Ardmore Shipping Corporation announced results for the three months ended March 31, 2024.
Highlights and Recent Activity
Reported net income and Adjusted earnings of $38.4 million for the three months ended March 31, 2024, or $0.93 earnings per basic share and $0.92 earnings per diluted share, compared to net income and Adjusted earnings of $43.3 million, or $1.06 earnings per basic share and $1.04 earnings per diluted share for the three months ended March 31, 2023. See Adjusted earnings in the Non-GAAP Measures section.
Consistent with the Company’s variable dividend policy of paying out dividends on its shares of common stock equal to one-third of Adjusted earnings, the Board of Directors declared a cash dividend on May 8, 2024, of $0.31 per common share for the quarter ended March 31, 2024. The dividend will be paid on June 14, 2024, to all shareholders of record on May 31, 2024.
MR Eco-Design tankers earned an average spot TCE rate of $38,430 per day for the three months ended March 31, 2024. Chemical tankers earned an average TCE rate of $24,831 per day for the three months ended March 31, 2024. Based on approximately 60% total revenue days currently fixed for the second quarter of 2024, the average spot TCE rate is approximately $40,500 per day for MR Eco-Design tankers; based on approximately 60% of revenue days fixed for the second quarter of 2024, the average TCE rate for chemical tankers is approximately $32,500 per day.
In February 2024, the Company provided notice to exercise its purchase options for both the Ardmore Seawolf and Ardmore Seahawk, which are currently under sale-leaseback arrangements. These vessel purchases are expected to close in June 2024.
In March 2024, the Company amended its term loan agreement with ABN AMRO and Credit Agricole by converting it entirely to an $88.4 million revolving credit facility.
During March and April 2024, the Company extended the charter-in period of three vessels at favorable rates until mid-2025.
In April 2024, the Company delivered the 2010-built Ardmore Seafarer to its buyer, and in a separate transaction, took delivery of the previously announced acquisition of a 2017 Korean-built MR product tanker, the Ardmore Gibraltar.
Anthony Gurnee, the Company’s Chief Executive Officer, commented:
“Product and chemical tanker markets have continued to build momentum into 2024 from an already strong base of earnings in 2023, partially reflecting typical seasonal strength, but also the continued positive tonne-mile factors relating to geopolitical events along with underlying global economic activity. Given current conditions, we remain vigilant regarding security, with the safety and wellbeing of our seafarers remaining our highest priority.
Against the market backdrop of strong demand and constrained supply, Ardmore continues to produce strong results driven by our spot market strategy, low cash flow breakeven levels, and the consistent performance of our teams at sea and ashore. We have now largely completed our scheduled drydockings and concurrent maintenance and upgrade investments for 2024. As a result, we anticipate higher revenue days as well as greater potential earnings power for our fleet through the end of the year.
Our robust financial position allows us to pursue all our capital allocation priorities simultaneously, including further strengthening of our balance sheet, returning capital to shareholders, and gradually investing in fleet modernization over time. We believe that the highly favorable vessel demand / supply conditions will support an extended strong market, and that Ardmore is well positioned to extract maximum benefit.”
Summary of Recent and First Quarter 2024 Events
Fleet
Fleet Operations and Employment
As of March 31, 2024, the Company had 26 vessels in operation (including four chartered-in vessels), consisting of 20 MR tankers ranging from 45,000 deadweight tonnes (“dwt”) to 49,999 dwt (15 Eco-Design and five Eco-Mod) and six Eco-Design IMO 2 /chemical tankers ranging from 25,000 dwt to 37,800 dwt.
MR Tankers (45,000 dwt – 49,999 dwt)
At the end of the first quarter of 2024, the Company had 20 MR tankers in operation, all of which were trading in either the spot market or on time charters. The MR tankers earned an average TCE rate of $38,368 per day in the first quarter of 2024. In the first quarter of 2024, the Company’s 15 MR Eco-Design tankers earned an average TCE rate of $38,430 and the Company’s five MR Eco-Mod tankers earned an average TCE rate of $38,184 per day.
In the second quarter of 2024, the Company expects to have 96% of its revenue days for its MR tankers employed in the spot market with the remaining 4% of revenue days subject to time charters. As of May 8, 2024, the Company had fixed approximately 60% of its total spot MR revenue days for the second quarter of 2024 at an average spot TCE rate of approximately $40,050 per day, which includes MR Eco-Design tankers at $40,500 per day and MR Eco-Mod tankers at $37,600 per day.
Product / Chemical Tankers (IMO 2: 25,000 dwt – 37,800 dwt)
At the end of the first quarter of 2024, the Company had six Eco-Design IMO 2 product / chemical tankers in operation, all of which were trading in the spot market. During the first quarter of 2024, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $24,831 per day.
In the second quarter of 2024, the Company expects to have all revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of May 8, 2024, the Company had fixed approximately 60% of its Eco-Design IMO 2 product / chemical tankers revenue days for the second quarter of 2024 at an average TCE rate of approximately $32,500 per day.
Drydocking
The Company had 76 drydocking days in the first quarter of 2024. The Company is currently scheduled to have 38 drydocking days in the second quarter of 2024.
Dividend on Common Shares
Consistent with the Company’s variable dividend policy of paying out dividends on its shares of common stock equal to one-third of Adjusted earnings, as calculated for dividends (see Adjusted earnings (for purposes of dividend calculations) in the Non-GAAP Measures section), the Board of Directors declared a cash dividend on May 8, 2024 of $0.31 per common share for the quarter ended March 31, 2024. The dividend will be paid on June 14, 2024, to all shareholders of record on May 31, 2024.
Financing
In March 2024, the Company amended its term loan agreement with ABN AMRO Bank NV and Credit Agricole Investment Bank by converting it entirely to an $88.4 million revolving credit facility.
Fleet
In February 2024, the Company provided notice to exercise its purchase options for both the Ardmore Seawolf and Ardmore Seahawk, which are currently under sale-leaseback arrangements. These vessel purchases are expected to close in June 2024.
During March and April 2024, the Company extended the charter-in period of three vessels at favorable rates until mid-2025.
In April 2024, the Company delivered the 2010-built Ardmore Seafarer to its buyer, and in a separate transaction, took delivery of the previously announced acquisition of a 2017 Korean-built MR product tanker, the Ardmore Gibraltar.
Geopolitical Conflicts
The ongoing Russia-Ukraine war has disrupted energy supply chains, caused instability and significant volatility in the global economy and resulted in economic sanctions by several nations. The ongoing conflict has contributed significantly to related increases in spot tanker rates.
Geopolitical tensions have increased since commencement of the Israel-Hamas war in October 2023. Since mid-December 2023, Houthi rebels in Yemen have carried out numerous attacks on vessels in the Red Sea area. As a result of these attacks, many shipping companies have routed their vessels away from the Red Sea, which has affected trading patterns, rates and expenses. Further escalation or expansion of hostilities of such crisis could continue to affect the price of crude oil and the oil industry, the tanker industry and demand for the Company’s services.
Results for the Three Months Ended March 31, 2024 and 2023
The Company reported net income of $38.4 million for the three months ended March 31, 2024, or $0.93 earnings per basic share and $0.92 earnings per diluted share, as compared to net income of $43.3 million, or $1.06 earnings per basic and $1.04 earnings per diluted share for the three months ended March 31, 2023.
Management’s Discussion and Analysis of Financial Results for the Three Months Ended March 31, 2024 and 2023
Revenue. Revenue for the three months ended March 31, 2024 was $106.3 million, a decrease of $11.9 million from $118.2 million for the three months ended March 31, 2023.
The Company’s average number of operating vessels was 26.0 for the three months ended March 31, 2024, compared to 26.7 for the three months ended March 31, 2023.
The Company had 2,214 spot revenue days for the three months ended March 31, 2024, as compared to 2,386 for the three months ended March 31, 2023. The Company had 25 vessels employed directly in the spot market as of March 31, 2024 compared with 26 vessels as of March 31, 2023. Increases in spot rates during the three months ended March 31, 2024 were offset by a decrease in spot revenue days, as a result of scheduled drydocking, resulting in a decrease in revenue of $12.7 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.
The Company had one product tanker employed under time charter as of March 31, 2024 as compared to none as of March 31, 2023. There were 29 revenue days derived from time charters for the three months ended March 31, 2024, as compared to none for the three months ended March 31, 2023. The increase in revenue days for time-chartered vessels resulted in an increase in revenue of $0.8 million for the three months ended March 31, 2024.
Voyage Expenses. Voyage expenses were $30.5 million for the three months ended March 31, 2024, a decrease of $6.1 million from $36.6 million for the three months ended March 31, 2023. The overall decrease included a $3.4 million decrease from lower bunker prices and a $2.7 million decrease in port and agency expenses plus commission costs.
TCE Rate. The average TCE rate for the Company’s fleet was $34,720 per day for the three months ended March 31, 2024, an increase of $762 per day from $33,958 per day for the three months ended March 31, 2023. TCE rates represent net revenues (a non-GAAP measure representing revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge-to-discharge basis, which is different from how the Company records revenue under U.S. GAAP.
Vessel Operating Expenses. Vessel operating expenses were $14.9 million for the three months ended March 31, 2024, consistent with $14.9 million for the three months ended March 31, 2023.
Charter Hire Costs. Total charter hire expense was $5.4 million for the three months ended March 31, 2024, generally consistent with $5.5 million for the three months ended March 31, 2023. Total charter hire expense for the three months ended March 31, 2024 was comprised of an operating expense component of $2.8 million and a vessel lease expense component of $2.6 million, consistent with the first quarter of 2023.
Depreciation. Depreciation expense for the three months ended March 31, 2024 was $7.0 million, generally consistent with $6.9 million for the three months ended March 31, 2023.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended March 31, 2024 was $0.8 million, a decrease of $0.2 million from $1.0 million for the three months ended March 31, 2023. Deferred drydocking costs for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.
General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the three months ended March 31, 2024 were $5.1 million, consistent with $5.1 million for the three months ended March 31, 2023.
General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to Ardmore’s chartering and commercial operations departments in connection with its spot trading activities. Commercial and chartering expenses for the three months ended March 31, 2024 were $1.1 million, generally consistent with $1.2 million for the three months ended March 31, 2023.
Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended March 31, 2024 were $2.5 million, a decrease of $0.4 million from $2.9 million for the three months ended March 31, 2023. The decrease in costs was primarily due to the conversion of the Company’s term loan into a fully revolving facility with 50% of the term loan being converted to a revolving facility during the three months ended June 30, 2023 and the remaining 50% being converted during the three months ended March 31, 2024. The flexibility of the Company’s revolving facilities, with only $23.1 million drawn down as of March 31, 2024, has minimized the impact of the elevated interest rate environment. Amortization of deferred finance fees for the three months ended March 31, 2024 was $0.3 million, consistent with $0.3 million for the three months ended March 31, 2023.
Liquidity
As of March 31, 2024, the Company had $285.3 million in liquidity available, with cash and cash equivalents of $48.6 million (December 31, 2023: $46.8 million) and amounts available and undrawn under its revolving credit facilities of $236.7 million (December 31, 2023: $221.2 million). In April 2024, the Company paid $34.4 million for the purchase of the Ardmore Gibraltar, in addition to $8.4 million which it previously paid as a deposit. In April 2024, the Company received $27.1 million for the sale of the Ardmore Seafarer. In June 2024, the Company intends to pay $41.0 million to complete the purchases of the Ardmore Seawolf and Ardmore Seahawk tankers, which are currently under sale-leaseback arrangements and for which the Company exercised purchase options in February 2024. The following debt and lease liabilities (net of deferred finance fees) were outstanding as of the dates indicated.
