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, 2017. Ardmore owns and operates a fleet of mid-size product and chemical tankers (25,000–50,000 Dwt). As of September 30, 2017, the fleet consisted of 27 vessels with an average age of 5.1 years. The company provides seaborne transportation to oil majors, traders, and chemical companies via voyage charters, time charters, and commercial pools.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2017 | 9 Months Ended Sep 30, 2016 | 3 Months Ended Sep 30, 2017 | 3 Months Ended Sep 30, 2016 |
|---|---|---|---|---|
| Revenue | $148.2 million | $121.2 million | $48.7 million | $38.0 million |
| Operating Income | $7.1 million | $22.3 million | $0.7 million | $2.1 million |
| Net (Loss) / Income | $(8.7) million | $7.4 million | $(4.6) million | $(4.8) million |
| Operating Cash Flow | $12.0 million | $32.6 million | $2.2 million | $4.2 million |
| Cash & Equivalents | $45.8 million (as of Sep 30, 2017) | |||
| Total Debt (Net) | $402.9 million (as of Sep 30, 2017) | |||
| Average TCE Rate | $12,751/day | $15,796/day | $12,376/day | $13,889/day |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 22% year-over-year for the nine months, driven by a larger fleet (average 27.0 vessels vs. 23.1) and increased spot market exposure (4,987 spot revenue days vs. 2,693). However, this was partially offset by lower time charter/pool revenue days and decreased pool earnings.
- Profitability Decline: Operating income dropped 68% to $7.1 million for the nine months. The company swung from a net income of $7.4 million in the prior year to a net loss of $8.7 million. This was primarily due to higher voyage expenses associated with increased spot market activity and higher interest costs.
- Expense Increases: Commissions and voyage-related costs surged 132% to $55.2 million due to the shift toward spot charters where Ardmore bears voyage expenses. Interest expense increased 30% to $16.0 million due to higher LIBOR rates and new capital lease structures.
- TCE Rate Pressure: The average Time Charter Equivalent (TCE) rate declined 19% to $12,751 per day for the nine months, reflecting lower average spot and time charter rates.
Outlook, Risks, and Management Commentary
- Liquidity: The company holds $45.8 million in cash and cash equivalents. Management believes working capital and credit facilities are sufficient for current requirements. The company remains in compliance with all debt covenants, including a minimum cash balance requirement of $22.8 million.
- Capital Structure: Ardmore has five loan facilities and capital lease arrangements. In the nine months ended September 30, 2017, the company repaid $52.5 million in debt but also drew $33.1 million in capital lease proceeds. A new $15 million revolving credit facility was entered into in October 2017 for working capital.
- Risks: Key risks include volatility in charter rates and vessel values, fluctuations in oil prices, bunker costs, and interest rate exposure (LIBOR-based debt). A 100 basis-point increase in interest rates would increase annualized interest expense by approximately $4.6 million.
- Accounting Updates: The company is assessing the impact of new FASB standards on revenue recognition (ASU 2014-09) and leases (ASU 2016-02), effective January 1, 2018, and January 1, 2019, respectively.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the minimum solvency (30%) and minimum cash balance ($22.8 million) covenants given the net loss position.
- Spot Market Exposure: Assess the impact of the increased reliance on spot charters (19 vessels) on future revenue volatility and voyage expense management.
- Interest Rate Sensitivity: Monitor LIBOR trends, as a significant portion of debt is variable-rate, directly impacting net income.
- Drydocking Schedule: Review the upcoming drydocking schedule (5 vessels in 2017, 7 in 2018) to evaluate future capital expenditure requirements and potential off-hire impacts.
- Equity Dilution: Note that GA Holdings LLC holds 17.2% of shares; monitor for potential future sales or equity raises to fund fleet expansion or debt reduction.