Business Context and Reporting Period
This Form 6-K filing by Nordic American Tankers Ltd (NAT) incorporates a press release dated November 10, 2016, detailing financial results for the third quarter ended September 30, 2016. NAT operates a homogeneous fleet of Suezmax crude oil tankers, excluding dry cargo and container sectors. As of the reporting date, the company manages a fleet of 30 trading vessels, with plans to expand to 33 vessels following a recent capital raise and newbuilding agreements.
Key Financial Metrics
| Metric | 3Q 2016 | 2Q 2016 | 3Q 2015 |
|---|---|---|---|
| Net Voyage Revenue | $45.9m | $61.7m | $66.7m |
| Net Operating Gain (Loss) | ($2.2m) | $17.6m | $29.1m |
| Net Gain (Loss) | ($7.6m) | $13.0m | $25.8m |
| Earnings Per Share (EPS) | ($0.08) | $0.15 | $0.29 |
| Operating Cash Flow (Non-GAAP) | $21.7m | $40.7m | $49.1m |
| Operating Cash Flow Per Share | $0.24 | $0.46 | $0.55 |
| Cash and Cash Equivalents | $151.6m | N/A | $47.4m (3Q 2015) |
| Net Debt | $248m | N/A | N/A |
| Dividend Per Share | $0.26 | $0.25 | N/A |
Liquidity and Debt: The company maintains a $500m credit facility maturing in December 2020. As of September 30, 2016, outstanding amounts on the credit facility were $447m. Net debt stood at approximately $248m, or $8.5m per vessel. Cash and cash equivalents increased significantly to $151.6m, driven by a $120m equity placement and $117m in proceeds from the credit facility during the nine months ended September 30, 2016.
Material Changes vs. Prior Period
- Revenue Decline: Net voyage revenue decreased to $45.9m in 3Q 2016 from $61.7m in 2Q 2016 and $66.7m in 3Q 2015. This decline is partially offset by a one-time $5.3m settlement gain with Gulf Navigation included in the 3Q 2016 revenue.
- Profitability Shift: The company reported a net loss of $7.6m in 3Q 2016, contrasting with net gains of $13.0m in 2Q 2016 and $25.8m in 3Q 2015. Operating expenses increased to $48.1m in 3Q 2016 compared to $44.0m in 2Q 2016.
- Capital Structure: Following a $120m equity offering (70% subscribed by institutional investors), the company contracted to build three new Suezmax tankers with Samsung Heavy Industries, scheduled for delivery in the second half of 2018. This expands the fleet from 30 to 33 vessels.
- Dividend Increase: The quarterly dividend was raised to $0.26 per share in 3Q 2016 from $0.25 in 2Q 2016, marking the 77th consecutive quarterly dividend payment.
Guidance, Outlook, and Risks
Outlook and Management Commentary: Management expects the fourth quarter of 2016 to perform well, with approximately 60% of available days fixed at rates significantly higher than the 3Q 2016 average of $16,700 per vessel. The company anticipates that expanding the fleet to 33 vessels will substantially increase earnings capacity and dividend potential. Management asserts that the US presidential election will not negatively impact NAT and views low oil prices as a positive stimulus for the global economy and tanker demand.
Strategic Goals: NAT aims to maintain the lowest cash breakeven in the industry (below $11,000 per day per vessel) and the strongest balance sheet. The company emphasizes a low-risk approach to maximize Total Return (stock price plus reinvested dividends).
Risks and Contingencies: Forward-looking statements are subject to risks including fluctuations in charter rates, vessel values, bunker prices, and drydocking costs. Other risks include changes in OPEC production levels, global oil consumption, regulatory changes, and potential disruptions to shipping routes due to political events or accidents. The company notes that the drybulk and container sectors face challenges, but NAT remains focused solely on crude oil transportation.
Investor Verification Checklist
- One-Time Gains: Verify the impact of the $5.3m settlement gain with Gulf Navigation on 3Q 2016 revenue and operating cash flow to assess recurring earnings power.
- Capital Raise Utilization: Confirm the deployment of the $120m equity proceeds and the status of the three newbuilding contracts with Samsung Heavy Industries for 2018 delivery.
- Debt Levels: Review the increase in long-term debt to $447m (outstanding facility) and the resulting net debt of $248m to evaluate leverage ratios relative to industry peers.
- Offhire Statistics: Validate the reported 126 days of offhire (99 planned) in 3Q 2016 to ensure fleet availability aligns with revenue projections.
- Dividend Sustainability: Assess the ability to maintain the $0.26 per share dividend given the reported net loss and reduced operating cash flow compared to prior quarters.