Ardmore Shipping Corp. Form 6-K Summary
Business Context and Reporting Period
This report covers Ardmore Shipping Corporation (NYSE: ASC) for the three and nine months ended September 30, 2018. Ardmore owns and operates a fleet of 28 MR (Medium Range) product and chemical tankers, ranging from 25,000 to 50,000 deadweight tonnes (Dwt). The company focuses on modern, fuel-efficient vessels and operates commercially independently, marketing services directly to oil majors, traders, and chemical companies.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2017 | 3 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2017 |
|---|---|---|---|---|
| Revenue | $151.8 million | $148.2 million | $48.9 million | $48.7 million |
| Net Loss | $(26.0) million | $(8.7) million | $(12.2) million | $(4.6) million |
| Operating Loss | $(7.6) million | $7.1 million (Profit) | $(6.0) million | $0.7 million (Profit) |
| Operating Cash Flow | $7.5 million | $12.0 million | $(2.4) million | $2.2 million |
| Cash and Equivalents | $33.3 million | $39.5 million (Dec 31, 2017) | N/A | |
| Total Debt (Net) | $351.3 million | $404.4 million (Dec 31, 2017) | N/A | |
| Average TCE Rate | $11,816/day | $12,751/day | $10,261/day | $12,376/day |
Material Changes vs. Prior Period
- Profitability Decline: The company reported a net loss of $26.0 million for the nine months ended September 30, 2018, compared to a net loss of $8.7 million in the same period in 2017. Operating results shifted from a profit of $7.1 million in 2017 to a loss of $7.6 million in 2018.
- Revenue Mix Shift: Revenue increased slightly by 2% year-over-year. This was driven by a significant increase in spot market revenue days (6,213 days in 2018 vs. 4,987 in 2017), which added $28.9 million in revenue. However, this was partially offset by a decrease in pool arrangement revenue days (1,179 days in 2018 vs. 2,315 in 2017), reducing revenue by $15.0 million.
- Rate Pressure: The average Time Charter Equivalent (TCE) rate decreased to $11,816 per day for the nine-month period, down from $12,751 per day in 2017, primarily due to lower spot rates.
- Expense Increases: Commissions and voyage-related costs rose by 23% to $68.0 million due to higher spot market activity. Interest expense increased by 16% to $18.7 million, attributed to higher LIBOR rates and changes in debt structure.
Guidance, Outlook, and Risks
- Subsequent Financing: In October 2018, the company executed sale and leaseback transactions for four vessels (Ardmore Dauntless, Defender, Explorer, and Encounter). These transactions generated net cash proceeds of $19.7 million after fees and debt prepayments.
- Liquidity Position: As of September 30, 2018, cash and cash equivalents were $33.3 million. The company maintains compliance with all financial covenants, including a minimum cash balance requirement of $22.2 million.
- Market Risks: The company faces exposure to fluctuations in charter rates, vessel values, bunker prices, and interest rates (LIBOR). A hypothetical 100 basis-point increase in variable interest rates would increase interest expense by $3.4 million for the nine-month period.
- Accounting Changes: The company adopted ASC 842 (Leases) on January 1, 2018, requiring the recognition of right-of-use assets and lease liabilities on the balance sheet.
Investor Verification Checklist
- Debt Structure: Verify the impact of the October 2018 sale and leaseback transactions on the balance sheet and future cash flow obligations.
- Spot Market Exposure: Assess the sustainability of the shift from pool arrangements to spot charters, given the volatility in spot rates and the resulting decline in TCE.
- Covenant Compliance: Confirm continued adherence to financial covenants, specifically the minimum cash balance and solvency ratios, given the recent net losses.
- Drydocking Schedule: Review the upcoming drydocking schedule (10 vessels in 2018, 8 in 2019) to evaluate future capital expenditure requirements.
- Interest Rate Sensitivity: Monitor LIBOR trends and the company's hedging strategies, as interest expense is a significant cost driver.