Good morning, my name is Brittany, and I will be your conference operator today. I would like to welcome everyone to the Pangaea Logistics Solutions First Quarter 2024 earnings teleconference. Today's call is being recorded and will be available for replay beginning at 11:00 a.m. EST. The recording can be accessed by dialing (877) 856-8964 for domestic calls or (402) 220-1608 for international calls. It is now my pleasure to turn the floor over to Stefan Neely with Vallum Associates.

Thank you, operator, and welcome to the Pangaea Logistics Solutions First Quarter 2024 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 would like to turn the call over to Mark.

Thank you, Stefan, and welcome to those joining us on the call today. After the market closed yesterday, we issued a release detailing our first quarter 2024 results. Our flexible cargo-focused business model continued to deliver premium TCE rates over the prevailing market. During the first quarter, it also allowed us to drive improved operating leverage compared to the prior year, which resulted in higher adjusted EBITDA and improved margins year-over-year. While the first quarter is normally a seasonally soft period for global dry bulk demand, we benefited from elevated long-haul voyage demand across our ice-class fleet together with a solid base of premium long-term COAs. As market rates began to rise later in the quarter, we added to our cargo commitments to increase utilization of our owned fleet and chartered in more vessels, which positioned us to optimize our TCE returns. When combined, these factors resulted in our TCE rates for the quarter exceeding the benchmark index by nearly 30%. We reported adjusted net income of $6.6 million for the first quarter and adjusted EBITDA of $19.9 million. Adjusted EBITDA improved by 23% year-over-year as our adjusted EBITDA margins strengthened by 400 basis points compared to the first quarter of 2023. Our improved profitability was supported by a 41% year-over-year increase in published market rates for Supramax and Panamax vessels, which also supported the 23% increase in our own earned TCE rates year-over-year in the first quarter. At a macro level, the global demand for dry bulk remains strong and the supply of vessels remains constrained. These dynamics give us confidence in both the near-term and long-term outlook for our business. Specifically, in the near term, geopolitical disruptions have resulted in an increase in ton-mile demand with certain shipping channels. We are also seeing regionally strong demand in key bulk trades associated with the current level of infrastructure investment in North America. On the supply front, the number of new builds coming into service remains limited relative to historical levels, which will continue to put pressure on dry bulk capacity. In combination, we see the supply and demand factors for dry bulk being structurally supportive for higher market rates for the remainder of 2024 and beyond. With that said, volatility will continue to be a prevailing theme but one that our cargo-focused business model uniquely positions us to successfully navigate. While certain aspects of the dry bulk markets have seen pricing moderate since late in the first quarter, others have continued to progressively improve. Through today, we've booked over 2,890 shipping days at an average TCE rate of $16,200 per day versus a market rate of approximately $15,000 per day so far in the second quarter of 2024. Strategically, we continue to prioritize capital investment in fleet expansion and renewal while continuing to scale our onshore logistics capabilities. In addition to these organic and inorganic investments, we'll seek to further fortify our balance sheet, all while continuing to support a consistent return of capital program as demonstrated by our consistent quarterly cash dividend. Regarding our current fleet of owned vessels, we have been focused on refreshing our fleet to keep an average vessel age of approximately 10 years, while continuing to ensure that we are able to meet the unique cargo needs of our customers. We continue to strategically evaluate additional vessel acquisitions and divestitures through this line. And last night, we announced we had entered into an agreement to purchase two 58,000 deadweight ton sister ships built in 2016. We are purchasing these ships for a combined price of $56.6 million and we expect to take delivery during the third quarter of this year. Within our port and logistics business, we have made strides to organically expand that business in the U.S. Gulf Coast region through strategic joint operations, partnerships, and site leases. During the first quarter, we executed a long-term lease agreement in the Port of Tampa to handle dry bulk commodities that are complementary to those carried on our fleet vessels. In conjunction with signing this lease, we also committed investment capital in some port operations infrastructure in partnership with JV partners at the port. This investment will allow us to expand our ability to offer a wider scope of cargo-focused services across the strategically important Gulf Coast region to both new and existing customers. The investment will provide a meaningful growth avenue for our terminal and stevedoring business, which we expanded into Florida in June of last year. In summary, our cargo-focused business model continues to deliver strong premium returns, which we are strategically investing in key growth opportunities, both in our logistics business and in our owned vessel fleet. Coupled with a supportive macro environment for dry bulk rates, we believe that we are well positioned to continue to deliver attractive shareholder returns through opportunistic capital deployment.

Thank you, Mark, and welcome to all of those joining us today. Our first quarter financial results continue to emphasize the flexibility of our business model as we were able to deliver premium returns despite a year-over-year reduction in total shipping days. Our results highlight the value that our chartered-in strategy and cargo-focused model create within the context of our overall operating leverage. First quarter TCE rates were approximately $17,697 per day, a premium of approximately 29% over the average published market rates for Supramax and Panamax vessels in the period, which is supported by long-haul ice class performance early in the quarter and forward bookings, which locked in rates for cargo performance. Our adjusted EBITDA increased by nearly 23% year-over-year to $19.9 million. Our adjusted EBITDA margin also improved year-over-year to 19%, as we managed our vessel utilization in accordance to the prevailing market rates to maximize our TCE rate returns and operating leverage. While our chartered-in days decreased by 14% year-over-year, our total charter hire expense increased by 20% compared to the first quarter of 2023 due to the 41% increase in the prevailing market rates. Our charter-in cost on a per-day basis was $17,580 in the first quarter of 2024. And through today, we've booked approximately 1,400 days at approximately $16,700 per day. As I mentioned, we pushed some of our cargo commitments forward toward charter hire vessels intra-quarter in the face of higher market rates, which allowed us to maximize our returns on our total fleet in accordance with our short-term charter-in strategy. Furthermore, our improved profitability for the first quarter was bolstered by lower vessel operating expenses, net of technical management fees, which decreased by 6% year-over-year from an average of $5,632 per day last year to $5,300 per day in the first quarter of 2024. The decrease continues to highlight the success of our efforts to manage vessel operating costs. As we have mentioned in the past, we utilized forward freight agreements and bunker swaps to selectively hedge our exposure to the market on our long-term cargo contracts and forward bookings. This approach helps us lock in future cash flows and minimize the impact of market volatility but can lead to fluctuations in our reported results on a period-to-period basis. Given the market volatility during the first quarter, our reported net income reflects an unrealized gain of approximately $5.1 million relating to mark-to-market adjustments of bunker swaps, forward freight agreements, and our interest rate cap. In total, our reported GAAP net income attributable to Pangaea for the first quarter was $11.7 million or $0.25 per diluted share compared to $3.5 million or $0.08 per diluted share in the first quarter of last year. When excluding the impact of the unrealized losses from derivative instruments that I mentioned as well as other non-GAAP adjustments, our reported adjusted net income attributable to Pangaea during the quarter was $6.6 million or $0.14 per diluted share, an increase of $1.5 million or $0.03 per diluted share versus the first quarter of last year. Moving on to cash flows. Total cash from operations decreased by $2.6 million year-over-year to $9 million as the improvement in profitability was offset by the timing of customer receipts and supplier payments reflected in net working capital. At quarter end, the company had $95.9 million in cash and total debt, including finance lease obligations of approximately $258 million. Of the $258 million in debt, approximately $20 million represents a balloon payment that is due this month at maturity of the loan, this credit facility is currently locked in at a fixed rate of 3.96%. Once paid, the Bulk Pride, Bulk Independence, and Bulk Endurance will be debt-free vessels in our fleet, and we are actively working with a new lender to refinance the Bulk Endurance only, which will generate approximately $15 million of cash and is expected to be finalized in the coming weeks. During the quarter, we continued to see relatively muted impact from higher interest rates due to our fixed rate and cap rate debt, as well as benefits from interest-yielding deposits, which generated nearly $1 million in interest income. At the end of the first quarter, the ratio of net debt to trailing 12-month adjusted EBITDA was 2x. As Mark mentioned, our capital allocation focus in 2024 is investing in growth by expanding our onshore footprint and owned vessel capacity, and our current balance sheet and liquidity profile allows us the flexibility to deploy capital in ways that maximize overall returns on investment. Importantly, I would reiterate that we continue to prioritize a consistent return of capital strategy. We believe that our current dividend is one that can be sustained through the market cycle.

We will take our first question from Liam Burke with B. Riley.

Mark, in the first quarter, you chartered in about 17 vessels, which is way, way on the low end of typically when you flex your fleet, typically, I think of vessels in the 20-ish range. But then Gianni gave us a sort of a partial chartered-in number for the second quarter. Do you anticipate chartering in more than 17 vessels in the quarter? And is that reflective of the end-user demand?

Thanks for the question, Liam. Yes, you have it right. In the first quarter, early in the quarter, the market didn't look so great to us and we slimmed down the fleet. But toward the end of the quarter, the market started to come back and we started to expand the chartered-in fleet. So looking forward, yes, the chartered-in base should go up as the market moves up.

And I mean, Gianni quoted a price quarter-to-date on your chartered-in day rates, and they were lower than the first quarter. So is that trend continuing where we could see a little margin lift there?

Liam, Mads here. We hope so, of course. It is all a reflection of where we take the ship. If you take the ship out in the Far East and you move it into the Atlantic, it has a different cost than when we pick them up in the Atlantic. So I don't know if there's a real trend there that you can project, unfortunately. Very specific to the individual opportunity.

Great. And then just real quickly, you bought the two new vessels that will be delivered in the second half. You have a balloon payment. You have a large cash balance that can address your refinancing. You refinance only one vessel. I presume that refinance will go to the acquisition of the two new vessels.

Yes. I think the balloon comes due next week actually. So we are, like you said, in a position, we will pay off the balloon. And then we are refinancing just the Bulk Endurance. So we'll add the Bulk Independence and the Bulk Pride as debt-free vessels in the fleet. And yes, we'll use a portion of that to offset some of the equity on the two new vessels. But we do intend to finance the new vessels as well, but delivery is looking like sometime in Q3. So we have a little bit of time to plan how we want to handle that. But I expect we'll also finance a certain level on those vessels as well.

We'll take our next question from Poe Fratt with AGP.

Can you give us a little more detail on the acquisitions, what's the vintage on the two ships?

Sure. They are built in 2016. So that is typically that 7- to 10-year range that is where we have historically done most of our secondhand acquisitions. So we feel that these ships are a great fit for our business model. It's not often that two sister ships come up like that, that fits the build. So we are pretty excited about that transaction, and we can't wait to put them to work in our business.

And then Mads, will these be essentially substituted for charter gaining tonnage? Or do you think it's more expansionary?

Well, I think we did sell a ship in, I think it was December of last year, right? So there's a bit of a sort of a break renewal maintenance part of it. But I don't think—we don't anticipate one-to-one reduction of the chartered-in fleet, as the two things shouldn't be that closely linked.

I think it's a continual cycle, Poe, a larger fleet gives us a little bit more ability to find more cargo commitments, which allows us to leverage the owned fleet with more chartered-in ships. So there is a little bit of growth element to this and a little bit of fleet replacement element.

And if anything, I think also, Poe, it is a reflection of the belief that we have in our model and the demand that we're experiencing across the business that we want to make sure that we have good ships that we can serve our customers with as their volumes grow.

Understood. And then that sort of ties in to, Mark, earlier in the call said that you've flexed down your fleet early in the quarter just because you didn't like what you saw or you thought the market was soft. And just to clarify, was that on the cargo side? You just didn't see the cargo volume to support chartered-in vessels? Or it certainly wasn't from a rate perspective, right? You're looking more from the cargo volume.

Really, it's the opportunities we see when we're out looking at cargo. We didn't see much opportunity for us to expand the fleet and make money and to position the ships that we're chartering in, in the right places to make a profit on them. So it's a constant daily study of where the market is and what we can do with it.

Understood. Could you discuss your forward cover, which is currently at 2,890 days and $16,300? This represents a significant decline from the average TCE rate in the first quarter. Can you provide some context on how we should view the remainder of the quarter and where your average TCE might land?

Yes. I think that's a good question, Poe. And just going back to what Mark said earlier about— with the previous question about growing the chartered-in fleet. So the way that we historically do this is by when we grow that part of the business is through backhauls. So we will have some ships that are doing backhaul barges. And of course, that is not as high a number as when they do sort of our traditional lending business on fronthaul, right? So there's an element to that in the quarter is not finished. So we like to think that over the year, for sure, these backhaul investments we're making now will contribute positively.

Okay. Yes. I mean, should I be concerned that you're chartering in of $16,700 you're booking at $16,300?

We do it every quarter, yes, you should. But that's not what we anticipate going forward, for sure, right? This is result mostly of some positioning costs. We have some cargo on the books that were fixed at different levels, but also a pretty meaningful investment in positioning voyages in the quarter.

Okay. And then Gianni, working capital was pretty negative for the quarter. Could you just talk about will that balance out over the second quarter or just the rest of the year? So how we should look at working capital in the second quarter? And then if you could just give us a snapshot of where your mark-to-market on all your derivatives look right now, that would be helpful.

Yes. So working capital, the largest impact there has been the recognition of the balloon payment on the debt that comes due next week. And that's sort of been there since we were anticipating that for a while. But cash balance is remaining strong. Even if it continues to maintain and grow. So we're allocating it towards chartering ships towards building up—towards acquisitions, et cetera. So once we handle the balloon payments, we refinance, I think we'll see as far as that working capital ratio, and we'll see that improve.

Okay. And then how do your derivatives look so far in the quarter relative to the unrealized gains that you had in the first quarter? Flat, should we expect some unrealized losses? Or how does the derivative book look right now?

Yes. Well, there's three—of that mark-to-market gain, right, there's three components to that. There's the interest rate cap. There's bunker derivatives and then there's forward freight agreements. The interest rate cap, what happened at the end of last year, we knew there was some maybe negative pressure on the cap because of what expectations were on interest rates that didn't materialize. So we did see a pickup in value from year-end to the first quarter there. And the bunker derivatives and forward freight agreements, I think they've remained relatively flat. So—and even looking ahead with the interest rate cap, I think that also has remained relatively flat. So I don't expect significant volatility when it comes to our derivative book for Q2.

We have no further questions on the line at this time. We'll turn the program 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 [email protected], and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

And once again, this does conclude today's program. Thank you for your participation. You may disconnect at any time.