Business Context and Reporting Period
Nordic American Tankers Limited (NAT) filed a Form 6-K on August 15, 2018, reporting results for the second quarter ended June 30, 2018. The Company operates a homogeneous fleet of Suezmax crude oil tankers. During the quarter, NAT continued its fleet renewal strategy by taking delivery of one newbuilding (Nordic Aquarius) and selling eight older vessels, reducing the average fleet age to approximately 11 years.
Key Financial Metrics
| Metric | Q2 2018 | Q1 2018 | Q2 2017 |
|---|---|---|---|
| Net Voyage Revenue | $27.0M | $29.6M | $39.1M |
| Net Operating Earnings (Loss) | -$17.5M | -$11.1M | -$10.3M |
| Net Loss | -$27.2M | -$19.7M | -$15.9M |
| Adjusted Net Operating Earnings | $0.8M | $4.4M | $15.2M |
| Time Charter Equivalent (TCE) | $10,500/day | $11,200/day | $16,100/day |
| Cash and Equivalents | $46.5M | $58.4M (Dec 2017) | $34.0M (Jun 2017) |
| Net Debt | $203M | N/A | N/A |
| Net Debt per Vessel | $7.3M | N/A | N/A |
Dividend: The Company declared its 84th consecutive quarterly dividend of $0.02 per share, payable September 7, 2018.
Material Changes vs. Prior Period
- Revenue Decline: Net Voyage Revenue decreased 8.8% quarter-over-quarter (Q2 vs. Q1 2018) and 30.9% year-over-year (Q2 2018 vs. Q2 2017), driven by lower spot market rates.
- Widening Losses: Net Loss increased to $27.2M in Q2 2018 from $19.7M in Q1 2018. This was primarily due to a $2.2M impairment loss on vessels and a $1.7M loss on the disposal of vessels, alongside lower operating earnings.
- Fleet Composition: The fleet count at June 30, 2018, was 28 vessels plus 3 newbuildings. The sale of 8 vessels and delivery of newbuildings significantly altered the asset base, with "Vessels Held for Sale" appearing on the balance sheet at $55.4M.
- Financing: The Company cancelled a contemplated bond offering during the quarter. Long-term debt decreased to $346.6M from $443.5M in the prior year, reflecting debt repayments associated with sold vessels.
Guidance, Outlook, and Risks
- Market Outlook: Management remains optimistic, citing a strengthening global economy and potential political uncertainty as factors that could stimulate the tanker market. Spot rates in Q2 were below the Company's cash break-even point.
- Contracting: A 3-year fixed time charter was secured for a second newbuilding (delivery August 2018) at a base rate of $21,000/day, with options to extend through 2023.
- Dividend Policy: The Company aims to maximize dividends; higher payouts are expected if market conditions improve.
- Risks: Key risks include volatile spot rates, bunker fuel price fluctuations, geopolitical disruptions to shipping routes, and the inelastic nature of short-term tanker supply.
Investor Verification Checklist
- Verify the impact of the $2.2M impairment loss and $1.7M disposal loss on the Q2 Net Loss.
- Confirm the timing and terms of the $21,000/day time charter contract for the newbuilding.
- Monitor the Company's cash burn rate given that spot rates were below cash break-even in Q2.
- Review the status of the remaining two newbuildings and their expected delivery schedules.
- Assess the Company's strategy for future financing following the cancellation of the bond offering.