Ardmore Warns of Tanker Market Volatility Going Forward

Ardmore

Ardmore Shipping Corporation announced results for the three months ended March 31, 2020.

Highlights and Recent Activity

Reported net income of $6.5 million for the three months ended March 31, 2020, or $0.20 earnings per basic and diluted share, as compared to a net loss of $9.2 million, or $0.28 loss per basic and diluted share, for the three months ended March 31, 2019. Net loss for the three months ended March 31, 2019 includes the loss on sale of the Ardmore Seamaster of $6.6 million. The Company reported EBITDA (see Non-GAAP Measures section) of $21.0 million for the three months ended March 31, 2020, as compared to $7.0 million for the three months ended March 31, 2019.

Reported Adjusted earnings (see Non–GAAP Measures section) of $6.5 million for the three months ended March 31, 2020, or $0.20 Adjusted earnings per basic and diluted share, as compared to Adjusted loss of $2.6 million, or $0.08 Adjusted loss per basic and diluted share, for the three months ended March 31, 2019. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $21.0 million for the three months ended March 31, 2020, as compared to $13.5 million for the three months ended March 31, 2019.

MR tankers earned an average TCE rate of $19,307 per day and chemical tankers earned an average TCE rate of $19,707 per day for the three months ended March 31, 2020.

Announced a new capital allocation policy on March 9, 2020, which sets out the Company’s priorities among fleet maintenance, financial strength, accretive growth and returning capital to shareholders. Consistent with this policy, the Company is not declaring a dividend for the first quarter of 2020.

On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) a pandemic. As COVID-19 continues to spread globally, the Company’s business, financial condition and results of operations could be adversely affected. The extent of the impact of the COVID-19 pandemic on the Company will depend, among other things, the duration and spread of the outbreak, all of which are highly uncertain and cannot be predicted.

Anthony Gurnee, the Company’s Chief Executive Officer, commented:

“That the tanker market is achieving record-high charter rates is no source of satisfaction given the cause: the coronavirus pandemic, with its human toll and economic impact. Our principal concern is for the well-being of our staff ashore and afloat; in particular we want to thank all seafarers regardless of company or sector for their dedication and professionalism during these difficult times.

Much attention has been on the crude tanker market, in particular on the impact of higher cargo volumes, floating storage, and the resulting extraordinarily high rates achieved. More recently those conditions have arrived for the product tanker market and we believe they may be more persistent, potentially for many months, as the physical oil market continues its extreme gyrations around demand and supply.

In particular, if and when the oil market reaches max capacity for shore oil storage, we may enter a new and potentially more volatile phase of the tanker market, and if and when oil demand rebounds with an economic recovery sometime in the third quarter as the IEA are forecasting, we would expect more demand-driven volatility, potentially carrying into the winter.

To fully explain the impact of these events, we have to describe our recent chartering activity: last week we fixed a 55-day voyage at $72,000 per day, equivalent to a VLCC at $200,000+ per day. Our MR voyages in progress, representing roughly the last three weeks’ fixtures, now stands at $28,200 per day; lower than brokerage reports or the above fixture, but higher than anything we achieved before. If rates for our fleet averaged $28,200 per day for a full year, taking 1Q20 as a base, we estimate that our annual earnings would be $110 million or $3.30 per share; we are not forecasting any future results, but rather just contextualizing what is happening.

The fact the tanker market is soaring at a time when virtually every other industry is suffering is not illogical: shipping rates typically strengthen with volatility and disruption. We are saddened by the widespread suffering from the pandemic, but it should be understood that as an industry we respond to demand shifts through a market mechanism whose function is to optimally allocate transport (and storage) resources, often in surplus, sometimes in scarcity.”

Summary of Recent and First Quarter 2020 Events

Fleet

Fleet Operations and Employment

As at March 31, 2020, the Company had 25 vessels in operation, including 19 Eco MR tankers ranging from 45,000 deadweight tonnes (Dwt) to 49,999 Dwt (15 Eco-Design and four 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 first quarter of 2020, the Company had 19 Eco MR tankers trading in the spot market. The Eco MR tankers earned an average TCE rate of $19,307 per day in the first quarter of 2020. The Company’s 15 Eco-Design MR tankers earned an average TCE rate of $19,564 per day in the first quarter of 2020, and the Company’s four Eco-Mod MR tankers earned an average TCE rate of $18,341 per day.

In the second quarter of 2020, the Company expects to have all revenue days for its MR Eco-Design and MR Eco-Mod tankers employed in the spot market or on short-term time charter. As of May 5, 2020, the Company had fixed approximately 55% of its total MR revenue days for the second quarter of 2020 at an average TCE rate of approximately $24,000 per day.

Product / Chemical Tankers (IMO 2: 25,000 Dwt – 37,800 Dwt)

At the end of the first 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 first quarter of 2020, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $19,707 per day.

In the second quarter of 2020, 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 5, 2020, the Company had fixed approximately 45% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the second quarter of 2020 at an average TCE rate of approximately $16,000 per day.

Drydocking

The Company had 91 drydock days, including repositioning days, in the first quarter of 2020, in respect of three drydockings. The Company does not expect to have any drydock days in the second quarter of 2020.

Capital Allocation Policy

The Company announced a new capital allocation policy on March 9, 2020, which sets out the Company’s priorities among fleet maintenance, financial strength, accretive growth and returning capital to shareholders. Consistent with this policy, the Company is not declaring a dividend for the first quarter of 2020.

Financing

The Company drew down an additional $10.9 million from its revolving credit facilities in the first quarter, in order to maintain a strong liquidity position and financial flexibility.

Results for the Three Months Ended March 31, 2020 and 2019

The Company reported net income of $6.5 million for the three months ended March 31, 2020, or $0.20 earnings per basic and diluted share, as compared to a net loss of $9.2 million, or $0.28 loss per basic and diluted share, for the three months ended March 31, 2019. Net loss for the three months ended March 31, 2019 includes the loss on sale of the Ardmore Seamaster of $6.6 million. The Company reported EBITDA (see Non-GAAP Measures section) of $21.0 million for the three months ended March 31, 2020, as compared to $7.0 million for the three months ended March 31, 2019.

The Company reported Adjusted earnings (see Non–GAAP Measures section) of $6.5 million for the three months ended March 31, 2020, or $0.20 Adjusted earnings per basic and diluted share, as compared to an Adjusted loss of $2.6 million, or $0.08 Adjusted loss per basic and diluted share, for the three months ended March 31, 2019. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $21.0 million for the three months ended March 31, 2020, as compared to $13.5 million for the three months ended March 31, 2019.

Management’s Discussion and Analysis of Financial Results for the Three Months Ended March 31, 2020 and 2019

Revenue. Revenue for the three months ended March 31, 2020 was $65.2 million, an increase of $2.9 million from $62.3 million for the three months ended March 31, 2019.

The Company’s average number of owned vessels decreased to 25.0 for the three months ended March 31, 2020, from 26.7 for the three months ended March 31, 2019, resulting in revenue days of 2,180 for the three months ended March 31, 2020, as compared to 2,260 for the three months ended March 31, 2019. The Company had 25 and 26 vessels employed directly in the spot market as at March 31, 2020 and 2019, respectively. The decrease in revenue days resulted in a decrease in revenue of $2.2 million, while changes in spot rates resulted in an increase in revenue of $5.1 million for the three months ended March 31, 2020.

Voyage Expenses. Voyage expenses were $23.7 million for the three months ended March 31, 2020, a decrease of $3.6 million from $27.3 million for the three months ended March 31, 2019. Voyage expenses decreased primarily due to the decrease in the average number of owned vessels to 25.0 for the three months ended March 31, 2020, compared to 26.7 for the three months ended March 31, 2019.

TCE Rate. The average TCE rate for the Company’s fleet was $19,390 per day for the three months ended March 31, 2020, an increase of $4,385 per day from $15,005 per day for the three months ended March 31, 2019. The increase in average TCE rate was the result of higher spot rates and lower voyage expenses for the three months ended March 31, 2020. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days.

Vessel Operating Expenses. Vessel operating expenses were $15.7 million for the three months ended March 31, 2020, a decrease of $1.1 million from $16.8 million for the three months ended March 31, 2019. This decrease is due to a decrease in the average number of vessels in operation for the three months ended March 31, 2020, 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 $6,484 per vessel for the three months ended March 31, 2020, as compared to $6,941 per vessel for the three months ended March 31, 2019.

Depreciation. Depreciation expense for the three months ended March 31, 2020 was $7.9 million, a decrease of $0.3 million from $8.2 million for the three months ended March 31, 2019. This decrease is primarily due to a decrease in the average number of owned vessels for the three months ended March 31, 2020.

Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended March 31, 2020 was $1.3 million, an increase of $0.2 million from $1.1 million for the three months ended March 31, 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 three months ended March 31, 2020 were $4.0 million, an increase of $0.4 million from $3.6 million for the three months ended March 31, 2019. The increase is primarily due to the issuance of stock appreciation rights and restricted stock units in the first quarter 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 three months ended March 31, 2020 were $0.9 million, a decrease of $0.2 million from $1.1 million for the three months ended March 31, 2019. This decrease is as a result of lower headcount and less travel in the first quarter of 2020.

Loss on Sale of Vessel. There was no loss on sale of vessel for the three months ended March 31, 2020, compared to $6.6 million for the three months ended March 31, 2019 in relation to the sale of the Ardmore Seamaster.

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 three months ended March 31, 2020 were $5.4 million, a decrease of $1.6 million from $7.0 million for the three months ended March 31, 2019. Cash interest expense decreased by $1.5 million to $5.0 million for the three months ended March 31, 2020, from $6.5 million for the three months ended March 31, 2019, primarily due to a decreased average LIBOR during the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Amortization of deferred finance fees for the three months ended March 31, 2020 was $0.4 million, a decrease of $0.1 million from $0.5 million for the three months ended March 31, 2019.

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