Ardmore Shipping (NYSE:ASC) Q1 2026 Earnings Call

5:12 Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's First Quarter twenty twenty six 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 call will be accessible anytime during the next two weeks by dialing 806600345 or 40174150 and entering passcode 89653.

6:12 At this time, I will turn the call over to Gernot Roubelt, Chief Executive Officer of Ardmore Shipping. Please go ahead. Good morning, and welcome to Ardmore Shipping's first quarter twenty twenty six earnings call. First, let me ask our President, Bart Kelleher, to discuss forward looking statements. Thanks, Gernot. Turning to Slide two. 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 twenty twenty six earnings release, which is available on our website.

7:00 And now, I will turn the call back over to Gernot. Thank you, Bart. Let me outline the format of today's call, which you can see here on Slide three. First, I'll give you a brief overview of our first quarter highlights and cover key strategic and capital allocation actions we have taken since our last call. I will then hand over to Bart, who will cover the market outlook and update you on our financial and operating performance. Thereafter, I will conclude the presentation before opening up the call for questions. But before we discuss our earnings, I'd like to take a moment to acknowledge the major disruption in The Middle East and the significant impact this has had on the maritime industry, in particular, on seafarers and their families.

7:49 While Ardmore has not had any shifts in the region since the beginning of the conflict, we express our solidarity with those currently living through this period of hardship and distress. And we continue to engage with and actively support industry organizations such as the Mission to Seafarers, Intertanko, and other industry partners who have been playing a vital role in working with the people directly affected by these recent events. Now turning to Slide four for earnings highlights. In addition to last week's activity update and TCE guidance, we report today adjusted earnings of $23,600,000 or $0.58 per share. We are declaring a dividend of $0.39 per share, in line with our recently updated dividend policy of paying out two thirds of adjusted earnings effective Q1.

8:47 Disruption in The Middle East is adding further tightness to an already firm market. Our Q1 TCE performance reflects these market conditions, and momentum is accelerating into the second quarter. Our MR tankers earned $33,700 per day for the first quarter and $52,100 per day so far in the second quarter with 55% booked. All chemical tankers earned $22,300 per day for the first quarter and $32,500 per day so far in the second quarter with 65% booked. MR spot rates are therefore at levels nearly five times our operating cash breakeven of $10,800 per day.

9:39 And as we'll discuss in the next slide, we are executing on a clear and deliberate long term strategy, targeted fleet investment, while simultaneously increasing the return of capital to shareholders in a meaningful manner. Moving to Slide five. Here, we highlight three significant updates since our last call. First, we have ordered two highly efficient and versatile Handysize tankers at Wuhu Shipyard at a price of $44,900,000 per vessel. This price includes a $3,000,000 upgrade package to make the vessels fully IMO two capable as well as advanced marine line tank coatings.

10:27 In addition, we are commissioning further performance and safety upgrades. Deliveries are scheduled from late twenty twenty eight, and we have the option to acquire two additional vessels on the same terms. Second, we are doubling our quarterly dividend payout ratio to two thirds of adjusted earnings. 2025 was a heavy CapEx year, which entailed an extensive drydocking program and significant vessel efficiency and commercial upgrades. This is now behind us. Importantly, we also invested over $100,000,000 in three vessel acquisitions that have substantially increased in value since, arguably by about 30% to 35% on a like for like basis.

11:20 And as always dynamic in our approach to capital allocation, we increased our percentage dividend payout effective this quarter. We have also agreed the opportunistic sale of a 2014 built MR tanker for $35,500,000 At the time of agreement, the delivery window was about three months forward, allowing us to continue participating in the strong market with delivery to the buyer expected in June 2026. We believe this is an attractive transaction, not least in conjunction with the previous newbuilding announcement and in context of the aforementioned acquisitions. Overall, these decisions reflect our disciplined through the cycle approach to value creation.

12:10 Growing the business in a thoughtful way, investing in high quality assets that match our strategy and unique organizational capabilities, all while enabling meaningful distribution of capital to shareholders. Moving to Slide six for a bit more detail on the new buildings just mentioned. The vessels will be handysize product and chemical tankers built to full IMO two specification with marine line coatings. These upgrades will enable us to trade across a wide cargo slate from mainstream oil products to edible oils, renewable fuels and complex commodity chemicals. As a reminder, we upgraded our existing chemical fleet last year with MarineLine Coatings, and we are capturing significant benefits through access to premium cargo options and shortened cleaning times.

13:10 We have undertaken an extensive review of shipyards in China, Korea and Japan, and we believe Wuhu offers a compelling combination of high construction quality and value. In terms of funding, we have ample capacity under our existing revolving credit facilities and access to a wide range of alternative sources. With that, I'd like to hand it over to Bart. Thanks, Gernot. Turning to the market, starting with Slide eight and some significant shifts in trade flows. This slide illustrates the rerouting of refined product cargoes as a result of the conflict in The Middle East. Shortages in the East are being filled long haul from the Atlantic Basin.

13:59 Flows from The U. S, Europe, and West Africa are replacing lost Middle East volumes with voyage lengths roughly doubling. As Gurnot mentioned, unfortunately, there are approximately 130 product tankers currently trapped in the Middle East Gulf. This is having an impact on the available vessel supply. In addition, the recent Jones Act waiver is further supporting U. S. Bicoastal trade flows. Moving to slide nine for more detail on current market drivers. The effective closure of the Strait Of Hormuz is disrupting approximately 15% of the global oil product flows and 30% of crude flows.

14:46 As a result, refining margins in The Atlantic have reached their highest level since the pandemic recovery, creating notable arbitrage. Asian refineries have needed to reduce throughput with replacement products sourced via long haul imports from the Atlantic, boosting U. S. Exports. Vessels ballasting back to the Atlantic Basin had a further layer of fleet inefficiency, tightening effective supply. This run up in the Atlantic market has resulted in a lack of vessels in the East, accelerating rates in The Pacific in recent weeks. Product inventories have been significantly drawn down. Looking ahead, a substantial post conflict restocking requirement should support elevated trading activity for an extended period.

15:38 All well damaged refining capacity may take several years to restore, with replacement volumes continuing to move on long haul voyages. Turning to slide 10, looking beyond the immediate disruption and focusing on the longer term fundamentals. Energy security is front and center, supporting long term demand forecasts. Meanwhile, refining capacity continues to shift east with closures in Europe and The U. S. Adding to ton mile demand. While the markets understandably pay attention to the situation in The Middle East, these fundamentals are driving the market over the long term. Moving to Slide 11 for the supply side.

16:24 The chart on the left depicts how the MR fleet has continued to age during this century, while the current order book represents just 15% of the fleet. The Handysize segment is a connected market, but if we look at the Handy order book in isolation, it stands at just 5% against an average fleet age of eighteen years. The chart on the right highlights the same story from a different angle. Within the next five years, half of the global MR fleet will be over twenty years old and approaching the scrapping window. As a reminder, even if these vessels are not initially scrapped as a result of strong market conditions, their utilization levels notably decline.

17:12 Turning to slide 13 and our capital allocation summary. As outlined in our late April press release and commentary today, we have been active across all pillars of our capital allocation policy. And this slide further highlights the numerous actions taken in recent quarters. We're dynamically investing in the business while returning capital to shareholders, including the doubling of our dividend payout ratio to two thirds of adjusted earnings. Moving to slide 14, where we detail our financial position. As always, Ardmore remains focused on optimizing TCE performance, closely managing costs and preserving a strong balance sheet. Our low cash breakeven level of $11,700 per day or $10,800 per day excluding drydock CapEx gives us financial flexibility.

18:10 Considering forward newbuild CapEx, which we can fund through our existing credit facilities or other alternatives, overall pro form a leverage remains at a modest level. Turning to Slide 15 for financial highlights. Ardmore is well positioned with strong operating leverage. Every $10,000 per day increase in TCE rates translates to an additional nearly $2 per share in annual earnings. For the first quarter, we are reporting adjusted EBITDAR of $37,300,000 and as noted earlier, earnings per share of $0.58 We continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers.

18:57 A full reconciliation is in the appendix alongside our second quarter guidance figures. Moving to Slide 16 for fleet operations. As a reminder, we have limited drydocking activity through 2027. Existing fleet capital expenditure is expected to decline significantly to approximately $8,000,000 this year versus $30,000,000 last year. We have our refreshed fleet on the water capturing the current market. With that, I'm happy to hand the call back to Gurna and look forward to answering any questions at the end. Great. Thank you, Bart. Moving to Slide 18, allow me to summarize. On top of compelling long term fundamentals, product markets continue to experience significant near term disruption driving ton mile demand as is reflected in our TCE performance on this slide.

19:59 Commodity dislocation and product supply gaps, urgent inventory restocking needs, as well as continued structural demand growth point to sustained strength. Ardmore continues to progress through a disciplined, deliberate, and dynamic approach to capital allocation. We have made targeted investments in the fleet over the past year through value focused newbuilding and secondhand acquisitions, as well as upgrades to the existing fleet, all while increasing shareholder returns and maintaining responsible debt levels. As always, our investment decisions are guided by the company's strategy, strong corporate governance, and a long term value approach.

20:53 We now welcome your questions. Thank you. Now, ladies and gentlemen, we'll begin the question and answer session. 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 the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. Your first question comes from John Chappell with Evercore. Please go ahead. Thank you. Good afternoon. Good afternoon. Good afternoon. The dividend policy. I know you've spoken about it a little bit in the prepared remarks, but just trying to understand the timing and the thought process behind it. Again, understand you've sold the vessel, you have far less capital commitments as it relates to fleet maintenance this year.

21:56 But is this kind of a sign that investing in this part of the cycle where asset value is where they are just doesn't offer the same type of returns that you think a doubling of the capital return policy to the investors provides? Yes, great question, Jon. I think we really want to look at dividend policy as a subset of returning capital to shareholders as part of our capital allocation policy, which we've been quite consistent with. If you go back to end of twenty twenty four, of course, we saw some opportunity in our stock price and we did some buybacks and continued to pay dividends all throughout. But last year, we also saw some really interesting opportunities to reinvest in the fleet through the acquisitions we've mentioned, some really interesting retrofits, paid down the pref on top of the interesting refi.

22:49 And we're able to also pay back some debt. So I think for us, this is really a way to re shift and rebalance, acknowledging, of course, that prices have moved up, but also not in any way, I think, taking away from this kind of really balanced approach to capital allocation that you really need to see across quarters and across the whole game, which will continue to balance thoughtful and measured reinvestment in the fleet with returning capital to shareholders while maintaining healthy debt levels. Okay. That makes sense. And then as it relates to fleet strategy, I know you have a couple time charter outs right now. It feels like in the larger crude asset classes, time charter rates have spiked to all time record highs and there seems to be a pretty decent especially in the Versus Is there a similar thing transpiring in the MR and chem market? And if there is, what's your appetite to kind of lock in at some of these really elevated rates with guaranteed cash flows versus maintaining that optionality in the spot market that you speak to?

23:52 So time charter rates have definitely reacted and moved up significantly. We have not executed on those time charters in the past quarter, because we don't quite feel that the value proposition is maybe as pronounced as you would see in crude tankers. And sometimes these take these things take some time to build just to the nature of the timing and the rhythm of the time charter markets. But we'll continue to monitor that. We, of course, do take note that a lot of the time charter interest right now is coming from oil majors, refiners and major traders, including some long term interest, and we think that's really encouraging. And we have in the past opportunistically engaged in time charters out and time charters in.

24:38 But for now, we've been monitoring, and we're looking at it with great interest, of course. All right. Appreciate the thoughts, Gronaut. Thank you. Thank you. Star one. Your next question comes from Omar Nakta with Clarkson Securities. Please go ahead. Thank you. Hi, Gurnaut and Bart. Thanks for the update. Good afternoon. Hi, Omar. Obviously, yeah that you know clearly nice quarter and it looks like definitely more to come. I just wanted to ask you know you've got the MRs which are you know historically you know and continue to be your biggest footprint. You've also got the chemical tankers or the handy chemical tankers. Can you just talk a little bit about those segments and how they performed in this market given the Hormuz disruption? You know just in terms of the you know the 37 and the 25 deadweight that you have, are those capturing similar earnings together? Or would you say there's a detachment where the 37 are closer to the MRs and the 25 are separate? Any color you can give on how those are trading?

25:52 Yes. I think this is actually a great question and maybe something we didn't highlight enough. For us, the order we committed to, these are handysize tankers that cover the full range of liquid products, which includes chemicals. But this is really all about creating trading options for these ships and for the company. It's not some fundamental philosophical leaning deeper into chemicals. For us, it's always been enabling the full range of oil products, which, of course, includes jet fuel and naphtha and all the other road fuels that are in extremely high demand. And equally then, alternative cargoes, emerging cargoes, because we think this offers really interesting long term strategic perspectives for the business. And in the near term, it already offers substantial triangulation opportunities.

26:49 So these ships that we have ordered and the way we're approaching our existing chemical tankers too, these ships are fully conversant in both markets. And we will basically continue to follow the money and just benefit from this added optionality. So right now, even our 25,000 tonners that you mentioned, which make up the majority of our existing chemical fleet, half the size of an MR. And typically, sort of normalized market conditions, they would probably trade 90% in non CPP cargoes, but we have been redirecting those ships where they now trade almost exclusively CPP, because that's where the money is. So really for us about trading options, not trading obligations and continuing to be very versatile players across the full spectrum of products and non product cargoes.

27:41 Okay. Thanks, Gernot. That's quite detailed and helpful. And I guess then just as you place those orders and you look to do something that you're looking to be a bit more opportunistic on as you see an opportunity there, we kind of think about then your footprint going forward, not necessarily saying you're gonna potentially deemphasize MRs because clearly that's your main market. But should we kind of think about your potentially pivoting into maybe expanding more within that business or maybe bringing them both together in size over the long term? Yes. I think very important, the way we treat these ships already is in a very integrated fashion, where we don't have a separated sort of product or separated chemical part of the business, very much the relationships, cargo flows, market insights are used in a very integrated fashion.

28:31 So for us, it's really just continued progress along this product and chemical space. For us, we felt like these ships really are terrific strategic fit given our current and our forward strategy. We will continue to follow all sources of deal flow, of course, as we have in the past. It felt that last year there was much stronger value in secondhand MRs, where we saw values drop by arguably 20%, 25 on the back of concerns on tariffs and what that could mean for the global economy, Liberation Day and the likes. And we then acted very decisively on MRs. And of course, that was money well spent, given the fact that they are in the money by 30%, 35%.

29:18 And we now saw the value proposition much clearer on these very forward looking, very versatile, fuel efficient assets. If you compare the price between the twelve year old MR we just sold to the new buildings, we're committing to the delta on a like for like basis is less than €10,000,000 So again, it is a combination of strategic fit on one hand, which is products, products with full versatility and flexibility to trade into more complex cargoes. But of course, are strategic fit and then there's opportunity and just relative value and being opportunistic at times when we have that when the market gives us that chance. Understood, very good. Thanks for that color, Gernot.

30:04 I'll turn it back. Thank you. Ladies and gentlemen, there are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.