Ardmore Shipping Corporation (NYSE: ASC) today announced results for the three and ninemonths ended September30, 2020.
Highlights and Recent Activity
Anthony Gurnee, the Company’s Chief Executive Officer, commented:
“Following a very strong first half of 2020, charter rates for product tankers experienced a sharp decline in the third quarter as a result of the pandemic, which is now extending into the fourth quarter. Oil demand and in particular jet fuel remains well below levels at the start of the year, and oil trading activity has been much more muted compared to levels experienced in the first half.
We still expect a winter market rate rise, but not to the usual extent given weak underlying oil demand. There could be surprise to upside for tankers going into 2021 in the form of oil price volatility as OPEC balances output, price, and quota compliance. Furthermore, output cuts from older, less efficient refineries should incrementally support product tanker demand in a market recovery phase in 2021. Chemical tankers should fare particularly well in a recovery given the high correlation of chemical demand growth to global GDP growth.
Meanwhile, Ardmore is continuing to prioritize financial strength, with a strong balance sheet and financial flexibility: net leverage is 49% and cash and undrawn lines are $60 million, and we are pleased to have agreed to terms for a $10 million senior loan facility on attractive terms with a Japanese bank.
Looking post-pandemic to the medium-term, and based on the most recent IEA forecasting, we expect product tanker tonne-mile demand to recover fully and then continue on a 2-3% growth trajectory to 2030, which is slower than the past but still supportive of a healthy product tanker market. At the same time we embrace the pending energy transition which is expected to have a profound impact on the shipping industry. Of particular importance to the next few years is the IMO’s proposed EEXI efficiency standards for existing ships which is expected to accelerate the marginalization and retirement of older tonnage.
The market outlook and energy transition pose many challenges for the tanker sector, but also opportunity for companies such as Ardmore with already modern, fuel-efficient fleets that will meet the new EEXI standards, an ongoing focus on fuel efficiency, a solid financial profile, and a singular focus on long-term shareholder value.”
Summary of Recent and Third Quarter 2020 Events
Fleet
Fleet Operations and Employment
As at September30, 2020, the Company had 27 vessels in operation, including 21 Eco MR tankers ranging from 45,000 deadweight tonnes (Dwt) to 49,999 Dwt (15 Eco-Design and six Eco-Mod) and six Eco-Design IMO 2 product / chemical tankers ranging from 25,000 Dwt to 37,800 Dwt.
MR Tankers (45,000 Dwt– 49,999 Dwt)
At the end of the third quarter of 2020, the Company had 21 Eco MR tankers trading in the spot market or on short-term time charters. The Eco MR tankers earned an average TCE rate of $12,983 per day in the third quarter of 2020. The Company’s 15 Eco-Design MR tankers earned an average TCE rate of $13,036 per day in the third quarter of 2020, and the Company’s five Eco-Mod MR tankers earned an average TCE rate of $12,291 per day.
In the fourth quarter of 2020, the Company expects to have all revenuedays for its MR Eco-Design and MR Eco-Mod tankers employed in the spot market or on short-term time charters. As of November 4, 2020, the Company had fixed approximately 40% of its total MR revenuedays for the fourth quarter of 2020 at an average TCE rate of approximately $10,500 per day.
Product / Chemical Tankers (IMO 2: 25,000 Dwt– 37,800 Dwt)
At the end of the third quarter of 2020, the Company had six Eco-Design IMO 2 product / chemical tankers in operation, all of which were trading in the spot market. During the third quarter of 2020, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $11,037 per day.
In the fourth quarter of 2020, the Company expects to have all revenuedays for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of November 4, 2020, the Company had fixed approximately 55% of its Eco-Design IMO 2 product / chemical tankers spot revenuedays for the fourth quarter of 2020 at an average TCE rate of approximately $11,650 per day.
Drydocking
The Company had no drydock or repositioningdays in the third quarter of 2020. The Company expects to have 120 drydockdays in the fourth quarter of 2020.
Capital Allocation Policy
Consistent with the Company’s capital allocation policy, the Company is not declaring a dividend for the third quarter of 2020.
Share Repurchase Plan
In September 2020, the Company’s Board of Directors authorized a new share repurchase plan, expanding and replacing the Company’s earlier plan. Pursuant to the new share repurchase plan, the Company may purchase up to $30 million of its common shares through September 30, 2023, at times and prices that are considered to be appropriate by the Company. The Company expects to repurchase these shares in the open market or in privately negotiated transactions, but is not obligated under the terms of the plan to repurchase any shares, and at any time, the Company may suspend, delay or discontinue the plan.
Vessel Additions
On August 19, 2020 Ardmore took delivery of the Ardmore Seafarer, a 49,999 Dwt 2010 Japanese-built MR product tanker acquired for a purchase price of $16.7 million, and on September 19, 2020 Ardmore took delivery of a 48,000 Dwt 2010 Japanese-built MR product tanker on a time charter-in arrangement for one year.
Financing
In July2020, the Company completed its first sustainability-linked finance facility with ABN AMRO; the new $15 million receivables facility replaces Ardmore’s existing receivables facility and contains a pricing adjustment feature linked to Ardmore’s performance on carbon emission reduction and other environmental and social initiatives. The facility’s targets for carbon emission reduction align with the International Maritime Organization’s targets for GHG emissions reduction. The facility reflects Ardmore’s current strong performance on Environmental Social and Governance (“ESG”) initiatives, including (a) carbon emission levels which significantly outperform the targets set out under the Poseidon Principles, (a global framework for responsible ship finance to help incentivize decarbonisation in the shipping industry) and (b) having a very diverse organization with employees representing 10 nationalities and of which 59% are female. The pricing structure in the new facility will reward the Company for maintaining its carbon emission reduction trajectory and overall performance on ESG. The other commercial terms and conditions are improved from the Company’s prior receivables’ facility and the new facility matures in July2022 with options to extend.
In October 2020, the Company agreed to terms for a $10 million loan facility for the Ardmore Seafarer, a 2010 Japanese MR product tanker delivered in August 2020, with a Japanese bank. The facility will have a duration of five years and is priced at LIBOR plus a margin of 2.25%. The covenants and other conditions of the facility are consistent with those of Ardmore’s existing debt facilities. Ardmore expects to complete documentation and close the financing in November 2020.
COVID-19
On March11, 2020, the World Health Organization declared the recent novel coronavirus (COVID 19) outbreak a pandemic. In response to the outbreak, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have caused and will likely continue to cause severe trade disruptions. The extent to which COVID–19 will impact the Company’s results of operations and financial condition, including possible impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the measures taken to contain or treat its impact, among others. Accordingly, an estimate of the impact cannot be made at this time.
Results for the ThreeMonths Ended September30, 2020 and 2019
The Company reported a net loss of $6.6 million for the threemonths ended September30, 2020, or $0.20 loss per basic and diluted share, as compared to a net loss of $5.7 million, or $0.17 loss per basic and diluted share, for the threemonths ended September30, 2019. The Company reported EBITDA (see Non-GAAP Measures section) of $7.2 million for the threemonths ended September30, 2020 as compared to $9.6 million for the threemonths ended September30, 2019.
Results for the NineMonths Ended September30, 2020 and 2019
The Company reported net income of $13.5 million for the ninemonths ended September30, 2020, or $0.41 earnings per basic share / $0.40 earnings per diluted share, as compared to a net loss of $24.8 million, or $0.75 loss per basic and diluted share, for the ninemonths ended September30, 2019. Net loss for the ninemonths ended September30, 2019 includes the aggregate loss of $13.2 million on the sales of the Ardmore Seamaster and the previous vessel named the Ardmore Seafarer. The Company reported EBITDA (see Non-GAAP Measures section) of $56.1 million for the ninemonths ended September30, 2020, as compared to $22.3 million for the ninemonths ended September30, 2019.
The Company reported Adjusted earnings (see Non-GAAP Measures section) of $13.6 million for the ninemonths ended September30, 2020, or $0.41 Adjusted earnings per basic and diluted share, as compared to an Adjusted loss of $11.6 million, or $0.35 Adjusted loss per basic and diluted share, for the ninemonths ended September30, 2019. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $56.1 million for the ninemonths ended September30, 2020, as compared to the $35.4 million for the nine months ended September 30, 2019.
Management’s Discussion and Analysis of Financial Results for the ThreeMonths Ended September30, 2020 and 2019
Revenue. Revenue for the threemonths ended September 30, 2020 was $45.2 million, a decrease of $6.9 million from $52.1 million for the threemonths ended September30, 2019.
The Company’s average number of owned vessels increased to 25.5 for the threemonths ended September30, 2020, from 25.0 for the threemonths ended September30, 2019, resulting in revenuedays of 2,334 for the threemonths ended September30, 2020, as compared to 2,276 for the threemonths ended September30, 2019. The Company had 26 and 25 vessels employed directly in the spot market as at September30, 2020 and 2019, respectively. The increase in revenuedays resulted in an increase in revenue of $1.3 million, while changes in spot rates resulted in a decrease in revenue of $8.2 million for the threemonths ended September30, 2020.
Voyage Expenses. Voyage expenses were $16.8 million for the threemonths ended September30, 2020, a decrease of $6.1 million from $22.9 million for the threemonths ended September30, 2019. Voyage expenses decreased primarily due to the decrease in bunker prices for the threemonths ended September30, 2020, compared to the threemonths ended September30, 2019.
TCE Rate. The average TCE rate for our fleet was $12,432 per day for the threemonths ended September 30, 2020, a decrease of $597 per day from $13,029 per day for the threemonths ended September30, 2019. The decrease in average TCE rate was the result of lower spot rates, for the threemonths ended September30, 2020, as compared to the three months ended September 30, 2019. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenuedays.
Vessel Operating Expenses. Vessel operating expenses were$16.1 millionfor the threemonths ended September30, 2020, an increase of$1.2 millionfrom$14.9 millionfor the threemonths ended September 30, 2019. This increase is due to an increase in the average number of vessels in operation for the threemonths ended September30, 2020, as well as the impact of COVID–19 and the timing of vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating expenses per day, including technical management fees, were$6,714 per vessel for the threemonths ended September 30, 2020, as compared to$6,194 per vessel for the threemonths ended September30, 2019.
Charter Hire Costs.Charter hire costs (relating to 11 days) were $0.2 million for the three months ended September 30, 2020, as compared to $Nil for the three months ended September 30, 2019. Ardmore chartered in one vessel in September 2020.
Depreciation. Depreciation expense for the threemonths ended September30, 2020 was $8.1 million, an increase of $0.1 million from $8.0 million for the threemonths ended September30, 2019. This increase is primarily due to an increase in the average number of owned vessels for the threemonths ended September30, 2020.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the threemonths ended September30, 2020 was $1.7 million, an increase of $0.5 million from $1.2 million for the threemonths ended September30, 2019. The increase is primarily due to an increased number of drydockings as the Company’s fleet ages. The deferred costs of drydockings 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 threemonths ended September30, 2020 were $4.1 million, an increase of $0.2 million from $3.9 million for the threemonths ended September30, 2019. This increase is primarily due to the issuance of new awards of stock appreciation rights and restricted stock units during the first and second quarters of 2020.
General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to the Company’s chartering and commercial operations departments in connection with the Company’s spot trading activities. Commercial and chartering expenses for the threemonths ended September 30, 2020 were $0.8 million, consistent with $0.8 million for the threemonths ended September30, 2019.
Unrealized Gains on Derivatives. Unrealized gains on derivatives for the threemonths ended September30, 2020 was $0.01 million compared to $Nil for the threemonths ended September30, 2019. The gain for the threemonths ended September30, 2020 relates to derivatives entered into in May2020 that are not designated as hedging instruments.
Interest Expense and Finance Costs. Interest expense and finance costs include loan interest, finance lease interest, and amortization of deferred finance fees. Interest expense and finance costs for the threemonths ended September30, 2020 were $4.0 million, a decrease of $2.3 million from $6.3 million for the threemonths ended September30, 2019. Cash interest expense decreased by $2.2 million to $3.6 million for the threemonths ended September30, 2020, from $5.8 million for the threemonths ended September30, 2019, primarily due to a decreased average LIBOR during the threemonths ended September30, 2020, compared to the threemonths ended September30, 2019, as well as the Company entering into three-year floating-to-fixed interest rate swap agreements with an average fixed interest rate of 0.32%. Amortization of deferred finance fees for the threemonths ended September30, 2020 was $0.4 million, a decrease of $0.1 million from $0.5 million for the threemonths ended September 30, 2019.
Liquidity
As at September30, 2020, the Company had $58.2 million (December31, 2019: $51.7 million) available in cash and cash equivalents. The Company drew down an additional $7.8 million from its revolving credit facilities in the third quarter, in order to maintain a strong liquidity position and financial flexibility resulting in an increase in amounts outstanding on these facilities.
