Business Context and Reporting Period
This Form 6-K filing by Nordic American Tankers Ltd (NAT) reports financial results for the third quarter ended September 30, 2015. NAT operates a homogeneous fleet of Suezmax crude oil tankers. As of the reporting date, the fleet consisted of 26 vessels, with two additional newbuildings scheduled for delivery in 2016 and 2017. The company operates with a strategy focused on low net debt, accretive fleet growth, and consistent quarterly dividends.
Key Financial Metrics
| Metric | 3Q 2015 | 2Q 2015 | 3Q 2014 | 9M 2015 |
|---|---|---|---|---|
| Net Voyage Revenue | $66.7m | $73.5m | $40.9m | $210.0m |
| Net Operating Gain | $29.1m | $33.5m | $1.2m | $93.7m |
| Net Gain (Loss) | $25.8m | $30.9m | $0.5m | $84.5m |
| Operating Cash Flow (Non-GAAP) | $49.1m | $54.5m | $21.8m | $154.6m |
| Earnings Per Share (Basic) | $0.29 | $0.35 | $0.01 | $0.95 |
| Cash and Cash Equivalents | $47.4m | N/A | $89.3m | N/A |
| Net Debt | $162m | N/A | N/A | N/A |
| Net Debt per Vessel | $6.8m | N/A | N/A | N/A |
Liquidity: The company maintains a $430m non-amortizing credit facility maturing in November 2017, with $250m drawn. Undrawn credit facility plus net working capital totaled approximately $280m at the end of 3Q 2015.
Material Changes vs. Prior Period
- Profitability Surge: Net Operating Gain increased significantly from $1.2m in 3Q 2014 to $29.1m in 3Q 2015, driven by higher spot rates and improved market conditions.
- Revenue Growth: Net Voyage Revenue rose 63% year-over-year from $40.9m to $66.7m.
- Cash Flow Improvement: Operating cash flow for the nine months ended September 2015 ($154.6m) was substantially higher than the full year 2014 ($77.7m) and reversed the negative cash flow seen in 2013.
- Fleet Expansion: The fleet grew to 26 vessels following the acquisition of two Suezmax tankers in September and October 2015.
- Dividend Declaration: A cash dividend of $0.38 per share was declared, marking the 73rd dividend payment in the company's history.
Outlook, Risks, and Management Commentary
Market Outlook: Management reports that Q4 2015 is progressing well with spot rates above the 2015 average. The company notes that lower oil prices have positively impacted Suezmax tanker rates by stimulating global demand. The Suezmax orderbook is currently at 18% of the fleet, significantly lower than the 50% peak in 2009.
Strategy: NAT continues to focus on a flexible strategy suitable for both strong and weak markets. The company aims to maintain a low cash break-even rate (below $12,000 per day per ship) and low financial risk. No equity offering is planned for the current fleet expansion.
Risks and Contingencies:
- Market Volatility: Results are subject to fluctuations in charter rates, bunker prices, and global economic conditions.
- Investment in Affiliate: The company's investment in Nordic American Offshore Ltd (NAO) is negatively impacted by low oil prices, though NAT expects long-term value from resource sharing.
- Legal Settlement: NAT was awarded $10.2m plus interest in an arbitration case against Gulf Navigation Holding PJSC. Compensation will be received in mandatory convertible bonds expected in late Q4 2015.
Investor Verification Checklist
- Verify the reconciliation of the non-GAAP "Operating Cash Flow" metric to GAAP Net Income.
- Confirm the delivery schedule and financing terms for the two newbuildings planned for 2016 and 2017.
- Monitor the conversion and sale timeline of the mandatory convertible bonds received from the Gulf Navigation Holding arbitration settlement.
- Review the impact of the investment in Nordic American Offshore Ltd on consolidated earnings as oil prices fluctuate.
- Assess the sustainability of the $0.38 quarterly dividend given the current cash flow and debt service obligations.