Market Overview

Ardmore Shipping Corporation Announces Financial Results For The Three And Nine Months Ended September 30, 2019

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HAMILTON, Bermuda, Nov. 5, 2019 /PRNewswire/ -- Ardmore Shipping Corporation (NYSE:ASC) ("Ardmore", the "Company" or "we") today announced results for the three and nine months ended September 30, 2019.

Highlights and Recent Activity

  • Reported a GAAP net loss (and net loss from continuing operations – see Non-GAAP Measures Section) of $5.7 million for the three months ended September 30, 2019, or $0.17 loss per basic and diluted share, as compared to a GAAP net loss of $12.2 million, or $0.37 loss per basic and diluted share, for the three months ended September 30, 2018. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $9.6 million for the three months ended September 30, 2019, as compared to $3.9 million for the three months ended September 30, 2018.
  • Reported a net loss from continuing operations (see Non-GAAP Measures section) of $11.6 million for the nine months ended September 30, 2019, or $0.35 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $25.6 million, or $0.78 net loss from continuing operations per basic and diluted share, for the nine months ended September 30, 2018.
  • Reported a GAAP net loss of $24.8 million for the nine months ended September 30, 2019, or $0.75 loss per basic and diluted share, as compared to a GAAP net loss of $26.0 million, or $0.79 loss per basic and diluted share, for the nine months ended September 30, 2018. GAAP net loss for the nine months ended September 30, 2019 includes the loss on the sales of the Ardmore Seamaster and Ardmore Seafarer. GAAP net loss for the nine months ended September 30, 2018 includes the write-off of deferred finance fees in relation to refinancing. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $35.4 million for the nine months ended September 30, 2019, as compared to $21.3 million for the nine months ended September 30, 2018.
  • MR tankers earned an average TCE rate of $13,784 per day for the three months ended September 30, 2019, and $14,601 per day for the nine months ended September 30, 2019. Chemical tankers earned an average TCE rate of $11,013 per day for the three months ended September 30, 2019, and an average of $11,784 per day for the nine months ended September 30, 2019.
  • Charter rates rebounded in recent weeks with rates for MRs fixed since October 5, 2019 averaging approximately $20,085 per day. Taking account of voyages in progress from the third quarter, as of November 5, 2019, the Company has fixed approximately 45% of its total MR spot revenue days for the fourth quarter of 2019 at an average TCE rate of approximately $17,000 per day.
  • Agreed terms for two credit facilities for $201.5 million, in the aggregate including a $40 million revolving component, with our close relationship banks to refinance twelve ships on improved terms and extending maturities until the end of 2024.
  • The Company is maintaining its dividend policy of paying 60% of earnings from continuing operations. Consistent with this policy, the Company is not declaring a dividend for the third quarter of 2019.

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

"After three difficult years for the tanker sector, we are very encouraged by the recent sharp upturn in the tanker market and the drivers behind. We believe that this is likely to be the beginning of a sustained upcycle, characterized by repetitive spikes with settling periods in between, but at levels well above the recent past. 

We think that conditions are now in place for a strong rate environment in particular for product tankers. We believe that IMO 2020 is now having a significant impact on product tanker demand and rates; in particular, demand for gasoil is expected to surge as shipping companies transition to compliant fuels and concerns about VLSFO quality and compatibility issues prevail, resulting in elevated trading activity. At the same time, we expect that geopolitical tensions in the Middle East and an anticipated winter seasonal demand boost will further contribute to a strong rate environment in the near-term.

Looking beyond the near-term, the underlying fundamentals of product tanker supply and demand are solid and should get even better: oil consumption growth is expected to increase to 1.2mbd in 2020 and ongoing refinery expansion in export-oriented location should further amplify fundamental demand growth. Meanwhile, a record low orderbook, combined with ongoing scrapping should keep vessel supply growth well below demand growth for the foreseeable future. We also believe that regulatory uncertainty around the global maritime industry's targets for greenhouse gas ("GHG") emissions reductions will put a damper on newbuilding activity until rules and regulations become clear and new technologies emerge, which could take years.

We are pleased to present our CO2 emissions again this quarter. While the industry is continuing to refine reporting methodology for carbon emissions, we believe that a commitment to increased transparency by companies such as Ardmore will play an important role in encouraging positive and sensible legislative change toward GHG emissions reductions from the shipping industry.

In the midst of these positive developments, we remain resolutely focused on operating performance and effective capital allocation to maximize returns. With a modern, fuel efficient fleet of MR product & chemical tankers and cost-efficient structure, we believe we are poised to take advantage of improved market conditions, to recommence dividend payments as per our policy, and to generate strong returns for our shareholders."         

Summary of Recent and Third Quarter 2019 Events

Fleet

Fleet Operations and Employment

As at September 30, 2019, 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 third quarter of 2019, the Company had 19 Eco MR tankers trading in the spot market. The Eco MR tankers earned an average TCE rate of $13,784 per day in the third quarter of 2019. The Company's 15 Eco-Design MR tankers earned an average TCE rate of $13,993 per day, and the Company's four Eco-Mod MR tankers earned an average TCE rate of $12,438 per day.

In the fourth quarter of 2019, the Company expects to have all revenue days for its MR Eco-Design and MR Eco-Mod tankers employed in the spot market. As of November 5, 2019, the Company had fixed approximately 45% of its total MR spot revenue days for the fourth quarter of 2019 at an average TCE rate of approximately $17,000 per day.

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

At the end of the third quarter of 2019, 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 2019, the Company's six Eco-Design product / chemical vessels earned an average TCE rate of $11,013 per day.

In the fourth quarter of 2019, the Company expects to have all revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of November 5, 2019, the Company had fixed approximately 40% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the fourth quarter of 2019 at an average TCE rate of approximately $13,000 per day.

Financing

Agreed terms for two new credit facilities for $201.5 million in the aggregate with our close relationship banks. The first facility is a $140 million term loan and incorporates $40 million revolving component. The proceeds from this facility will be used to refinance eight ships. The second facility is a $61.5 million term loan and proceeds will be used to refinance four ships. The total cash released on the refinancing is $15.8 million in the aggregate. These financings strengthen the Company's financial flexibility through the incorporation of a revolving component in one of the facilities, extending debt maturities to the end of 2024 and lowering the Company's cost of debt. The covenants and other conditions of the facilities are consistent with those of Ardmore's existing debt facilities. Ardmore expects to complete documentation and close both financings in the fourth quarter of 2019.

Drydocking

The Company had 22 drydock days, including repositioning days, in the third quarter of 2019 in respect of one drydocking. Ardmore expects it will have 15 drydock days, including repositioning days, in the fourth quarter of 2019.

Dividend

Based on the Company's policy of paying dividends equal to 60% of earnings from continuing operations, the Company's Board of Directors has not declared a dividend for the quarter ended September 30, 2019, in which the Company reported a loss from continuing operations. Earnings from continuing operations is defined as earnings per share reported under U.S. GAAP, as adjusted for unrealized and realized gains and losses and extraordinary items.

Results for the Three Months Ended September 30, 2019 and 2018

The Company reported a GAAP net loss of $5.7 million for the three months ended September 30, 2019, or $0.17 loss per basic and diluted share, as compared to a GAAP net loss of $12.2 million, or $0.37 loss per basic and diluted share, for the three months ended September 30, 2018. The Company reported EBITDA (see Non-GAAP Measures section) of $9.6 million for the three months ended September 30, 2019, as compared to $3.9 million for the three months ended September 30, 2018.

The Company reported a net loss from continuing operations (see Non–GAAP Measures section) of $5.7 million for the three months ended September 30, 2019, or $0.17 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $12.2 million, or $0.37 net loss from continuing operations per basic and diluted share, for the three months ended September 30, 2018. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $9.6 million for the three months ended September 30, 2019, as compared to $3.9 million for the three months ended September 30, 2018. 

Results for the Nine Months Ended September 30, 2019 and 2018

The Company reported a GAAP net loss of $24.8 million for the nine months ended September 30, 2019, or $0.75 loss per basic and diluted share, as compared to a GAAP net loss of $26.0 million, or $0.79 loss per basic and diluted share, for the nine months ended September 30, 2018. The Company reported EBITDA (see Non-GAAP Measures section) of $22.3 million for the nine months ended September 30, 2019, as compared to $21.3 million for the nine months ended September 30, 2018.

The Company reported a net loss from continuing operations (see Non–GAAP Measures section) of $11.6 million for the nine months ended September 30, 2019, or $0.35 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $25.6 million, or $0.78 net loss from continuing operations per basic and diluted share, for the nine months ended September 30, 2018. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $35.5 million for the nine months ended September 30, 2019, as compared to $21.3 million for the nine months ended September 30, 2018.

Management's Discussion and Analysis of Financial Results for the Three Months Ended September 30, 2019 and 2018

Revenue. Revenue for the three months ended September 30, 2019 was $52.1 million, an increase of $3.2 million from $48.9 million for the three months ended September 30, 2018.

The Company's average number of owned vessels decreased to 25.0 for the three months ended September 30, 2019, from 28.0 for the three months ended September 30, 2018, resulting in revenue days of 2,276 for the three months ended September 30, 2019, as compared to 2,471 for the three months ended September 30, 2018. 

The Company had 25 and 28 vessels employed directly in the spot market as at September 30, 2019, and September 30, 2018, respectively. For spot chartering arrangements, the Company had 2,276 revenue days for the three months ended September 30, 2019 as compared to 2,288 for the three months ended September 30, 2018. This decrease in revenue days derived from spot chartering arrangements resulted in a decrease in spot market revenue of $0.2 million, while changes in spot rates resulted in an increase in revenue of $4.8 million.

The Company had zero vessels employed under third-party pool arrangements as at September 30, 2019, and September 30, 2018. Revenue days derived from pool arrangements were zero for the three months ended September 30, 2019, as compared to 183 for the three months ended September 30, 2018. Removing all vessels from third-party pool arrangements during 2018 resulted in a decrease in pool revenue of $1.4 million for the three months ended September 30, 2019.

For vessels employed directly in the spot market, the Company typically pays all voyage expenses, and revenue is recognized on a gross freight basis, while under time chartering and pool arrangements, the charterer typically pays voyage expenses and revenue is recognized on a net basis.

Commissions and Voyage Expenses. Commissions and voyage expenses were $22.9 million for the three months ended September 30, 2019, a decrease of $1.5 million from $24.4 million for the three months ended September 30, 2018. Commissions costs have increased in line with the increase in revenue; however, this has been offset by a decrease in  voyage expenses due to the decrease in the average number of owned vessels of 25.0 for the three months ended September 30, 2019, compared to 28.0 for the three months ended September 30, 2018.

TCE Rate. The average TCE rate for the Company's fleet was $13,029 per day for the three months ended September 30, 2019, an increase of $2,768 per day from $10,261 per day for the three months ended September 30, 2018. The increase in average TCE rate was the result of higher spot rates and lower commissions and voyage expenses for the three months ended September 30, 2019. TCE rates represent net revenues (or revenue less commission and voyage expenses) divided by revenue days.

Vessel Operating Expenses. Vessel operating expenses were $14.9 million for the three months ended September 30, 2019, a decrease of $1.4 million from $16.3 million for the three months ended September 30, 2018. This decrease is due to a decrease in the average number of vessels in operation for the three months ended September 30, 2019, 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 $6,194 for the three months ended September 30, 2019, as compared to $6,176 for the three months ended September 30, 2018.

Depreciation. Depreciation expense for the three months ended September 30, 2019 was $8.0 million, a decrease of $0.9 million from $8.9 million for the three months ended September 30, 2018. This decrease is primarily due to a decrease in the average number of owned vessels to 25.0 for the three months ended September 30, 2019, from 28.0 for the three months ended September 30, 2018.

Amortization of Deferred Drydock Expenditure. Amortization of deferred drydock expenditure for the three months ended September 30, 2019 was $1.2 million, an increase of $0.3 million from $0.9 million for the three months ended September 30, 2018. The increase is primarily due to an increased number of drydockings as the Company's fleet ages. The capitalized 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 September 30, 2019 were $3.9 million, an increase of $0.5 million from $3.4 million for the three months ended September 30, 2018. The increase is primarily due to the issuance of new awards of stock appreciation rights and restricted stock units in the first and second quarters of 2019.

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 September 30, 2019 were $0.8 million, a decrease of $0.2 million from $1.0 million for the three months ended September 30, 2018. This decrease is primarily due to a decrease in staff costs due to headcount reduction in the third quarter of 2019.

Interest Expense and Finance Costs. Interest expense and finance costs include loan interest, finance lease interest, and amortization of deferred finance fees. Interest

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