Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter ended June 30, 2019
Date of Report: August 1, 2019
Teekay Tankers operates a fleet of double-hull tankers (Suezmax, Aframax, LR2) and a VLCC joint venture, employing vessels through fixed-rate time charters and spot market trading. The company also operates a full-service lightering business.
Key Financial Metrics
| Metric (in thousands USD) | Q2 2019 | Q1 2019 | Q2 2018 |
|---|---|---|---|
| Total Revenues | $202,277 | $232,501 | $171,659 |
| GAAP Net (Loss) Income | ($14,307) | $12,447 | ($27,413) |
| GAAP EPS (Basic) | ($0.05) | $0.05 | ($0.10) |
| Adjusted Net (Loss) Income | ($12,142) | $14,647 | ($28,743) |
| Total Adjusted EBITDA | $36,197 | $63,428 | $16,554 |
| Free Cash Flow | $19,383 | $44,554 | $1,980 |
| Total Liquidity (as of June 30, 2019) | $119.5 million | $116.2 million | N/A |
Note: Liquidity comprises $35.4 million in cash/cash equivalents and $84.1 million in undrawn credit facilities.
Material Changes vs. Prior Periods
- Q2 2019 vs. Q1 2019: The company reported a GAAP net loss compared to net income in the prior quarter. This decline was primarily driven by lower average spot tanker rates and an increase in scheduled dry dockings.
- Q2 2019 vs. Q2 2018: Both GAAP and Adjusted net losses improved significantly year-over-year. This improvement was due to higher average spot tanker rates, partially offset by increased dry dockings and higher interest expense from three sale-leaseback transactions completed between September 2018 and May 2019.
- Balance Sheet Impact: The transition to a new Revenue Sharing Agreement (RSA) structure (Teekay Tankers Chartering Pte. Ltd.) resulted in notable increases in working capital categories on the balance sheet due to consolidation of previously non-consolidated balances.
Outlook, Management Commentary, and Risks
Management Commentary
CEO Kevin Mackay noted that while crude tanker spot rates declined in Q2 2019 due to seasonal factors and near-term headwinds, they remained the highest for a second quarter since 2016. Key drivers included lower OPEC production and heavy refinery maintenance ahead of IMO 2020 regulations. However, strong U.S. crude oil exports bolstered the full-service lightering business, with Aframax spot rates averaging over $20,000 per day.
Guidance and Market Outlook
- Market Recovery: Management expects a market recovery in the latter part of 2019 and into 2020, driven by projected oil demand growth, increased U.S. exports, and higher refinery throughput ahead of IMO 2020.
- Supply/Demand: Fleet growth is expected to slow significantly in the second half of 2019 and 2020 due to a small orderbook (8.7% of existing fleet) and potential vessel off-hire time for scrubber retrofitting.
- Q3 Spot Rates (to-date): Suezmax (~$15,600/day), Aframax (~$12,800/day), and LR2 (~$12,200/day).
Risks and Contingencies
- Market Headwinds: Continued impact of lower OPEC production and refinery maintenance reducing demand.
- Regulatory Changes: IMO 2020 regulations may create volatility through new trade patterns and port congestion.
- Forward-Looking Statements: Risks include early termination of charters, inability of charterers to pay, geopolitical tensions, and changes in global oil prices.
Investor Verification Checklist
- Liquidity Position: Verify the $119.5 million liquidity figure, specifically the $84.1 million undrawn capacity dependent on borrowing criteria.
- Non-GAAP Reconciliations: Review Appendices A, B, and C for the reconciliation of Adjusted Net Loss, Free Cash Flow, and Adjusted EBITDA to GAAP measures.
- RSA Structure Transition: Assess the impact of the new Teekay Tankers Chartering Pte. Ltd. (TTCL) structure on balance sheet working capital (Appendix E).
- Dry Docking Schedule: Confirm the timing and cost of scheduled dry dockings impacting Q2 results and future quarters.
- Interest Expense: Monitor the impact of interest expense from recent sale-leaseback transactions on future profitability.