Ardmore Shipping Corporation announced results for the three and twelve months ended December 31, 2022.

Highlights and Recent Activity

Reported net income of $53.1 million for the three months ended December 31, 2022, or $1.31 earnings per basic share and $1.28 earnings per diluted share, compared to a net loss of $8.6 million, or $0.25 loss per basic and diluted share, for the three months ended December 31, 2021. Adjusted for certain costs (see Adjusted earnings / (loss) in the Non-GAAP Measures section), we reported Adjusted earnings of $54.0 million, or $1.33 Adjusted earnings per basic share and $1.30 Adjusted earnings per diluted share, for the three months ended December 31, 2022, compared to an Adjusted loss of $8.6 million, or $0.25 Adjusted loss per basic and diluted share, for the three months ended December 31, 2021.

Reported record net income of $135.1 million for the year ended December 31, 2022, or $3.63 earnings per basic share and $3.52 earnings per diluted share, compared to a net loss of $38.1 million, or $1.12 loss per basic and diluted share, for the year ended December 31, 2021. Adjusted for certain costs (see Adjusted earnings / (loss) in the Non-GAAP Measures section), we reported Adjusted earnings of $143.5 million, or $3.86 Adjusted earnings per basic and $3.74 Adjusted earnings per diluted share for the year ended December 31, 2022, compared to an Adjusted loss of $37.5 million, or $1.11 Adjusted loss per basic and diluted share, for the year ended December 31, 2021.

MR Eco-Design tankers earned an average spot TCE rate of $43,174 per day for the three months ended December 31, 2022. Chemical tankers earned an average TCE rate of $28,544 per day for the three months ended December 31, 2022. Based on approximately 55% total revenue days currently fixed for the first quarter of 2023, the average spot TCE rate is approximately $39,500 per day for MR Eco-Design tankers; based on approximately 70% of revenue days fixed for the first quarter of 2023, the average TCE rate for chemical tankers is approximately $27,750 per day.

On January 9, 2023, Ardmore announced the appointment of Mr. James Fok to Ardmore’s Board of Directors as a Class III director. He is also serving on the Audit and Nominating and Corporate Governance Committees.

Consistent with the Company’s capital allocation policy, the Board of Directors declared a cash dividend on February 14, 2023, of $0.45 per common share for the quarter ended December 31, 2022, based on Ardmore’s current policy of paying out a third of Adjusted Earnings, as calculated for dividends. The dividend will be paid on March 15, 2023, to all shareholders of record on February 28, 2023.

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

“2022 was a tremendous year for product tanker markets and the most profitable year thus far for Ardmore, as supportive fundamentals created early momentum that was then amplified by a substantial re-ordering of global energy markets. This also followed a prolonged period of refined product inventory draws and post-pandemic energy consumption growth, and energy supply chains operating with little, if any, buffer to account for dislocations or unforeseen developments.

In these tight and fast-changing markets, Ardmore’s high-quality fleet of modern MR product and chemical tankers, its focus on operational excellence and ability to take advantage of market volatility, along with a strong balance sheet and low breakeven levels, have enabled us to generate strong profits and cash flow.

As a result, we are also now able to pursue our capital allocation policy priorities simultaneously: maintaining our fleet over time, continued de-levering of our balance sheet, paying our newly initiated quarterly dividend, and selectively evaluating accretive growth opportunities that support our long-term strategic goals.

As strong markets extend into 2023 and with the newbuilding orderbook remaining at a historically low level, we believe Ardmore is exceptionally well positioned to continue generating strong earnings and translating our current performance into lasting shareholder value.”

Summary of Recent and Fourth Quarter 2022 Events

Fleet

Fleet Operations and Employment

As of December 31, 2022, the Company had 27 vessels in operation (including five chartered-in vessels), 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. The Company also commercially manages two of Carl Büttner’s 24,000 Dwt chemical tankers.

MR Tankers (45,000 Dwt – 49,999 Dwt)

At the end of the fourth quarter of 2022, the Company had 21 MR tankers in operation, all of which were trading in the spot market. The MR tankers earned an average TCE rate of $41,911 per day in the fourth quarter of 2022. In the fourth quarter of 2022, the Company’s 15 MR Eco-Design tankers earned an average TCE rate of $42,301 and the Company’s six MR Eco-Mod tankers earned an average TCE rate of $40,990 per day.

In the first quarter of 2023, the Company expects to have all revenue days for its MR tankers employed in the spot market. As of February 14, 2023, the Company had fixed approximately 55% of its total MR revenue days for the first quarter of 2023 at an average TCE rate of approximately $37,500 per day which comprises MR Eco-Design tankers of $39,500 per day and MR Eco-Mod tankers of $32,000 per day.

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

At the end of the fourth 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 fourth quarter of 2022, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $28,544 per day.

In the first quarter of 2023, the Company expects to have all revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of February 14, 2023, the Company had fixed approximately 70% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the first quarter of 2023 at an average TCE rate of approximately $27,750 per day.

Drydocking

The Company had 23 drydock days and no repositioning days in the fourth quarter of 2022. The Company expects to have eight drydock days and six repositioning days in the first quarter of 2023.

Dividend

Consistent with the Company’s capital allocation policy, the Board of Directors declared a cash dividend on February 14, 2023, of $0.45 per share for the quarter ended December 31, 2022, based on the Company’s current policy of paying out dividends equal to one-third of Adjusted Earnings (see Adjusted Earnings (for purposes of dividend calculations) in the Non-GAAP Measures section). The dividend is payable on March 15, 2023 to all shareholders of record on February 28, 2023.

New Director Appointment

On January 9, 2023, the Company announced the appointment of Mr. James Fok to the Company’s Board of Directors as a Class III director. He is also serving on the Nominating and Corporate Governance Committee and has replaced Mats Berglund on the Audit Committee. We thank Mats Berglund for his service on the Audit Committee and for his continued service on the Board of Directors and the Compensation and the Nominating and Corporate Governance Committees.

Mr. Fok has more than 20 years of experience as a financial and strategic advisor to corporations and governments, with particular expertise in Asian cross-border capital markets transactions and mechanisms. From 2012 until 2021, he served as a senior executive at Hong Kong Exchanges and Clearing (HKEX), playing a major role in a number of landmark capital markets internationalization initiatives. Previously, Mr. Fok served as an investment banker at multiple bulge bracket firms in both Europe and Asia, focusing on the financial services sector. He currently serves as an Advisor to Bain & Company, is on the Advisory Board of Hex Trust, a provider of bank-grade custody for digital assets, and serves as an International Member of Ireland for Finance’s Industry Advisory Committee. Mr. Fok holds a BA (Hons) in Law and Chinese from the School of Oriental & African Studies of the University of London and is a published author on the subject of Sino-American financial relations.

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 initially resulted and may again 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 has and could continue to 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, the impact of the end of China’s Zero Covid policy and of the development of variants of the COVID virus, and the level of the effectiveness and delivery of vaccines and other actions to contain or treat its impact.

Conflict in Ukraine

Russia’s invasion of Ukraine in February 2022 and the subsequent conflict 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. The ongoing conflict has contributed significantly to related increases in spot tanker rates.

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. The U.S. has also banned 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. 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 December 31, 2022 and 2021

The Company reported net income of $53.1 million for the three months ended December 31, 2022, or $1.31 earnings per basic share and $1.28 earnings per diluted share, as compared to a net loss of $8.6 million, or $0.25 loss per basic and diluted share for the three months ended December 31, 2021.

Results for the year ended December 31, 2022 and 2021

The Company reported net income of $135.1 million for the year ended December 31, 2022 or $3.63 earnings per basic share and $3.52 earnings per diluted share, as compared to a net loss of $38.1 million, or $1.12 loss per basic and diluted share, for the year ended December 31, 2021.

Management’s Discussion and Analysis of Financial Results for the three months ended December 31, 2022 and 2021

Revenue. Revenue for the three months ended December 31, 2022 was $132.8 million, an increase of $80.3 million from $52.5 million for the three months ended December 31, 2021.

The Company’s average number of operating vessels was 27.0 for the three months ended December 31, 2022, consistent with 27.0 for the three months ended December 31, 2021.

The Company had no product tankers employed under time charter as of December 31, 2022, as compared to four as of December 31, 2021. Revenue days derived from time charters were 47 for the three months ended December 31, 2022, as compared to 364 for the three months ended December 31, 2021. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $4.3 million.

The Company had 2,399 spot revenue days for the three months ended December 31, 2022, as compared to 2,112 for the three months ended December 31, 2021. The Company had 27 and 23 vessels employed directly in the spot market as of the years ended December 31, 2022 and 2021, respectively. The increase in spot revenue days resulted in an increase in revenue of $6.3 million, while changes in spot rates resulted in an increase in revenue of $78.3 million for the three months ended December 31, 2022, as compared to the three months ended December 31, 2021.

Voyage Expenses. Voyage expenses were $39.5 million for the three months ended December 31, 2022, an increase of $14.9 million from $24.6 million for the three months ended December 31, 2021. An increase in bunker prices resulted in an increase of $10.4 million and an increase in spot revenue days resulted in an increase in port and agency expenses plus commission costs of $4.5 million for the three months ended December 31, 2022, as compared with the three months ended December 31, 2021.

TCE Rate. The average TCE rate for the Company’s fleet was $38,861 per day for the three months ended December 31, 2022, an increase of $27,471 per day from $11,390 per day for the three months ended December 31, 2021. The increase in average TCE rate was primarily the result of higher spot rates for the three months ended December 31, 2022, as compared to the three months ended December 31, 2021, which was partially offset by an increase in bunker prices. TCE rates represent net revenues (or 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 we record revenue under U.S. GAAP.

Vessel Operating Expenses. Vessel operating expenses were $14.2 million for the three months ended December 31, 2022, a decrease of $1.6 million from $15.8 million for the three months ended December 31, 2021. This decrease is primarily attributable to the completion of the sales of the Ardmore Sealeader, Ardmore Sealifter and Ardmore Sealancer earlier in 2022. In addition, the decrease also 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 $6.0 million for the three months ended December 31, 2022, an increase of $3.9 million from $2.1 million for the three months ended December 31, 2021. This increase is the result of the Company having five vessels chartered-in as of December 31, 2022, compared to two vessel chartered-in as of December 31, 2021. Total charter hire expense for the three months ended December 31, 2022 was comprised of an operating expense component of $3.1 million and a vessel lease expense component of $2.9 million.

Depreciation. Depreciation expense for the three months ended December 31, 2022 was $7.3 million, a decrease of $0.7 million from $8.0 million for the three months ended December 31, 2021. This decrease is a result of the sale of one vessel in June 2022, and two additional vessels in July 2022. All three vessels were classified as held for sale up to their respective delivery dates. We ceased depreciating these three vessels, when they were classified as held for sale, during the first quarter of 2022.

Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended December 31, 2022 was $1.0 million, a decrease of $0.3 million from $1.3 million for the three months ended December 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 December 31, 2022 were $5.3 million, an increase of $2.0 million from $3.3 million for the three months ended December 31, 2021. The increase in costs was primarily due to an increase in variable-based compensation, in line with strong results, during the three months ended December 31, 2022, compared to the three months ended December 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 December 31, 2022 were $1.3 million, an increase of $0.4 million from $0.9 million for the three months ended December 31, 2021. The increase in costs was primarily due to an increase in variable-based compensation, in line with strong results, during the three months ended December 31, 2022, compared to the three months ended December 31, 2021.

Unrealized (Loss) / Gain on Derivatives: Unrealized loss on derivatives was $1.3 million for the three months ended December 31, 2022, a negative change of $1.5 million from an unrealized gain of $0.2 million for the three months ended December 31, 2021. The change is primarily due to realized gains of $2.2 million on interest rate swaps recognized during the three months ended December 31, 2022, which resulted in a decrease in the year-to-date unrealized gains to $3.0 million as of December 31, 2022 from $4.3 million as of September 30, 2022.

Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended December 31, 2022 were $2.0 million, a decrease of $2.3 million from $4.3 million for the three months ended December 31, 2021. The decrease in costs primarily reflects the low outstanding balance on the Company’s revolving facility, with only $22.5 million drawn as of December 31, 2022, as well as the refinancing of nine vessels into senior loan facilities, during the third and fourth quarters of 2022, which were previously financed under lease arrangements. Amortization of deferred finance fees for the three months ended December 31, 2022 was $0.3 million, generally consistent with $0.4 million for the three months ended December 31, 2021.

Loss on Extinguishment. Loss on extinguishment for the three months ended December 31, 2022 was $0.9 million, an increase of $0.9 million from $0 for the three months ended December 31, 2021. As a result of deferred finance fees of $0.9 million being written off following the prepayment of the debt related to the exercises of the vessel purchase options, the loss on extinguishment increased by $0.9 million for the three months ended December 31, 2022. The Company incurred no corresponding loss or gain for three months ended December 31, 2021.
Source: Ardmore Shipping Corporation