Business Context and Reporting Period
This Form 6-K, filed on February 28, 2018, by Nordic American Tankers Ltd (NAT), reports on the fourth quarter of 2017 and the full year ended December 31, 2017. NAT operates the world's largest fleet of Suezmax crude oil tankers, consisting of 33 vessels (including 3 newbuilds) with an average age of 13 years. The company focuses on a homogenous fleet strategy to serve major oil companies and traders.
Key Financial Metrics
| Metric | Q4 2017 | Q3 2017 | Full Year 2017 | Full Year 2016 |
|---|---|---|---|---|
| Net Voyage Revenue | $36.7M | $23.7M | $154.7M | $236.8M |
| Net Operating Earnings (Loss) | ($14.1M) | ($26.9M) | ($46.2M) | $53.3M |
| Adjusted Net Operating Earnings | $11.2M | ($0.7M) | $56.3M | $146.5M |
| Net Loss | ($21.9M) | ($34.3M) | ($75.5M) | ($4.5M) |
| Operating Cash Flow | Positive trend | Negative trend | $31.7M | $127.8M |
| Time Charter Equivalent (TCE) | $13,800/day | $10,600/day | N/A | N/A |
| Net Debt | $253M | N/A | N/A | N/A |
| Cash and Equivalents | $58.4M | N/A | N/A | $82.2M |
Debt and Liquidity: Net debt at year-end 2017 was approximately $253 million, or $8.4 million per vessel. The company holds $58.4 million in cash and cash equivalents. A $110 million equity raise was completed in December 2017.
Material Changes vs. Prior Period
- Operational Improvement: Q4 2017 Adjusted Net Operating Earnings improved by $11.9 million compared to Q3 2017, shifting from a negative cash development to a positive cash build-up of $11.2 million.
- Revenue Growth: Net Voyage Revenue increased 55% quarter-over-quarter (from $23.7M to $36.7M) driven by higher TCE rates ($13,800 vs $10,600 per day).
- Net Loss Reduction: The Net Loss narrowed significantly from $34.3 million in Q3 to $21.9 million in Q4.
- Balance Sheet: Total assets decreased from $1.35 billion in 2016 to $1.27 billion in 2017, primarily due to a reduction in long-term debt and deposits for vessels.
Guidance, Outlook, and Risks
Outlook: Management expects the tanker market to improve in 2018, citing strong global economic growth and favorable macroeconomic data from the IMF. The company anticipates higher dividends in an improved market.
Recapitalization: NAT is executing a recapitalization program to replace its 2004 credit facility. Key steps completed in Q4 include full financing for three newbuilds (deliveries in 2018) and a $110 million equity raise. The program is targeted for completion by the end of Q2 2018.
Dividend: The company declared its 82nd consecutive quarterly dividend of $0.03 per share, payable March 9, 2018.
Risks: The filing highlights volatility in charter rates, bunker prices, and vessel values. It notes that recent volatility in equity markets could impact financial covenants. The company maintains a zero-tolerance policy for corruption and emphasizes the importance of corporate governance.
Investor Verification Checklist
- Verify the completion timeline of the recapitalization program and the terms of the new credit facility replacing the 2004 RCF.
- Confirm the delivery schedule and financing status of the three newbuilds scheduled for 2018.
- Monitor the TCE rate trends to validate the management's expectation of a market turnaround in 2018.
- Review the impact of the $110 million equity raise on share dilution and the resulting cash yield relative to the dividend policy.
- Assess the company's compliance with financial covenants given the noted volatility in equity markets.