Pangaea Logistics Solutions Ltd. (PANL) Earnings Call Transcript & Summary

Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Second Quarter 2026 Results Conference Call. Today's call is being recorded and will be available for replay beginning at 11:00 a.m. Eastern. The recording can be accessed by dialing (800) 925-9941 for domestic or (402) 220-5395 for international. [Operator Instructions] It is now my pleasure to turn the floor over to Stefan Neely with Vallum Advisors. Please go ahead.

Thank you, operator, and welcome to the Pangaea Logistics Solutions Second Quarter 2026 Results Conference Call. Leading the call with me today are CEO, Mads Petersen; and Chief Financial Officer, Gianni Del Signore. 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 would like to turn the call over to Mads.

Thank you, Stefan, and welcome to those joining us on the call today. We generated strong results in both revenue and profitability during the second quarter. Our financial performance was driven by strong execution across both our owned and chartered-in fleet as well as balanced positioning of our assets to take advantage of stronger overall demand, especially in Asia. Robust markets contributed to a 50% increase in our TCE rates for the second quarter notably, our TCE rates averaged 10% above the prevailing market for the Panamax, Supramax and Handysize indices. This premium reflects the benefits of our fleet positioning strategy, the value of our operating platform, long-standing customer relationships and ability to manage a volatile market effectively. We generated significant operating leverage from the favorable market environment with second year quarter adjusted EBITDA growing by nearly $20 million year-over-year to $35 million. Just as important, these results highlight the value of the business model, which allows us to protect and, in many cases, expand our margins in dynamic market environments. We actively managed volatile fuel markets through hedging and contract terms, while our continued focus on fleet positioning and backhaul trades allowed us to capture arbitrage opportunities. Our balanced approach to fleet deployment, including a greater concentration of vessels in the Pacific region contributed positively and our increased exposure to shorter-term time charters enabled us to benefit from positive developments in our core Atlantic markets. Strong execution across our chartered-in business underscores our ability to translate favorable conditions into positive margins. We continue to grow our onshore logistics platform in the second quarter, commencing operations at the Port of Tampa. Tampa joins our operations at and Lake Charles, all under multiyear contracts that started operations within the last 12 months. Terminal and stevedoring revenue grew 11% year-over-year to approximately $4 million. We continue to expect roughly $3 million of incremental EBITDA from these operations on a full year basis. Specifically, this is recurring revenue business that deepens our integration into customer supply chains beyond ocean freight and it pairs naturally with our Supramax and Handysize fleet. We also advanced our fleet renewal strategy. During the second quarter, we completed the previously announced sale of the 2006 built boar market for $9.6 million. This follows the sale of the Bulk Freedom late last year, also for 9.6 million. And together, these transactions reflect a consistent approach of monetizing older tonnage at attractive values avoiding the capital and off-hire associated with upcoming dry dockings and steadily improving the efficiency and environmental profile of our fleet. We will continue to selectively and opportunistically invest in modern high-quality vessels that fit our commercial model remaining disciplined on price and transacting only when the returns are clear. Looking at the market, the demand for drybulk commodities carried positive momentum through the first half of the year, driven by increased trade in both iron ore and grain compared to last year. That strength was broad-based, supporting earnings not only in the larger Capesize segment, but also across the midsize and smaller classes where we are most active, Minor, which are central to our cargo book, likewise, grew compared to the prior year. Encouragingly, this momentum continued into the third quarter. Our outlook for the balance of 2026 remain positive. At the market level, we expect moderate fleet growth to be broadly offset by comparable ton-mile demand with the continued disruption and lengthening of trade routes translating measured cargo volume growth into stronger ton-mile demand, which is what ultimately drives utilization and freight rates. For Kangi specifically, the second half carries a well-established seasonal tailwind as our high ice class fleet is most active during the Arctic summer trading season, which peaks in the third quarter and take us through the fourth, typically driving our strongest utilization and earnings from the specialized higher-margin trades. Through today, we have booked 4,873 shipping days at a TCE of 2,258 per day for the third quarter. In summary, our second quarter results highlighted the value of our commercial platform and dynamic fleet positioning. As we enter the second half of the year, our results will further reflect the strategic advantages of our specialized ice class fleet and long-term contracts, which command a durable premium to the market. Our growing onshore terminal network as a recurring layer of earnings with a long runway ahead and our modern fleet and strong balance sheet lets us fund growth and return capital at the same time. With fundamentals supportive and our strongest seasonal quarters just beginning, we are focused on converting these advantages into sustained earnings growth and lasting value for shareholders. With that, I'll turn the call over to Gianni to walk through our second quarter financial results.

Thank you, Mads, and welcome to those joining us on the call today. Our second quarter financial results were highlighted by sustained TCE premiums relative to the prevailing market. Second quarter TCE rates were $18,153 per day, a premium of 10% over the average publish market rate of $16,502 per day for Panamax, Supramax and Handysize vessels in the period. Our adjusted EBITDA for the second quarter was $35 million. Our year-over-year increase of nearly $20 million, driven by a 50% increase in TCE rates. Our total charter hire expense increased by 24% compared to the second quarter of 2025 due to an increase in market rates to charter in vessels. Our chartering cost on a per day basis was approximately $16.16 per day in the second quarter. And through today, we've booked 2,200 days at $17,537 per day for the third quarter. Vessel operating expenses were essentially flat year-over-year. On a per day basis, through the second quarter of 2026, vessel operating expenses, including technical management fees, was $ 6,247 per day, a 2% increase from the prior year. Total general and administrative expenses increased by 25% and from $7.2 million to approximately $9 million. The increase was primarily due to an increase in incentive compensation expense due to improved results, along with higher compensation costs associated with added head count across the organization as we grow our business. In total, our reported GAAP net income for the second quarter was $10.2 million or $0.16 per diluted share. Our GAAP net income included a significant unrealized loss resulting from our hedging strategy on bunker fuel exposure. The decline in fuel prices late in the second quarter decreased the fair value of our bunker derivatives. Some of these same derivatives translated into significant unrealized gain during the first quarter as fuel prices increased due to the escalation of the conflict with Iran. The first quarter's unrealized gain and the second quarter's unrealized loss essentially offset each other, leaving us in a neutral position for the year. More importantly, all of our hedges are placed against our own bunker requirements over the course of the year keeping our fuel cost management aligned with our actual physical consumption. When excluding the impact of the second quarter unrealized loss from derivative instruments as well as other non-GAAP adjustments, However, reported adjusted net income was $16.9 million or $0.26 per diluted share. Moving on to cash flows. Our strong profitability during the quarter resulted in robust operating cash flow. This, combined with $9.7 million of cash proceeds received from the sale of the Bulkemaka during the quarter drove our unrestricted cash balance to $105 million. At quarter end, we had total debt, including finance lease obligations of approximately $350 million. And to note, our current portion of long-term debt increased to $40 million due to a $24 million balloon payment, which we expect to refinance in the coming months. We are also pleased to announce an increase in our quarterly dividend to $0.10 per share. This increase reflects the strengthening fundamentals and a balance sheet of the business and underscores our commitment to returning capital to shareholders. Consistent with the disciplined capital allocation strategy we have always followed. Looking ahead, we will continue to allocate capital with a focus on preserving financial flexibility, supporting the growth of our integrated logistics platform and returning capital to shareholders. We remain focused on investments that enhance the durability of our earnings base, including the expansion of our terminal and port service capabilities and ongoing fleet renewal initiatives that improve efficiency, support customer needs and position us for evolving regulatory requirements. With that, we will now open the line for questions.

[Operator Instructions] We might be having some technical difficulty as we reconnect our speakers. And do we have our speakers with us yet? Okay. It does look like we do have our speakers back with us. Are you with the speakers?

Yes, we're back online. .

Okay. Okay. Perfect. Just for a moment, and I'm going to get the queue going, I apologize. And we'll start with our first question from Liam Burke with B. Riley Securities.

Mads, you talked about activity in the Pacific region. Is this a new strategy for you? I typically think of your fleet active in the Atlantic with very little activity in Asia. Have you changed your position strategy at all? .

No, I don't think it's a result of that. But of course, we want to grow in that region. And I think just as as a result of our larger fleet and larger scale, we need to take advantage of the opportunities we see out there, and I also earlier in the year, we saw positive momentum, so we may be positioned a little bit more of our ships out there than we've had in the past. So it's a dynamic business, and we'll go where we feel we get the best returns. So it's a combination, I would say.

Okay. Great. Gianni, you talked about a balloon payment due this year. You have plenty of cash. How do you balance refinancing versus just taking a cash balance, paying it down. And I'll throw in the question of raising the dividend and how do you balance everything?

Yes. It's what we look at all the time, Liam. And what we're seeing as far as margins on debt facilities, we're really seeing competitive rates on margins. The market seems to be reacting and there's a lot of opportunities for some well-priced debt. So we're looking at it. The balloon payment I referenced, it's in a joint venture. It's our Nordic Bulk Holding Company joint venture with Glencore. So we will look at that with our partners and decide what to do. But our expectation looking at that one specifically is to roll it out and refinance it. Cash is -- shipping is volatile. We look at opportunities. We want to be opportunistic. So if we can keep some cash and look at different vessel opportunities as they present themselves and be a little bit more nimble. That's -- I think that's how we think about our capital going forward is really being opportunistic when we see something in the market.