Business Context and Reporting Period
Company: Nordic American Tanker Shipping Ltd (NYSE: NAT)
Filing Type: Form 6-K (Press Release)
Reporting Period: Second Quarter ended June 30, 2008 (Announced August 8, 2008)
Business Overview: The Company operates a fleet of double-hull Suezmax tankers. As of the reporting date, the fleet consisted of 12 trading vessels (11 on spot market, 1 on long-term charter) and two newbuildings scheduled for delivery in late 2009 and April 2010.
Key Financial Metrics
| Metric (USD) | Q2 2008 | Q1 2008 | Q2 2007 | YTD 6mo 2008 | YTD 6mo 2007 |
|---|---|---|---|---|---|
| Net Voyage Revenue | $63.2m | $46.9m | $44.3m | $110.1m | $88.9m |
| Net Income | $35.5m | $23.4m | $20.9m | $59.0m | $43.7m |
| Earnings Per Share (EPS) | $1.10 | $0.78 | $0.78 | $1.90 | $1.62 |
| Operating Cash Flow (Non-GAAP) | $52.2m | $36.9m | $34.6m | N/A | N/A |
| Dividend Per Share | $1.60 | $1.18 | $1.17 | N/A | N/A |
| Cash and Equivalents | $42.2m | N/A | $25.3m | N/A | N/A |
| Long-Term Debt | $0 | N/A | $185.5m | N/A | N/A |
Liquidity & Capital Structure: The Company reported zero net debt as of June 30, 2008, having used proceeds from a May 2008 follow-on offering ($159m) to repay debt. The $500m revolving credit facility remains undrawn and was extended to September 2013.
Material Changes vs. Prior Period
- Revenue Growth: Net voyage revenue increased 43% year-over-year (Q2 2008 vs. Q2 2007) and 35% quarter-over-quarter, driven by higher spot market rates.
- Profitability: Net income for Q2 2008 ($35.5m) was significantly higher than Q1 2008 ($23.4m) and Q2 2007 ($20.9m). YTD 2008 net income ($59.0m) exceeded the full-year 2007 net income ($44.2m).
- Market Rates: The average daily rate for spot vessels rose to approximately $64,900 in Q2 2008 from $46,600 in Q1 2008. The Imarex Tanker Index for Suezmax averaged $70,625/day in Q2 2008.
- Balance Sheet: Long-term debt was eliminated ($0 vs. $185.5m in Q2 2007) following the equity offering and debt repayment. Shareholders' equity increased to $838.5m from $596.2m in Q2 2007.
Guidance, Outlook, and Risks
- Outlook: Management notes that over 50% of income days for Q3 2008 are covered at spot rates well above Q2 2008 levels. The Company estimates a cash breakeven of below $9,000 per day per vessel.
- Strategy: The Company maintains a full dividend payout policy and focuses on accretive growth. It is actively assessing expansion alternatives.
- Operational Status: Q2 2008 included 50 days of offhire due to three scheduled drydockings, which were completed on time and under budget. No further drydockings are planned until 2010.
- Risks: Forward-looking statements are subject to risks including fluctuations in charter rates, vessel values, bunker prices, global economic conditions, and potential disruptions to shipping routes. The Company does not use derivatives to hedge these risks.
Investor Verification Checklist
- Debt Status: Verify the complete elimination of long-term debt and the terms of the extended $500m credit facility (undrawn, extended to 2013).
- Equity Dilution: Confirm the impact of the May 2008 follow-on offering (4.31m shares) on share count and EPS calculations.
- Spot Market Exposure: Assess the risk/reward of the high exposure to the spot market (11 of 12 vessels) versus the single long-term charter.
- Dividend Sustainability: Review the correlation between the declared dividend ($1.60/share) and the current spot market rates to gauge sustainability if rates decline.
- Non-GAAP Measures: Reconcile the reported Operating Cash Flow ($52.2m) to Net Income, noting the add-back of depreciation and non-cash stock-based compensation.