Ardmore Shipping Corp. Form 6-K Summary
Business Context and Reporting Period
This report covers the nine months ended September 30, 2020, for Ardmore Shipping Corporation (NYSE: ASC), a Bermuda-based company owning and operating a fleet of Medium Range (MR) product and chemical tankers. As of September 30, 2020, the fleet consisted of 26 owned vessels with an average age of 7.3 years. The company focuses on fuel-efficient operations and commercial independence, marketing directly to oil majors, traders, and chemical companies.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 |
|---|---|---|
| Net Revenue | $178.3 million | $169.4 million |
| Net Income | $13.5 million | $(24.8) million (Loss) |
| Operating Cash Flow | $46.9 million | $13.3 million |
| Time Charter Equivalent (TCE) Rate | $17,224 per day | $14,045 per day |
| Cash and Cash Equivalents | $58.2 million | $51.7 million (Dec 31, 2019) |
| Total Debt (Net) | $203.3 million | $207.3 million (Dec 31, 2019) |
| Finance Lease Obligations (Net) | $202.2 million | $215.7 million (Dec 31, 2019) |
Material Changes vs. Prior Period
- Profitability Turnaround: The company reported a net income of $13.5 million for the nine months ended September 30, 2020, compared to a net loss of $24.8 million in the same period in 2019. This improvement is primarily driven by higher spot rates and significantly lower voyage expenses due to reduced bunker prices.
- Revenue Growth: Net revenue increased by 5% ($9.0 million) year-over-year. While revenue days decreased slightly, the increase in spot rates contributed $9.9 million to revenue.
- Expense Reduction: Voyage expenses decreased by 16% ($12.1 million) due to lower bunker costs. Interest expense and finance costs decreased by 29% ($5.9 million) due to lower LIBOR rates and the implementation of interest rate swaps.
- One-Time Items: The 2019 period included a $13.2 million loss on the sale of two vessels (Ardmore Seamaster and the previous Ardmore Seafarer), which did not occur in 2020.
- Share Repurchase: In September 2020, the Board authorized a new share repurchase plan of up to $30 million through September 30, 2023.
Outlook, Risks, and Management Commentary
- Liquidity Position: Management maintains a strong liquidity position with $58.2 million in cash and cash equivalents. The company drew down an additional $7.8 million on revolving credit facilities in Q3 2020 to ensure financial flexibility.
- COVID-19 Impact: The pandemic has caused trade disruptions, quarantines, and travel restrictions. Management states that the full extent of the impact on operations and financial condition remains uncertain and cannot be predicted at this time.
- Capital Expenditures: The company is managing drydocking schedules to minimize simultaneous vessel downtime. Future capital needs include ballast water treatment system (BWTS) installations, with 3 scheduled for 2021 and 8 for 2023.
- Interest Rate Hedging: The company entered into floating-to-fixed interest rate swap agreements with a total notional amount of $324.1 million to manage interest rate risk, locking in an average fixed rate of 0.32%.
- Subsequent Event: In October 2020, the company agreed to terms for $10 million in financing for the newly acquired vessel, Ardmore Seafarer, with a drawdown expected in November 2020.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with financial covenants, specifically the minimum solvency (30%) and minimum cash requirements ($20.4 million as of Sep 30, 2020).
- Spot Rate Volatility: Monitor the sustainability of the improved TCE rates ($17,224/day) given the cyclical nature of the tanker market and potential demand fluctuations from the pandemic.
- Capital Expenditure Timing: Track the schedule for drydocking and BWTS installations to assess potential cash outflows and vessel off-hire days in 2021 and 2023.
- Share Repurchase Execution: Monitor the actual execution of the new $30 million share repurchase plan and its impact on share count and liquidity.
- Financing Drawdown: Confirm the successful drawdown of the $10 million facility for the Ardmore Seafarer as planned in November 2020.