Pangaea Logistics Solutions Ltd. (PANL) Earnings Call Transcript

Good morning. My name is Chelsea today. At this time, I would like to welcome everyone to the PGi Solutions Third Quarter 2026 results conference call. This call is being recorded and for a getting at 11:00 a.m. Eastern Standard Time. The recording can be asked by dialing (800)839-3740 domestically or 402-207-239 internationally. [Operator Instructions] It is now my pleasure to turn the floor over to Stefan Neely with Valmet Pfizers.

Thanks, Michele and welcome to the Vanda Logistics Solutions Third Quarter 2026 Results Conference Call. Leading the call with me today are our CEO, Matt Petersen; and our Chief Financial Officer, Jiandani. 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'll open the line for questions. With that, I would like to turn.

Thank you, Stefan, and welcome to those joining us on the call today. Our third quarter results were the strongest in penta history with adjusted EBITDA and adjusted net income both reaching record quarterly levels. Higher freight rate, strong execution across our operating platform and peak seasonal activity in our Arctic trade drove substantial improvement in profitability compared with last year. Our specialized ice class fleet and our broader Cargo-based business performed well together and a quarter acre illustration of the operating leverage in Fanta's model and those are contributing at the same time. Our TCE rate averaged 20,414 per day in the quarter, up 31% year-over-year and 13% above the prevailing market for the Panamax, Supermax and Endesa vessels. That pen reflects strong pricing in our long-term CF, our needs to class capabilities and our ability to leverage our commercial platform. Adjusted EBITDA was EUR 52.4 million, which generated EUR 57 million of our cash flow. That cash generation further strengthened our balance sheet, the flexibility to invest in febreneur as well as our logistics platform while continuing to return capital to shareholders. Total shipping base increased 8% year-over-year to 6,339 days. Our own fleet of 38 vessels was supplemented by an average of 31 charter-in vessels, which allows us to serve our long-term customer commitment while adjusting capacity to the opportunities in front of us. The flexible nature of the charter-in fleet allowed us to expand margins during the quarter, a key feature of our strategy. Our onshore logistics platform also had a strong quarter. Terminal and EBITDA revenue increased 73% year-over-year affecting the contribution of the core operations we have brought online over the past year, as well as growth in our city. Drybartans handled across our terminal network increased 65% compared to the third quarter of last year. Deepen our relationship with customers beyond option freight and further integrate Penzer into the supply chain. Turning to the market. Demand for our shipping services and terminal operations remained firm, while freight rates improved through the third quarter. Our commercial focus remains unchanged. We aim to capitalize on these favorable positions to expand our contract base in key backhaul trades and optimize vessel positioning while maintaining operational and financial flexibility as market conditions evolve. To date, we have booked 5,040 shipping days, a TCE of $21,423 per day for the fourth quarter. Late-season articulates continued to contribute in October. As the Arctic season winds down, the contribution from those trades moderate and our fourth quarter results will reflect prevailing freight rates and the positioning of the broader fleet. Our approach to fleet new remains disciplined. We continue to evaluate opportunities to add modern efficient vessels that fit our cargoes and customer requirements and to divest noncore assets when the omics are attractive. Every decision vested on the returns you can generate and its strategic fit within our operating platform, and we will remain opportunistic as market conditions more in it. Splatter quarter end, we completed the refinancing, lowers our borrowing margin simplifies our capital structure and thanks our 4 post-panel 1A vessel into outright ownership. The new $145 million facility replaced higher cost than obligation, and it reflects our continued focus on managing our cost of capital and keeping the balance sheet well capitalized. Jenny will walk through the details shortly. Our priorities are consistent with what we have outlined on Draco, continue to execute on our customer commitments, expand our integrated logistics capabilities, renew our fleet selectively and maintain balance sheet flexibility. With a stronger cash position and lower leverage, we are well positioned to pursue each of these while continuing to return capital to shareholders. With that, I'll turn the call over to John to walk through our third quarter financial results.

Thank you, Matt, and welcome to those joining us on the call today. Our third quarter financial results reflected higher TCE rates, a modest increase in shipping days and the seasonal contribution of our specialized ice class fleet. Total revenue was $219 million. Our TCE rates averaged $2,414 per day, an increase of 31% compared to the third quarter of 2025. And in premium, of 13% over the average published market rate for Panamax, Suprax and Handysize vessels in the period. Our adjusted EBITDA for the third quarter increased 81% year-over-year to $52.4 million, a quarterly record for Pangia. The significant increase in profitability reflects the earnings contribution of higher TCE rates and the operating leverage of our business. Our total charter hire expenses increased by for the year due to an increase in chartered vessels used to augment our own fleet as well as an increase in the market rates to charter in vessels. Our charter earning costs on a per day basis was approximately $17,632 in the third quarter. And through today, we've booked 2,487 days at [ $20086 ] per day for the fourth quarter. Vessel operating expenses on a per day basis through the third quarter of 26, including technical management fees, was $6,320 per day a 4% increase from the prior year. Third quarter general and administrative expenses decreased to $7.6 million from $9.9 million. The decrease was primarily due to the timing of variable incentive compensation year-over-year and classification of management fees of our wholly owned technical management operations as general and administrative expenses in the prior year, which are now recorded in vessel operating expenses. Our reported GAAP net income for the third quarter was $38.3 million or $0.59 per diluted share, up from $12.2 million or $0.19 per diluted share in the prior year. Our GAAP net income included an unrealized gain of $5 million, resulting from our hedging strategy on booker fuel exposure, given the volatility in fuel prices we've experienced in recent months. We utilize bunker swaps and options to selectively hedge our exposure to the market on our long-term cargo contracts and forward cargo bookings, keeping our fuel cost management aligned with our actual physical consumption. When excluding the impact of the third quarter unrealized gain from derivative instruments as well as other non-GAAP adjustments, our reported adjusted net income was $33.6 million or $0.52 per diluted share. Turning to cash flow and balance sheet. We generated $57 million of operating cash flow during the quarter and ended the quarter with $145 million in unrestricted cash and cash equivalents. Total debt, including finance lease openings was [ $34.9 ] million. Our ratio of net debt to trailing food adjusted EBITDA was 1.4x. Subsequent to the quarter end, we closed on a 6-year $145 million senior secured term loan facility priced at SOFR plus 1.6%. The proceeds were used to refinance $104 million of higher cost debt and sale-leaseback financing obligations, consolidating 7 vessels under 1 facility. This transaction lowered our borrowing margin, will reduce cash interest expense by approximately $2 million next year and simplifies our financing arrangements. We will continue to evaluate opportunities to manage our cost of capital while preserving financial flexibility. Looking ahead, our capital allocation priorities remain focused on maintaining financial flexibility, supporting investments in our integrated logistics platform and fleet and returning capital to shareholders. We will continue to assess growth opportunities based on their expected returns and their contribution to our customer offering and long-term earnings. With that, we will now open the line for questions.

[Operator Instructions] Our first question will come from Liam with B. Riley Securities.

Could we talk about fleet renewal. I know asset prices in the fall Christie, are you looking at opportunities? Or is that something that you're just waiting for assets to come in on?

I think we're always looking, right? -- renewal considerations are constant in any shipment company. The ships that we are looking at for popular other places as well. So we are trying to be selective and opportunistic when the right candidates are there and not sort of jump on anything that comes across our screens. We're trying to be selective. It has to be the right type of vessel. It has to be the right fit for our business. And of course, it has to be priced right.

Fair enough. And on your charter rates that were extremely strong, was that just generally the market? Or was it the fact that you're able to get more activity out of the ice class vessels during the summer time or during the soft period up bucket of north?

It's a bit of both, to be honest. The under market was strong cost and we have the majority of our summer season happening in Q3, but in addition to those 2 things, I think my main takeaway from the quarter is also how we were able to take advantage of, especially the strong spot market. Now we were able to use both our own fleet but also our Chatelet to sort of make the most of a very, very strong market. So it's a bit of growth, really.

Thank you. Our next question will come from Portillo Partners.

First question, Tony, did you change or modify the way you calculate your TCE rates?

No, we did not. Well, the PCE is -- we calculate the same. The only thing that is in this quarter is the -- some of the unrealized gains on bunkers and other derivative instruments are flowing through our operating income. That portion is being backed out. So it conforms to TCE calculation as we've been doing it historically.

Okay. Yes, the math works back and that was and looking about $830 in today from $5.2 million, $5.3 million did you bank Kevin?

Yes. So there was $5.2 million of -- that's right. There was $5.2 million of derivative unrealized gains under intent in operating income. And if you look at in our Q, Note 7, we disclosed the components of our derivative instruments, both realized and unrealized. The unrealized portion we are removing as it's not reflective, right? Because if we look at our hedging strategy, we're hedging future bunker physical requirements on our cargoes and forward commitments. So having that run through our operating P&L, obviously, we want to back that out when we can accumulate our TCE and our other margins that are more reflective of actual quarterly results. So when those unrealized position ultimately settle and the realized gains or losses wherever they may be in those future periods that component will remain in our operating profit, but the unrealized is backed out to calculate TC.

Good. Yes, I read the footnote. So what -- can you look at the overall -- where you stand for the third -- for the fourth quarter more than 70 days, that's a fleet size of roughly 55%. What do you think will run for the quarter in total fleet.

And that's a good question. We don't know for sure what the timing where we will end up in terms of numbers, would probably think would be flat compared to Q3 when everything is done.

Okay. So like a sleep of 69 then, Matt.

Somewhere around that. It's really hard to say because it depends on the timing of when we will face the shifts and when we will load the cargo, so but that...

Typically higher than what you've done in the fourth quarter business?

Yes, maybe in a little bit, but I think it's a feature and the model that there is strength in the market, we can take advantage of that optionality. We have 1 picking ships and sort of we have better opportunities for maybe fixing ships in onshore period when we are starting our backhaul trades and things like that. So it might be maybe a little bit higher than what it has been, but I think it's reflective of how we operate the platform when the markets are strong.

Yes. It's good. And then did I hear you sort of caution as forward looking in at for over of 21,400. There may have been some Iceclass pages that were booked in the third quarter but ended in the fourth quarter. So that's helping that average. And so maybe not least not running that out to the full quarter.

I think it's -- I think it's pretty sort of in line with the historic goal that at the last 30%, 40% of the season happens in Q4. So I'm not -- that's not really much different. I think it's reflective of where we are at this point in time. There's still some time to go in the quarter, of course. And again, it's in the TCE across all 3 segments we have. So it has an element as well. That, of course, is trading at a different little than a octacore.

Okay. And generally on the side, you took out its term loans. You also took out what, for the sale leaseback, do you have sort of an absolute number as far as cost savings looking at 2027.

Yes. So we refinanced effectively 2 facilities. The first one was a $38.7 million facility that's referenced in our financials as the 50 million senior secured term loan facility. That 38.7 million was that price that so for plus 2.5%. That was refinanced. And then the 4 post-Panamax vessels in aggregate was $96.3 million and those 4 facilities were on lead structures with a Chinese lessor. So that complication plus the pricing, which is that facility was pricing at -- so for plus 3.55. So that aggregate was refinanced at so plus 1.6%. I think from an interest perspective, it's $2 million since next year on margin. The amortization of the new facility while is roughly the same. It's about -- we're probably saving about $200,000 annually, sorry, quarterly in action from a cash breakeven perspective. But from an interest perspective, it's about $2 million next year and then obviously, as we pay down that number will be a little bit less this year.