Q1 2024 Ardmore Shipping Corp Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's first quarter 2024 earnings conference call. Today's call is being recorded, and an audio webcast and presentation are available in the Investor Relations section of the company's website, www.ardmoreshipping.com. We will conduct a question and answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be available anytime during the next two weeks by dialing 1-888-660-6345 or 1-646-517-4150 and entering the passcode 95017. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.
Good morning, ladies and gentlemen, and welcome to Ardmore shipping first quarter 'twenty 'twenty four earnings conference call.
Operator: Today's call is being recorded and an audio webcast and presentation are available in the Investor Relations section of the company's website Ardmore shipping dotcom we.
Anthony Gurnee: We will conduct a question and answer session. After the opening remarks instructions will follow at that time.
Operator: A replay of the conference will be available anytime during the next two weeks by dialing 18886606345 or 16465174150 and entering the passcode 90 5017.
Operator: This time I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore shipping.
Anthony Gurnee: Good morning, and welcome to Ardmore Shipping's first quarter 2024 earnings call. First, let me ask our CFO, Bart Kelleher, to discuss forward-looking statements.
Anthony Gurnee: Good morning, and welcome to Ardmore shipping first quarter 2024 earnings call first let me ask our CFO Bart Kelleher to discuss forward looking statements.
Anthony Gurnee: Thanks, Tony. Turning to slide two.
Bart B. Kelleher: Thanks, Tony turning to slide two please.
Bart B. Kelleher: 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 actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2024 earnings release, which is available on our website. And now, we'll turn the call back over to Tony. Thanks, Bart.
Bart B. Kelleher: 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 first quarter 2024 earnings release.
Bart B. Kelleher: Which is available on our website.
Bart B. Kelleher: And now ill turn the call back over to Tony.
Tony: Thanks, Bart So first let me outline the format for today's call to begin with I'll discuss highlights the near term market outlook and our capital allocation policy after which mark will provide an update on product and chemical tanker fundamentals at our financial performance and then I'll conclude the presentation and open up the call for questions.
Anthony Gurnee: Thanks, Bart. So, first, let me outline the format for today's call. To begin with, I'll discuss highlights, the near-term market outlook, and our capital allocation policy, after which Bart will provide an update on product and chemical tanker fundamentals and our financial performance, and then I'll conclude the presentation and open up the call for questions. Please turn to slide four for highlights.
Anthony Gurnee: We're seeing strong momentum continuing well into 2024, reflecting positive fundamentals along with ongoing geopolitical impact. Our first quarter performance reflects robust market conditions with adjusted earnings of $38 million or $0.92 per share and with further strength building into the second quarter. Our MRs earned $38,400 per day for the first quarter and $40,500 per day so far in the second quarter with 60% booked. And our chemical tankers, on a capital-adjusted basis, earned $29,100 per day for the first quarter and are now up to $39,000 per day for the second quarter with 60% booked so far.
Bart: So turning first to slide four for highlights.
Anthony Gurnee: We're seeing strong momentum continuing well into 2024, reflecting positive fundamentals along with ongoing geopolitical impacts are.
Anthony Gurnee: Our first quarter performance reflects robust market conditions with adjusted earnings of $38 million or <unk> 92 per share and with further strength building into the second quarter.
Anthony Gurnee: Mr's earned 38400 per day for the first quarter and 40500 per day, so far in the second quarter was 60% booked.
Anthony Gurnee: And our chemical tankers on a capital adjusted basis earned 29100 per day for the first quarter and are now up to 39000 per day for the second quarter was 60% booked so far.
Anthony Gurnee: As you can see from the chart on the upper right, the strength of the market is evident. TCE rates are showing a sequential increase, which is notable given that we're coming out of the stronger winter period. Meanwhile, we continue to execute on our longstanding capital allocation policy. Today, we're declaring another quarterly cash dividend of $0.31 per share, consistent with our policy of paying out one-third of adjusted earnings.
Anthony Gurnee: As you can see from the chart on the upper right the strength of the market is evident.
Anthony Gurnee: E rates are showing a sequential increase which is notable given that we're coming out of the stronger winter period.
Anthony Gurnee: Meanwhile, we continue to execute on our long standing capital allocation policy.
Anthony Gurnee: They were declaring another quarterly cash dividend of 31 per share.
Anthony Gurnee: Assistant with our policy of paying out one third of adjusted earnings.
Anthony Gurnee: And we also continue to invest in the fleet to improve performance and reduce carbon emissions while also taking a gradual and opportunistic approach to fleet modernization. And as a final point on this slide, it's important to note that our scheduled dry dockings and upgrades are already largely complete for this year. This means it will have increased revenue days and a more productive fleet, which will boost earnings and allow us to fully capture these strong market conditions. Moving to slide five.
Anthony Gurnee: And we also continue to invest in the fleet to improve performance and reduce carbon emissions. While also taking a gradual and opportunistic approach to fleet modernization.
Anthony Gurnee: And as a final point on this slide it's important to note that our scheduled dry dockings and upgrades are already largely complete for this year.
Anthony Gurnee: This means it will have increased revenue days and a more productive fleet, which will boost earnings and allow us to fully capture the strong market conditions.
Anthony Gurnee: Moving to slide five.
Anthony Gurnee: The near-term outlook continues to be very positive as a result of geopolitical events and other disruptions, but of course, it's underpinned by very strong supply-demand fundamentals. The e-refined products embargo, responsible for splitting the global tanker fleet, continues to drive higher ton-mile demand. In addition, the routing of vessels away from the Red Sea and around the Cape of Good Hope is significantly extending those voyage lengths. But it's worth noting that for product tankers, the Red Sea is largely an LR destination.
Anthony Gurnee: The near term outlook continues to be very positive as a result of geopolitical events and other disruptions but of course, it's underpinned by very strong supply demand fundamentals.
Anthony Gurnee: The refined products embargo responsible for splitting the global tanker fleet continues to drive higher ton mile demand.
Anthony Gurnee: In addition, the routing of vessels away from the Red Sea and around the Cape of good hope is.
Anthony Gurnee: Significantly extending those voyage lengths.
Anthony Gurnee: But it's worth noting that for product tankers. The Red Sea is largely an LR story prior to the Red Sea disruption, 20% of the LR fleet transit at the Suez Canal in contrast to just 5% of the EMR fleets. So while this is positive from a demand standpoint overall, it's not nearly as significant a factor for <unk> as it is for <unk>.
Anthony Gurnee: Prior to the Red Sea disruption, 20% of the LR fleet transited the Suez Canal in contrast to just 5% of the MR fleet. So while this is positive from a demand standpoint overall, it's not nearly as significant a factor for MRs as it is for LRs. Furthermore, while Panama Canal congestion shows some signs of easing, daily product anchor transits remain 20% below the prior year, further contributing to ton-mile demand. But similar to the Red Sea impact, this is not the major driver for MRs. Russia and Ukraine are.
Anthony Gurnee: Furthermore, while Panama Canal congestion showed some signs of easing daily product tanker transits remained 20% below the prior year further contributing to ton mile demand.
Anthony Gurnee: But similar to the Red Sea impact this is not the major driver for Mr's, Russia, Ukraine is.
Anthony Gurnee: Meanwhile, underlying oil consumption continues to grow. The global economy remains resilient, with potential for further upside in the second half. As you can see from the chart on the lower right, global refinery runs are projected to increase by 5% in 2024, to an all-time high of 85 million barrels a day, driven by activity in Asia and the Middle East. Increases in Chinese refined product export quotas as compared to the prior year add to this constructive outlook.
Anthony Gurnee: Meanwhile, underlying oil consumption continues to grow the global economy remains resilient and with potential for further upside in the second half.
Anthony Gurnee: As you can see from the chart on the lower right Global refinery runs are projected to increase by 5% to 2024 to an all time high of 85 million barrels a day driven by activity in Asia at least.
Anthony Gurnee: And increases in Chinese refined product export quotas as compared to the prior year adds to this constructive outlook.
Anthony Gurnee: Moving on to slide six, where we highlight our longstanding capital allocation policy. Given our strong financial position, we're now able to pursue all of our priorities simultaneously, as shown on this slide. To this end, we're pleased to declare another dividend of $0.31 per share. And it's also worth noting that since the resumption of our quarterly dividend in the fourth quarter of 2022, we've now paid $70 million in total dividends, representing about 10% of our market cap, a substantial return of capital in just over one year.
Anthony Gurnee: Moving now to slide six where we highlight our long standing capital allocation policy.
Anthony Gurnee: Given our strong financial position, we're now able to pursue all of our priorities simultaneously as shown on this slide.
Anthony Gurnee: To this end we're pleased to declare another dividend of 31 cents per share and it's also worth noting that since the resumption of our quarterly dividend in the fourth quarter 2022 without paid $70 million in total dividends, representing about 10% of our market cap a substantial return of capital and just over one year.
Anthony Gurnee: Yeah.
Anthony Gurnee: At the same time, we continue to invest in our fleet to improve performance and reduce emissions, while also gradually modernizing over time. As already reported but now executed, in April, we completed the sale of our 2010-built Ardmore Seafarer and the acquisition of the Ardmore Gibraltar, a 2017 Korean-built EcoDesign MR, which has much better fuel efficiency and also greater cargo flexibility than the outgoing Seafarer. But I'm also pleased to say that we more than doubled our money on the seafarer, which we purchased at a low point in the market in September 2020. And with that, I'm happy to hand the call back over to Bart.
Anthony Gurnee: At the same time, we continue to invest in our fleet to improve performance and reduce emissions, while also gradually modernizing overtime.
Anthony Gurnee: Already reported but now executed in April we completed the sale of our 2010 built Ardmore seafarer and the acquisition of the artwork Gibraltar 2017 Korean built eco design M. R, which has much better fuel efficiency and also greater cargo flexibility than the outgoing seafarer.
Bart: But I'm also pleased to say that we more than doubled our money on the seafarer, which we had purchased at a low point in the market in September 2020.
Anthony Gurnee: And with that I'm happy to hand, the call back over to Bart.
Bart: Thanks, Tony.
Bart B. Kelleher: Building upon Tony's comments on the market outlook, we'll further examine the industry fundamentally. As we've been discussing, the supply-demand dynamics remain highly favorable.
Bart: Building upon tonys comments on the market outlook, we will further examine the industry fundamentals as we've been discussing the supply demand dynamics remain highly favorable.
Bart B. Kelleher: On slide 8, we highlight the significant supply-demand gap, and I'll address each component in more detail in subsequent slides. We can see from the green bars in this chart the strong forecasted ton mile growth, which is a result of the positive underlying demand fundamentals and ongoing market dislocation. In contrast, we can see limited net fleet growth across both product and chemical tankers, and in particular MRs, as indicated in the gray and blue bars.
Bart B. Kelleher: On slide eight we highlight the significant supply demand gap and I'll address each component in more detail in subsequent slides.
Bart B. Kelleher: We can see from the green bars in this chart the strong forecasted ton mile growth, which is a result of the positive underlying demand fundamentals and ongoing market dislocation.
Bart B. Kelleher: In contrast, we can see the limited net fleet growth across both product and chemical tankers and in particular Mr's as indicated in the gray and blue bars.
Bart B. Kelleher: So overall, we believe the limited net fleet growth across these sectors combined with increasing ton miles supports ongoing market strengths.
Bart B. Kelleher: So overall, we believe the limited net fleet growth across these sectors combined with increasing ton miles supports ongoing market strength. Moving to slide nine, where we highlight how the low MR tanker order book contrasts sharply with a rapidly aging fleet. The chart on the left provides a visual representation of the changes in the MR fleet. Fifteen years ago, as highlighted in the red quadrant, we observed a modern fleet with a large order book. However, over time, the number of books has declined while the fleet has aged.
Bart B. Kelleher: Yes.
Bart B. Kelleher: Moving to slide nine.
Bart B. Kelleher: Where we highlight how the low MLR tanker order book contrasts sharply with a rapidly aging fleet.
Bart B. Kelleher: The chart on the left provides a visual representation of the changes in the MLR fleet.
Bart B. Kelleher: 15 years ago as highlighted in the Red quadrant.
Bart B. Kelleher: We observed a modern fleet with a large order book.
Bart B. Kelleher: However, overtime the order books has declined while the fleet has aged.
Bart B. Kelleher: Currently, as highlighted in the green quadrant, we have a low order book and the oldest fleet in two decades, with an average age of greater than 13 years. Looking at the graph on the right side, the current MR order book is at 9% of the existing fleet. And, as we have previously mentioned, it is important to point out the impact that AfriMax crew tankers have on the overall product tanker order book, which stands at 14%.
Bart B. Kelleher: Currently as highlighted in the Green quadrant, we have a low order book and the oldest fleet in two decades with an average age of greater than 13 years.
Bart B. Kelleher: Looking at the graph on the right side. The current M. Our order book is at 9% of the existing fleet.
Bart B. Kelleher: And as we have previously mentioned it is important to point out the impact that aframax crude tankers has on the overall product tanker order book, which stands at 14%.
Bart B. Kelleher: Currently, the AfriMax crew tanker fleet is shrinking while still experiencing demand growth. This implies that an increasing proportion of LR2s, most likely older vessels, will naturally transition to the crude trades to cover this shortfall in the Aframex fleet. In addition, as vessels reach 15 to 18 years of age, their trading capabilities typically become restricted, further contributing to the supply tightness in the younger modern global fleet where Ardmore's vessels operate.
Bart B. Kelleher: Currently the Aframax crude tanker fleet is shrinking while still experiencing demand growth.
Bart B. Kelleher: This implies that an increasing proportion of LR twos, most likely older vessels will naturally transition to the crude trades to cover this shortfall in the Aframax fleet.
Bart B. Kelleher: In addition, as vessels reached 15 to 18 years of age they're trading capability is typically become restricted.
Bart B. Kelleher: Further contributing to the supply tightness in the younger monitoring global fleet.
Bart B. Kelleher: Ardmore is vessels operate.
Bart B. Kelleher: In fact within the next five years close to half of the EMR fleet will surpass the 20 year age Mark and enter the scrapping Sir.
Bart B. Kelleher: In fact, within the next five years, close to half of the MR fleet will surpass the 20 year age mark and enter the scrapping phase. The current order book, at 9 million deadweight tons, is just a fraction of the 50 million deadweight tons that will fall within the scrapping age profile in the next five years. Slide 22 in the appendix highlights this phenomenon. Turning to slide 10, where we address demand drivers in greater detail.
Bart B. Kelleher: The current order book at 9 million deadweight tons is just a fraction of the 50 million deadweight tons. It will fall within the scrapping age profile in the next five years.
Bart B. Kelleher: Slide 22 in the appendix highlights this phenomenon.
Bart B. Kelleher: Okay.
Bart B. Kelleher: Turning to slide 10.
Bart B. Kelleher: We address demand drivers in greater detail.
Bart B. Kelleher: As we have discussed earlier, the Russia-Ukraine conflict and the EU refined products embargo have led to a persistent reordering of global product trades, boosting overall ton miles. Concurrently, the energy transition is being tempered by energy reality, and market projections continue to show year-on-year growth in oil demand. Meanwhile, the long-term trend of refinery dislocation between east and west, supported by forecasts for increasing consumption, will continue to drive incremental ton miles.
Bart B. Kelleher: As we have discussed earlier, the Russia, Ukraine conflict and the EU refined products embargo has led to a persistent reordering of global product trade boosting overall ton miles.
Bart B. Kelleher: Concurrently the energy transition is being tempered by energy reality and.
Bart B. Kelleher: Market projections continue to show year on year growth in oil demand.
Bart B. Kelleher: Meanwhile, the long term trend of refinery dislocation between east and west supported by forecast for increasing consumption will continue to drive incremental ton miles.
Bart B. Kelleher: Please refer to slide 21 in the appendix for additional detail. In summary, these robust long-term demand drivers point to continued strength in the product and chemical tankers market. Moving to slide 12, Ardmore continues to build upon its financial strength.
Bart B. Kelleher: Please reference slide 21 in the appendix for additional details.
Bart B. Kelleher: In summary, these robust long term demand drivers point to continued strength in the product and chemical tankers markets.
Bart B. Kelleher: Okay.
Bart B. Kelleher: Moving to slide 12.
Bart B. Kelleher: Ardmore continues to build upon its financial strength.
Bart B. Kelleher: As a reminder, the chart on the bottom left highlights our achievement of reducing our cash breakeven levels by over $3,000 per day in an elevated interest rate environment. This accomplishment is a result of our effective cost control, lower debt levels, and access to revolving credit facilities. Looking ahead, we see a potential pathway to further reduce our break even to a level below $11,500 per day. To this end, we have provided notice to execute purchase options on two leased vessels for a total of $41 million, and expect to close this transaction in June and further reduce our debt costs. And as always, Ardmore is focused on optimizing performance, closely managing costs, and preserving a strong balance sheet.
Bart B. Kelleher: As a reminder, the chart on the bottom left highlights our achievement of reducing our cash breakeven levels by over $3000 per day, and an elevated interest rate environment.
Bart B. Kelleher: This accomplishment is a result of our effective cost control lower debt levels and access to revolving credit facilities.
Bart B. Kelleher: Looking ahead, we see a potential pathway to further reduce our breakeven to a level below $11500 per day.
Bart B. Kelleher: With this aim we provided notice to execute purchase options on two leased vessels for a total of $41 million in.
Bart B. Kelleher: And expect to close this transaction in June and further reduce our debt cost.
Bart B. Kelleher: And as always Ardmore is focused on optimizing performance closely managing costs and preserving a strong balance sheet.
Bart B. Kelleher: Turning to slide 13 for financial highlights, as noted, we are very pleased with our performance as we report results of $0.92 per share for the first quarter. We are correspondingly reporting strong EBITDAR for the quarter and continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting period. While I won't go into the detail here, there is a full reconciliation of this presented in the appendix on slide 25.
Bart B. Kelleher: Turning to slide 13 for financial highlights.
Bart B. Kelleher: As noted we are very pleased with our performance as we report results of <unk> 92 per share for the first quarter.
Bart B. Kelleher: We are correspondingly reporting strong EBITDAR for the quarter and continued to frame EBITDAR is an important comparable valuation metric against our <unk> reporting peers.
Bart B. Kelleher: Well I won't go into the detail here there is a full reconciliation of this presented in the appendix on slide 25.
Bart B. Kelleher: Also please refer to slide 26 in the appendix for our second quarter guidance numbers.
Bart B. Kelleher: Okay.
Bart B. Kelleher: Also, please refer to slide 26 in the appendix for our second quarter guidance number. Moving to slide 14. As Tony mentioned earlier, our dry docking schedule for this year is largely complete, and as highlighted by the chart in the upper right, this will lead to increased revenue days and enhanced earnings power for the rest of the year. In accordance with our energy transition plan, we have made some significant investments in our fleet during the recent dry docking to further improve operating performance, reduce emissions, and enhance earnings.
Bart B. Kelleher: Moving to slide 14.
Bart B. Kelleher: As Tony mentioned earlier, our Drydocking schedule for this year is largely complete and as highlighted by the chart in the upper right. This will lead to increased revenue days in enhanced earnings power for the rest of the year.
Bart B. Kelleher: In accordance with our energy transition plan, we have made some significant investments in our fleet during the recent dry dockings.
Bart B. Kelleher: To further improve operating performance reduce emissions and enhance earnings.
Bart B. Kelleher: Total CAFX for 2024 is anticipated to be $17 million, including $11 million related to scrubber installations and other efficiency upgrades, as well as ballast water treatment systems. It's worth noting that we now have more than half of our MR fleet outfitted with second generation carbon capture ready scrubbers, which are set to further enhance our earnings power. Moving to slide 15. 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 would increase by approximately $2.30 annually, with free cash flow generation increasing by nearly $100 million over the same time period.
Bart B. Kelleher: Total capex for 2024 is anticipated to be $17 million, including $11 million related to scrubber installations, and other efficiency upgrades as well as ballast water treatment systems.
Bart B. Kelleher: It's worth noting that we now have more than half of our MLR fleet outfitted with second generation carbon capture ready scrubbers, which are set to further enhance our earnings power.
Bart B. Kelleher: Moving to slide 15.
Bart B. Kelleher: Here, we're highlighting our significant operating leverage.
Bart B. Kelleher: As you can see in the chart for every $10000 per day increase in TCE rates earnings per share would increase by approximately $2 <unk> annually with free cash flow generation, increasing by nearly $100 million over the same time period.
Anthony Gurnee: This is why the current market outlook is so exciting, and Ardmore's position is very compelling. With that, I'm happy to hand the call back to Tony and look forward to answering questions at the end. Thank you, Bart.
Bart B. Kelleher: This is why the current market outlook is so exciting and <unk> position is very compelling.
Anthony Gurnee: With that I'm happy to hand, the call back to Tony and look forward to answering questions at the end.
Anthony Gurnee: Thank you, Bart. So to summarize first, regarding the market. TCE rates remain elevated through the first quarter and have strengthened further into the second quarter, voting well for the full year. These rates are being supported by the geopolitical events we've discussed, most notably for MRs being the persistent reordering of the product tanker trade as a result of the EE refined products embargo. And, of course, underlying supply-demand fundamentals remain highly supportive. And regarding the company, we're continuing to achieve strong TCE performance and effective cost control, generating excellent returns and continuing to bolster our financial position.
Tony: Thank you Bart so to summarize first regarding the market.
Anthony Gurnee: TCE rates remain elevated through the first quarter and have strengthened further into the second quarter boding well for the full year.
Anthony Gurnee: These rates are being supported by the geopolitical events, we've discussed most notably for <unk> being the persistent reordering of the product tanker trade as a result of the EU refined products embargo.
Anthony Gurnee: And of course underlying supply demand fundamentals remain highly supportive.
Anthony Gurnee: And regarding the company, we're continuing to achieve strong TCE performance and effective cost control generating excellent returns and continuing to bolster our financial position.
Anthony Gurnee: This enables us to pursue all of our capital allocation priorities simultaneously, in particular returning capital to shareholders in the form of our quarterly dividend, now accumulated to 10% of market cap in just over one year, while also gradually and opportunistically investing in fleet modernization. And with that, we're pleased to open up the call for questions.
Anthony Gurnee: This enables us to pursue all of our capital allocation priorities simultaneously in particular, returning capital to shareholders in the form of our quarterly dividend now accumulated to 10% of market cap and just over one year, while also gradually and opportunistically investing in fleet modernization.
Speaker Change: And with that we're pleased to open up the call for questions.
Anthony Gurnee: So and the answer session should you have a question. Please press star followed by the number one on your Touchtone phone.
Operator: Should you have a question, please press star followed by the number 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key.
Operator: You'll hear a prompt that your hand is being raised should you wish to decline from the polling process. Please press star followed by the number two if you are you either.
Operator: Using a speaker phone please lift the handset before pressing any keys.
Operator: Your first question comes from the line of Omar Nokta from Jeffries. Please go ahead.
Operator: Your first question comes from the line of Omar <unk> knockdown from Jefferies. Please go ahead.
Omar Mostafa Nokta: Okay. Thank you operator.
Omar Mostafa Nokta: Thank you, operator. Hey guys, good afternoon. Bart, Tony, I mean, looks like a lot of good stuff happening here. Congratulations on a really good quarter and kind of getting the company to where it's at today. I just had a couple of questions for you, maybe just first on the handies in particular.
Omar Mostafa Nokta: Hey, guys good afternoon.
Omar Mostafa Nokta: Tony I mean, it looks like a lot of good stuff happening here congrats on a really good quarter and kind of getting the company towards that today.
Omar Mostafa Nokta: I just had a couple of questions for you maybe just first on the on the Handpiece in particular, it looks like Theres, a pretty good step up here.
Omar Mostafa Nokta: It looks like there's been a pretty good step up here in your averages thus far into the second quarter. You've got 60% book now at 32 and a half. I believe that would be a record for you if it holds.
Omar Mostafa Nokta: And your averages thus far into the second quarter is about 60% book now at 32 and a half.
Omar Mostafa Nokta: I believe that would be a record for you if it holds.
Omar Mostafa Nokta: What's sort of driving that? If you don't mind giving us some color, what's driving the chemical market there? And any color you can give on how that spot market is looking today.
Omar Mostafa Nokta: What's sort of driving that if you don't mind, giving us some color on what's driving the chemical market there.
Omar Mostafa Nokta: And any color you can give on how that spot market is looking today.
Anthony Gurnee: Yeah, hey, Omar, thanks for that. Yeah, the chemicals are doing well at the moment. It's not a big fleet. We do trade them in and out of products and into chemicals. I think it's just reflective of, you know, good, good charter practice and, and good, good market conditions. And, you know, sometimes things go really well. It seems like we're hitting our stride now with those ships.
Speaker Change: Yeah, Hey, Omar thanks for that.
Anthony Gurnee: Yes, the chemicals are doing well at the moment, it's not a big fleet.
Anthony Gurnee: We do trade them in and out of products into the chemicals I think it's just reflective of.
Anthony Gurnee: Good good chartering practice and in good market conditions and.
Anthony Gurnee: Sometimes.
Anthony Gurnee: Things go really well it seems like we're hitting our stride now with those ships.
Omar Mostafa Nokta: Okay. Yeah. All right. And thanks for that. And then, you know, Bart, you mentioned the leaseback financing, you're going to exercise, or you're exercising the options on the two, the Seahawk and Seawolf, 41 million outlay. Is the plan to use cash, or are you planning to draw bank debt again?
Omar: Okay, alright, thanks for that and then just maybe on Bart you mentioned the lease back financing youre going to exercise exercising the options on the two the seahawk and seawell $41 million outlay the plan too.
Omar Mostafa Nokta: <unk> use cash or plan to draw off bank debt against those.
Bart: Yeah. Thanks, so much good question.
Bart B. Kelleher: Yeah, no, thanks, Omar. Good question. So plan to draw on our revolvers for that. I mean, certainly, incremental cash generation could be used, but kind of the default going in is that we draw down on the revolvers. And, you know, we've been able to actually expand the revolving capacity so that we have 100% capacity with all of our banks now. So we've got tremendous flexibility.
Bart B. Kelleher: So plan to to draw on our revolvers for that.
Bart B. Kelleher: Certainly incremental cash generation.
Bart B. Kelleher: It could be used but kind of the default going in is that we draw down on the revolvers.
Bart B. Kelleher: And we've been able to actually.
Bart B. Kelleher: Expand the revolving capacity so that we have.
Bart B. Kelleher: 100% capacity with all of our banks now so we've got tremendous flexibility.
Omar Mostafa Nokta: Okay. Yeah. And it makes sense. And maybe just kind of on that, and the final question for me is, you know, clearly you guys have had a balanced capital allocation policy for several years. You're now at this point where the balance sheet's evolving into potentially a net cash position here in the next few months. Does that in any way change how you're viewing big picture capital allocation?
Speaker Change: Okay Yeah.
Omar Mostafa Nokta: Makes sense and maybe just kind of on that.
Speaker Change: Final final question for me is key.
Omar Mostafa Nokta: Clearly you guys have had a.
Omar Mostafa Nokta: Our balanced capital allocation policy for several years now.
Omar Mostafa Nokta: At this point, where the balance sheets evolving into potentially a net cash position here in the next few months does that in any way change how you're viewing.
Omar Mostafa Nokta: Big picture capital allocation.
Bart B. Kelleher: Thanks, Omar again. I think the way we think about it is that it's situational. I mean, we know we're in a cyclical business; it is dynamic. Today, we still see that we have some additional runway on the debt reduction; we still have 100 million in debt. And really chipping away at that break even has been the key thing in terms of our earnings quality and incremental cash flow and then and then incremental capacity for the dividend.
Speaker Change: Thanks Omar again.
Bart B. Kelleher: I think the way we think about it is is that.
Bart B. Kelleher: It's situational I mean, we know we're in a cyclical business it is dynamic.
Bart B. Kelleher: Today, we still see that we have some additional runway on the debt reduction, we still have $100 million of debt.
Bart B. Kelleher: And really chipping away at that breakeven has been the key thing in terms of our earnings quality and incremental cash flow and then and then incremental capacity for the dividends.
Bart B. Kelleher: So just to put it into perspective.
Bart B. Kelleher: So just to put it into perspective, at the 13,250 level today, if we hadn't delivered, we would be north of $17,000 per day cash break even. So that delta represents 35 million more in cash flow generation per year, or approximately 83 cents. And then we also see runway to continue investing in our fleet and the energy transition projects. And you know, they're typically short payback periods with significant return levels. And we certainly don't have a problem returning additional capital to shareholders at the right time. I think we just see that, like right now, in the immediate future, where we have opportunities to deploy the capital internally. That's what's in focus here.
Bart B. Kelleher: 13250 level today, if we hadn't deleverage will be north of $17000 per day cash breakeven.
Bart B. Kelleher: So that delta represents $35 million more in cash flow generation per year or approximately 83 cents.
Bart B. Kelleher: And then we also see runway to continue investing in our fleet and the energy transition projects.
Bart B. Kelleher: And they're typically short payback periods significant return levels and we certainly don't have a problem returning additional capital to shareholders at the right time I think we just see that like right now in the immediate future, where we have opportunities to deploy the capital internally.
Bart B. Kelleher: That's what's in focus.
Speaker Change: Okay. Thanks, Thanks, Bart that's very helpful and good point an interesting.
Omar Mostafa Nokta: Okay. Thanks, Bart. That's very helpful and good points. And it's interesting, you know, here we are, you're obviously earning very strong rates, but yet you're keeping a very close focus on that break-even and lowering it. So good to see that. And well done again, guys. Thank you.
Speaker Change: Here are you, obviously already very strong rates, but yet you are keeping a very close.
Omar Mostafa Nokta: Focus on that that breakeven in lowering it so good to see that and well done again guys. Thank you.
Omar Mostafa Nokta: Yes.
Speaker Change: Thanks Omar.
Operator: Ladies and gentlemen, just a reminder, if you have a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Jon Chappell from Evercore. Please go ahead.
Speaker Change: Ladies and gentlemen, just a reminder, if you have a question. Please press Star then the number one on your telephone keypad.
Operator: Your next question comes from the line of Jon Chappell from Evercore. Please go ahead.
Jonathan B. Chappell: Thank you. Good afternoon, Bart. I'm going to stick with you for a second. This path to 11.5 on the cash break even, is that strictly the sale and lease back on these two vessels and the $41 million? Or are there other sale and lease back or other cost initiatives that take you from that just over 13 to sub-11.5 over time?
Jonathan B. Chappell: Thank you good afternoon.
Jonathan B. Chappell: Pardon me stick with you for a second this path to 11 five on the cash breakeven is that strictly the sale leasebacks on these two vessels and the $41 million or are there other either sale and leasebacks or other cost initiatives that takes you from that just over 13 to sub 11 side will return.
Jonathan B. Chappell: Sure, John. No, thanks.
Bart: Yeah sure no. Thanks.
Bart: The sale leasebacks is a is a component of it.
Bart: But but we're always actually looking at additional cost reductions.
Jonathan B. Chappell: If achieved some through this you already on the expense side and then and then also further reduction of debt, reducing the interest expense.
Bart: The sale leaseback, so it kind of multifaceted, but but something that we just see is really boosting the quality of earnings and.
Bart B. Kelleher: No, the sale leasebacks is a component of it. But we're always actually looking at additional cost reductions and have achieved some through this year already on the expense side. And then also further reduction of debt, reducing the interest expense beyond the sale leaseback. So, kind of multifaceted, but something that we just see is really boosting the quality of earnings and then really setting up Ardmore for any market scenario well into the future.
Bart B. Kelleher: And then really setting up ardmore kind of for any market scenario well into the future.
Jonathan B. Chappell: Okay, and then over 50% of the MRs with scrubbers now, or plan for scrubbers, is the ultimate target to get the entire fleet there? Are there a couple of maybe older vessels that you'd be holding back on and not want to put that capital into?
Bart B. Kelleher: Okay, and then over 50% of the Mars with Scrubbers now we're planning for scrubbers.
Jonathan B. Chappell: The ultimate target to get the entire fleet. There are there are a couple maybe older vessels that you would be holding back and not want to put that capital into.
Bart B. Kelleher: Yeah, thanks, John. You know, we're really happy with the scrubbers thus far, and getting half of the fleet installed on the MR side has been great. We've done it during the regular dry docking period, so we don't incur an incremental cost to do so. So really looking ahead, it would be more of our 2015 built vessels next year for dry docking, something that we likely will continue to roll out. And, you know, they have good returns. We like the scrubber 2.0 technology and also the carbon capture readiness for potential future applications.
Speaker Change: Yes, Thanks John.
Jonathan B. Chappell: We were really happy with the scrubber is thus far in getting half of the fleet installed on the EMR side.
Bart B. Kelleher: <unk> has been great.
Bart B. Kelleher: We've done it during the regular Drydocking period, so we don't incur an incremental cost to do so.
Bart B. Kelleher: So really looking ahead it would be more our 2015 built vessels.
Bart B. Kelleher: Next year for dry docking.
Bart B. Kelleher: Something that we will likely continue to rollout.
Bart B. Kelleher: And.
Bart B. Kelleher: They have good returns, we like the scrubber 2.0 technology and and also the carbon capture readiness for potential future applications.
Jonathan B. Chappell: Okay, just finally, is there any way to quantify returns or the rate differential of the ships that have already had the scrubbers put in? I'm not sure if this is coincidental or it's something to look into, but the Eco Design versus the Eco Mod, there was a $6,500 spread in the first quarter of 23, and they're basically right on top of each other in the first quarter of 24. Was that more just kind of market strength, or are some of the Eco Mods getting the scrubbers, and that's really narrowed the gap?
John: Okay. Just finally is there any way to quantify the either returns or the rate differential of the ships that have already had the scrubbers put in I'm not sure. If this is coincidental or something to read into but the eco design versus the eco mod theres, a $6500 spread in the first quarter 'twenty three in there.
Jonathan B. Chappell: You're right on top of each other in the first quarter of 2004 was that more just kind of the market strength or is it some of the eco mods are getting the scrubbers and that has really narrowed the gap.
Bart B. Kelleher: Well, the Ecomods at this point would just be the charters in and, you know, the ones that we sold and chartered back as well as another market charter in. You know, if you strip away everything, essentially, these scrubbers will generate the same benefit as any other scrubber on any of the other companies and more. Yeah, yeah, yeah, yeah, thanks.
Jonathan B. Chappell: Well the economics at this point would just be the charters in and the ones that we sold in charter back as well as in other market chartering.
Bart B. Kelleher: So.
Bart B. Kelleher: If you strip away.
Bart B. Kelleher: Everything essentially the scrubbers will generate the same benefit.
Bart B. Kelleher: As any other scrubber.
Bart B. Kelleher: Okay.
Speaker Change: Yeah, Yeah, yeah, yeah. Thanks, guys.
Bart B. Kelleher: Okay.
Bart B. Kelleher: Yes.
Bart B. Kelleher: Yeah.
Operator: Alright, your next question comes from the line of Cleanant Mullins from Value Investors Edge. Please go ahead.
Marlin Moldings: Alright. Your next question comes from the line of Cleveland Clinic, Marlin moldings from value Investor's edge. Please go ahead.
Cleanant Mullins: Good morning. Thank you for taking my question. Omar and Jon have already covered some of the key points, but I was wondering if you could provide an update on your investment in E1 Marine. Sure, and as a reminder for the listeners.
Cleanant Mullins: With morning, Thank you for taking my questions.
Cleanant Mullins: And John have already commented some of the key points, but I was wondering could you provide an update on your investment in you on marine.
Cleanant Mullins: Sure and as a reminder for the for the listeners a few years ago in 2021. The company made an investment in element, one which has proprietary technology to take methanol and produce pure hydrogen and that can be used in a wide range of fuel cell.
Bart B. Kelleher: Sure, and as a reminder for the listeners, a few years ago, in 2021, the company made an investment in Element One, which has proprietary technology to take methanol and produce pure hydrogen that can be used in a wide range of fuel cell applications. And I think it is also important to remind you that it was a multifaceted deal, so that was also when we put $40 million of preferred on our balance sheet at a time when the company really needed the capital.
Bart B. Kelleher: Locations.
Bart B. Kelleher: And I think also important to remind that a it was a multifaceted deal. So that was also when we put 40 million of preferred on our balance sheet at a time when the company really needed the capital.
Bart B. Kelleher: And so now today element in one.
Bart B. Kelleher: And so now today, Element One, like other industrial companies when you have this proprietary technology and you're looking to monetize it, they're expanding their global scale in terms of license agreements across geographies and across verticals, so marine included, but really other verticals off-highway, on-highway, charging stations, aerospace, so significant momentum with licensing revenue. And I think it's also important to note, though, that for us, that's a $10 million investment, so a small portion of our overall asset base and one that's outside of our own fleet of actual vessels but certainly part of our energy transition plan and team today.
Bart B. Kelleher: Like other industrial companies. When you have this proprietary technology and you are looking to monetize it.
Bart B. Kelleher: They're expanding their global scale in terms of license agreements across geographies and across verticals.
Bart B. Kelleher: So marine included but really other verticals off highway on highway charging stations aerospace.
Bart B. Kelleher: So significant momentum.
Bart B. Kelleher: With licensing revenue.
Bart B. Kelleher: And and I think just also important to note, though like for US that's a 10 million dollar investment so a small portion of our overall.
Bart B. Kelleher: <unk> base.
Bart B. Kelleher: And the one that.
Bart B. Kelleher: Outside of our own fleet of actual vessels.
Bart B. Kelleher: But certainly part of our energy transition plan.
Bart B. Kelleher: <unk> today.
Bart B. Kelleher: Okay.
Cleanant Mullins: Thank you; that's all from me.
Speaker Change: Thank you that's all for me.
Operator: There are no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Speaker Change: There are no further questions ladies and gentlemen. This concludes today's conference call. Thank you very much for your participation you may now disconnect.
Operator: Oh.