Ardmore Shipping Corporation (NYSE:ASC) Q4 2024 Earnings Call Transcript

Ardmore Shipping Corporation (NYSE:ASC) Q4 2024 Earnings Call Transcript February 15, 2024

Ardmore Shipping Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Bryan Degnan: Good morning, everyone. Welcome to Ardmore Shipping’s 2024 Investor Day, during which we will also be covering the company’s Results for the Fourth Quarter and the Full Year 2023. I’m Bryan Degnan with the IGB Group. Just a few administrative points before we get underway today. This event is being recorded and broadly distributed via live webcast, which along with today’s slides, is accessible at www.ardmoreshipping.com. An audio replay of the event will be available on the website from later today. The standard earnings press release was issued premarket this morning and is also available on the website. Let’s turn to Slide 2 here. Later in the event following the prepared remarks, there will be a Q&A session, at which point we will take questions from the people with us in the room today.

For those joining remotely, please feel free to submit any questions that you might have at any time to ardmore@igbir.com. That’s Ardmore at India, Gulf Bravo, India, romeo.com. Throughout the event and for the benefit of those joining remotely, we’d ask that all those with questions utilize the provided microphones. Turning to Slide 3. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter and full year 2023 earnings release. Moving to Slide 4.

I’d like to introduce you to the members of the Ardmore leadership team, whom we will have the pleasure of hearing from today. We have with us Curtis Mc Williams, Ardmore’s Chairman; Anthony Gurnee, Founder and Chief Executive Officer; Bart Kelleher, Chief Financial Officer; and Gernot Ruppelt, Chief Commercial Officer. And with that, I would ask Curtis Mc Williams, the Chair of Ardmore Shipping Corporation to please join us on stage to provide today’s opening remarks.

Curtis Mc Williams: Thanks, Brian. Good morning or good afternoon now, excuse me. On behalf of the Ardmore Board and the senior management team, let me welcome you to our annual now investor conference to say that we live in interesting times, would be an understatement. Wars in Europe and the Middle East and congestion caused by the deteriorating climate drought-related conditions in the Panama Canal have resulted in profound changes to trade flows for our product tankers. Over the course of the next hour, you will hear how Ardmore strict commitment to three guiding principles, those being, one, performance and progress. We believe these are not mutually exclusive, endeavors, but in the long run, support Ardmore’s ability to excel in both arenas; two, our well-articulated capital allocation policy; and three, our ongoing efforts to ensure that we have best-in-class governance.

We believe that these continue to position the company well to drive our financial performance, both in the short-term as well and more importantly, in the long-term. With that being said, I want to again thank you for your continued interest in Ardmore and your support of our company. We remain solidly committed to being good stewards of your investment. And with that, I’ll ask Tony, our CEO, to come and begin his remarks.

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Q&A Session

Anthony Gurnee: Thank you, Curtis. What happened to your foot? Okay. Good. Great. Okay. So firstly, I’d like to thank you Curtis for those kind remarks. I would like to outline the format for today’s meeting. Bart and I are going to start off by presenting our results for the fourth quarter and full year 2023. And then we’re then going to pivot to the Investor Day segment, which Bart and Gernot are going to lead, focusing on our strategy and how we’re converting these strong markets into earnings. And then at the end, I’ll offer some closing thoughts before opening up the meeting to questions either from here at the floor or remotely. And again, for remote questions, please send them to ardmore@igbir.com. So turning first to Slide 6 for highlights.

We’re pleased to report another successful year for Ardmore with earnings of $113 million, or $2.71 a share, continuing what is now a multiyear trend. Our fourth quarter performance reflects robust product and chemical tanker market conditions with adjusted earnings of $26 million, or $0.63 a share, and with further strength building into the first quarter. Our MRs earned $32,500 per day for the fourth quarter and $35,400 per day so far in the first quarter with 60% booked. And our chemical tankers on a capital adjusted basis earned $29,300 per day for the fourth quarter and $30,100 per day so far for the first quarter with 70% booked. Our markets are clearly experiencing significant strength as a result of geopolitical and climate-related trading restrictions bolstering already tight supply/demand fundamentals and which all – all of which are going to be the themes and focus of our presentation today.

So meanwhile, we continue to execute on our longstanding capital allocation policy. Today, we’re declaring another quarterly cash dividend of $0.21 per share, consistent with our policy of paying out one third of adjusted earnings. And as a part of a gradual fleet upgrade and modernization plan, we’ve acquired a 2017 built MR tanker while also simultaneously selling our 2010 built Ardmore Seafarer. In addition, we’ve opportunistically chartered out one of our chartered-in MRs to realize the $7,500 a day spread and a profit of $2.7 million over the remaining one year period. And overall, we believe that Ardmore is in an excellent position to benefit from these ongoing strong market conditions. So turning to Slide 7. Near-term product to chemical tanker market outlook.

I want to take the opportunity now to briefly introduce the geopolitical and climate-related trading restrictions that have been affecting our market. The disruptions in the Red Sea and the consequent rerouting of vessels around Africa are adding significantly to voyage lengths and therefore, the tonne-mile demand. But before we go further, we need to remember that numbers aside, we’re dealing with real people with real world issues, and I’d like to acknowledge the key role of our seafarers in this increasingly dangerous world and to emphasize that their securities are top priority. But from a pure economic standpoint, as you can see from the graph on the upper right, refined product tonne-mile demand is up 11% year-on-year, with the Red Sea disruptions playing a substantial role.

At the same time, the impact of the EU refined product embargo persists, further exacerbated by European diesel inventories approaching historical lows. And in addition, restrictions in the Panama Canal have reduced traffic by up to 30% overall and quite a bit more for MRs. This bottleneck is resulting in prolonged voyages and reduced effective supply of all ships, including product tankers. The aggregate impact of all these disruptions are illustrated on the graph in the lower right. Meanwhile, demand fundamentals remain compelling and not just the demand side, but on the supply side, we see very low levels of scheduled new building deliveries for at least the next two, three years, which should really limit fleet growth. And with that, I’m happy to hand the call back to Bart, the meeting, not the call, sorry.

Bart Kelleher: Thanks, Tony. Moving to Slide 8, there we go. Our board continues to build upon its financial strength. As a result of our effective cost control, reduced debt levels and access to revolving credit facilities, we’ve managed to lower our breakeven level to $13,900 per day. This is a noteworthy achievement during a period of elevated interest rates and high inflation. In addition, we have a strong liquidity position with nearly $50 million of cash on hand at the end of the quarter, and we have a total debt of just over $125 million, representing a leverage level of approximately 20%. Ardmore’s focus on optimizing performance, closely managing costs in this inflationary environment, while preserving a strong balance sheet.

Turning to Slide 9 for financial highlights. Just want to reiterate how pleased we are with the continued strong performance with adjusted earnings of $2.71 per share for the full year and $0.63 per share for the fourth quarter. We are correspondingly reporting strong EBITDAR for the year and the quarter and continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers. Well, I won’t go into all the details here. There’s a full reconciliation of this presented in the appendix on Slide 43. Our significant revolving debt capacity has allowed us to manage our leverage levels and reduce our interest expense even in this elevated rate environment. Also, please refer to Slide 48 in the appendix for our first quarter guidance numbers.

Moving to Slide 10, in accordance with our energy transition plan and as part of our ongoing dry dockings program, we’ve made some significant investments in our fleet to further improve operating performance, reduce emissions, and enhance earnings. In 2023 we completed seven dry dockings with a total capital expenditure of nearly $40 million, of which 25 million was spent on scrubber installations and a number of other energy efficiency technologies, which we’ll discuss in more detail later in this presentation. As we complete these dry dockings, we’ll have more than half of our MR fleet outfitted with carbon-capture-ready scrubbers. Importantly, as you can see from the chart in the upper right, the majority of our remaining dry dockings are in the first quarter, so we’ll have the benefit of our full fleet and its earnings power for the balance of the year.

Also noteworthy, we had very strong on-hire availability for the fourth quarter at practically 100%, result of the close coordination of our teams at sea and onshore. Moving to Slide 11. Here we’re highlighting our significant operating leverage. As you can see in the chart for every $10,000 per day increase in TCE rates, earnings per share is expected to increase by approximately $2.30 annually, with free cash flow generation, nearly $100 million over the same time period. Given the range of TCE rates shown on the slide, it’s important to note that we’ve recently been booking at the upper end of this scale. If these rates were to take hold more widely, it would naturally have a material impact on our earnings. This is why we’re really excited about the market outlook.

We find Ardmore’s position compelling. With that I’m going to hand it back to Tony to sum up the earnings portion of our presentation before we transition to the Investor Day section.

Anthony Gurnee: Yes, so just briefly, in summary, first, regarding the market, we’re seeing already robust conditions strengthening into the first quarter on the back of geopolitical and other climate-related disruptions, and with supply demand fundamentals remaining very favorable. And then with regard to the company, we continue to perform well on both an absolute and a relative basis. Our strengthening balance sheet gives us the ability to execute on all of our capital allocation priorities simultaneously, including paying a dividend representing one third of earnings. We’re investing in our fleet to improve efficiency and reduce emissions, which has the added virtue of simultaneously improving earnings. And regardless of market conditions, as always, our efforts are focused on driving performance today while positioning Ardmore for long term success.

So, that concludes the earnings portion of the presentation today. And we’re going to move now to more of the Investor Day content and Bart is going to give a more in depth view of the company and our strategy, and then Gernot is going to provide his insights on how we’re translating these strong market conditions into earnings.

Bart Kelleher: Thanks again, Tony. Turning to Slide 14, when it comes to strategy, Ardmore has been very consistent over the years with a focus on MR product tankers and chemical tankers and the overlap that these ships trade in. Furthermore, the company’s development has been marked by a gradual increase in scale while building organizational capability. Today, our global platform with our shoreside team strategically located across key regions, working closely with our seafaring colleagues onboard our modern fuel-efficient fleet, give us the scale to service a diverse customer base. We also find ourselves at a juncture where our nimbleness and agility will take on even more significance. With the changing market conditions, driven primarily by the energy transition, which we’ll discuss in detail, we are well positioned to take advantage of opportunities in these dynamic times.

Turning to Slide 15, at Ardmore, our guiding principle, which we frequently discuss can be captured as a combination of performance and progress. We’ve highlighted just a few notable examples on this slide of how we do this. Both absolute and relative performance are very important to us. We placed a significant emphasis on our performance relative to our peer group across a key number of metrics. Our entire staff is collectively measured this way, leading to an exceptional degree of performance focus and team effort. And there is a powerful flywheel effect between this performance and our company’s progress. Performance today allows us to invest in progress, which further enhances our future performance. And with a diverse and talented team, and strong collaboration between our seafarers and shore, we’re driving progress at Ardmore and across the shipping industry, uncovering and executing opportunities that might otherwise be missed.

Moving to Slide 16, where we turn our attention to governance, a long-standing and key part of Ardmore’s philosophy and approach since our inception in 2010 through our IPO in 2013, and well before the industry recognized Webber rankings were even created. And this is a cornerstone of our business today. We are very pleased that our principled approach to corporate governance continues to set a leading standard within the industry, and we’re proud of the recognition that we are once again the number one ranked publicly traded company – tanker company in the Webber ESG Scorecard. Essentially, when you invest in Ardmore, you invest in a company committed to both excellence and integrity. Turning to Slide 17, here, we’ll discuss how we balance the energy transition with what can be termed, energy reality.