Pangaea Logistics Solutions - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered operational outperformance but weaker profitability: adjusted EBITDA of $14.8M, TCE $11,390/day (+33% vs weighted Baltic indices), and an adjusted net loss of $2.2M (-$0.03 diluted EPS), driven by a sharp decline in market rates and planned dry dockings.
• Capital return pivot: dividend reduced to $0.05/share (from $0.10 in Feb) and new $15M buyback authorization (≈5.6% of market cap on May 8), signaling flexible capital allocation amid a volatile dry bulk backdrop.
• Integration of 15 SSI handysize vessels progressing; management targets at least $2.5M annual cost savings from scale efficiencies (e.g., insurance), while expanding port logistics (Tampa completion 2H 2025; Lake Charles, Port Aransas added in 2025).
• Q2 setup: booked 4,275 shipping days at $12,524/day TCE to date; chartered-in days ~1,795 at $11,472/day, implying ~$1,052/day margin and a 65-vessel average fleet for the quarter.
• Estimates unavailable via S&P Global for Q1 2025; focus shifts to execution against TCE premium, cost synergy delivery, and terminal ramp milestones (Tampa late Q3/Q4 start).

What Went Well and What Went Wrong

What Went Well

• Sustained commercial outperformance: TCE $11,390/day exceeded weighted Baltic Panamax/Supramax/Handysize indices by 33%, supported by long-term COAs and cargo-focused strategy.
• Scale and integration benefits: SSI fleet integration driving cost synergies (insurance) and targeted $2.5M annual savings; expanded geographic/cargo capabilities for Handy vessels.
• Logistics expansion on track: Port of Tampa infrastructure investment proceeding for 2H 2025 completion; Lake Charles and Port Aransas terminals being added in 2025.
• Credible Q2 visibility: 4,275 shipping days booked at $12,524/day; charter-in book ~1,795 days at $11,472/day, supporting charter-in margin of ~$1,052/day.
• Capital flexibility: $15M buyback authorized while maintaining a dividend (now $0.05), allowing opportunistic repurchases in perceived undervaluation windows.

What Went Wrong

• Market rate compression: TCE/day down 36% YoY and adjusted EBITDA margin compressed to 12.0% vs 18.6% prior year; adjusted EBITDA fell to $14.8M (–24.2% YoY) primarily on weaker freight/time-charter rates.
• Higher costs and planned off-hire: vessel operating expenses +75% YoY on SSI-owned day growth; 160 off-hire days for dry dockings pulled into Q1, pressuring utilization and cash generation.
• Interest expense climbed to $6.1M (+$2.3M YoY) from new facilities and assumed SSI debt/leases, contributing to GAAP net loss of ~$2.0M.
• Dividend cut from $0.10 to $0.05 may pressure income-oriented holders in near term despite buyback offset strategy.
• S&P Global consensus not available for Q1 2025, limiting clear “beat/miss” framing vs Street [GetEstimates].

Transcript

Operator (participant)

Morning. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions First Quarter 2025 earnings teleconference. Today's call is being recorded and will be available for replay beginning at 11:00 A.M. Eastern Standard Time. The recording can be accessed by dialing 888-215-1487 domestically or 402-220-4938 internationally. All lines are currently muted, and after the prepared remarks, there will be a live question-and-answer session. If you would like to ask a question during the Q&A segment, please press star one on your phone. If your question has been answered, you may remove yourself from the queue at any time by pressing star two. We do ask that you please pick up your handset for optimal sound quality. It is now my pleasure to turn the floor over to Stefan Neely with Vallum Advisors.

Stefan Neely (Head of Investor Relations)

Thank you, Operator, and welcome to the Pangaea Logistics Solutions First Quarter 2025 results conference call. Leading the call with me today is CEO Mark Filanowski, Chief Financial Officer Gianni Del Signore, and COO Mads Petersen. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'd like to turn the call over to Mark.

Mark Filanowski (CEO)

Thank you, Stefan, and welcome to those joining us on the call today. After the market closed yesterday, we issued a press release detailing our first quarter 2025 results. Our first quarter performance reflects the continued disciplined execution of our cargo-focused business model. Despite seasonal softness early in the quarter, we delivered PCE rates that were 33% above the prevailing market, demonstrating the strength and differentiation of our commercial strategy. This outperformance was supported by our long-term contractual appointment, which provided pricing stability through the winter months and allowed us to effectively manage market volatility later in the quarter. For the first quarter of 2025, we reported an adjusted net loss of approximately $2 million and adjusted EBITDA of $14.8 million, as average market pricing declined 37% compared to the prior year period. Despite this pressure, our results benefited from our countercyclical positioning and integrated fleet strategy.

Total shipping days rose 24.6% year-over-year, primarily driven by the addition of SSI handy fleet vessels. On a comparable basis, shipping days increased by 41%, underscoring the meaningful contribution of the acquisition to our operational scale. Importantly, we completed 160 days of planned off-hire for vessel dry docking during the quarter, taking advantage of softer demand to complete a significant portion of our 2025 dry docking schedule. With only four dockings remaining for the rest of the year, we are well positioned to optimize fleet availability during periods of stronger demand. Since the beginning of the year, our teams have made substantial progress integrating the SSI fleet into our operating platform. Integration efforts are proceeding as planned, and as we fully align the new vessels with our existing routes, we expect to unlock further operating efficiencies and enhance returns across our broader fleet.

We have seen vessel operating expenses decrease in areas like insurance, where our larger footprint reduces premiums and allows us to assume some added risks, and we are working on other operating cost synergies available as we exchange ideas with new relationships. By year-end, we hope to have implemented cost savings of at least $2.5 million annually. We have successfully expanded the capabilities of the handy fleet both geographically and cargo-wise. Looking at the market environment, the dry bulk sector continues to experience elevated levels of volatility and uncertainty. While our operations are not directly impacted by proposed tariffs, including recently discussed port fees for Chinese-built or controlled vessels, we are closely monitoring potential indirect effects. Based on our review of the revised U.S. trade representative port fees proposal, we do not expect any material impact to our own fleet, given our geographic focus and operating model.

However, broader market dislocations could occur as global vessel deployment patterns shift in response to the evolving landscape. It's important to note that over 95% of our tonnage is tied to non-agricultural bulks, including iron ore, coal, cement, and aggregate, primarily across Atlantic, European, and Caribbean trade routes. This unique footprint continues to insulate us from some of the demand and policy volatility facing many other dry bulk operators. Turning to the second quarter, demand trends have remained steady across our key routes, though pricing continues to reflect global macro and trade policy uncertainties. As of today, we have booked 4,275 shipping days for the second quarter, generating a PCE of $12,524 per day. As we advance through 2025, we remain focused on a prudent capital allocation.

As we announced yesterday, our Board of Directors has authorized a new share repurchase program of up to $15 million, in addition to the declaration of a $0.05 dividend. This approach gives us added flexibility to return capital to shareholders through open market repurchases of Pangaea shares, which we feel are undervalued after recent share price movements. In light of the recent pressure on the dry bulk market and ongoing trade uncertainty, we are maintaining a disciplined capital allocation strategy, prioritizing balance sheet strength while continuing to deliver long-term value through shareholder returns. We will also continue to opportunistically evaluate strategic fleet transactions that support long-term efficiency, extend asset life, and preserve a competitive age profile. At the same time, we are investing in our port and logistics business, which remains a critical contributor to our margin profile.

Our expansion at the Port of Tampa is progressing on schedule, and new operations in Lake Charles, Louisiana, and Port Aransas, Texas, demonstrate our commitment to this exciting supply chain expansion of our business offerings. With that, I'd like to turn the call over to Gianni to review our first quarter financial results.

Gianni Del Signore (CFO)

Thank you, Mark, and welcome to those joining us on the call today. Our first quarter financial results reflect continued PCE outperformance relative to the broader market. First quarter PCE rates were $11,390 per day, a premium of approximately 33% over the average published market rates for Panamax, Supramax, and handy-sized vessels in the period, driven by strong execution across our core contracts and the expanded scale of our own fleet. While total shipping days increased year-over-year by 41% to 5,210, PCE rates earned declined by 36%, reflecting the decline in average market year-over-year. Our adjusted EBITDA for the first quarter was $14.8 million, a decrease of approximately $5.2 million relative to the prior year period. Total charter hire expense decreased by 35% year-over-year, primarily due to a 37% decrease in prevailing market rates, partly offset by a 14% increase in chartered-in days.

Our charter-in cost on a per-day basis was $10,108 in the first quarter of 2025, and through today, we've booked approximately 1,795 days at $11,472 per day for the second quarter of 2025. Vessel operating expenses net of technical management fees increased by approximately 75% year-over-year, primarily due to the acquisition of the SSI fleet, which increased total owned days by 61% to 3,690. On a per-day basis, vessel operating expenses net of technical management fees increased by only 4%, from an average of $5,300 per day last year to $5,528 per day in the first quarter of 2025. In total, our reported GAAP net loss attributable to Pangaea for the first quarter was approximately $2 million, or a loss of $0.03 per diluted share, compared to net income of $11.7 million, or $0.25 per diluted share in the first quarter of last year.

When excluding the impact of the unrealized losses from derivative instruments, as well as other non-GAAP adjustments, our reported adjusted net loss attributable to Pangaea during the quarter was $2.1 million, or a loss of $0.03 per diluted share, compared to adjusted net income of $6.6 million, or $0.14 per diluted share in the first quarter of last year. Turning to cash flow and liquidity, total cash from operations decreased by $13.2 million year-over-year to net cash used in operations of $4.3 million, due to a decrease in operating earnings and a $5.2 million increase in dry docking costs year-over-year.

We repaid over $11 million in long-term debt and finance lease obligations, and our interest expense was $6.1 million, an increase of $2.3 million due to the new debt facilities entered into during the second half of last year, and the assumed debt and finance leases associated with the SSI acquisition. We ended the quarter with $63.9 million in cash and total debt, including finance lease obligations, of approximately $390 million. In the near term, our capital allocation strategy will remain focused on preserving balance sheet optionality, a sustainable shareholder return program, along with targeted capital-right investments in our seabed oring and logistics operations, and ongoing renewal and modernization of our dry bulk fleet. Additionally, we remain committed to a consistent and sustainable return of capital strategy. With that, we will now open the line for questions.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two, and we ask that you please remember to pick up your handset for optimal sound quality. Our first question will come from Liam Burke with B. Riley Securities. Please go ahead.

Liam Burke (Managing Director)

Thank you. Good morning, Mark. Good morning, Gianni. Good morning, Mads.

Mark Filanowski (CEO)

Good morning, Liam.

Liam Burke (Managing Director)

Mark, you modified your returning cash to shareholders strategy by adding a buyback. Your dividend now is $0.05 versus $0.10 a quarter. Do you plan on—I know the board evaluates it every quarter—but is that a dividend you'd expect to pay through the cycle, or are you going to go to more of a variable model there?

Mark Filanowski (CEO)

Liam, we have not talked about the variable model yet. We have talked a lot about different ways to get returns to shareholders. My favorite is to reinvest in the business and add productive people and productive assets to the organization, and eventually, the stock market will recognize the inherent value in the operation and the shares. Sometimes, the stock market does not agree with me. We have paid a pretty nice dividend over the years, over the past few years, and that was one way to get return to shareholders. We have also been talking with people like you and other shareholders about the wisdom of a stock buyback. With the share value dropping substantially over the past couple of months, we thought it was time to try a buyback and see if we can return value to shareholders in that way.

We have new directors on the board, have new opinions, and so I think we'll go another quarter, see how the shares react, how investors react regarding the new dividend rate, and take it quarter by quarter and see how we go.

Liam Burke (Managing Director)

Great. Thank you. You're still yielding 4.5% even at the new $0.05 per quarter. You called out an expense reduction program by the end of the year. Is that integration savings with the SSI fleet, or is that just ongoing review of the operations and being able to pull out excess costs?

Mark Filanowski (CEO)

A little bit of both, Liam. We did not enter the SSI transaction looking for significant cost savings, but there are some easy targets to attack when you have got a larger fleet and a larger operation that scale just gives you a little bit more power to drive cost decreases. One area was insurance, where we looked at P&I, we looked at Hull, and we went to market a little more aggressively than we were able to in the past and drove some cost decreases. We are learning from each other regarding purchasing and other ways to save money with a larger fleet and a larger operation, and it is working out.

Liam Burke (Managing Director)

Great. Thank you, Mark.

Operator (participant)

Thank you. Our next question will come from Poe Fratt with A.G.P. Please go ahead.

Poe Fratt (Analyst)

Hey, good morning. Can you just help me, Mark, help me understand the dividend cut? You've consistently said in previous presentations that you've wanted to maintain a dividend over the cycle that's sustainable. That dividend was $0.10 a quarter. Now you're changing it to $0.05 a quarter, and now you're saying it's sustainable over the cycle. What changed?

Mark Filanowski (CEO)

A lot of things change, Poe. As I explained, we have a different thought process on the board regarding the viability of a share buyback. We want to keep a consistent dividend, and that does not necessarily mean a consistent amount. Our operation does sustainably produce cash flow that is available for different ways to return capital to shareholders, and that is what we are trying to do, is come up with a prudent approach to address the need for shareholders to have some kind of return on their shares. We saw an opportunity here, a potential opportunity to do something good for shareholders by announcing the share buyback. Like I mentioned, there are different ways to provide a return, and we are trying a couple of different ways this time.

Poe Fratt (Analyst)

Can you, Mark, tell me how the share buyback will work? Are you going to be in the market every quarter buying the different $3.2 million that you're going to save on paying the dividend? A lot of companies announce share buybacks but never follow through with them. Can you just talk about how you're going to approach the stock buyback?

Mark Filanowski (CEO)

We're approaching at least one bank this week after this call to set up a program, PALL. The board has asked us to review with them in advance any potential share buybacks based on price, availability of capital, etc. It will not be a constant rolling program. It will be when the board feels it's the right time to purchase shares in the market.

Poe Fratt (Analyst)

Mark, in the context of with the SSI transaction, you now have a large shareholder. That also large shareholder is represented, obviously, on the board, but they also bought shares in early April. Are you concerned at all about the increased concentration in ownership? I mean, one of the things that the market often has said is that your public float is limited. Can you just talk about how that was considered in this decision?

Mark Filanowski (CEO)

Yeah. The $15 million isn't a large share of our outstanding float. We estimate our float to be around 40%, and we think there's an opportunity there to buy shares without decreasing the float substantially. Regarding the concentration of the largest shareholder, who now has 28%, there is a cap there of 30% that came about as a result of the negotiations regarding that deal. I don't think it will go up substantially as a result of any share buyback we might do.

Poe Fratt (Analyst)

Great. Gianni, you often in previous quarters have talked about not only your forward cover that you talked about, you have booked 47 vessels at $12,500 roughly. To where will shipping days end in the second quarter? Sort of what percentage of your expected shipping days in the second quarter have been booked?

Gianni Del Signore (CFO)

Yeah. I think we gave out the indication so far for the quarter, we had 4,275 days at $12,500. I think our total fleet right now is somewhere around 65 vessels total, and I think that's been right around where we've been for the quarter. The 65-vessel average fleet over the quarter is our projected total for this quarter.

Poe Fratt (Analyst)

Thank you. So you're like 80% booked for the quarter. You also, in previous quarters, Gianni, at least the last couple of quarters, you talked about how your charter hire expenses were running. Do you have a figure for how many days you've chartered in for the quarter and the cost of the fleet?

Gianni Del Signore (CFO)

Yeah. Yep. I can absolutely. I think I had mentioned it in my prepared marks earlier, but we booked 1,795 days at $11,472. So we still have about a, our margin on our chartered-in fleet is around $1,052, a margin on our chartered-in fleet.

Poe Fratt (Analyst)

Great. Sorry, I missed that. Mads, can you talk about the operating efficiencies that were mentioned in the press release about integrating the handies? Beyond the insurance, can you just talk about whether there are additional operating efficiencies that you're and sort of the nature of those? Also, where do you stand as far as that $2.5 million? Are you a quarter of the way towards realizing that, or are we going to see that over the rest of the year, the $2.5 million of cost savings?

Mads Petersen (COO)

Yeah. On the trading synergies, I think it's mostly outside what Mark mentioned on the cost side, which is a continuous process across all the ships in the fleet. We're always trying to optimize that. It's mainly around the commercial synergies, where we have been able to use the handy vessels in some of the trades we have historically done, especially our superfleet. That's both geographical in terms of trading in areas where you need a little bit of ICE experience, or it's a commodity, or another geographical focus. That's primarily where the synergies have come and the sort of which is also what Mark also mentioned, which was the primary driver, right? It wasn't a cost deduction ambition only. It was really to grow the top line rather than just reduce costs.

We are trying to do that, and vessel technical management and operations is a lot. Many, many components go into that, and everything is being scrutinized, as we always did. Of course, the fact that we have access to more experience, a larger pool of crew, and more additional resources makes that sort of synergy and cost optimization possible. That is a continuous process, and some of these things are bigger undertakings. It takes a little bit longer to realize, but some of them we are working on crystallizing in the shorter horizon.

Poe Fratt (Analyst)

Great. Then on the terminal side, you're talking about the expansion of the Tampa and then down in Texas. Could you just maybe quantify what that could mean to second quarter—I'm sorry, second half operating results? Is it going to move the needle on the terminal revenue, or is it just an incremental add-on that will add maybe 10% to revenue?

Mark Filanowski (CEO)

Yeah. I think that highly dependent on the start date, we're still projecting within this year, late Q3, Q4 start. It will be incremental to this year. It will add about $150,000-$200,000 of EBITDA for this year. Really, that's going to be a project that will be in full swing for 2026 in Tampa and then also in Texas, and that's where we'll see the real contribution for that.

Poe Fratt (Analyst)

Anything else on the horizon on the terminal business to further expand?

Gianni Del Signore (CFO)

No. Poe, we'll add the Tampa, Lake Charles, and Port Aransas terminals this year. What we found is that once we're in a place, more stuff comes to us. We have nothing on the books in addition to those three for this year, but once they're up and running, business kind of shows up. Additive business.

Poe Fratt (Analyst)

Great. Thanks for your time.

Mark Filanowski (CEO)

Thanks, Poe.

Operator (participant)

Thank you. As a reminder, that is star one to ask a question. Our next question will come from Michael Matheson with Sidoti & Company. Please go ahead.

Michael Matheson (Analyst)

Congratulations on your performance in a difficult quarter.

Mark Filanowski (CEO)

Thank you, Michael.

Michael Matheson (Analyst)

I just have a couple of questions. First, in Q1, long-term contracts really helped you out in a difficult TCE environment. What % of Q2 and onward is already booked on a long-term basis?

Mark Filanowski (CEO)

Yeah. When we look at the balance of the year, really our contract cover kicks in during ice season, the summer ice season in Q3. We are heading into that in Q3, and that covers our ice-class vessels. On average, we have discussed our contract cover on average for the year, and across our own fleet, it averages around 30%. When we look over a longer period of time, that is typically the contract cover that we will have on our fleet, and I think that remains true for this year as well.

Michael Matheson (Analyst)

Okay. Great. Looking at uses of cash, we've already talked about dividends versus buybacks. It's clear what your strategy is there. Of course, you're also consistently paying down debt. Can we expect further debt paydowns, or do dividends and share buybacks take priority?

Mark Filanowski (CEO)

No. I think as far as our debt paydown, the $11 million we paid in Q1, that is a pretty consistent number for the next almost two years, right through the end of 2026. Our first meaningful balloon payment is in early 2027. I think we're amortizing debt at a decent rate. We have well-priced debt on our fixed-rate facilities and others that are capped. I think we're pretty comfortable with our debt payment profile going forward, and I don't see us really going after anything in a meaningful way until that balloon payment comes due.

Michael Matheson (Analyst)

Great. Thank you, and good luck.

Mark Filanowski (CEO)

Thank you.

Operator (participant)

Thank you. We do have a follow-up question from Poe Fratt with A.G.P. Please go ahead.

Poe Fratt (Analyst)

Yeah. Gianni, could you just clarify that last comment on the 30% of your capacity is generally sold or committed? Is that 30% of your own fleet or 30% of what you typically run quarter to quarter when you include the chartered-in capacity?

Gianni Del Signore (CFO)

No. When we think about long-term contract cover, it's on the own fleet. That 30% number is on the own fleet only. The chartered-in fleet presents arbitrage opportunities, and they're traded to make the own fleet more efficient, to position vessels appropriately. When we think about long-term contract cover, that's on the own fleet is the number we're discussing.

Poe Fratt (Analyst)

Great. Yeah. I just wanted to clarify that. Then, Mark, going back to your prepared remarks or when you talked about the dividend and the stock buyback, you indicated that your preference is growth. Can you talk about the S&P market right now and how you're viewing the S&P market?

Mark Filanowski (CEO)

Yeah. Second-hand prices are still pretty expensive, Poe, in relation to what the market returns today. So we've held off buying any new ships until that equation gets a little more favorable to owners. We just added 15 ships at the end of the year. So it's time to sort of catch our breath and wait for the market to make a turn one way or the other.

Poe Fratt (Analyst)

Great. That's helpful.

Operator (participant)

Thank you. At this time, there are no further questions in the queue, so I'd like to turn the call back over to Mark Filanowski for any closing remarks.

Mark Filanowski (CEO)

Thanks, everyone, for joining us today for interesting times. Flexibility and adaptability are the key to success in this environment, and we're pretty good at that. Please feel free to contact us with any further questions at pangaeals.com/investors. Thanks again.

Operator (participant)

Thank you, ladies and gentlemen. This concludes today's program, and we appreciate your participation. You may disconnect at any time.