# Pangaea Logistics Solutions Ltd. (PANL) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Pangaea Logistics Solutions Ltd.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1606909/000160690925000097/panl-20241231.htm
Accession: 0001606909-25-000097
Filing date: 2025-03-18
Report date: 2024-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/PANL/
All MD&A years: /company/PANL/mda/
Previous year: /company/PANL/mda/fy2023/ (FY 2023)
Next year: /company/PANL/mda/fy2025/ (FY 2025)

Results of Operations

Fiscal Year Ended December 31, 2024 Compared to Fiscal Year Ended December 31, 2023 

Revenues

Pangaea’s revenues are derived predominantly from voyage charters and time charters. Total revenue for the fiscal year ended December 31, 2024, was $536.5 million compared to $499.3 million, for the same period in 2023, a 7% increase. The number of shipping days increased 4% to 17,407 in the fiscal year ended December 31, 2024, from 16,711 for the same period in 2023. The revenue increase was primarily due to a 4% increase in the average TCE rate, which was $16,485 per day for the twelve months ended December 31, 2024, compared to $15,849 per day for the same period in 2023.

Components of revenue are as follows:

Voyage revenues increased by 5% for the fiscal year ended December 31, 2024 to $494.1 million from $468.6 million for the same period in 2023. The increase was primarily driven by higher average TCE rates in 2024 due to stronger market conditions. The number of voyage days increased 5% to 15,669 for the twelve months ended December 31, 2024 from 14,922 for the same period in 2023.

Charter revenues increased to $30.3 million from $23.7 million, or 28%, for the year ended December 31, 2024 compared to the same period in 2023. The increase in charter revenues was due to an increase in charter hire rates evidenced by the increase in index rates for Panamax and Supramax vessels of approximately 17% compared to the same period of 2023 and partially offset by a decrease in time charter days. The time charter days were down 3% to 1,738 in the twelve months ended December 31, 2024 from 1,789 in the twelve months ended December 31, 2023. The time charter revenue per day was $17,450 for the twelve months ended December 31, 2024 compared to $13,258 for the same period of 2023. The optionality of our chartering strategy, in which the Company charters vessels in on short term periods with market available days during the charter period, allows the Company to selectively release excess ship days, if any, into the market under time charter arrangements.

Terminal & Stevedore revenues increased by 74% to $12.1 million from $7.0 million for the twelve months ended December 31, 2024 compared to the same period in 2023. This revenue increase is mainly due to the acquisition of port operations in June 2023, which contributed to a full year of operations in the current year.

Voyage Expenses

Voyage expenses for the fiscal year ended December 31, 2024, were $237.5 million, a 4% increase from $227.4 million for the year ended December 31, 2023. This increase was primarily driven by a 5% rise in voyage days.

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 Charter Hire Expenses

The Company charters in vessels, typically on a short-term basis, from other shipowners to supplement its owned fleet. Charter hire expenses paid to third-party shipowners were $130.8 million for the year ended December 31, 2024, compared to $111.0 million for the year ended December 31, 2023, an 18% increase. The increase in charter hire expenses was primarily due to an increase in market rates to charter-in vessels and a rise in the number of chartered-in days from 7,933 in 2023 to 8,523 in 2024.

Per-day charter hire expenses were $15,342 for the twelve months ended December 31, 2024, compared to $13,996 for the same period in 2023. The average published market rates for Supramax and Panamax vessels increased approximately 17% from an average of $11,391 in 2023 to $13,314 in 2024. The Company's flexible charter-in strategy allows it to supplement its owned fleet with short-term chartered-in tonnage at prevailing market prices when needed to meet cargo demand.

Vessel Operating Expenses

Vessel operating expenses for the year ended December 31, 2024, totaled $55.5 million, slightly lower than the $55.8 million recorded for the same period in 2023. Ownership days for the twelve months ended December 31, 2024, and 2023 were 8,741 and 8,230, respectively. Excluding technical management fees, vessel operating expenses per day were $5,820 in 2024, down from $6,256 in 2023. Technical management fees amounted to $4.7 million in 2024, compared to $4.3 million in 2023.

Terminal & Stevedore Expenses

Terminal and stevedore expenses increased to $9.3 million for the twelve months ended December 31, 2024, up from $5.8 million for the same period in 2023. This increase was primarily driven by the acquisition of port operations in June 2023, resulting in a full year of operational contributions in 2024.

General and Administrative Expenses

The increase in general and administrative expenses from $22.8 million to $24.6 million for the year ending December 31, 2024, was primarily driven by higher compensation related expenses.

Depreciation and Amortization

We depreciate our vessels on a straight-line basis over their expected useful life, which ranges from 25 to 30 years from the date of initial delivery from the shipyard to the original owner. Depreciation is calculated based on the vessel's cost, less its estimated residual value. The residual value is determined using a scrap rate of $300 per lightweight ton (lwt).

Depreciation and amortization expense increased by $0.3 million, or 1%, primarily due to an increase in ownership days, which rose to 8,741 days in 2024 from 8,230 days in 2023 as a result of vessel acquisitions. Additionally, the increase in depreciation and amortization expense was driven by higher drydocking amortization, with four drydockings completed in 2024 compared to three in 2023.

Loss on sale of vessels

In the year ended December 31, 2023, the Company recorded a $1.7 million loss on the sale of the M/V Bulk Trident and M/V Bulk Newport. No vessel sale gains or losses were recorded in 2024.

Unrealized (Loss) Gain on Derivative Instruments

The Company evaluates risks related to fluctuating future freight rates and bunker prices and, when appropriate, actively hedges identified economic risks that may impact the operating income of long-term cargo contracts through forward freight agreements or bunker swaps. The use of these derivatives may result in period-to-period fluctuations in the Company's reported operating results.

In the year ended December 31, 2024, the Company recorded an unrealized loss on derivative instruments of $1.0 million, compared to an unrealized loss of $2.9 million in the year ended December 31, 2023. For further details, refer to Note 7, Margin Account, Derivatives, and Fair Value Measures, in the consolidated financial statements.

69

Liquidity and Capital Resources

Liquidity and Cash Needs

The Company has historically financed its capital requirements with cash flow from operations, the issuance of common stock, proceeds from non-controlling interests, and proceeds from long-term debt, financing obligations and finance leases. The Company has used its capital primarily to fund operations, vessel acquisitions, and the repayment of debt and the associated interest expense. The Company may consider debt or additional equity financing alternatives from time to time. However, if market conditions deteriorate, the Company may be unable to raise additional debt or equity financing on acceptable terms or at all. As a result, the Company may be unable to pursue opportunities to expand its business.

At December 31, 2024 and 2023, the Company had working capital of $82.9 million and $86.5 million, respectively. The decrease in working capital was primarily driven by the increase in bunker inventory, partially offset by a rise in accounts payable.

Considerations made by management in assessing the Company’s ability to continue as a going concern are its ability to consistently generate positive cash flows from operations, which were approximately $65.7 million in 2024, and $53.8 million in 2024; its excess of cash and cash restricted by facility agents over the current portion of secured long-term debt, financing obligations and finance leases, and its focus on contract employment (COAs). In addition, the Company has demonstrated its ability to adapt to changing market conditions by changing the chartered-in profile to meet its cargo commitments and react to volatile market rates. The Company believes that future operating cash flows together with cash on hand, availability of borrowings, and contributions from non-controlling interests will be sufficient to meet our future operating and capital expenditure cash requirements for the next 12 months and the foreseeable future. For more information on the results of operations, see Part II. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Results of Operations.

The table below summarizes our primary sources and uses of cash for the fiscal years ended December 31, 2024 and 2023. We have derived these summarized statements of cash flows from the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

[[GREPCENT_TABLE]]
[["(in millions)","","2024","","2023"],["Net cash provided by/(used in):"],["Operating activities:"],["Net income adjusted for non-cash items","","$","64.1","","","$","65.0"],["Changes in operating assets and liabilities, net","","1.6","","","(11.2)"],["Operating activities","","65.7","","","53.8"],["Investing activities","","(67.7)","","","(16.0)"],["Financing activities","","(10.2)","","","(67.2)"],["Net change","","$","(12.2)","","","$","(29.3)"]]
[[/GREPCENT_TABLE]]

Operating Activities  

Net cash provided by operating activities during the year ended December 31, 2024 was $65.7 million, compared to net cash provided by operating activities of $53.8 million during the year ended December 31, 2023. The cash flows from operating activities increased compared to the same period in the prior year primarily due to the increase in income from operations, and timing of customer receipts and supplier payments.

Investing Activities  

Net cash used in investing activities for the twelve months ended December 31, 2024, was $67.7 million, compared to $16.0 million for the same period in 2023. In 2024, the Company spent $69.3 million on purchasing two vessels and vessel improvements and $0.0 million as a partial cash allocation for the SSI asset acquisition. These outflows were partially offset by $1.9 million in dividends received from equity method investments.

70

In 2023, net cash used in investing activities totaled $16.0 million, primarily due to $27.3 million spent on vessel acquisitions and $7.2 million on port and terminal operations acquisitions, partially offset by the proceeds from the sale of two vessels for $17.3 million.

Financing Activities  

Net cash used in financing activities in 2024 was $10.2 million compared to net cash used in financing activities of $67.2 million for the same period of 2023. During the twelve months ended December 31, 2024, the Company repaid $33.1 million of long term debt, $19.2 million of financing obligations and $3.0 million finance leases. Additionally, the Company distributed $18.7 million in cash dividends to common stockholders and made payments totaling $21.0 million, including $19.0 million for the acquisition of the remaining 50% equity ownership of Nordic Bulk Partners LLC from HS Nordic LLC and $2.0 million for payments to non-controlling interests recorded as a long-term liability. The Company also paid $2.3 million in cash dividends to non-controlling interests, offset by new borrowing of 89million.

Net cash used in financing activities for 2023 totaled $67.2 million. Over the twelve months ended December 31, 2023, the Company repaid $15.8 million in long-term debt, $11.3 million in financing obligations, and $8.9 million in finance leases. Additionally, the Company distributed $18.1 million in cash dividends to common stockholders and $10.4 million in cash dividends to non-controlling interests. The Company also made a $2.5 million payment to non-controlling interests, recorded as a long-term liability.

Capital Expenditures

The Company’s capital expenditures relate to the purchase of vessels and interests in vessels, and to capital improvements to its vessels which are expected to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned or partially owned and controlled fleet at December 31, 2024 includes: nine Panamax drybulk carriers (six of which are Ice-Class 1A); nine Supramax drybulk carriers, two Ultramax Ice-Class IC, two Ultramax, four Post Panamax Ice Class 1A drybulk vessels, and 15 Handysize vessels acquired through the Strategic Shipping Inc. merger.

In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and environmental laws and regulations. This includes installation of BWTS required under new regulations, the cost of which will be $0.5 million to $0.7 million per vessel. The Company has some flexibility regarding the timing of drydocking, but the total cost is unpredictable. The Company expects to perform nine special surveys in 2025 at an aggregate total cost of approximately $13.0 million. The Company expects to perform four intermediate surveys in 2025 at an aggregate total cost of approximately $1.5 million. The Company estimates that offhire related to the surveys and related repair work is ten to twenty days per vessel, depending on the size and condition of the vessel. Funding of these requirements is anticipated to be met with cash from operations. The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will reduce the Company’s available days and operating days during that period.

71

Critical Accounting Policies and Estimates

As discussed in Note 3, "Summary of Significant Accounting Policies," of our Financial Statements, which describes our significant accounting policies, the preparation of consolidated financial statements in accordance with U.S. GAAP requires us to exercise judgment in the process of applying our accounting policies. It also requires that we make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting policies and estimates that we believe are most critical to the portrayal of our financial condition and results of operations are listed below. We believe these policies require the most difficult, subjective, and complex judgments in estimating the effect of inherent uncertainties.

Revenue Recognition: Revenues are generated from time charters and voyage charters. Time charter revenues are recognized on a straight-line basis over the term of the respective time charter agreements as service is provided. Voyage revenues represent revenues earned by the Company, principally from providing transportation services under voyage charters. A voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Under a voyage charter, the service revenues are earned and recognized ratably over the duration of the voyage. A contract is accounted for when it has approval and commitment from both parties, the rights and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Demurrage, which is included in voyage revenues, represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the voyage charter. Demurrage is measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage revenues arise. Demurrage revenue is included in the calculation of voyage revenue and recognized ratably over the duration of the voyage to which it pertains. Voyage revenue recognized is presented net of address commissions.

Charter revenues relate to a time charter arrangement under which the Company is paid to provide transportation services on a per day basis for a specified period of time. Revenues from time charters are earned and recognized on a straight-line basis over the term of the charter, as the charters do not fall under the scope of ASC 606. Revenue is not earned when vessels are offhire.

Terminal & Stevedore Revenue: Terminal & Stevedore revenue is derived from inbound and outbound cargo handling services at ports which the Company operates in. Gross revenue is earned typically based on a per-unit rate for volumes handled.

Long-lived Assets Impairment Considerations: The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels, which tend to be cyclical. The carrying value of each group of vessels classified as held and used are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual disposition is less than its carrying value. This assessment is made at the assets group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.

The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be calculated. Measurement of the impairment loss is based on the fair value of the asset as provided by third parties.

The Company concluded that no triggering event occurred during the twelve months ended December 31, 2024, which would require impairment testing.

72

In both the first and fourth quarters of 2023, the Company identified triggering events associated with the sale of vessels, where the carrying value exceeded their fair value. On January 18, 2023, the Company entered into a memorandum of agreement to sell the m/v Bulk Newport for $8.9 million in net consideration after brokerage commissions, resulting in a recorded loss on sale of $1.2 million in the first quarter of 2023. Similarly, on October 17, 2023, the Company signed a memorandum of agreement to sell the m/v Bulk Trident for $9.5 million in net consideration after brokerage commissions, resulting in a loss on sale of $0.6 million in the fourth quarter of 2023.

The Company conducted an impairment analysis on each asset group and determined that the estimated undiscounted future cash flows exceeded their carrying amounts. Therefore, no additional loss on impairment was recognized. Also the Company concluded that no other triggering event had occurred during the remaining period of the 2023 which would require impairment testing.

The table set forth below indicates the purchase price of the Company’s vessels and the net carrying amount of each vessel as of December 31, 2024.

[[GREPCENT_TABLE]]
[["Vessel Name","","Date Acquired","","Size","","Year Build","","Purchase Price ($000)","","Net Carrying Amount ($000)"],["m/v Bulk Endurance","","January 2017","","Ultramax 1C","","2017","","$","28,000","","","$","20,616"],["m/v Bulk Destiny","","January 2017","","Ultramax 1C","","2017","","24,000","","","17,729"],["m/v Bulk Prudence","","June 2023","","Ultramax","","2014","","26,650","","","26,744"],["m/v Bulk Courageous","","April 2021","","Ultramax","","2013","","16,798","","","16,028"],["m/v Nordic Oasis","","January 2016","","Panamax 1A","","2016","","32,600","","","23,436"],["m/v Nordic Olympic","","February 2015","","Panamax 1A","","2015","","32,600","","","22,089"],["m/v Nordic Odin","","February 2015","","Panamax 1A","","2015","","32,625","","","21,980"],["m/v Nordic Oshima","","September 2014","","Panamax 1A","","2014","","33,709","","","23,106"],["m/v Nordic Orion","","April 2012","","Panamax 1A","","2011","","32,363","","","18,144"],["m/v Nordic Odyssey","","April 2012","","Panamax 1A","","2010","","32,691","","","17,181"],["m/v Bulk Valor","","June 2021","","Supramax","","2013","","18,182","","","15,726"],["m/v Bulk Friendship","","September 2019","","Supramax","","2011","","14,447","","","11,957"],["m/v Bulk Sachuest","","October 2022","","Supramax","","2010","","17,364","","","15,678"],["m/v Bulk Brenton","","July 2024","","Supramax","","2016","","28,762","","","28,256"],["m/v Bulk Patience","","August 2024","","Supramax","","2016","","28,663","","","28,240"],["m/v Bulk Independence","","May 2019","","Supramax","","2008","","14,393","","","12,622"],["m/v Bulk Pride","","December 2017","","Supramax","","2008","","14,023","","","10,678"],["m/v Bulk Freedom","","June 2017","","Supramax","","2005","","9,016","","","7,326"],["m/v Bulk Spirit","","February 2019","","Supramax","","2009","","13,000","","","11,961"],["m/v Bulk Xaymaca","","August 2018","","Panamax","","2006","","14,010","","","11,042"],["m/v Bulk Concord","","February 2022","","Panamax","","2009","","19,900","","","18,511"],["m/v Bulk Promise","","July 2021","","Panamax","","2013","","18,633","","","16,344"],["m/v Nordic Nuluujaak","","May 2021","","Post Panamax 1A","","2021","","38,424","","","34,667"],["m/v Nordic Qinngua","","June 2021","","Post Panamax 1A","","2021","","38,471","","","34,655"],["m/v Nordic Sanngijuq","","September 2021","","Post Panamax 1A","","2021","","37,920","","","34,291"],["m/v Nordic Siku","","November 2021","","Post Panamax 1A","","2021","","37,935","","","34,672"],["m/v Strategic Fortitude","","December 2024","","Handysize","","2016","","16,874","","","16,874"],["m/v Strategic Resolve","","December 2024","","Handysize","","2015","","14,606","","","14,606"],["m/v Strategic Explorer","","December 2024","","Handysize","","2015","","14,606","","","14,606"],["m/v Strategic Entity","","December 2024","","Handysize","","2015","","14,606","","","14,606"],["m/v Strategic Synergy","","December 2024","","Handysize","","2014","","14,062","","","14,062"],["m/v Strategic Alliance","","December 2024","","Handysize","","2014","","14,062","","","14,062"]]
[[/GREPCENT_TABLE]]

73

[[GREPCENT_TABLE]]
[["Vessel Name","","Date Acquired","","Size","","Year Build","","Purchase Price ($000)","","Net Carrying Amount ($000)"],["m/v Strategic Unity","","December 2024","","Handysize","","2014","","14,062","","","14,062"],["m/v Strategic Harmony","","December 2024","","Handysize","","2014","","14,062","","","14,062"],["m/v Strategic Equity","","December 2024","","Handysize","","2014","","14,062","","","14,062"],["m/v Strategic Venture","","December 2024","","Handysize","","2014","","14,062","","","14,062"],["m/v Strategic Savannah","","December 2024","","Handysize","","2013","","11,431","","","11,431"],["m/v Strategic Spirit","","December 2024","","Handysize","","2012","","11,068","","","11,068"],["m/v Strategic Vision","","December 2024","","Handysize","","2012","","11,068","","","11,068"],["m/v Strategic Tenacity","","December 2024","","Handysize","","2012","","10,705","","","10,705"],["m/v Strategic Endeavor","","December 2024","","Handysize","","2010","","7,711","","","7,711"],["Miss Nora G. Pearl","","November 2017","","Deck Barge","","1979","","3,833","","","1,597"],["Total","","","","","","","","$","856,061","","","$","732,325"]]
[[/GREPCENT_TABLE]]

Borrowing Activities

As of December 31, 2024 and 2023 the Company’s borrowing activities primarily consisted of:

•Long-term secured debt, refer to "Note 9, Secured long-term debt" for detail information

•Financing obligations, refer to "Note 9, Secured long-term debt" for detail information

•Finance leases, refer to "Note 10, Finance leases" for detail information

Related Party Transactions

Refer to "Note 8, Related party transactions"

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of December 31, 2024 or 2023.