Good morning. My name is Brittany, 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 11:00 A.M. Eastern Standard Time. The recording can be accessed by dialing 800-839-7414 for domestic and 402-220-6068 for international. All lines are currently muted, and after the prepared remarks, there will be a live question-and-answer session. If you would like to ask a question during the Q&A segment, please press star one on your phone. If your questions have been answered, you may remove yourself from the queue at any time by pressing star two.
We do ask that you pick up your handset for optimal sound quality. 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 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. 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 three 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 cementitious materials, were strong, of course, across major customers and regions we served in the period. To that end, as of November 7th, we've 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 reinvested approximately $50 million in our business through acquisition and fleet renewals, while returning more than $18 million to shareholders through our quarterly cash dividend. We remain committed to a consistent return of capital program and continue to view our quarterly cash dividend as an integral part of our investment thesis, one that emphasizes total shareholder returns. In October, we entered into an agreement to sell the 2006-built Supramax Bulk Trident for $9.8 million.
This sale is aligned with our strategic focus on owning and operating a newer, more efficient fleet, consistent with our approach to regular fleet refreshment. In 2024, we will evaluate additional vessel acquisitions and divestitures while supporting the unique requirements of our customers on an on-demand basis. Before I turn the call over to Gianni, I want to note that our third quarter was our first full quarter of ownership of the port and logistics business that we acquired in June. The business is performing well, and we continue to work diligently on expanding that business with our current customer base, while seeking out opportunities to leverage the growing economies of scale between our onshore and offshore assets. With that, I'll hand it over to Gianni for a discussion of our third quarter financial results.
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 class 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-in 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 instruments as well as other non-GAAP adjustments, our reported adjusted net income attributable to Pangaea during the quarter was $14.4 million, or $0.32 per diluted share, a decrease of $8.9 million or $0.20 per diluted share versus the third quarter of last year. Moving on to the cash flows.
Total cash from operations decreased by $16 million year-over-year to $16.3 million due to the decrease in TCE rates. At quarter-end, the company had $87.4 million in cash and total debt, including finance lease obligations, of approximately $276 million. Of the $276 million in debt, approximately $20 million became current at the end of the second quarter, representing balloon payments that are due in May 2024. This credit facility is currently locked in at a fixed rate of 3.96%, and we expect to refinance this as we approach maturity in May 2024.
During the quarter, the impact of higher interest rates was relatively muted in our results due to our fixed rate and capped rate debt, as well as benefits from interest yielding deposits, which generated nearly $1 million in interest income. At the end of the third quarter of 2023, the ratio of net debt to trailing twelve-month adjusted EBITDA was 2.2 x. In conclusion, our vertically integrated shipping and logistics model continued to deliver above-market performance, supported by strong execution of our specialized ice class fleet, our chartering strategy, continued fleet expansion, and a disciplined capital allocation. During periods of market volatility, we believe that our business model will continue to deliver above-market returns and consistent cash flow generation. With that, we will now open the line for questions.
At this time, if you would like to ask a question, please press star and one on your touchtone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one if you would like to ask a question. We do ask that you please pick up your handset to allow optimal sound quality. We'll take our first question from Liam Burke with B. Riley. Your line is now open.
Thank you. Good morning, Mark. Morning, Gianni.
Hello, Liam. Nice to hear from you.
Thank you. You too. 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. You know, 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.
Okay. 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 gonna—you're just gonna 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 it's a little lower than it is higher.
Great. 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.
Right.
So it can go both ways for us, and it has.
Thank you, Mark.
Thank you. Once again, that is star and eight one if you would like to ask a question. We'll take our next question from Poe Fratt with Alliance Global Partners. Your line is now open.
Good morning, Mark. Good morning, Gianni, and I assume good morning, Mads. Can you just talk about-
Hey, Poe.
Can you just talk about the stevedoring operation? You know, were there any startup costs in that operation that, you know, put the gross margin at 11%? And what sort of a good run rate to use going forward on that, on that business line?
Well, the stevedoring business, you know, doesn't come in in a steady stream. Over time, of course, it's a pretty steady business, but ship schedules, cargo schedules, whether a cargo owner engages us to do stevedoring in, say, Fort Lauderdale, is or not, if 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 startup, I don't think there were any significant startup costs.
So, yeah, there were some startup 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 startup costs that 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 our G&A that quarter. And then there's, you know, 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 terminal and stevedore expenses. But some of those were one-time, and obviously other ones are flowing through depreciation, not affecting EBITDA.
Okay. And so, you know, relative to the third quarter, how does the fourth quarter look right now? You know, we're, you know, close to halfway through it. Can you just give me sort of a color on how, you know, that stevedoring terminal operation looks right now relative to the third quarter?
Ports and terminals operations specifically, you said?
Yes. I'm just trying to figure out, you know, where... You know, 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.
Yeah, we get a schedule of upcoming ships, you know. It only goes out about a month. But I think we'll be pretty active over the next, the next month or two.
Okay. That's all right, Mark. Why don't we move on to your forward cover? You know, relative to the second or the, you know, at the time of the second quarter call, you know, the days that you booked for the fourth quarter are down, you know, a little bit modestly, like 20%, but the rate's a lot higher. Can you just talk about that dynamics of your forward cover right now and, and, you know, that 2,715 days that you booked? Where do you think... How many, how many shipping days do you think you'll have total in the fourth quarter?
Just, Mads, can you give a sort of dynamic of how were you able to capture the run-up in rates in September, October, and, you know, the rest of the quarter is going to be a little weaker? Sort of just if you give us an idea of the dynamics of your forward cover at this point.
So Poe , I'll start with, with the, you know, as far as what we, we published and, and sort of guided to for the fourth quarter, which was the $19,000 a day rate in about 2,700 days. That, that, you know, what we're estimating for the quarter, I think it's, it's similar. We're about 45 vessels in that ballpark for the fourth quarter. So the 2,700 days obviously is just a, you know, a, a snapshot for what has been performed and booked through November 7th, or November 6th, rather. So there are definitely, you know, there's certainly days that, that will still come into the quarter based on, you know, we continue to operate around that 45.
It's probably coming down from a high, from a high of 51 ships down to about 45 to 48. So that's what the quarter, that's what quarter will look like. As far as rates, we're, you know, we're happy to see it. You know, we had a great start going into the fourth quarter. We have booked a lot of forward cargo. So we think we're, you know, pretty well positioned for the fourth quarter, but I'll let Mads give a bit more color on that.
Yeah. I think, you know, Poe, it's driven primarily by our Arctic 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, you know, quite a bit of, you know, non-ice business on the books that we are performing at the moment. We will have that in Q4 as well. But yeah, the market is obviously soft in those numbers, so you know, that will potentially impact it as well, sure.
Okay, great. That's helpful. And then, you know, Gianni, you highlighted charter hire expenses were a lot lower year-over-year, you know, a lot lower than what I expected. Can you talk about the fourth quarter run rate so far for charter hire expenses? You're gonna charter in on less vessels, it looks like, you know, you're gonna have about 500 less days in the fourth quarter versus the third quarter. But can you just talk about charter hire days as far as just maybe gross number or even on a per day basis?
Yeah, I know this is sort of a lagging effect that, you know, that impacts us. And, you know, certainly, it's a positive, it can be a positive, and sometimes it, 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. Yeah, Q3, it was, you know, $10.8, I think, was our total cost for charter in, which was compared to that $15.7 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, you know, 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 you know fluctuates, our charter hire expense fluctuates. But it's again, it's largely dependent on timing and where the market is.
Yeah, and Poe, if I could just add, you know, everything we do in this space is short term at the moment. We still see best value in the shorter executions on any time charter in business we do. So it's not something that will, you know, last into several more quarters, so.
Okay. 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, you know, obligation-
Yeah.
-to your purchase option. So you're gonna have sort of, so what's the net proceeds gonna be on that?
We're expecting $5, about $5 million of, you know, cash derived out of that transaction. And you're right, we have the purchase option on, you know, it's called a purchase option, but we do it as a financing. So, it's really the, you know, we'll call it the balloon payment that's due on the lease. And we'll- 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, she'll be sold, and that'll generate about $5 million.
Okay. And then, you know, you have what? A little over $20 million due in the, in the second quarter, in the May timeframe.
Yeah.
You also have the Friendship lease that-
Yeah, correct
-that looks like matures in the third quarter, September-ish. Would that also be a refinancing or is that potentially a sale candidate?
You know, we have the Prudence that's also we bought—remember we bought her with no debt attached. So we have her debt-free. And then in that May facility, we have the Bulk Endurance that's gonna be coming due. So, I think the way we look at it now is, it'd probably likely the Endurance and the Prudence would be our candidates and do some sort of package for those two vessels and keep the others debt-free. Just so we can be a bit, you know, to your point and what Mark said earlier, you know, we wanna be opportunistic with our vessels, and if it's a sale candidate and the market is there, then we wanna be in that position.
Yeah, I think you're absolutely right, Poe, and how you're thinking about that and how we're thinking that as that approaches maturity.
Okay, great. Thanks a lot.
Thank you, Poe.
Thank you. 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 happy holiday at for Thanksgiving.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.