Ardmore Shipping Corporation announced results for the three and nine months ended September 30, 2024.
Highlights and Recent Activity
- Reported net income and Adjusted earnings of $23.3 million for the three months ended September 30, 2024, or $0.55 earnings and Adjusted earnings per basic share and diluted share, compared to net income attributable to common stockholders and Adjusted earnings of $20.3 million, or $0.49 earnings and Adjusted earnings per basic share and diluted share for the three months ended September 30, 2023. (See reconciliation of net income to Adjusted earnings in the Non-GAAP Measures section.)
- Reported net income of $123.5 million for the nine months ended September 30, 2024, or $2.96 earnings per basic share and $2.93 earnings per diluted share, compared to net income attributable to common stockholders of $87.3 million, or $2.12 earnings per basic share and $2.09 earnings per diluted share, for the nine months ended September 30, 2023. We reported Adjusted earnings of $109.3 million for the nine months ended September 30, 2024, or $2.62 Adjusted earnings per basic share and $2.60 Adjusted earnings per diluted share, compared to Adjusted earnings of $87.3 million for the nine months ended September 30, 2023, or $2.12 Adjusted earnings per basic share and $2.09 Adjusted earnings per diluted share. (See reconciliation of net income to Adjusted earnings in the Non-GAAP Measures section with the main driver of the variance being the gain on the sale of the Ardmore Seafarer of $12.3 million.)
- 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 November 6, 2024, of $0.18 per common share for the quarter ended September 30, 2024. The dividend will be paid on December 13, 2024, to all shareholders of record on November 29, 2024.
- MR Eco-Design tankers earned an average spot TCE rate of $28,481 per day for the three months ended September 30, 2024. Chemical tankers earned an average TCE rate of $21,604 per day for the three months ended September 30, 2024. Based on approximately 50% of total revenue days currently fixed for the fourth quarter of 2024, the average spot TCE rate is approximately $25,000 per day for MR Eco-Design tankers; based on approximately 55% of revenue days fixed for the fourth quarter of 2024, the average TCE rate for chemical tankers is approximately $25,150 per day.
Gernot Ruppelt, the Company’s Chief Executive Officer, commented:
“Strong fundamentals combined with geopolitical factors have continued to raise product and chemical tanker charter rates, up on a year-over-year basis, against the backdrop of typical third quarter seasonality. Ardmore is well-positioned to capture further market upside as conditions are beginning to accelerate in the early stages of the winter season.
Our focus remains consistent: maximizing our TCE performance, tightly managing our costs, and lowering our breakeven level. Our strong performance has enabled us to sustain our momentum in pursuing all our capital allocation priorities, and in turn, strengthen our earnings capacity for a wide range of market conditions. We continue returning capital to our shareholders through a consistent quarterly dividend, investing in our existing fleet to enhance performance and reduce emissions, while reducing debt to lower our breakeven.
We believe that Ardmore’s commitment to these priorities positions us strongly to continue building value for our shareholders through operational and financial efficiency across market cycles.”
Summary of Recent and Third Quarter 2024 Events
Fleet
Fleet Operations and Employment
As of September 30, 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 (16 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 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 $28,032 per day in the third quarter of 2024. In the third quarter of 2024, the Company’s 16 MR Eco-Design tankers earned an average TCE rate of $28,481 and the Company’s four MR Eco-Mod tankers earned an average TCE rate of $25,726 per day.
In the fourth quarter of 2024, the Company expects to have 95% of its revenue days for its MR tankers employed in the spot market with the remaining 5% of revenue days subject to time charters. As of November 6, 2024, the Company had fixed approximately 50% of its total spot MR revenue days for the fourth quarter of 2024 at an average spot TCE rate of approximately $23,100 per day, which includes MR Eco-Design tankers at an average of approximately $25,000 per day and MR Eco-Mod tankers at an average of approximately $11,950 per day.
Product / Chemical Tankers (IMO 2: 25,000 dwt – 37,800 dwt)
At the end of the third 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 third quarter of 2024, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $21,604 per day.
In the fourth 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 November 6, 2024, the Company had fixed approximately 55% of its Eco-Design IMO 2 product / chemical tankers revenue days for the fourth quarter of 2024 at an average TCE rate of approximately $25,150 per day.
Drydocking
The Company had no drydocking days in the third quarter of 2024. The Company does not currently have any drydocking days scheduled in the fourth 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 November 6, 2024 of $0.18 per common share for the quarter ended September 30, 2024. The dividend will be paid on December 13, 2024, to all shareholders of record on November 29, 2024.
Preferred Stock Redemption
On November 4, 2024, the Company delivered a notice of redemption with respect to 10,000 shares of its Series A Preferred Stock at a redemption value of $10.3 million, which equates to 103% of the liquidation preference per share, plus any accumulated and unpaid dividends. The redemption is expected to occur in December 2024.
Leadership Transition
As previously announced on July 8, 2024, Ardmore Founder and CEO Anthony Gurnee retired from his executive and board positions effective September 16, 2024. The Board of Directors appointed current executive and Chief Commercial Officer Gernot Ruppelt as the Company’s new CEO, and expanded current CFO Bart Kelleher’s position to take on the additional role of President. The leadership transition took effect at the Company’s quarterly Board meeting on September 16, 2024.
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 in the Middle East or elsewhere 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 September 30, 2024 and 2023
The Company reported net income of $23.3 million for the three months ended September 30, 2024, or $0.55 earnings per basic share and diluted share, as compared to net income attributable to common stockholders of $20.3 million, or $0.49 earnings per basic share and diluted share for the three months ended September 30, 2023.
Results for the Nine Months Ended September 30, 2024 and 2023
The Company reported net income of $123.5 million for the nine months ended September 30, 2024, or $2.96 earnings per basic share and $2.93 earnings per diluted share, as compared to net income attributable to common stockholders of $87.3 million, or $2.12 earnings per basic share and $2.09 earnings per diluted share for the nine months ended September 30, 2023.
Management’s Discussion and Analysis of Financial Results for the Three Months Ended September 30, 2024 and 2023
Revenue. Revenue for the three months ended September 30, 2024 was $96.1 million, an increase of $9.2 million from $86.9 million for the three months ended September 30, 2023.
The Company’s average number of operating vessels was 26.0 for the three months ended September 30, 2024, consistent with 26.0 for the three months ended September 30, 2023.
The Company had 2,279 spot revenue days for the three months ended September 30, 2024, as compared to 2,185 for the three months ended September 30, 2023. The Company had 25 vessels employed directly in the spot market as of September 30, 2024 compared with 26 vessels as of September 30, 2023. Increases in spot rates during the three months ended September 30, 2024 resulted in an increase in revenue of $2.7 million, while the increase in spot revenue days resulted in an increase in revenue of $3.7 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.
The Company had one product tanker employed under time charters as of September 30, 2024 as compared to none as of September 30, 2023. There were 92 revenue days derived from time charters for the three months ended September 30, 2024, as compared to none for the three months ended September 30, 2023. The increase in revenue days for time-chartered vessels resulted in an increase in revenue of $2.8 million for the three months ended September 30, 2024.
Voyage Expenses. Voyage expenses were $34.6 million for the three months ended September 30, 2024, an increase of $4.0 million from $30.6 million for the three months ended September 30, 2023. The net increase is primarily due to a $2.3 million increase in port, agency and broker commission costs, and a $1.7 million increase from higher bunker consumption.
TCE Rate. The average TCE rate for the Company’s fleet was $26,628 per day for the three months ended September 30, 2024, an increase of $281 per day from $26,347 per day for the three months ended September 30, 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 $14.0 million for the three months ended September 30, 2024, a decrease of $0.4 million from $14.4 million for the three months ended September 30, 2023. The decrease reflects the timing of vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods.
Charter Hire Costs. Total charter hire expense was $5.9 million for the three months ended September 30, 2024, an increase of $1.8 million from $4.1 million for the three months ended September 30, 2023. This increase is as a result of higher charter hire rates during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Total charter hire expense for the three months ended September 30, 2024 was comprised of an operating expense component of $3.1 million and a vessel lease expense component of $2.8 million.
Depreciation. Depreciation expense for the three months ended September 30, 2024 was $7.8 million, an increase of $0.9 million from $6.9 million for the three months ended September 30, 2023. This increase is primarily attributable to the purchase of the Ardmore Gibraltar in April 2024 and the installation of ballast water treatment systems and scrubber systems on several vessels during their most recent drydock cycle.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended September 30, 2024 was $1.0 million, an increase of $0.3 million from $0.7 million for the three months ended September 30, 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 September 30, 2024 were $6.3 million, an increase of $1.2 million from $5.1 million for the three months ended September 30, 2023. This increase is primarily due to one-time expenses associated with the leadership transition during the three months ended September 30, 2024 compared to the three months ended September 30, 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 September 30, 2024 were $1.2 million, generally consistent with $1.1 million for the three months ended September 30, 2023.
Unrealized losses on Derivatives. The Company had an insignificant amount of unrealized losses on derivatives for the three months ended September 30, 2024, as compared to no unrealized gains or losses for the three months ended September 30, 2023.
Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended September 30, 2024 were $1.1 million, a decrease of $1.9 million from $3.0 million for the three months ended September 30, 2023. The decrease in costs was due to the reduction of the average outstanding balance 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 current flexibility of the Company’s revolving facilities, with only $22.5 million drawn down as of September 30, 2024, has minimized the impact on the Company of the elevated interest rate environment. Amortization of deferred finance fees for the three months ended September 30, 2024 was $0.3 million, consistent with $0.3 million for the three months ended September 30, 2023.
Liquidity
As of September 30, 2024, the Company had $268.5 million in liquidity available, with cash and cash equivalents of $47.6 million (December 31, 2023: $46.8 million) and amounts available and undrawn under its revolving credit facilities of $220.9 million (December 31, 2023: $221.2 million).
CO2 Emissions Reporting(1)
In April 2018, the International Maritime Organization’s (“IMO”) Marine Environment Protection Committee (“MEPC”) adopted an initial strategy for the reduction of greenhouse gas (“GHG”) emissions from ships, setting out a vision to reduce GHG emissions from international shipping and phase them out as soon as possible. Ardmore is committed to transparency and contributing to the reduction of CO2 emissions in the Company’s industry. Ardmore’s reporting methodology is in line with the framework set out within the IMO’s Data Collection System (“DCS”) initiated in 2019.
On January 1, 2023, the BIMCO CII Operations Clause for Time Charter Parties came into force. This clause outlines that the charterer should take responsibility for a ship’s emissions. On this basis, Ardmore’s GHG emissions analysis has been updated to exclude the impact of ships time-chartered out and to include the impact of ships time-chartered in. Previously all vessels were included in Ardmore’s analysis from the fleet except for vessels commercially managed by Ardmore.
Ardmore Performance
It should be noted that results vary quarter to quarter depending on ship activity, ballast / laden ratio, cargo carried, weather, waiting time, time in port, and vessel speed. However, analysis is also presented on a trailing 12-month basis to provide a more accurate assessment of Ardmore’s progress over a longer period and to mitigate seasonality. From a weather perspective rougher weather (based on Beaufort Scale wind force rating being greater than 4 BF) will generally have a mitigating impact on the ability to optimize fuel consumption, while idle time will impact ships metrics as they will still require power to run but will not be moving. Overall Ardmore Shipping’s carbon emissions for the trailing 12-month period have increased by 0.4% from 420,298 metric tonnes to 421,812 metric tonnes of CO2, as a result of higher voyage speed. Fleet EEOI for the period decreased from 13.37 g / ctm to 12.44 g / ctm, primarily due to a reduction in ballasting, while AER increased from 6.10 g / tm to 6.19 g / tm due to higher voyage speed. Ardmore seeks to achieve continued improvements through a combination of technological advancements and operational optimization.
Non-GAAP Measures
EBITDA + vessel lease expense component (i.e., EBITDAR) and Adjusted EBITDAR
EBITDAR is defined as EBITDA (i.e., earnings before interest, unrealized gains/(losses) on interest rate derivatives, taxes, depreciation and amortization) plus the vessel lease expense component of total charter hire expense for chartered-in vessels. Adjusted EBITDAR is defined as EBITDAR before certain items that Ardmore believes are not representative of its operating performance, including gain or loss on sale of vessels.
For the three months ended September 30, 2024, we recognized total charter hire expense of $5.9 million in respect of time charter-in vessels under operating leases. The total expense includes (i) $2.8 million in respect of the right to use the leased assets (i.e., vessel lease expense component), and (ii) $3.1 million in respect of the costs of operating the vessels (i.e. operating expense component). Under U.S. GAAP, the expense related to the right to use the leased assets (i.e. capital component) is treated as an operating item on our consolidated statement of operations, and is not added back in our calculation of EBITDA. The treatment of operating lease expenses differs under U.S. GAAP as compared to international financial reporting standards (“IFRS”). Under IFRS, the expense of an operating lease is presented in depreciation and interest expense.
Many companies in our industry report under IFRS; we therefore use EBITDAR and Adjusted EBITDAR as tools to compare our valuation with the valuation of these other companies in our industry. We do not use EBITDAR and Adjusted EBITDAR as measures of performance or liquidity. We present below reconciliations of net income / (loss) attributable to common stockholders to EBITDAR (which includes an adjustment for vessel lease operating expenses) and Adjusted EBITDAR.
EBITDAR and Adjusted EBITDAR, as presented, may not be directly comparable to similarly titled measures presented by other companies. In addition, EBITDAR and Adjusted EBITDAR should not be viewed as measures of overall performance since they exclude vessel rent, which is a normal, recurring cash operating expense related to our in-chartering of vessels that is necessary to operate our business. Accordingly, you are cautioned not to place undue reliance on this information.
EBITDA, Adjusted EBITDA, Adjusted earnings and Adjusted earnings (for purposes of dividend calculations)
EBITDA, Adjusted EBITDA and Adjusted earnings are not measures prepared in accordance with U.S. GAAP and are defined and reconciled below. EBITDA is defined as earnings before interest, unrealized gains/(losses) on interest rate derivatives, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before certain items that Ardmore believes are not representative of its operating performance, including gain or loss on sale of vessels, gain on extinguishment and profit/(loss) on equity method investments. Adjusted earnings excludes certain items from net income attributable to common stockholders, including gain or loss on sale of vessels and write-off of deferred finance fees (i.e., loss on extinguishment) because they are considered to not be representative of the Company’s operating performance.
EBITDA, Adjusted EBITDA and Adjusted earnings are presented in this press release as the Company believes that they provide investors with a means of evaluating and understanding how Ardmore’s management evaluates operating performance. EBITDA and Adjusted EBITDA increase the comparability of the Company’s fundamental performance from period to period. This increased comparability is achieved by excluding the potentially disparate effects between periods of interest expense, taxes, depreciation or amortization, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. The Company believes that including EBITDA, Adjusted EBITDA and Adjusted earnings as financial and operating measures assists investors in making investment decisions regarding the Company and its common stock.
For purposes solely of the quarterly common dividend calculation, Adjusted earnings represents the Company’s Adjusted earnings for the quarter ended September 30, 2024, but excluding the impact of unrealized gains / (losses) and certain non-recurring items.
These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to, financial measures prepared in accordance with U.S. GAAP. In addition, these non-GAAP measures may not have a standardized meaning and therefore may not be comparable to similar measures presented by other companies.
Full Report
Source: Ardmore Shipping Corporation