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Paragon Shipping, Inc., (NASDAQ: PRGN) earned $0.185 per share, on a GAAP basis, in the first quarter of 2010. This amount is 74 percent less than the $0.71 per share Paragon made in 2009's first quarter.

Adjusted Net Income, a non-GAAP measure that excludes various non-cash items, fell from $14.7 million to $8.1 million. Adjusted earnings per share dropped from $0.54 to $0.16.

An 83-percent increase in the weighted average number of diluted Class A common shares steepened the EPS decline. The share-count rise resulted from 2009's equity offerings.

This post reviews Paragon's Income Statement for the quarter. We did not issue any estimates in advance of the actual results being released. 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. Paragon generally seeks to secure one-to-five year, fixed-rate charters for its vessels; this strategy dampens the effect of industry volatility on the company. In 2010, charter arrangements have been made for all vessels throughout the year.

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.


Net Revenue (after commissions of 5.5 percent of Time charter revenue) was nearly $29.7 million in the March 2010 quarter, down 24.6 percent from last year. Time charter equivalent (TCE: a measure of the average daily revenue produced by a vessel) fell by 19.6 percent, from $37,179 to $29,882.

Paragon operated, on average, 12 vessels in the March 2009 quarter and 11.2 vessels in the latest quarter.

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 $4.9 million, or 16.5 percent of the first quarter's Revenue. This rate translates into a Gross Margin, as we define it, of a profitable 83.5 percent.

The Gross Margin dipped 280 basis points from its 86.3 percent rate in the first quarter of 2009. Given the decline in Revenue, and the difficulty in cutting some expenses, the margin held up relatively well.

Depreciation expenses fell 6 percent, from $8.55 million to $8.04 million. As a percentage of Revenue, Depreciation increased from 21.7 percent to 27.1 percent.

We group Management fees and General and administrative expenses into the Sales, General, and Administrative category. In the latest quarter, SG&A expenses increased from $1.90 million to $4.51 million, a rise of 138 percent. The increase is mostly due to a rise in Share-based compensation from $150,500 in 2009's first quarter to $2.409 million in the latest quarter.

Paragon recorded two non-cash special gains, totaling $376 thousand. The first item is the Profit on an asset held for sale, and the second item is a gain from "vessel early redelivery."

Subtracting the various operating expenses from Revenue yields Operating Income of $12.6 million, down 46 percent from last year. The decline can be ascribed to lower Revenues and some higher expenses, partially offset by the special gains and cost savings.

Non-operating expenses declined from $4.32 million to $3.44 million. Interest and finance costs were $1.76 million less than in the March 2009 quarter, but this was partially offset by the loss on interest rates swaps increasing by $790 thousand. Changes in other items were less significant.

Paragon paid no income taxes in either period.

Net Income in 2010's first quarter was $9.16 million ($0.185 per share), compared to $19.2 million ($0.71 per share) in the same quarter of 2009.

In the latest quarter, Paragon took significant steps to expand and diversify its fleet. One step was to purchase for $41 million a Panamax-class drybulk carrier that was built in China last year. Paragon will take delivery of this vessel, which the company calls the "Dream Seas," in the summer of 2010. The Dream Seas will become the eighth Panamax vessel in the Paragon fleet. A second expansion step was to contract for the construction of four new vessels, two of the Handysize class and two of the larger Kamsarmax class, for delivery in 2011 and 2012. Paragon has already arranged a three-year charter for the Dream Seas.

Full disclosure: Long PRGN at time of writing.
Source: Paragon Shipping: Income Statement Analysis for the March 2010 Quarter