Ardmore Shipping Corp. Q1 2018 Filing Summary
Business Context and Reporting Period
This Form 6-K covers the unaudited condensed interim consolidated financial statements and Management's Discussion and Analysis for the three months ended March 31, 2018. Ardmore Shipping Corporation (NYSE: ASC) owns and operates a fleet of 28 MR (Medium Range) product and chemical tankers. The company provides seaborne transportation services globally, utilizing a mix of voyage charters, commercial pools, and time charters. The average age of the operating fleet was 5.7 years as of the reporting date.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $50.5 million | $49.7 million |
| Profit from Operations | $0.44 million | $2.67 million |
| Net Loss | $(5.17) million | $(2.17) million |
| Operating Cash Flow | $5.0 million | $0.8 million |
| Cash and Cash Equivalents | $35.3 million | $45.2 million (Q1 2017) |
| Total Debt (Net) | $394.3 million | Filing text does not provide clear Q1 2017 net debt total |
| Average TCE Rate | $12,897 per day | $12,919 per day |
| Fleet Operating Costs | $6,786 per day | $6,361 per day |
Material Changes vs. Prior Period
- Revenue: Increased 2% to $50.5 million, driven by an increase in revenue days from spot charter arrangements (1,784 days vs. 1,606 days), partially offset by lower spot rates and a decrease in pool revenue days.
- Operating Profit: Declined 83% to $0.44 million. This was primarily due to a 12% increase in vessel operating expenses ($17.3 million) and a 16% increase in interest expense ($5.7 million), which outpaced the modest revenue growth.
- Net Loss: Widened significantly to $5.17 million (from $2.17 million) due to higher interest costs and operating expenses.
- Costs: Vessel operating costs per day rose to $6,786 due to increased crewing costs and the timing of expenses. Interest expense increased due to higher average LIBOR rates and changes in debt structure (new finance leases).
- Capital Structure: The company executed an equity offering raising net proceeds of $2.2 million and secured $16.1 million in proceeds from finance lease arrangements. Investing activities consumed $15.4 million, primarily for the acquisition of the vessel Ardmore Sealancer.
Guidance, Outlook, and Risks
Outlook and Commentary: Management notes that the tanker industry remains cyclical with volatility in profitability and asset values. The company maintains a strategy of developing a modern, high-quality fleet and maintaining cost advantages. No specific quantitative guidance for future periods was provided in this filing.
Risks and Contingencies:
- Market Risk: Exposure to fluctuations in charter rates, vessel values, and oil prices. A hypothetical 100 basis-point increase in variable interest rates would increase interest expense by $1.1 million.
- Liquidity: Short-term liquidity is dependent on operating cash flows and credit facilities. The company is compliant with all financial covenants, including a minimum cash balance requirement of $22.6 million (held $35.3 million).
- Accounting Changes: The company implemented ASC 842 (Leases) and ASC 606 (Revenue) effective January 1, 2018. ASC 842 required recognizing right-of-use assets and corresponding liabilities for office leases.
- Subsequent Events: On April 25, 2018, the company agreed to terms for a sale and leaseback arrangement for two 2013-built vessels, expected to close in May 2018.
Investor Verification Checklist
- Verify the impact of the new finance lease arrangements on future interest expense and debt maturity profiles.
- Monitor the utilization of the $15 million ABN AMRO Revolving Facility and adherence to the minimum cash covenant ($22.6 million).
- Assess the timing and cost of the scheduled drydockings for 8 vessels in 2018 and 9 vessels in 2019.
- Review the completion status of the subsequent sale and leaseback transaction for the two 2013-built vessels.
- Track the mix of spot vs. time charter/pool employment, as spot market volatility significantly impacts TCE rates and operating margins.