 million including restricted cash at year-end. Working capital was $49.7 million, compared with $2.2 million at December 31, 2020. Operating cash flow was $4.9 million; investing activities used $5.5 million, mainly for vessel-related spending, and financing activities used $5.9 million, including debt and lease repayments and dividends.
Secured long-term debt, net of fees, was $98.9 million; finance lease liabilities totaled $55.8 million. The company reported $154.7 million of total secured debt including finance leases. It was in compliance with applicable financial covenants at quarter-end. Current secured debt fell substantially from year-end largely because debt classification and the subsequent refinancing affected maturities.
Material changes and notable items
- Operating results improved from a prior-year loss as drybulk markets strengthened: the Baltic Dry Index averaged 1,716 in Q1 2021 versus 549 in Q1 2020. Company TCE rates exceeded the average relevant market rates by approximately 2%, which management attributed to COAs, fleet specialization and its cargo-focused strategy.
- Charter hire expense increased 66% to $53.6 million as market rates and chartered-in days increased. Voyage expense was broadly unchanged at $47.8 million; lower bunker costs were offset by higher port-related costs. Vessel operating expense declined 14% to $8.5 million.
- Derivative instruments generated a $2.0 million unrealized gain, versus a $2.9 million unrealized loss in Q1 2020. The 2021 gain included approximately $0.7 million on fuel swaps, $0.5 million on forward freight agreements and $0.8 million on interest rate derivatives; these fair-value movements can make reported results volatile.
- The company purchased two vessels under agreements signed during the quarter: one was delivered April 8, 2021, and the other was expected in July 2021. It also had $15.4 million invested in four newbuildings expected to be delivered in 2021, with further installments due upon delivery.
- On April 26, 2021, NBHC entered a $53.0 million secured loan facility at a fixed 3.375% rate, using part of the proceeds to repay approximately $50.0 million of loans due in October 2021. The new facility has quarterly installments and a $25.86 million balloon due in March 2027.
- The board declared a $0.035-per-share dividend on May 10, 2021, payable June 15. On May 11, the company signed an agreement to acquire another drybulk vessel for $17.8 million.
Outlook, risks and contingencies
Management said current cash and expected cash generation should fund operations for at least the next 12 months if drybulk rates do not decline significantly from current levels. This is conditional, not a guarantee. Management described the sector as cyclical and volatile, with results exposed to vessel supply and cargo demand, competition, seasonality and freight-rate movements. COVID-19-related uncertainty, crew health and travel restrictions remained operational considerations. The company also cited capital needs for vessel acquisitions, drydockings and ballast-water treatment systems, estimated at $0.5 million to $0.7 million per vessel.
Finance lease obligations, vessel newbuilding commitments and deferred consideration for the NBHC interest acquisition remain relevant funding obligations. Ordinary-course claims, principally cargo claims, are disclosed; management believes their ultimate financial impact will not be material, though it gives no assurance. No impairment trigger was identified in Q1 2021. Management stated that disclosure controls were effective and that no material change in internal control occurred during the quarter.
Important facts for investors to verify
- Whether freight rates and realized TCE performance remain strong enough to support management’s conditional 12-month liquidity outlook.
- Cash requirements and delivery timing for the vessel acquisitions, four newbuildings, related sale-and-leaseback financing and other capital expenditures.
- The effects of the April refinancing, including its amortization, balloon payment, collateral and covenant requirements.
- How charter-in costs, fuel and port expenses, and derivative fair-value changes affect future margins and earnings.
- Potential effects of shipping-market cyclicality, COVID-19 disruptions, cargo claims and other contingencies.