Q2 2020 Ardmore Shipping Corp Earnings Call

[music] good morning, ladies and gentlemen, and welcome Ardmore Shippings second quarter 2020, <unk> earnings Conference call. Today's call is being recorded an audio webcast presentation are available in the investor.

Ration section of the company's website Ardmore shipping dot com.

We will conduct a question and answer session. After the opening remarks instructions will follow with that Todd.

The conference call will be accessible anytime during the next two weeks by dialing 187734475 to nine.

Or one for one to 317 0088.

Drink passcode 1014, or five to five zero.

I will turn the call over the Anthony Gurnee, Chief Executive Officer Ardmore shipping.

Good morning, and welcome to our more shipping in second quarter 2020 earnings call.

First let me ask our CFO, Paul said no to describe for my phone calls and discuss forward looking statements.

[music], Thanks, Tony and welcome everyone before you begin or conference call I would like to direct all participants to our website Ardmore shipping dotcom, where you'll find a linked to this morning second quarter 2020 earnings release in presentation, Tony and I would take about 20 minutes. It goes through the presentation and then open up the called the questions.

Turning to slide two please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from the results protected from those forward looking statements.

Additional information concerning factors that could cause the actual results.

Different maturity from those in forward looking statements is contained in the second quarter. Two dozen 20 earnings release, which is available on our website.

No I would turn the call back over to Tony.

[music] next fall.

Let me first outlined the format of today's call to begin with I'll discuss our quarterly highlights the Nike industry developments.

After which I'll provide some thoughts on our long term strategy and focus on shareholder value.

That's growth opportunities and explain our perspective on corporate governance.

And after that Paul will provide an update on product tanker.

Battles and.

And a detailed natural update.

Then I will conclude the presentation and open up the call for questions.

Turning first to slide four [noise].

We're reporting adjusted net profit of 13.7 million or 41 cents per share for the second quarter compared to profit at 6.5 billion or 20 cents per share.

For the first quarter.

The tanker market was very strong in the second quarter with hard work performed well in relative basis, that's producing excellent Tc results.

RMR overall earned 21260 per day compared to 19300, and the first quarter, while our eco design of ours earned 21540 versus 19560 in the first quarter.

Our chemical tankers are in 16340 per day compared to 19700 and the first quarter.

And on the capital adjusted basis in order to compare apples to apples to enforce the chemical tankers earned 18000 per day for the second quarter versus 22000 for the first quarter.

[noise], let me explain what we mean by capital. Adjusted this is something that we've been doing internally for awhile and we think it would be useful in explaining the performance of our chemical tankers relative to the ours. The methodology is quite simple and Paul will go over this again in <unk> a little later, but essentially it's just a matter of converting the takes you to a variable.

The equivalent of.

Unfortunately, adjusting for the capital invested in the shift relative to a same age anymore and then building backup does he see.

The point is that the chemical tankers may appear to produce lower Tc your results, but when you capital a job they perform on a comparable basis and all can do better, especially when GDP growth is healthy.

After three successfully improving a profitable quarters Ardmore now has cash and undrawn lines of 82 million and that leverage of at 48 <unk> percent as of the under the second quarter.

[laughter].

Over the past few months, we've been very active and taking advantage of market conditions, finding attractive time charters growing the fleet and strengthening the balance sheet specifically in April we chartered out to have ours for six months, a beach and strong rates. We have acquired a high quality 2010, Bill unleashing I'm are at a price is 16.7 million.

With survey passed in ballast water treatment installed, let's say, giving us an estimated 2 million.

The projected net income breakeven of 11700 per day.

And Weve charters in another 2010 built Tamar for one year option, one you're at a rate of 13400.

We completed the refinancing of our $15 million receivables facility would they be extending the maturity and improving terms and representing hardware is first sustainability linked financing.

And to cover certain rest as well as avail of highly attractive interest rate levels, we executed floating to fixed interest rate swaps on 323 million. It doesn't may locking in funding, a 0.3% and resulting in all in bank funding cost now at 2.8%.

Meanwhile, our new capital allocation policy announced in March is yielding positive results in terms of improving our financial strength and maintaining our fleets, earning power that's supporting our initiatives towards achieving accretive growth for shareholders.

[noise] turning next to slide five on key industry developments.

The tanker market is being driven by a tug of war between the positive a temporary I'm talking to volatility disruption and dislocation persist the negative impact of lower demand, resulting from the sharp decline in oil consumption, which is not recovering with the global economy, but on the trajectory as you have to be determined.

Overall, the impacted the virus is unfolding as expected the prototype market itself is volatile with spikes in deposit rates currently coming up from a decline in July following a very strong period from April to June which was itself preceded by the initial market decline in February and March.

Hi, My 2020 provided some support for middle distillate demand in the first half well the price spread between high sulfur and low sulfur on a global basis has.

Decline now from $250 per ton in the first quarter to $75 per ton in second quarter and is even lower today.

Late summer is usually a lower rate environment for product tankers and this year seems to be following the same pattern. So we expect to see higher charter rates from here.

The factors relating to oil market disruption already pushing up Amar raised in the U.S. golf in Atlanta, and providing a foundation for an expected rate rise in North Asia.

The likelihood of an oil price taper tantrum as it's called with Oh pack plus increasing oil output at an uncertain time should result in more oil price volatility along with more ton mile demand for product tankers.

Commencing perhaps in August or at the latest in September.

And winter market conditions, we expect will commence in November as usual boosting demand through seasonally higher oil consumption unpredictable market dislocations and weather delays.

Despite the still muted near term outlook, we maintain our positive long term view the tanker demand growth driven by oil consumption and a recovery global economy versus supply growth remaining very constrained.

And as a final points the chemical tanker market has followed the same pattern as product tankers. So far this year. However, as chemical tanker demand is highly correlated to GDP their prospects of the post pandemic recovering global economy are very <unk> art, particularly compelling.

Turning now to slide six we want to take some time on this call to discuss our long term strategy and track record, how we assess growth opportunities and describe our views on corporate governance.

Ardmore has a strong track record on execution to achieve measured growth.

Which we detail in an appendix slides referenced.

Ardmores in fact 10 years old is here and it's worthwhile considering what we've achieved over that period and what has been quite frankly unexpectedly lean years for the tanker sector.

But also serves to highlight the steady growth we've achieved on <unk> on it and our long term trajectory rather than focusing on just a moment in time today.

Looking back over these years, we're very proud of the company. We built the excellent team we've assembled the performance we've achieved as well as the way we preserve shareholder value during tough times and suffice to say that we're very excited about the opportunities that lie ahead.

Our strategy is based on the following principles that consistent focus on modern high quality products and chemical tankers.

In house commercial expertise combined with a high performance culture to drive strong relative performance and constant operational improvement.

Highly professional customer service, if we didn't fleet management, including one team occasional let's see fares to optimize performance.

An already efficient and highly scalable operating platform capable significant growth.

In fact of capital allocation with a long term shareholder value focused supporting well time sleep growth and divestiture when conditions permit.

The strong financial profile, enabling ardmore to our countercyclically and obtain highly competitive borrowing costs in terms.

Providing shareholders with it look we currency on the New York stock exchange with significant free float an informational transparency to maximize value.

Standing best in class corporate governance Johansen protect value.

Turning to slide seven regarding our approach to growth.

We assess growth opportunities based on the prospects for performance improvement value accretion and protection to shareholders interest regarding growth for M&A, we evaluate opportunities engage in discussions continually and always on the premise that they must be compelling for ardmore shareholders.

We target accretive growth by building on an already strong operating platform and the illustrated analysis on this slide shows what's possible for ardmore with even moderate growth.

These performance metrics are based on our full year 2019 results, but we have a more detailed analysis in an appendix, which also includes our first half 2020 numbers.

Even with just 20 amar's work and we're already very competitive versus our peer group under the Tc and cost structure and whats just moderate growth based on the systems and organizational structure. We already have in place. We believe we would achieve truly differentiated performance when combined with attractively priced assets acquired a creatively.

On the topic of consolidation, our view, which comes from deep market knowledge, along with what we've achieved with our current scale.

That's the benefits of consolidation in the Amar sector are being overplayed.

The reality is this market is highly fragmented with the largest player having less than 5% out of the more than 2200 shifts in the world fleet and only slightly more consolidated on the chartering side.

As such it to trading business.

And this means that's a long as you have sufficient size, which we do what matters is not so much scale, but rather the kid capability of your commercial team your customer service and operational team work.

And the cost and quality of your fleet.

Scale efficiencies are particularly valuable potentially valuable regarding costs, but can only be achieved through it operationally strong platform with strict cost control and aligned organization.

Similarly financial strength and debt cost is less about scale and more about leverage and liquidity risk management and your reputation.

Turning next to slide eight.

We do take corporate governance very seriously, we believe it or independent board full transparency and high quality governance represents real value for shareholders through full alignment with management and protection of shareholders' interests to this point Ardmore was recently recognized this number three out of 52 public companies and the number one right.

Foreign private issuer on on the Webrtc <unk> Weber corporate governance scorecard issued in June of this year.

The report also details the high correlation of shareholder returns to a company's scorecard ranking in terms of courthouse.

And with that I'm going to hand, the call back over to Paul to go into more detail on industry fundamentals and our financial profile.

Thanks, Tony and good morning, everyone given Tony has already covered the current markets and key industry developments in the interest of time, we will move to the industry fundamentals on slide 10, However for your reference Weve attached a detailed slide on current market activity what associated charts to the appendix presentation.

Moving then to industry fundamentals the global economy is floating emerging from the Cobot 19 pandemic recent estimates and the IMF for that did global economy will grow by 5.4% in 2021 falling into trying to 4.9% this year.

Well I consumption is expected to gradually recover through 2021, and the air forecasting oil demand in the third quarter of next year at 99 million barrels coast of the pre kobin levels.

In terms of a build a recovery the chemical tankers in particular should benefit from a global economic rebound in 2021.

As you can see on the chart in the upper Rice chemical tanker trade is highly correlated to GDP.

Two major end to end users of commodity chemicals are the automotive than the construction interest industries, which should both performed well in recovery.

Meanwhile, prone to take a ton mile demand should benefit from accelerated refiner dislocation.

Recent reports I like that up to 1.4 million barrels a day of refinery capacity in Europe is under threat of closure why Republic refinery capacity continues to increase in the middle Eastern Asia.

On the supply side put and take or net fleet growth remains exceptionally low.

Today, the order books down to 177 product tankers or 5.9% of the existing fleet delivering from the third quarter of Twentytwenty to the first quarter of 2023.

Estimated scrapping of the product tanker fleet is running a 40 to 45 cents per year. However, this looks set to increase at the prototype graffiti is aging rapidly.

In three years, 46% to the fees, which is close to 1400 chips will be over 15 years old.

This is a noticeable age for tankers as typically vessels over this age I relegated to lower return regional trade.

Looking specifically at MRC scrapping is running at 30 to 40 ships per year in three years time, almost half of the feast or 1100 chips will be over 15 years old.

Taken together the total product tanker fleet growth net of scrapping is estimated at approximately 1.6% and 20, 22% to 2021 and the Murphy alone is expected to grow by 1.7% in 2020.

They can go take a supplied amendments are also positive.

The order book is at historic lows, a 3.6%, but then fee growth averaging 1.4% around him over the next two years.

Moving to slide 11 feeding operations.

We are expecting total revenue days at 9130 for the full year 2020, which take the counted the two vessel additions.

The recently acquired Japanese Omar is expected to deliver toward more in late August.

How do we have agreed to time charter in 2000, and Tenda Japanese Amar for one year on a forward delivery basis. This ship is expected to deliver in late September.

Both ships are delivering in advance of the winter market, which typically see stronger demand more trading activity and higher charter rates.

We could highlight the economics of the ship acquisition later, but it is worth highlighting the attractiveness of these ships.

At $18000 a day these ships to deliver 15% accretion to ardmores their names.

Which is meaningful.

Let me get her drydockings and ballast water treatment installation schedule, they're not drydockings trend for the third quarter and we have six drydocking scheduled for the fourth quarter. Following deferral of some docking from the middle of the year.

We have no further ballast water treatment and station system until 2021.

With 11 chip that the remaining 13 shifts currently scheduled to be completed in the second half from 21.

Back to this year, we expect maintenance capital expenditure for the remainder of the year to be approximately 4.7 million.

Before I think continues to perform extremely well operationally.

Our operations team had a free.

A busy few weeks with crew changes, which typically have gone very well.

Operating expenses are slightly under budget for the second quarter, primarily due to reduced drilling activity with much of this cost moving to the third quarter.

Moving on to slide 12 on charter rates.

As Tony mentioned earlier this quarter, we are presenting charter rates on the chemical tankers on an actual and capital adjusted basis.

The purpose is to present, the red rates for the very expensive on a comparable so bases to an MSR.

The methodology is simple we established the bareboat equivalent race for the ships each quarter based on their Tc performance.

We then make an adjustment to the bareboat for the relative value of the ship to it anymore and this is an auditor subtracted to the Tc ratio.

This is one of the methods, we use internally to assess relative T. C. D performance and it is useful for contextualizing rates across different asset classes.

Turning then to charter rates he could design m. ours had a strong quarter reporting Tc of 20540 per day.

Taking the MRC together on the left hand side under the Green burner, you can see DMR there to 21256 in the second quarter and 20280 for the first half the year.

It's important to point out that none of the M. ours have scrubbers finish.

Ignoring capital or operating cost associated with scrubbers, our estimate is that scrubber fit them ours should generate a premium to Tc of $820 a day for the second quarter and 1765 per day for the first time based on the spread between hedges and cool and be less AFFO across the period.

Moving to chemicals. These ships are performing very well on an absolute and relative basis.

Given the number of ships that are chemical fleet, and resulting quarter on quarter volatility. It makes more sense to look at the first half rather than each individual quarter.

On an apples to apples basis, whether I'm ours looking at the Grey bar the chemical tankers, there's 19820 per day for the first half of the year compared to 20280 per day on the MRC.

As expected results are very comparable and highlight the strong performance in both sectors.

And to put this into perspective, if you can adjust these rates to the FCC. These rates equate to a tc rate of approximately $60000 a day for the first half of the year.

Now looking ahead to the third quarter, we've booked 45% of or days for the quarter to date with RMR earnings at 13800 per day on the chemicals, there and in 11200 per day.

These rates are in line with market conditions, but not reflective of the potentially stronger rates in the back half of the quarter.

As Tony mentioned, we've seen a rise in edmar charter rates in the past week, particularly in Atlantic and therefore expect rates to increase from current levels.

Turning to slide 13, we would take a look at our financial performance and the cost line items.

We are reporting an adjusted net profit of 13.7 million or 41 cents per share for the quarter.

Total ever had costs were 4.8 million for the quarter, comprising corporate expenses of 4 million and commercial in chartering expenses of 900000.

As mentioned before and many companies the commercial unchartered expenses are incorporated into voyage expenses, which means that the corporate costs as a complement overhead.

For the third quarter Twentytwenty, we expect total overhead incorporating carpeting commercial to be in line to 4.8 million entity, both cash and noncash items.

We expect total overhead for the full year to come in at under 19 million.

Depreciation and amortization totaled 9.4 million for the second quarter, and we expect depreciation amortization for the third quarter Twentytwenty to come in at 9.6 million, taking account of the recent vessel acquisition.

We expect total depreciation amortization for the full year to come in at 38 million.

Interest and finance costs were 4.7 million for the second quarter, comprising cash interest to 4.3 million unamortized deferred finance fees of 400000.

We expect interest and finance cost for the third quarter to be approximately 4 million, including amortization of deferred financing fees of 400000.

The interest expense reflects lower LIBOR rates and take the kind of the fact that in May we swapped at 324 million updates from floating to fixed at 32 basis points for three years.

As a consequence, we expect total interest and finance cost for the full year to come in at 18 million.

We had no vessels chartered enjoy the second quarter, and we expect time charter inexpensive approximately 200000 in the third quarter [noise].

Moving to the bottom of the slide operating expenses came in under budget 14.3 million for the quarter largely due to reduced drilling activity.

Standard deep well Opex on eco design him ours was 6293 per day, the ecomog them ours came in at 6463 per day and the chemical tankers came in at 6313 per day.

Looking ahead, we expect operating expenses for the third quarter to be approximately 16.2 million, reflecting some drilling activity moved from the second quarter and the addition of a new vessel in late August.

We expect total operating expenses for the full year to come in at 16 point 62.5 million.

Turning to slide 14, we would take a look at financial activity in the balance sheet.

Firstly, we're delighted to announce that in July we completed our first sustainability linked financing would they be an arm wrote in keeping with our commitment to progress.

The new 15 million facility contains a pricing adjustment feature links to our team's performance on cotwo emission reduction and other environmental and social initiatives.

Importantly, the financing recognized Ardmores current strong performance.

Notably carbon emission levels, which are significantly outperformed poseidon principles targets and a diverse organization with 10 nationalities of which 59% are female.

This is a very important milestone for ardmore, and we're delighted to be part of financing and other initiatives, which will contribute to recovered reduction in further progress in our industry.

As you will notice we continue to refine our carbon reporting in our six Kate to make the information more meaningful and provide a basis for further improvement.

With the pricing structure in the Kipp, you guys and the new facility Ardmore would be rewarded for maintaining its current see go to reduction reduction trajectory on overall profile on the S.G.

Finally, the new facility into the improvements another commercial terms and conditions and the maturity of the new facility would be July twentytwenty with extension options.

Turning to liquidity, we have a strong cash position, but 72.9 million at the in the quarter end and 82.8 billion as of July 27.

As Tony mentioned, we took advantage of the market conditions and entered into floating to fixed interest rate swaps in may on 324 million of debt at 32 basis points for three years.

As a result, our average all in Bangkok Bank debt cost is approximately 2.8% or that you like.

Overall, we're continuing to maintain strong balance sheets, we remain maintained our revolver says fully drawn during the quarter to ensure maximum financial flexibility given the economic conditions.

With our cash balance and dynamic managing a revolver as it is now more appropriate you look at our net debt position.

Total net debt as of the end of June with 342 million.

And finally, our leverage at the end of June with 48.5% down 2.8% from Fourq you 90.

Moving to slide 15, our capital allocation policy, which we initially initiated in early March is working very well.

As mentioned last quarter, what are the main priorities for introducing the policy was to focus on financial strength onto unable to come to counter cyclical investment.

Firstly, we're continuing to focus on financial strength and debt reduction.

The first time Twentytwenty, we had total debt repayments of 17.1 million on term loans and leases all of our term debt leases are amortizing at approximately 38 million per year.

We're also taking advantage of the current market weakness and have acquired a high quality fuel efficient 2010, but its own ameche ship, which is a sister to three high performing shifts currently in our feet on replacement for older ships sold last year.

At 16.7 million. This is an exceptionally attractive price for modern ship.

The price equates to 27% discounts to depreciate, a replacement value based on the new but a price today.

The ship completed or second special survey uninstalled ballast water treatment system, a few weeks prior to purchase by Ardmore, maybe there is no capex required for three years.

The acquisition is significantly accretive to earnings would net income breakeven of 11007 under per day.

Finally on an estimated through this cycle Tc rate of 15000 per day, the ship generates anoro I see a 10% which is meaningful.

Overall, our capital allocation priorities remain unchanged top priorities are maintaining feet earnings power and debt reduction well I'm, giving you consideration to accretive growth.

And we thought it would like to turn the call back over to Tony.

Thank you Paul.

So to sum up then we've just completed a very profitable quarter, driven by exceptional market volatility, earning 41 cents per share, which provides an annualized earnings yield a 40% based on our current stock price.

In addition, we've got to two ships on highly attractive terms, which will add meaningfully to our earnings power for example at a fleet average Tc of 18000.

These two ships are 15% accretive to es.

And there will also lower our overall breakeven rate.

The muted near term market outlook reflects seasonal and oil inventory de stocking factors as well as uncertainty around more immediate oil demand.

But we maintain our long term positive view based on the outlook for tanker demand in a global recovery in global economy, combined with very screened a very constrained supply growth.

The outlook for chemical tankers is particularly compelling given the high correlation to global GDP and the prospects for post pandemic above trend global economic growth.

Recent market till he has if nothing else highlighted the earnings and cash flow potential of our fleet under strong charter market conditions, but it's worth making the point that oil market related spiked stump constitute a cyclical upturn something that we've not seen in the tanker sector for more than 10 years.

Cyclical upturns occur when demand rises unexpectedly on a sustained basis and already constrain supply cannot catch up usually also occurring against the backdrop of deep pessimism and investor fatigue. After a long years, a weak market conditions.

Our opinion this is not out of the question. If we see a strong post pandemic global economic recovery as all the other conditions are in fact in place.

Meanwhile, our new capital allocation policy is yielding positive results in terms of increasing our financial strength with cash and Undrawn lines now up to 82 million and leverage on enough that basis down to 48% supporting future fleet at earnings growth.

As we Mark Ardmores tenure on diversity or nursery, we're proud of the company. The operating platform that we've built the track record of strategy execution. We've established you excellent team that we've assembled and our adherence to the high standards, a corporate governance and transparency.

With a modern fuel efficient fleet significant earnings power at a solid financial Foundation, we believe Ardmore is well positioned to generate strong returns for shareholders were 10000 dollar increase in T. C. As recently seen from March into April and May translates into close to $3 an annualized earnings per share.

Before ending I want to address recent development on which we would like to reiterate our board's here.

On July 19th we received an unsolicited takeover proposal from happier limited to acquire Ardmore and in all stock transaction.

Under the terms of the proposal each ardmore share would be exchange for 2.4 shares of happier.

Our board of Directors review of the proposal thoroughly including consulting with independent legal and financial advisors and determine unanimously does the proposals substantially undervalued ardmore and its future prospects and does not constitute a basis for engaging in discussions.

Happier subsequently chose to make his proposal public with selective disclosure, including of imported premium of 70% by dividing our energy buyer on stock price, but not disclosing the exchange ratio, which indicated a discount of 18% as of July 19, and more than 28% to the average share price of Ardmore over the 30 days prior to the.

Proposal.

As a consequence, our board issued its clarifying press statement in response to theirs on July seven.

Which constitutes ardmores defendable position on the matter.

And with that we're happy to open up the call for questions.

We will now be getting the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pricing the keys.

Withdraw your question. Please press Star then too.

Time, we'll pause momentarily to assemble our roster.

Our first question comes from Jon Chappell with Evercore. Please go ahead.

Thank you good afternoon, everyone.

First question for you.

The liquidity the 82 million.

I assume that doesn't include the new that so you're buying.

Some of that.

<unk> million.

And given your debt amortization profile and your outlook for the near term, what's the level of liquidity that you're looking to maintain and assets.

Darts too.

Your ability or optionality to purchase.

Additional ships given the discount that you were able to buy.

I wonder.

Great question, Don So the liquidity as of yesterday was just about $83 million than we paid we paid a deposit I'm not ship.

Leaving a balance of about 30 minutes, a pro forma about 70 million. After we we take delivery of the ship and that would kind of financing is let's assume that 50% would bring us back up to kind of mid mid Seventys million. One I would say there is we have.

We have done includes the fundamentally cash would into 55 million drawn on the revolver. So in terms of our capacity you know it depends on a the charter market from here. So we can maintain liquidity at those levels or pay down some amount of debt, but I think we do want to maintain you know as much financial flexibility as we can so hopefully that answered the question.

Yep.

And then the other thing I just want to follow up on all the same slide that you said, you're taking the ER.

Recently acquired chip and the chartered in ship had what you anticipate to be a stronger winter market. So.

At September ish.

Zero dry docks in Threeq healing fix dry dock, which represent pretty fair portion of your fleet for Fourq do is there any way you can accelerate the dry docks from some of those ships into Threeq you enough to get any kind of the the winter shoulder season or on the other side of the Corning, maybe close on them a little bit given a shipyard.

Issues with the endemic anyway to avoid a kind of maximum up all your time during what you're anticipating to be a charter period.

Yes, it's a great question I know I know the team are working on that I think they'd be it the ability to move these around by several months is already a challenge given given you know the restriction on shipyards would kobin et cetera. So I know that he would like to bring a few forward an already working on that.

In terms of delaying it is it is quite him.

It's quite a challenging things do giving ship a shipyard availability now you know boy scheduling et cetera. So I think when we would certainly love to do that.

On a boy when opening would be a very strong earnings period. So right. Now. This is the this is what we expect based on you know ships positioning et cetera, but that's not could change as well.

Okay. Thank you I'll turn it over.

Our next question comes from Chris along with weather Research and Advisory. Please go ahead.

Hey, Tony April congrats on the great quarter How're you.

Hey, Chris.

I kind of wanted just.

Looking back on John's question earlier, I mean, something that I was not as well that we're talking about here just knowing that a lot in the <unk> flagging class States Oh stone drydockings.

Hey, Colby I was wondering what that does today shipyard availability.

Do you guys were see the supply of tankers tightening considerably in Q4 it.

Perhaps other competitors are trying to do thinking they yet you're trying to accomplish.

Hey, Chris It's Tony that's a good question, we haven't really thought that through I think we'll look into it but.

It's a difficult situation or the class societies in plugs. It then.

You know at least in our in our case have been very very helpful forthcoming and giving us extensions were need.

You know for that for that reason.

[music].

So, let's see I think if if things clear up you probably would see Russia shifts into yards.

On a recovery simply because that's the extension you got they're not going to continue extending for you know convenience right. So that's an interesting point you're making.

Oh, Hey, cool and I mean, just for my model purposes like it is like about 15 days and dry docking and maybe some dates for every position. So to say 2025 days pretty accurate in terms of like what you guys would anticipate for Q4.

Yeah, that's not that's pretty accurate on average you know my even come out a little bit less depending on should position et cetera, but that's a pretty good place to work from.

Okay. Thanks, Tony and I guess, a isn't we're just kind of wondering like Oh on over the past quarter have you guys noticed any trade routes that had been a little bit more resilient or possibly starting to show signs of recovery. We're trying to just get a sense of how you guys are observing the floating storage trade unwinding.

Yes, if there's any material shifts in trading patterns. Your route that could have led to.

Increased or decreased.

I think the U.S. Gulf market is always important and it seems to be very much alive and well same thing with the Arabian Gulf. So those are two big drivers of demand.

You know it's been.

A pretty confusing disruptive market.

With a lot of a lot of port congestion.

As well is just sort of outright floating storage so.

It's.

But not not at all clear, but but it feels like.

There are factors at play now, which has moved up the U.S. Gulf market decisively that strengthening the Atlantic generally.

And in particular, China is very active export him.

Importing crude.

Running refineries a full tilt in export.

And that's you know we think it's going to provide a good a good foundation.

For for a rebound.

Okay, Okay to kind of putting lots crude exporting and and like I guess just to.

All up on that response of years.

With delays in imports and I guess its didn't hear it still I'm very much a factor and how's that looking when you guys are or fixing new ships is it still how closely the to like the weight that you guys are able to get or is it like Barry.

County.

No, it's usually fairly healthy and sometimes you engage and voyages, which are literally call to merge plays because you know the rate itself may not be that breed ought to initially calculated spot basis, but when you factor in the likely delays in the demerge, you're going to collect it turns out to be okay.

So it's definitely.

You know that that's alive and well.

Alright, great. Thanks, guys. Thanks for your time, we now have agreed to.

Thanks, Chris.

Our next question comes from Omar Doctor with Clarkson. Please go ahead.

Hi, Thanks, Hi, Tony on Paul.

Yeah, you guys spent a good amount of time a in her remarks talking about strategy and I just wanted to check in with you guys on where the where the fleets that doesn't chartered and Amar I believe for the first time.

One of the things that Ardmores been able to do and show I think despite a relatively small amar platform, even though you've still got skill that you've been able to get you see averages inline or better than some of the bigger operators overtime.

You know it is this charter and that's the beginning perhaps of a new strategy to try to exploit.

Getting platform.

It's something we've been looking to do for while it's a tool and the kids.

To to kind of leverage and enhance our our yields I think a time charters if done little bit indiscriminately at high rates theoretically. It may look good on paper, but they could backfire, because that's completely and flexible in terms of.

The cash flow obligation. There. So you know, we're particularly pleased with the with the rate that we got here.

Because it's it may sound a little bit.

The kind of a complicated answer but not only it not only substantially.

It creates value.

Edit lets say 18000 dollar day fleet average, but it also lowers our breakeven rate.

So you know, it's it's something we may do more of these this is not the first if we have every time chartered and we have done this in the past I think while we were public company, but in the chemical sector and.

You know, it's something that we've been very busy building our platform and capability.

And systems, and we're now able to expand it this way very easily.

Yeah. Thanks, Tony.

And then just.

Another question I have is just on the the 20 kind of them are you guys.

Or purchasing clearly seems opportunistic and like you said, it's a good price given the tenure special service already done they've got the ballast water treatment system in place.

Yeah, Hi, there how do you think about how this vessel fits into your eco design or eco mod portfolio.

Yes, so just this one.

We like the price and the fact that it's been through.

Second special survey and ballast water treatment installation.

And you know it's a it's a near SR to the there's really two beyond its a pump friendship, it's not deep well and it's not it doesn't have an electronic engine.

But on the beach. He makes you know terrific ships and they're always fuel efficient and whenever they come out with the new version. They always approve the design. So we've got high hopes for this one.

Yes, it has more cargo capacity.

So we think it should trade well and this is great and you know quite honestly, when we calculated the breakeven which assumes.

On a net income basis since 50% debt.

Our eyes popped out of our had 11700 today.

We could achieve that across the hopefully we'd make $40 million more per year, and our ROI see on a through the cycle basis would be 8%.

So it's kind of underscores the value of you know a good ship at a great price.

Yeah, I agree and Paul mentioned, <unk>, but obviously with cash to start and then expect to do maybe 50 50 financing. This financing something that you expect to basically have squared away, but nothing the next few months.

Yeah, we're starting to look at it now Omar we probably got done within within the third quarter.

You know we have got a strong cash balances there's no. There's no urgency there I'd like to think that we'll get it done over the next a nice within the third quarter I'd say.

Okay, great. Thanks, Paul Thanks, Tony.

Our next question comes from Randy given with Jefferies. Please go ahead.

[noise] Howdy gentleman has gone.

Yeah Ronnie.

All right. So I appreciate the quarter to the driver I remember correctly.

<unk> or not.

Our stronger in the back half a quarter for your question from that or what kind of rate currently.

Second <unk>, that's great for kind of get back to them.

Level <unk>.

Let me start maybe talk to provide more detail.

The other rates are around these levels you know we've talked about the fact that the Atlantic is up substantially and and probably in the overall the high teens now and the east is lagging but heading into right direction. So overall, we're probably in that in that ballpark.

I think it's important you know.

Every company comes out with there quarter to date estimates.

The reality is that we're all in the same market and when the dust settles, we all get about the same.

Pcs.

Give or take a thousand 2000 a day so.

So I think it's important just to kind of focus rather on.

The market in the market outlook as opposed to any one particular companies you know quarter to date estimate.

And it's not a forecast for the quarter and we do think that things are going to be improving.

Paul I don't know if you want to add to that no I think I think I think that's fair I think were.

Obviously, the first started the gains in terms of companies who are we are presenting numbers, which is reflective of Oh, you know July effectively and into week or two in August. So we've seen rates pick up quite meaningfully in particularly in Atlantic in the last last week or so and you know if that continues in your fixing ships at these levels. It we pull up quite meaningfully.

So it depends how the market market evolves, but the point is that the rates the rates guided are reflective of what we've seen in <unk> and booked in July and up until you know 10 days from now actively.

Sure.

Hi, I'm not a good following up on the 20 Twond they'll tomorrow.

Oh, okay.

Knock them on Oh, that's how we're looking at <unk>.

Oh.

Hi, there the average.

<unk> five will ship or is it really just the price so that it doesn't matter what age wise and then I guess following up on that put a problem.

Well, that's reflective of what was the market. Obviously, that's something you could that kind of asset sale that the price what that the spot.

I think we paid a fair price we look to ship is little older than we would normally focus on and we acknowledge that but we really like the fact that it's been with a high quality owner from new it's been through Drydocking Special survey in ballast water installation and you know.

You know we have looked at newer vessels, but we thought this was the best.

The best value out there at least that that type.

This is a you know we call them eco mods, but it's essentially a standard Japanese ship, we will take some steps to improve the you know the fuel consumption on it but you know there there are great shifts to begin with they're not that far off of you know eco designs in terms of their fuel consumption.

Of course, we're in a.

Bunker price environment, now, where that's not as critical as it would have been.

When we were looking at IMO 2020 fully playing out.

And you know in you know the performance of a pump room compared to a deep well is you know.

Not huge as well so.

You know taking its got all those factors we felt this represent a great value and you know compared to.

The kind of the more modern.

Yeah, the more modern eco design Korean shifts and then the final thing I mentioned is that it's something that you can do you can afford to do if you haven't already modern fleet.

You can kind of average down a little bit age if you find a.

Pockets of value so.

All right a lot there just a quick modeling question I guess for Paul you know very impressive swap. They all three years that 0.32%, which I thought was a title at first but I will go up could you discuss <unk> adoption a little more.

For additional swaps about what's your current probably at about <unk>.

Alright are weighted average rate on your phone that you'll recall, but your capital themselves on a blended I know you said, 2.8% for the bank that decided to overall.

Perfect and starting with the swaps kind of <unk> first of all that we did three quarters of our of our debt anything that was termed tend to be overturned dash and leases is now is not smoked out the only thing that has not been swapped out is it. The revolver is obviously accounts what something that's the bottom comp constantly moving and then also one.

The facility, which is maturing next year for from one chip so pretty much all of our debt that we could swap out we have swapped out.

You're not the first to think that it was a typo.

Actually it takes me that add to our auditors as well they've never seen anything to slow so it it wasn't good rate. The markets. You know worked for us than you know we seized upon us in terms of the weighted average margin on our bank that is it just under two and a 5% 2.49 the leases in the trees about 3.5%.

Weighted average Dan is about just under just under 3% and then that the LIBOR or the weighted average funding cost is because remember debt is funded up one month LIBOR comes inside you under 30 basis points.

For around 2.75, Richard when it makes sense.

All that.

On average at plus the 0.3 too so it's probably all in its maybe 3.3% to 3.1%.

On average across all.

Yep Yep, good deal well, thanks, so much simpler than another solid quarter.

That's right right.

Our next question comes from Ben Nolan with Stifel. Please go ahead.

Hey, kinda called.

This isn't really around.

The the acquisition of the segment as well as the time charter just trying to think through how much of the timing of use sort of getting back into growth mode. Here. So to speak is a function of the fact that.

The quarter was really good, especially within the capital allocation strategy you had a cash on the balance sheet and so it was it enabled HM two go out and buy things versus market timing and feeling like Hey, This is a really great opportunity and irrespective of you know.

The <unk>, what the last quarter, what do we really want to execute on it.

Yeah, I think that.

Tony.

Yeah look it's obviously a combination so we.

To be honest, if we were paying six princeton cent dividend, we might not be comfortable doing this.

And you know we do we do think is it really is really well timed additions to the fleet and quite positive.

So it's really a combination of.

The incremental financial strength.

Liquidity and the opportunity that we saw.

Okay. That's helpful and then.

Good.

The.

Happening situation and I don't want to delve into that necessarily here, because it's it's pretty clear where you stand I'm curious though.

Along those lines, you talked about sort of having the scale operationally that you want I'm curious how you think about scale from that perspective of capital accessing capital markets and how does that way into thinking about sort of your long term strategy here or ardmore.

<unk>.

Well, you know look it's clear that everything else being equal.

A greater market cap this is helpful.

How much more helpful. We're really not sure about you know I'm sure. If we had two or 3 billion in market cap, we probably trade better than we do today.

But we don't we don't observed that were trading at a disadvantage to other companies and you know the you know the point about everything else being equal is that everything is an equal and there are other very important factors to consider.

What's your present free float what's your 80 TV.

What's the risk of an overhang translating into a downward pressure on the stock price of these kind of thing. So you know that's why we're committed to the governance into listening quality we have.

And that's why we're committed to.

Trying to execute on you know compelling opportunities, whether its single ship out acquisitions or.

You know where M&A M&A transactions.

Okay. All right you see recap markets look we'd love to have increased scale in capital markets, but you know.

It's it's not the kind of you know there's no point in doing it if you can only do it negatively.

Uh huh.

Yeah, I completely agree and I appreciate the mcandrew there.

Thanks Ben.

Our next question comes from Jamie its Meyer with value investors edge. Please go ahead.

Hi, Good morning, Tony wanting Paul Congrats on a good quarter add a fantastic lock into those low rates.

Okay. Thanks Jay.

So first question else in a room I call danced around it a little bit I've enjoyed the topline conversations as well, but looking at that happy offer like I mean, it was a low ball offer they took advantage here low stock price.

All the reasons you didn't like the offer makes sense, but let's talk about what sort of offer wouldn't make sense as it has sort of adopting that transaction or how do you see a successful consolidation in the sector.

Well I think let let's start with consolidation right you know as I mentioned you know we think that there is an important distinction to be drawn between consolidation and scale.

And they're used almost interchangeably.

In terms of consolidation, we just in at least in our sector.

We don't observed that anybody has more than 5% of the other world fleet.

And the customer side is equally fragmented and so it's really trading business. So it's really question have you.

You know of what you can do it scale.

And.

You know we engage in M&A discussions.

Continually.

Always in private.

Always on the basis that that they have to be compelling for our shareholders.

So what kind of a transaction would make sense it would be one where it improves our performance.

It's meaningfully accretive.

It maintains the quality of governance and listing we have.

And it strategically coherent.

So I think that would describe it.

All right well hopefully we see us some of those transactions come across a wide you bring up a good point about scale and efficiency is obviously, there's not a whole lot to be gained I think most of us understand that I know at least the analyst understand that but there's way too many stock pickers right I mean, there's way too much stuff floating out there trading around splitting investor interest not enough market cap.

But to bring in a meaningful by only firms opposite I think that's maybe I think Ben kind of hit it on the had earlier I mentioned that maybe that's a area where we can see some some benefits from these consolidations and trading liquidity. So fingers crossed on that one second question for you guys looking at ships versus repurchases right, we talked about that's a little bit before.

I understand your capital allocation priorities, but you decided to buy it looks like just one ship and charter in another at a great value I think the ship was great value, but your shares are trading at 50, a 40% to 50% discount NPV is there any sort of reason why you chose to pick the ship over picking investing back in your own fleet.

Yes, I, it's a great question, Jay and it's one that you know we've been discussing internally and externally for.

Ever since we've been public we don't share buybacks in the past nobody remembers it.

They were not well times because the stock is trading way down since then okay. So you know the best thing we did in terms of returning capital was just paying dividends.

Yeah. So you have to remember that share buybacks may look good and feel good if moment, but they've got to work on the cyclical basis right.

The second thing is that you know companies like us are highly constrained by the FCC rules, when we engage and share repurchasing unless we want to put out a public tender and so the amount you can bring in is actually quite limited now I know that are volumes are up and it seems like that should be kind of an easy thing to execute on but you know we know from personal experience that it's actually not.

I don't think we ever got where the 2 million in a quarter.

And so so that's you know that's another point to make the other thing is that we did look at.

Okay. If we were to buy back you know the equity of the shift we just bought.

In shares at a 40% discount or something the NAV accretion would be about the same as the earnings accretion we're gonna get over the next three years on the shift if you compare it to our breakeven rate overall. So you know I think it depends on how you look at it some people are in love with the signaling a share buy backs our experiences that never.

Were worse nobody remembers individual remember its negative memories of it.

And that's you know I guess the other point to make is that.

Everything else being equal, we rather increase our cap and free float rather than deducting from it.

Thanks, Tony I appreciate you walking through that why not just look at the numbers I know you you understand this right from a spreadsheet sense, but you know in investing in the ship you spend about 8 million of equity and you bring your fleet by roughly 4% right, whereas if you invested that same 8 million in your shares now granted you probably couldn't get them all in the fours and fives right It would Jack.

The price up just a little bit, but you would grow your fleet by 5% to 6% right on a per share basis, and you would be growing at an average age of 6.5 to seven years as opposed to adding a ship that was 10 years old. So I know that's the stretchy numbers, but just some to put out there for you guys I think would be great to see both right. Both some sort of tender and repurchase and also see you taking advantage of these low.

Marks in the market.

Yeah I hear you just to reiterate my point you know the just that one ship the accretion or the additional performance.

Compared to our breakeven is one of the happened later year to afford a half millions and you know over three years and that's about the same is buying shares back that amount at a 50% discount so.

It's it's a great philosophical discussion, it's one that we have with our board constantly as well.

And at the moment, we feel like the opportunity is more compellingly in the right kind of acquisitions at the right time.

Thanks, Tony keep up the good work.

Thanks Jay.

This concludes our question and answer session as well with today's conference. Thank you for attending today's presentation. You may now disconnect.

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