Ardmore Shipping Corp. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited condensed interim consolidated financial statements and Management's Discussion and Analysis for Ardmore Shipping Corporation (NYSE: ASC) for the three and nine months ended September 30, 2016. Ardmore owns and operates a fleet of mid-size product and chemical tankers (25,000 to 50,000 Dwt). As of October 31, 2016, the fleet consisted of 27 vessels with an average age of 4.4 years.
Key Financial Metrics
| Metric | 3 Months Ended Sept 30, 2016 | 9 Months Ended Sept 30, 2016 |
|---|---|---|
| Revenue | $38.0 million | $121.2 million |
| Net Profit / (Loss) | $(4.8) million | $7.4 million |
| Operating Profit | $2.1 million | $22.3 million |
| Operating Cash Flow | $4.2 million | $32.6 million |
| Time Charter Equivalent (TCE) Rate | $13,889 per day | $15,796 per day |
| Cash and Cash Equivalents | $53.0 million (as of Sept 30, 2016) | |
| Total Debt (Net of Deferred Fees) | $457.3 million (as of Sept 30, 2016) | |
| Interest Expense | $3.9 million | $12.3 million |
Material Changes vs. Prior Period
- Revenue: For the nine months ended Sept 30, 2016, revenue increased 4% to $121.2 million compared to $116.1 million in 2015, driven by a larger fleet (average 23.1 vessels vs. 18.6). However, for the three-month period, revenue decreased 20% to $38.0 million due to lower charter rates.
- Profitability: Net profit for the nine months dropped 72% to $7.4 million from $26.6 million in 2015. The three-month period resulted in a net loss of $4.8 million, compared to a profit of $13.6 million in the prior year quarter.
- Expenses: Operating expenses increased significantly due to fleet expansion. Depreciation rose 25% year-over-year for the nine-month period. General and administrative expenses increased 48% due to higher headcount and transactional costs.
- Unusual Items: A $3.0 million loss on an asset held for sale (Ardmore Centurion) impacted the three-month and nine-month results. Conversely, a $0.5 million gain was recognized on the disposal of two vessels (Ardmore Calypso and Ardmore Capella) during the nine-month period.
Guidance, Outlook, and Risks
Management Commentary: The Company continues to execute its strategy of developing a modern, high-quality fleet. Fleet expansion was funded through a combination of debt financing and a public equity offering of 7.5 million shares completed in June 2016, raising net proceeds of $64.1 million.
Recent Developments:
- Financing: Completed debt financing for six new vessels, including a new $71.3 million facility with ABN AMRO and an upsized joint facility with ABN, DVB, and NIBC.
- Acquisitions: Took delivery of five new 49,500 Dwt Eco-Design MR product/chemical tankers in Q3 2016.
- Divestitures: Agreed to sell the Ardmore Centurion for $15.7 million (delivered Oct 4, 2016).
Risks and Contingencies:
- Market Volatility: Results are heavily influenced by spot market rates and TCE fluctuations. Lower spot rates in Q3 2016 significantly reduced revenue despite increased vessel days.
- Liquidity and Debt: The Company maintains various financial covenants, including minimum solvency (30%), minimum cash balances, and debt-to-asset coverage ratios. The Company was in full compliance as of September 30, 2016.
- Interest Rate Risk: Borrowings are primarily variable rate (LIBOR-based). A 100 basis-point increase in rates would increase interest expense by approximately $4.1 million for the nine-month period.
Investor Verification Checklist
- Verify the impact of the $3.0 million loss on the Ardmore Centurion sale on Q3 earnings quality.
- Confirm the utilization rates and TCE performance of the five new vessels delivered in Q3 2016.
- Review the debt maturity schedule and covenant compliance, specifically the minimum cash balance requirement of $20.25 million.
- Assess the sustainability of the dividend policy ($9.4 million paid in the first nine months) given the Q3 net loss.
- Monitor the spot market rates for product/chemical tankers, as 16 of 27 vessels were employed in the spot market as of Sept 30, 2016.