Good morning. My name is Britney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Third Quarter 2023 Earnings Teleconference. Today's call is being recorded and will be available for replay beginning at 11 a.m. Eastern Standard Time. The recording can be accessed by dialing (800) 839-7414 for domestic and (402) 220-6068 for international. [Operator Instructions] It is now my pleasure to turn the floor over to Noel Ryan with Vallum Advisors.

Thank you, operator, and welcome to the Pangaea Logistics third quarter 2020 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 on the call and webcast today. After the market closed yesterday, we issued a release detailing our third quarter results. The third quarter represents a seasonal peak in demand levels across our Arctic trades. Our global fleet of ice-class vessels were fully utilized in the period. Fleet utilization and our deep portfolio of COAs contributed to an earned TCE rate that exceeded the broader market index by nearly 50%. Our TCE earned was $15,748 per day for the 3 months ended September 30, 2023, compared to an average of $24,107 per day for the same period in 2022 as the dry bulk markets absorb the release of capacity from prolonged port congestion. Volatility continues in the markets as market index fluctuations are being caused by ongoing geopolitical uncertainty. On the plus side, the markets in which we directly participate, including construction aggregates and cementations materials were strong across major customers and regions we served in the period. To that end, as of November 7, we booked over 2,700 days for the fourth quarter at an average rate of $19,000 per day. A testament to the value and durability of our cargo focused business model. Entering 2024, the bulk shipping market continues its volatile path. However, growth in the global dry bulk fleet remains low as new build activity is limited. For our part, we believe our premium rate model and long-term COAs position us to execute on our strategy. Given our continued confidence in the performance outlook for our business, our capital allocation priorities remain unchanged. Over the last year, our operating cash flow conversion has been in excess of 70% of adjusted EBITDA, and we've utilized this cash generation to pay down more than $20 million in debt. We've also…

Thank you, Mark, and welcome to all those joining us today. Our third quarter financial results continue to emphasize the flexibility of our business model as we were able to maximize returns through the utilization of our specialized fleet of ice-class vessels, which were employed a long-term contract business during the summer ice season. Third quarter TCE rates were approximately $15,748 per day, a premium of 49% over the average published market rates for Supramax and Panamax vessels in the period, which is supported by our ice-lass fleet, our long-term COAs and forward bookings, which lock in rates for future cargo performance. Our adjusted EBITDA declined year-over-year to $27.9 million. However, we held our adjusted EBITDA margin approximately flat year-over-year due to our flexible chartered-n strategy and active cost management efforts amid inflationary pressures. During this period of softer market rates, our ability to opportunistically adjust our chartered-in fleet coupled with lower market rates, served to reduce our charter hire expense by nearly 50% year-over-year, from an average of $21,226 per day in the third quarter of last year, to $10,800 per day in the third quarter of 2023. Furthermore, vessel operating expenses net of technical management fee decreased by 12% year-over-year, from an average of $6,471 per day last year to $5,706 per day in the third quarter of 2023. As I mentioned, the decrease was driven by prudent operating cost management as well as costs incurred in the prior year related to the change in technical managers, which were not incurred in the current year. In total, our reported GAAP net income attributable to Pangaea for the third quarter was $20.2 million or $0.42 per diluted share compared to $19.8 million or $0.42 per diluted share in the third quarter of last year. Excluding the impact of derivative…

[Operator Instructions] We'll take our first question from Liam Burke with B. Riley.

You did sell one vessel this quarter. You said 2024, you'd be looking to possibly add considering pricing, scarce resources, how does the pipeline look for potential vessel acquisitions?

Well, we're hoping the S&P market takes a little pause here, and we'll be opportunistic when it comes to adding back to the fleet. We've got a pretty strong business here. We see upside in the long term for us. And we're not going to shrink the fleet. We're going to try to grow it a little bit.

And I mean, would you consider -- I mean, do you see opportunity to grow the fleet more than one vessel next year? Or I mean, is it just going to -- you're just going to work the S&P market as it comes to you?

I think the latter. We've always been opportunistic in our purchases. We've tried to build a cargo base before we go to market to purchase ships. And when we purchase ships, we try to do it in times when incur is a little lower than it is higher.

And on the ports operations, it seems to be contributing nice stable EBITDA. You mentioned in your comments that you were looking to grow organically from new and existing customers. But do you see any opportunities to add additional ports to your -- for lack of a better word, servicing portfolio?

We do. We do. We're actively looking at properties that become available in places where our ships go and working with our customers in ports and areas where they take in cargo. So yes, we are looking to expand that business where it makes sense for us, where we can add services to our basic service, which is ocean transportation but sometimes it goes the other way. If we've got a customer taking in cargo in a specific port, they might ask us to look at the ocean transportation also. So it can go both way. [Indiscernible] and it has.

[Operator Instructions] We'll take our next question from Poe Fratt with Alliance Global Partners.

Can you just talk about the stevedoring operation, it -- were there any start-up costs in that operation that put the gross margin at 11%? And what sort of a good run rate to use going forward on that business line?

The stevedoring business doesn't come in a steady stream. Over time, of course, it's a pretty steady business, but ship schedule, cargo schedules, whether a cargo owner engages us to do stevedoring in, say, Fort Lauderdale is -- or not, they might pick another available stevedore. It depends on just timing of the ships coming in and going out. So in terms of steady, it's steady over time. We've got contracts to service certain customers in the various places, but it is a little bit lumpy. In terms of start-up, I don't think there were any significant start-up costs.

Yes. There were some start-up costs, but Poe, they were -- they hit our G&A. So part of the reason our G&A was a bit higher in Q2 is a lot of the legal fees and start-up costs that we would have -- we incurred closing the acquisition were not capitalized and rather they were expensed through G&A. So you saw a little bit of a spike in G&A that quarter. And then there's -- we now have intangibles, right? We have our goodwill that hits our balance sheet, and we have intangibles we acquired through the acquisition, including customer contracts, licenses, et cetera, which are being depreciated and amortized. So there is more that's hitting the P&L besides just the terminal revenue and we have terminals and stevedore expenses. But some of those were onetime and obviously, other ones is flowing through depreciation, not affecting EBITDA.

And so relative to the third quarter, how does the fourth quarter look right now? We're close to halfway through it, can you just give me sort of a color on how that stevedoring terminal operation looks right now relative to the third quarter?

It's ports of terminals operations specifically, you said? Is that supposed to

Yes. I'm just trying to figure out where -- I know it's a very small part of the business right now, but it's fairly new, and I'm trying to appreciate sort of how to model it.

We get a schedule of upcoming ships. It only goes out about a month. But I think we'll be pretty effective over the next month or two.

Why don't we move on your forward cover. Relative to the second -- or at the time of the second quarter call, the days that you flip for the fourth quarter are down a little bit modestly like 20%, but the rate is a lot higher. Can you just talk about the dynamics of your forward cover right now and that 2,715 days that you booked, where do you think -- how many shipping days do you think you'll have total in the fourth quarter? And just Mads, could you give us sort of dynamic of how were you able to capture the run-up in rates in September, October and the rest of the quarter is going to be a little weaker or sort of just if you could give us an idea of the dynamics of your forward cover at this point?

So I'll start with the -- as far as what we published and sort of guided to for the fourth quarter, which was the $19,000 a day rate in about 2,700 days. That -- what we're estimating for the quarter, I think it's similar, we're about 45 vessels in that ballpark for the fourth quarter. So the 2,700 days obviously is just a snapshot for what has been performed and booked through November 7 -- or November 6, rather. So there are definitely -- there's certainly days that will still come into the quarter based on, we continue to operate around that 45. It's probably coming down from a high 51 ships down to about 45 to 48. So that's what the quarter will look like. As far as rates, we're happy to see it. We had a great start going into the fourth quarter. We have booked a lot of forward cargo. So we think we're pretty well positioned for the fourth quarter. But I'll let Mads give a bit more color on that.

Yes. I think Poe, it's driven primarily by our active business, which sort of extends from the third quarter into the fourth that for sure is a positive contributor to that. But in addition, we do have quite a bit of non-ice business on the books that we are performing at the moment. We will have that in Q4 as well. But yes, the market is obviously softer in those numbers. So that won't potentially impacted us well. So...

And then, Gianni, you highlighted charter hire expenses were lower year-over-year, a lot lower than what I expected. Can you talk about the fourth quarter run rate so far for charter hire expenses? Are you going to charter in less vessels, it looks like you're going to have about 500 less days in the fourth quarter versus the third quarter. But can you just talk about charter-hire days or it's just maybe a gross number or even on a per day basis?

Yes. I know this is sort of the lagging effect that impacts us. And certainly, it's a positive. It can be a positive and sometimes it's certainly in rising markets we're able to charter in at lower rates and then utilize those ships in those higher markets, and it has that sort of inverse effect. Yes, Q3, it was $10.8 million, I think, was our total cost for charter-in, which was compared to that $15.7 million that we earned. So we'll probably see a little bit of an uptick in our charter hire expense, but I don't expect it to increase significantly. We're still chartering for period and have some ships coming into the fourth quarter that we had already fixed. But of course, as the market fluctuates, our charter hire expense fluctuates, but it's -- again, it's largely dependent on timing and where the market is.

Yes. And Poe, if I can just add, everything we do in this space is short term at the moment. We still see best value in the shorter executions on any time challenge business we do. So it's not something that will last into several more quarters. So...

And then you talked about financing, Gianni. Can you just -- am I correct in looking at the Trident, it has about $4.6 million of obligation on your purchase option, so you're going to have sort of -- what's the -- so what's the net proceeds going to be on that?

We're expecting $5 million, about $5 million of cash derived out of that transaction. And you're right. So we have the purchase option on -- it's called the purchase option, but we view it as a financing. So it's really the -- we'll call it the balloon payment that's due on the lease and we're in the process of closing that out actually now, and we'll be ready to sell her within the end of November, early December should be sold, and that will generate about $5 million.

And then you have, what, a little over $20 million due in the second quarter and the May time frame. You also have the friendship lease that looks like matures in the third quarter, September-ish. Would that also be a refinancing? Or is that potentially a sale candidate?

We have the prudence that's also -- we bought -- remember, we bought her with no debt attached. So we have heard debt-free and then in that May facility, we have the bulk endurance that's going to be coming due. So I think the way we look at it now is it'd probably be likely the endurance and the prudence would be our candidates and do some sort of package for those 2 vessels and keep the others debt-free. Just so we can be a bit to your point and what Mark said earlier, we want to be opportunistic with our vessels and if it's a sale candidate in the market is there, then we want to be in that position. So yes. So I think you're absolutely right, Poe. And how you're thinking about that and how we're thinking that as that approaches maturity.

That does conclude today's question and answer session. I will turn the call back over to Mark Filanowski for any additional or closing remarks.

Thank you for joining us today. Have a great day and a happy holiday at -- for Thanksgiving.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.