Good 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 Second Quarter 2023 Earnings Teleconference. 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 800-934-5153 domestic or 402-220-1182 international. [Operator Instructions]. It is now my pleasure to turn the floor over to Noel Ryan with Vallum Advisors. Sir.

Thank you, operator, and welcome to the Pangaea Logistics Solutions second quarter 2023 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. And with that, I would like to turn the call over to Mark.

Thank you, Noel. And welcome to those joining us today on the call. After the market closed yesterday, we issued a release detailing our second quarter results. During a period of continued softness in global dry bulk shipping markets, where benchmark industry rates declined nearly 60% on a year-over-year basis. Pangaea delivered an average TCE rate that was approximately 50% higher in our broader market indices, resulting in another consecutive quarter of profitability, once again proving the strength of our business plan. Our TCE earned was $15,558 per day for the three months ended June 30 2023, compared to an average of $27,139 per day for the same period in 2022. Our long-term COAs, specialized fleet and cargo focused strategy helped us to significantly outperform index rate in a declining market environment. In the second quarter, excess dry bulk capacity created by easing port congestion and high voyage operating speeds muted to normal seasonal hub recovery that occurs in this period. Global trade and ton mile demand remain buoyant. And markets in which we directly participate, including construction aggregates and cementeceous [ph] materials are especially active, where we participate in ocean freight stevedoring and terminal operations. Though we are experiencing a softer near term market, the long term supply and demand dynamics remain very favorable. Newbuilding vessel supply remains highly constrained, with lead time stretching into 2026, which we expect will keep fleet growth low for the foreseeable future. Second hand asset values have recently softened a bit, but remain strong in this market as the demand for eco tonnage in the Ultramax segment has remained high. As such, we remain strategically focused on positioning our business to capitalize on the expected growth in global dry bulk volumes and favorable rate dynamics over the coming years. Through August 8, Margaret,…

Thank you, Mark. And welcome to all of those joining us today. Our second quarter financial results continue to emphasize the durability of our business model. As we were able to maximize returns through our charter-in strategy, in a soft dry bulk market and against the backdrop of record profitability in the second quarter of last year. Second quarter, TCE rates were approximately $15,558 per day, a premium of 49% over the average published market rates for Supermax and Panamax vessels in the period, which is supported by our long term seaways. Our ability to opportunistically adjust our utilization of chartered-in vessels in periods of software market rates and forward bookings, which lock in rates for future cargo performance. Our adjusted EBITDA declined year-over-year to $15.9 million, with adjusted EBITDA margin of 13.5%. Down from record quarterly adjusted EBITDA of $44.2 million and an adjusted EBITDA margin of 22.6% in the second quarter of last year. The decline was primarily driven by nearly 40% year-over-year decline in revenues, as market rates decreased by 60% year-over-year. During this period of softer market rates, we minimized our charter-in days, which, coupled with lower market rates served to reduce our charter hire expense by over 55% year-over-year, from an average of $26,264 per day to $15,209 per day in the second quarter of 2023. Vessel operating expenses increased by 2.2% year-over-year. However, excluding technical management fees, vessel operating expenses on a per day basis, were 5,517 per day, down from an average of 5,805 for the full year of 2022. In total, our reported GAAP net income attributable to Pangea for the second quarter was $2.8 million, or $0.06 per diluted share, compared to $25 million or $0.56 per diluted share in the second quarter of last year. Excluding the impact of derivative…

[Operator Instructions] And our first question will come from Liam Burke with B. Riley. Your line is open.

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

Good morning, Liam. Thanks for joining us.

Mark, we talked about your fixtures for the third quarter at twice the current market. You mentioned obviously, it's the peak Arctic season and you're getting the Ice Class premium. But can you talk about the rest of the fleet? Is it the COA is at or above market, or you're getting a premium to spot with other vessels?

Liam, thanks for the question. The ICE Class ships, you know, 10 ships in our own fleet. They are earning the Ice Class premium in this period of time, during the third quarter. So biggest part of our Ice season. But the rest of the business, we did take some cargo earlier in the year with what appeared to be then low rates with everybody's expectation. But we -- it's our business plan to give up a little bit of the market spikes, those infrequent market spikes, in order to protect ourselves from downside periods in times like this. So we were a little bit opportunistic earlier in the year, and we are working off some of those annual COAs that were booked earlier this year.

Great. Thank you. And you close on the marine port acquisition, you incurred some terminal and Stevedore expense on in the second quarter. Is that a fixed cost? Or was there any revenue associated with that?

, :

Yes, it's absolutely worth noting that we closed in June, we have one month of activity, and we're now starting to show this financial information discreetly for that entity. So again, it's one month of activity, it is there are two new line items in our P&L being terminal and stevedore revenue, and then terminal and stevedore expenses. In addition to that there was G&A incurred during the quarter. Related to the closing, that was part of our -- part of the increase that we saw in G&A. But going forward, that that will be part of -- that's part of our P&L, that's an operating segment for us. But the other components of that business that are in joint ventures will continue to be recorded, unfortunately, in other income below the line. But this entity now will be above the line.

Great. Thank you, Gianni. Thank you, Mark.

[Operator Instructions] And our next question will come from Poe Fratt, with Alliance Global Partners, your line is open.

Yes, Gianni, can you just talk about the decision to breakout the terminal and stevedoring? I mean, you look at it, it's less than 1% of revenue. Can you just talk about that, does this indicate that it might become a more meaningful business down the road and sort of highlight any plans to deploy capital into that business? And then if I do the math on it, it's roughly 28% gross margin. You just look at revenues and then at the costs. And can you just talk about sort of the margin profile on that business?

Yes. So, on the on the first question, I know there's a levels of how we can break this out from an accounting perspective. It's a -- it's definitely a new operating segment for us. It's a different type of revenue, it's a different type of business its complimentary, obviously, and strategically important to us, but the nature of its revenues are different than voids revenue or charter revenue, which are our two other main streams of revenue. So, from that perspective, it is warranted to breakout and we have, but there's other levels. We don't this is won't be a separate reporting segment just yet. It will be a new operating segment, but it's not a reportable segment. We hope to grow it and to continue, we've made an effort. And you've heard it on conference call, conference call and presentation after presentation that this is part of our strategy to diversify and have a larger offering to customers than what a traditional shipping company would necessarily provide. So it's definitely strategically important. And in showing the information, as we have on our P&L, which essentially is our two new revenue and expense lines. I think it's important. Again, what I said to Liam, it is one month of activity, the business can be lumpy, there can be periods of multiple ships at port, and it can be periods where there's fewer ships. So one month of activity, I don't think is the best indicator on a go forward basis. But it is certainly helpful. On a longer term, we project slightly lower margin than what we saw in the first month of activity. But it still will be it will be shown separately, and it's important to us to continue growing it.

Great. And then could you quantify the Ice class premium that bought [ph] in your forward cover. I think if I did the math correctly, it's about 26% of your forward [ph] days booked? Can you just quantify you know, what, those 920 days were booked at as far as a rate?

Yes, Poe, Mads here. I mean, in this current rate environment, the sort of the average return on the ICE business, and the occupant is about twice the current index.

Okay, and if even if it's twice the current index, it implies that the rest of the fleet is, was well above what current rates are? And can you just talk about potentially, whether you forward booked into the fourth quarter, too, and so that we potentially are going to see above average bookings for the fourth quarter as we look at the third quarter conference call.

I mean, we do have a pretty a similar book, I will say for Q3, outside the Ice season, right, so for Q4 outside the Ice business, as Mark alluded to earlier, the numbers that we reported so far for Q3 and not driven solely by the Ice, sort of our other businesses also healthy degree of cover going into that quarter.

Okay. And then, when you look at the overall business, I think a competitor of yours mentioned that the COA business is backed off, companies are making, shippers are making less firm commitments, as we look out, call it six months or so. Are you seeing the same thing? And then what does that imply as for as your chartered in fleet, for the third and fourth quarters?

In terms of the charter in fleet that is in our business, always a pretty dynamic number, depending on the market conditions at any current time. So, in terms of the outlook, I would say that this is not typically the season where those sort of contracts for one two years are made, it's typically happens towards the end of the year. And we are still having discussions with several our customers about longer term commitments into both ‘24 and ‘25. So I think it depends on where you are in the market and what sort of service you're offering to your customers, whether there's, you have those discussions Mark.

And a little bit of where you think the market is going to be a year from now. So, if you think the market is going to be twice what it is today, a year from now, you don't want to put your ship out that far. But a shipper might want to contract for today's rate out for another year. So there is a gap there between what's acceptable buyer and seller.

Okay, I guess to get a little more specific, you only had a charter -- you charted in 20 vessels during the second quarter. Is that a good number to use for the rest of the year?

Yes, I think so. I mean, it's always good bit of guess work going into that statement, but if the market continues the way it has been for Q2, I don't see why we should change that number dramatically. It's all about how we get the best sort of short term value out of those arbitrage opportunities, Poe, right, whether you want to take a ship for a couple of legs, so you just take it for a trip. And then in a soft market as we've had for the last six months, maybe even we don't want to take those risks and go out along on top of that challenge, we get more value out of just executing on the trips.

Okay, that's helpful. Thanks, Mads. And then Gianna, can I just ask you a couple of questions about the cash flow statement, just two items, two items jumped out at me, one is for you. There's a pretty meaningful increase in the accounts for doubtful accounts, provision for doubtful accounts. It was negative in the first quarter and was over a million in the second quarter for six months run rate. Can you just talk about that? And then secondly, you had a working capital deficit or used in the second quarter? Do you expect that to reverse over the course of the rest of the year?

Yes, Poe. So, the worst part of the working capital, the draw on working capital is, we had the cash acquisitions of the bulk prudence and the acquisition of the port terminal. In addition, we had a reclass of debt coming due in May of 2024. So, that is now in our current liabilities, so it is affecting our working capital. Our expectation there, as I said in my prepared remarks is, we're pretty comfortable in the interest rate that we have, it was, fortunately, we locked in a significant amount of our debt when we did interest rates that were far more favorable. So as we approach that maturity, we're currently working -- talking to some lenders and we have no worries about the potential refinancing as their approach is. It's just a matter of tactically, looking at how much we will refinance, and how we can be as efficient as possible in that respect. So yes, I don't think we'll see a similar draw on working capital that we did in Q2. On the reserve front, we did make a slight adjustment in our general reserve policy. So these are just overall macro type reserves, nothing that would necessarily be on a specific way. But just overall, general reserve, we made a slight adjustment to our general reserve policy, which resulted in a slight increase in our reserves. So I don't expect -- I expect that modification to not have any further impact for the balance of the year.

Sounds good. And then just two other things came up. One is that you mentioned that some of the, some of your terminal and stevedoring activities are run through the JV. How -- if you on a gross revenue basis, how much is that generating? How meaningful is that relative to the current reported terminal and stevedoring revenue? And then secondly, just if you wouldn't mind quantifying the extra G&A, or transaction costs that you've incurred in the second quarter associated with the acquisition?

Sure, so I'll start with the JV. So the -- we've had these joint ventures for years. So the impacts of them should be the same going forward. Right, it was always recorded, our pro rata share of the net income of those entities was recorded in other income. We've been in these joint ventures, some since I don’t know, 2016 2017, and some are a little bit more recent. But since they're held in joint ventures, the accounting for them and the recognition of the income will continue to be reflected in that manner. So we'll continue to just recognize our pro rata share of the income and other income. The – sorry, and the gross revenue of the entities, we're just -- we're not we wouldn't be showing it, we're not consolidating it in. But it would be $5 million $10 million is probably the range where we're seeing for that activity.

Understood. It's all captured through the JV, but it's just sort of trying to figure out on a gross basis, sort of, how meaningful it is to overall business.

And then and then your second question there on the G&A, related to the acquisition. In the MD&A, we do have some discussion about it in the 10-Q. But it was closing cost one time, closing cost, just over $300 million -- sorry, $300,000 of closing costs that were incurred in the quarter that we don't expect to, obviously to occur again throughout the year.

Yes, I was going to guess around 3% or so, the overall $7.2 million acquisition. Great, thanks for your help. Congratulations on a good quarter.

Thanks, Poe.

Thank you. And at this time, there are no further questions in the queue. So I would like to turn the call back over to Mark Filanowski for any additional or closing remarks.

Once again, thank you for joining our call. Should you have any questions, please feel free to contact us at investors@pangaeals.com, a member of our team will follow up with you. This concludes our call today. You may now disconnect.

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