27 February 2010

PRGN: Income Statement Analysis for the December 2009 Quarter

Paragon Shipping, Inc., (NASDAQ: PRGN) earned $0.26 per share, on a GAAP basis, in the fourth quarter of 2009, which ended on 31 December 2009.  When compared to the fourth quarter of 2008, Net Income increased by 27.6 percent, and the weighted average number of diluted Class A shares grew by 75.9 percent.  As a result, GAAP earnings per share fell close to 30 percent.

Non-GAAP Adjusted Net Income, which excludes certain non-cash items, fell 38.9 percent and Adjusted EPS slid 67.3 percent.

This post reviews Paragon's Income Statement for the quarter.  The principal sources for the analysis were the earnings announcement and the conference call presentation [pdf].
In a second article, we will provide updated figures for the financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Paragon Shipping owns and charters ships that carry dry bulk cargoes.  The company is headquartered in Greece and has been operating since December 2006.

Please click here to see a full-sized, normalized depiction of the actual results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

Fourth-quarter Net Revenue (after commissions of about 5 percent of time-charter revenue) of $35.2 million was 16.1 percent less than in the same quarter of 2008.  The average daily revenue per vessel (time charter equivalent) in the latest quarter was $32,350, 17 percent lower than in the December 2008 quarter.  Paragon operated 12 vessels in both periods.

The Income Statement has separate entries for Voyage expenses, Vessel operating expenses, and Dry-docking expenses.  To simplify the analysis, we add the three entries and treat the composite number as the Cost of Goods Sold.  CGS was 17.1 percent of Revenue in the fourth quarter, which translates into a Gross Margin, as we define it, of 82.9 percent.  The Gross Margin was 85.9 percent, 3 points more profitable, in the fourth quarter of 2008.

The lower Gross Margin in the recent period can be attributed to increases in Voyage expenses and Vessel operating expenses, partially offset by lower Dry-docking expenses.

Depreciation expenses fell 6.1 percent, from $8.74 million to $8.21 million.

We group Management fees and General and administrative expenses into the Sales, General, and Administrative (SG&A) category, which includes share-based compensation.  In the fourth quarter, this expense category increased $2.75 million (60 percent), from $4.56 million to $7.31 million.  Share-based compensation itself rose $2.3 million.

Paragon recorded two non-cash special gains, totaling $1.2 million.  The first item is related to the early termination of a below market time charter.  The second item is associated with the sale of the Handymax bulk carrier MV Blue Seas.

Beyond normal depreciation, Paragon did not record any asset impairment charges during the fourth quarter to reflect lower vessel valuations

The various operating items discussed above combined to produce Operating Income of $14.9 million, down 34.6 percent from last year.  The decline can be ascribed to lower Revenues and higher expenses, partially offset by the special gains.

Other Expenses of $2.2 million were mostly interest and finance costs.  In the December 2008 quarter, Other Expenses were a much greater $12.8 million.  The year-earlier period included an $8.8 million loss on interest rate swaps, which are intended to reduce Paragon's exposure to interest rate fluctuations.

Paragon paid no income taxes in either period.

Net Income in the fourth quarter of 2009 was $12.7 million ($0.26 per share), compared to $10.0 million ($0.37 per share) in 2008.  The $10.6 million reduction in Other Expenses enabled Net Income to exceed the year-earlier result, despite lower Operating Income.  On the other hand, Earnings per Share fell because equity offerings have increased the number of shares outstanding.

Full disclosure: Long PRGN at time of writing.

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