Ardmore Shipping Corporation announced results for the three months ended March 31, 2022.
Highlights and Recent Activity
Reported a net loss of $7.9 million for the three months ended March 31, 2022, or $0.23 loss per basic and diluted share, which includes $6.9 million in respect of the loss on the vessels held for sale as part of the sale and time charter-back transaction described below; adjusted for these costs (see Adjusted (loss) / earnings in the Non-GAAP Measures section) are $0.9 million, or a $0.03 Adjusted loss per basic and diluted share. This compares to a net loss of $8.5 million, or $0.26 loss per basic and diluted share, for the three months ended March 31, 2021.
MR tankers earned an average TCE rate of $15,592 per day for the three months ended March 31, 2022. Chemical tankers earned an average TCE rate of $13,645 per day for the three months ended March 31, 2022.
On April 4, 2022, Ardmore announced that it had agreed terms for the sale of three 2008-built MR product tankers to Leonhardt & Blumberg for an aggregate price of $40 million. Following completion of the sales and the repayment of financing associated with the vessels, the transaction is expected to generate net cash proceeds of approximately $15 million to Ardmore. Upon completion of the sales, Ardmore will time charter each vessel from Leonhardt & Blumberg for a minimum of two years at rates that are considered to be attractive levels. Completion of these transactions is expected in the second quarter of 2022 and is subject to satisfaction of closing conditions.
On April 20, 2022, e1 Marine, the Company’s joint venture with Element 1 and Maritime Partners, announced it had received Approval in Principle (“AiP”) from Lloyds Register for the M Series Hydrogen Generator for marine applications. The approval is an important landmark for demonstrating compliance of e1 Marine’s technology with all applicable regulations, codes and standards and will enable e1 Marine to accelerate the commercial development of the Element 1 methanol-to-hydrogen generator for on-board application.
Anthony Gurnee, the Company’s Chief Executive Officer, commented:
“In anticipation of an improving market based on strong underlying fundamentals and the global economic recovery, we had already transitioned the Ardmore fleet to full spot market exposure by February. Having done that, and given the extent of operating leverage in our business, we have been well positioned to capture the benefits of a strong market for our shareholders at the first opportunity.
Over the past two months, the product and chemical tanker markets have been transformed by extreme dislocation in these trades. MR product tankers have been the most significant beneficiary, owing to their versatility and trading flexibility, with rates reaching record highs in recent weeks; in our own fleet, rates have varied widely but we have fixed as high as $95,600 per day, and the average of our last two weeks of MR voyages fixed now stands at $34,400 per day. While the initial strength began in the US Gulf, it has now spread to all regions and so the dislocations seem likely to persist beyond the immediate period of heightened tensions.
In the midst of this very disrupted market driven by the Ukraine conflict, we intend to continue supporting our affected seafarers and their families in any way we can, and will continue running our business in the prudent, responsible, performance-focused manner that all our stakeholders have come to expect of us.”
Summary of Recent and First Quarter 2022 Events
Fleet
Fleet Operations and Employment
As at March 31, 2022, the Company had 27 vessels in operation, including 21 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 first quarter of 2022, the Company had 21 MR tankers trading in the spot market or on time charters. The MR tankers earned an average TCE rate of $15,592 per day in the first quarter of 2022. In the first quarter of 2022, the Company’s 15 Eco-Design MR tankers earned an average TCE rate of $15,850 and the Company’s six Eco-Mod MR tankers earned an average TCE rate of $14,945 per day.
In the second quarter of 2022, the Company expects to have 7% of its revenue days for its MR Eco-Design tankers on time charter. The remaining 93% of days for its MR Eco-Design and all of its MR Eco-Mod tankers are expected to be employed in the spot market. As of May 4, 2022, the Company had fixed approximately 50% of its total MR revenue days for the second quarter of 2022 at an average TCE rate of approximately $25,500 per day.
Product / Chemical Tankers (IMO 2: 25,000 Dwt – 37,800 Dwt)
At the end of the first quarter of 2022, 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 2022, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $13,645 per day.
In the second quarter of 2022, 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 4, 2022, the Company had fixed approximately 50% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the first quarter of 2022 at an average TCE rate of approximately $19,500 per day.
Drydocking
The Company had no drydock or repositioning days in the first quarter of 2022. The Company does not expect to have any drydock days in the second quarter of 2022.
Capital Allocation Policy
Consistent with the Company’s capital allocation policy, the Company is not declaring a dividend, in respect of its common shares, for the first quarter of 2022.
Vessel Sales and Time-charter Back
On April 4, 2022, the Company announced that it has agreed terms for the sale of three 2008-built MR product tankers to Leonhardt & Blumberg for an aggregate price of $40 million. Following completion of the sales and the repayment of financing associated with the vessels, the transaction is expected to generate net cash proceeds of approximately $15 million to the Company. Upon completion of the sales, the Company will time charter each vessel from Leonhardt & Blumberg for a minimum of two years at rates that are considered to be attractive levels. Completion of these transactions is expected in the second quarter of 2022 and is subject to satisfaction of closing conditions.
Investments: e1 Marine and Element 1 Corp
On April 20, 2022, e1 Marine, the Company’s joint venture with Element 1 and Maritime Partners, announced it had received Approval in Principle (“AiP”) from Lloyds Register for the M Series Hydrogen Generator for marine applications. The approval is an important landmark for demonstrating compliance of e1 Marine’s technology with all applicable regulations, codes and standards and will enable e1 Marine to accelerate the commercial development of the Element 1 methanol-to-hydrogen generator for on-board application.
COVID-19
In response to the COVID-19 pandemic, many countries, ports and organizations, including those where Ardmore conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have caused severe trade disruptions. In addition, the pandemic has resulted and may continue to result in a significant decline in global demand for refined oil products. As Ardmore’s business is the transportation of refined oil products on behalf of oil majors, oil traders and other customers, any significant decrease in demand for the cargo Ardmore transports could adversely affect demand for its vessels and services. The extent to which the pandemic may impact Ardmore’s results of operations and financial condition, including possible impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the virus and of its variants and the level of the effectiveness and delivery of vaccines and other actions to contain or treat its impact. Accordingly, an estimate of the impact of the COVID-19 pandemic on the Company cannot be made at this time.
Conflict in Ukraine
Russia’s invasion of Ukraine in February 2022 has disrupted supply chains and caused instability and significant volatility in the global economy. Much uncertainty remains regarding the global impact of the conflict in Ukraine, and it is possible that such instability, uncertainty and resulting volatility could significantly increase our costs and adversely affect our business, including our ability to secure charters and financing on attractive terms.
As a result of Russia’s invasion of Ukraine, the United States, several European Union nations, the United Kingdom and other countries have announced unprecedented sanctions and other measures against Russia, Belarus and certain Russian and Belarussian entities and nationals. The sanctions announced by the U.S. and other countries against Russia and, in some instances, Belarus include, among others, restrictions on selling or importing goods, services or technology in or from affected regions, travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia, severing large Russian banks from U.S. and/or other financial systems, and barring some Russian enterprises from raising money in the U.S. market. On March 8, 2022, the U.S. announced a ban on the import of certain Russian energy products into the U.S., including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal. The U.S., EU nations and other countries could impose wider sanctions and take other actions should the conflict further escalate. While it is difficult to anticipate the impact the sanctions announced to date may have on our business and us, these and any further sanctions imposed or actions taken by the U.S., EU nations or other countries, and any retaliatory measures by Russia in response, could lead to increased volatility in global oil demand which, could have a material impact on our business, results of operations and financial condition. In addition, it is possible that third parties with which we do business may be impacted by events in Russia and Ukraine, which could adversely affect us.
Results for the Three Months Ended March 31, 2022 and 2021
The Company reported a net loss of $7.9 million for the three months ended March 31, 2022, or $0.23 loss per basic and diluted share, as compared to a net loss of $8.5 million, or $0.26 loss per basic and diluted share, for the three months ended March 31, 2021. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $12.5 million for the three months ended March 31, 2022, as compared to $4.5 million for the three months ended March 31, 2021.
Management’s Discussion and Analysis of Financial Results for the three months ended March 31, 2022 and 2021
Revenue. Revenue for the three months ended March 31, 2022 was $63.4 million, an increase of $17.8 million from $45.6 million for the three months ended March 31, 2021.
The Company’s average number of operating vessels increased to 27 for the three months ended March 31, 2022, compared to 26 for the three months ended March 31, 2021.
The Company had one product tanker employed under time charter as at March 31, 2022, as compared to four as at March 31, 2021. Revenue days derived from time charters were 262 for the three months ended March 31, 2022, as compared to 169 for the three months ended March 31, 2021. The increase in revenue days for time-chartered vessels resulted in an increase in revenue of $1.7 million.
The Company had 2,126 spot revenue days for the three months ended March 31, 2022, as compared to 2,096 for the three months ended March 31, 2021. The Company had 26 and 22 vessels employed directly in the spot market as of March 31, 2022 and 2021, respectively. The increase in spot revenue days resulted in an increase in revenue of $0.6 million, while changes in spot rates resulted in an increase in revenue of $15.5 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The Company managed three third party chemical tankers employed under spot as at March 31, 2022, compared with four as at March 31, 2021. This resulted in an increase in revenue of $0.1 million.
Voyage Expenses. Voyage expenses were $27.1 million for the three months ended March 31, 2022, an increase of $6.7 million from $20.4 million for the three months ended March 31, 2021. Voyage expenses increased primarily due to the increase in bunker prices resulting in an increase of $6.5 million and an increase in spot revenue days of $0.2 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.
TCE Rate. The average TCE rate for the Company’s fleet was $15,155 per day for the three months ended March 31, 2022, an increase of $3,806 per day from $11,349 per day for the three months ended March 31, 2021. The increase in average TCE rate was the result of higher spot rates for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days.
Vessel Operating Expenses. Vessel operating expenses were $16.6 million for the three months ended March 31, 2022, an increase of $2.1 million from $14.5 million for the three months ended March 31, 2021. This increase is due to 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 $6,921 per vessel for the three months ended March 31, 2022, as compared to $6,340 per vessel for the three months ended March 31, 2021. The timing of crew changes as a result of COVID-19 related delays in 2021 was a contributing factor in the difference for the three months ended March 31, 2022 when compared with March 31, 2021.
Charter Hire Costs. Charter hire costs were $2.1 million for the three months ended March 31, 2022 an increase of $0.9 million from $1.2 million for the three months ended March 31, 2021. The Company currently has two vessels chartered-in, as compared to one vessel chartered-in as at March 31, 2021.
Depreciation. Depreciation expense for the three months ended March 31, 2022 was $7.8 million, consistent with $7.8 million for the three months ended March 31, 2021.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended March 31, 2022 was $1.2 million, a decrease of $0.3 million from $1.5 million for the three months ended March 31, 2021. 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, 2022 were $4.5 million, an increase of $0.3 million from $4.2 million for the three months ended March 31, 2021.
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, 2022 were $0.9 million, an increase of $0.1 million from $0.8 million for the three months ended March 31, 2021.
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, 2022 were $4.1 million, an increase of $0.3 million from $3.8 million for the three months ended March 31, 2021. Cash interest expense increased by $0.4 million to $3.7 million for the three months ended March 31, 2022, from $3.3 million for the three months ended March 31, 2021. Amortization of deferred finance fees for the three months ended March 31, 2022 was $0.4 million, consistent with $0.4 million for the three months ended March 31, 2021.