Ardmore Shipping Corporation Announces Fourth Quarter Net Income of $26.1 Million
Ardmore Shipping Corporation (NYSE: ASC) (“Ardmore”, the “Company” or “we”) today announced results for the three and twelve months ended December 31, 2023.
Highlights and Recent Activity
Reported net income of $26.1 million for the three months ended December 31, 2023, or $0.63 earnings per basic and diluted share, compared to net income of $53.1 million, or $1.31 earnings per basic share and $1.28 earnings per diluted share for the three months ended December 31, 2022. We reported Adjusted earnings of $26.1 million for the three months ended December 31, 2023, or $0.63 Adjusted earnings per basic and diluted share, compared to Adjusted earnings of $54.0 million for the three months ended December 31, 2022, or $1.33 Adjusted earnings per basic share and $1.30 Adjusted earnings per diluted share (see Adjusted earnings in the Non-GAAP Measures section).
Reported net income of $113.4 million for the year ended December 31, 2023, or $2.76 earnings per basic share and $2.71 earnings per diluted share, compared to net income of $135.1 million, or $3.63 earnings per basic and $3.52 earnings per diluted share, for the year ended December 31, 2022. We reported Adjusted earnings of $113.4 million for the year ended December 31, 2023, or $2.76 Adjusted earnings per basic share and $2.71 Adjusted earnings per diluted share, compared to Adjusted earnings of $143.5 million for the year ended December 31, 2022, or $3.86 Adjusted earnings per basic share and $3.74 Adjusted earnings per diluted share (see Adjusted earnings in the Non-GAAP Measures section).
Consistent with the Company’s variable dividend policy of paying out dividends on its shares of common stock equal to one-third of Adjusted earnings, the Board of Directors declared a cash dividend on February 15, 2024, of $0.21 per common share for the quarter ended December 31, 2023. The dividend will be paid on March 15, 2024, to all shareholders of record on February 29, 2024.
MR Eco-Design tankers earned an average spot TCE rate of $32,542 per day for the three months ended December 31, 2023. Chemical tankers earned an average TCE rate of $26,107 per day for the three months ended December 31, 2023. Based on approximately 60% total revenue days currently fixed for the first quarter of 2024, the average spot TCE rate is approximately $35,400 per day for MR Eco-Design tankers; based on approximately 70% of revenue days fixed for the first quarter of 2024, the average TCE rate for chemical tankers is approximately $26,700 per day.
In February 2024, as part of a gradual fleet modernization, the Company has agreed to acquire a 2017 Japanese-built MR product tanker for $42.0 million, and in a separate transaction has agreed to sell the 2010-built Ardmore Seafarer for $27.1 million. Both transactions are expected to conclude in the quarter ending March 31, 2024.
In February 2024, the Company time chartered-out one of its chartered-in MR tankers for the remainder of its charter-in period at a rate representing a $2.7 million premium over the charter-in rate.
In the fourth quarter of 2023, we completed the installation of modular, carbon capture-ready scrubbers on two additional vessels during scheduled drydockings.
Anthony Gurnee, the Company’s Chief Executive Officer, commented:
“The product and chemical tanker markets remain strong as a result of tight supply / demand fundamentals further accentuated by large-scale geopolitical and weather-related trading restrictions. The simultaneous restrictions in the Panama Canal and Suez Canal are currently driving substantial incremental tonne-mile demand; while the ultimate duration of these canal restrictions remains to be seen, this is having a pronounced impact during the seasonally stronger winter season. At the same time, we must acknowledge the key role of our seafarers in this increasingly volatile world and we continue to place their security as our top priority.
After another successful year of delivering strong results for our shareholders in 2023, Ardmore is navigating this supportive market with financial discipline and a constant focus on performance optimization. We continue to utilize the strong earnings environment to pursue all of our capital allocation priorities simultaneously, further strengthening our balance sheet, investing in a gradual fleet modernization along with vessel optimization and emissions reduction for our existing fleet, and returning capital to shareholders via an attractive quarterly dividend.”
Summary of Recent and Fourth Quarter 2023 Events
Fleet
Fleet Operations and Employment
As of December 31, 2023, the Company had 26 vessels in operation (including four chartered-in vessels), consisting of 20 MR tankers ranging from 45,000 deadweight tonnes (“dwt”) to 49,999 dwt (15 Eco-Design and five Eco-Mod) and six Eco-Design IMO 2 product/chemical tankers ranging from 25,000 dwt to 37,800 dwt. The Company also commercially manages one of Carl Büttner’s 24,000 dwt chemical tankers.
MR Tankers (45,000 dwt – 49,999 dwt)
At the end of the fourth quarter of 2023, the Company had 20 MR tankers in operation, all of which were trading in the spot market. The MR tankers earned an average TCE rate of $30,858 per day in the fourth quarter of 2023. In the fourth quarter of 2023, the Company’s 15 MR Eco-Design tankers earned an average TCE rate of $32,542 and the Company’s five MR Eco-Mod tankers earned an average TCE rate of $26,282 per day.
In the first quarter of 2024, the Company expects to have all revenue days for its MR tankers employed in the spot market. As of February 15, 2024, the Company had fixed approximately 60% of its total MR revenue days for the first quarter of 2024 at an average TCE rate of approximately $34,400 per day, which includes MR Eco-Design tankers at $35,400 per day and MR Eco-Mod tankers at $31,850 per day.
Product / Chemical Tankers (IMO 2: 25,000 dwt – 37,800 dwt)
At the end of the fourth quarter of 2023, the Company had six Eco-Design IMO 2 product / chemical tankers in operation, all of which were trading in the spot market. During the fourth quarter of 2023, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $26,107 per day.
In the first quarter of 2024, the Company expects to have all revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of February 15, 2024, the Company had fixed approximately 70% of its Eco-Design IMO 2 product / chemical tankers revenue days for the first quarter of 2024 at an average TCE rate of approximately $26,700 per day.
Drydocking
The Company had 82 drydocking days in the fourth quarter of 2023. The Company is currently scheduled to have 93 drydocking days in the first quarter of 2024.
Dividend on Common Shares
Consistent with the Company’s variable dividend policy of paying out dividends on its shares of common stock equal to one-third of Adjusted earnings, as calculated for dividends (see Adjusted earnings (for purposes of dividend calculations) in the Non-GAAP Measures section), the Board of Directors declared a cash dividend on February 15, 2024 of $0.21 per common share for the quarter ended December 31, 2023. The dividend will be paid on March 15, 2024, to all shareholders of record on February 29, 2024.
Subsequent Fleet Development
In February 2024, as part of a gradual fleet modernization, Ardmore has agreed to acquire a 2017 Japanese-built MR product tanker for $42.0 million, and in a separate transaction has agreed to sell the 2010-built Ardmore Seafarer for $27.1 million. Both transactions are expected to conclude in the quarter ending March 31, 2024.
In February 2024, Ardmore time chartered-out one of its chartered-in MR tankers for the remainder of its charter-in period at a rate representing a $2.7 million premium over the charter-in rate.
Scrubber Installations
In the fourth quarter of 2023, the Company completed the installation of modular, carbon capture-ready scrubbers on two additional vessels during their scheduled drydockings. Prior to the end of 2024, the Company intends to install scrubber systems on an additional five vessels during their scheduled drydockings.
Geopolitical Conflicts
The ongoing Russia-Ukraine war has disrupted energy supply chains, caused instability and significant volatility in the global economy and resulted in economic sanctions by several nations. The ongoing conflict has contributed significantly to related increases in spot tanker rates.
Geopolitical tensions have increased since commencement of the Israel-Hamas war in October 2023. Since mid-December 2023, Houthi rebels in Yemen have carried out numerous attacks on vessels in the Red Sea area. As a result of these attacks, many shipping companies have routed their vessels away from the Red Sea, which has affected trading patterns, rates and expenses. Further escalation or expansion of hostilities of such crisis could continue to affect the price of crude oil and the oil industry, the tanker industry and demand for the Company’s services.
Results for the Three Months Ended December 31, 2023 and 2022
The Company reported net income of $26.1 million for the three months ended December 31, 2023, or $0.63 earnings per basic and diluted share, as compared to net income of $53.1 million, or $1.31 earnings per basic and $1.28 earnings per diluted share for the three months ended December 31, 2022.
Results for the Years Ended December 31, 2023 and 2022
The Company reported net income of $113.4 million for the year ended December 31, 2023, or $2.76 earnings per basic share and $2.71 earnings per diluted share, as compared to net income of $135.1 million, or $3.63 earnings per basic and $3.52 earnings per diluted share for the year ended December 31, 2022.
Management’s Discussion and Analysis of Financial Results for the Three Months Ended December 31, 2023 and 2022
Revenue. Revenue for the three months ended December 31, 2023 was $98.9 million, a decrease of $33.9 million from $132.8 million for the three months ended December 31, 2022.
The Company’s average number of operating vessels was 26.0 for the three months ended December 31, 2023, compared to 27.0 for the three months ended December 31, 2022.
The Company had 2,293 spot revenue days for the three months ended December 31, 2023, as compared to 2,399 for the three months ended December 31, 2022. The Company had 26 vessels employed directly in the spot market as of December 31, 2023, as compared to 27 vessels as of December 31, 2022. Changes in spot rates resulted in a decrease in revenue of $27.1 million and the decrease in spot revenue days resulted in a decrease in revenue of $5.8 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022.
The Company had no product tankers employed under time charter as of December 31, 2023 and as of December 31, 2022. There were no revenue days derived from time charters for the three months ended December 31, 2023, as compared to 47 for the three months ended December 31, 2022. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $1.0 million for the three months ended December 31, 2023.
Voyage Expenses. Voyage expenses were $33.2 million for the three months ended December 31, 2023, a decrease of $6.3 million from $39.5 million for the three months ended December 31, 2022. The overall decrease included a $4.7 million decrease from lower bunker prices and a $1.6 million decrease in port and agency expenses plus commission costs.
TCE Rate. The average TCE rate for the Company’s fleet was $29,702 per day for the three months ended December 31, 2023, a decrease of $9,159 per day from $38,861 per day for the three months ended December 31, 2022. The decrease in average TCE rate was primarily the result of lower spot rates for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, which was partially offset by a decrease in bunker prices. TCE rates represent net revenues (a non-GAAP measure representing revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge-to-discharge basis, which is different from how we record revenue under U.S. GAAP.
Vessel Operating Expenses. Vessel operating expenses were $15.1 million for the three months ended December 31, 2023, an increase of $0.9 million from $14.2 million for the three months ended December 31, 2022. This increase was driven by a one-time change in technical manager for a portion of our fleet, as well as the timing of certain vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods.
Charter Hire Costs. Total charter hire expense was $5.7 million for the three months ended December 31, 2023, a decrease of $0.3 million from $6.0 million for the three months ended December 31, 2022. This decrease is the result of the Company having an average of 4.0 vessels chartered-in during the three months ended December 31, 2023, compared to an average of 5.0 vessels chartered-in for the three months ended December 31, 2022, partially offset by an increase in charter hire rates. Total charter hire expense for the three months ended December 31, 2023 was comprised of an operating expense component of $3.0 million and a vessel lease expense component of $2.7 million.
Depreciation. Depreciation expense for the three months ended December 31, 2023 was $7.1 million, a decrease of $0.2 million from $7.3 million for the three months ended December 31, 2022. This decrease is attributable to the change in the scrap value of each vessel from $300 per lightweight ton (“lwt”) to $400 per lwt during the first quarter of 2023.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended December 31, 2023 was $0.9 million, a decrease of $0.1 million from $1.0 million for the three months ended December 31, 2022. Deferred drydocking costs for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.
General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the three months ended December 31, 2023 were $5.7 million, an increase of $0.4 million from $5.3 million for the three months ended December 31, 2022. The increase in costs was driven by non-recurring items, including the impact of foreign exchange, of $0.4 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022.
General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to Ardmore’s chartering and commercial operations departments in connection with its spot trading activities. Commercial and chartering expenses for the three months ended December 31, 2023 were $1.4 million, a slight increase of $0.1 million from $1.3 million for the three months ended December 31, 2022.
Unrealized (Loss) on Derivatives. Unrealized loss on derivatives was $0.2 million for the three months ended December 31, 2023, as compared to an unrealized loss of $1.3 million, relating to interest rate swaps, for the three months ended December 31, 2022.
Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended December 31, 2023 were $2.7 million, an increase of $0.7 million from $2.0 million for the three months ended December 31, 2022. The increase in costs was primarily due to rising interest rates during 2023. Amortization of deferred finance fees for the three months ended December 31, 2023 was $0.3 million, a slight decrease from $0.4 million for the three months ended December 31, 2022.
Liquidity
As of December 31, 2023, the Company had $268.0 million in liquidity available, with cash and cash equivalents of $46.8 million (December 31, 2022: $50.6 million) and amounts available and undrawn under its revolving credit facilities of $221.2 million (December 31, 2022: $170.0 million). The following debt and lease liabilities (net of deferred finance fees) were outstanding as of the dates indicated:
Source: Ardmore Shipping Corporation
