Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2019
Report Date: May 23, 2019
Teekay Tankers operates a fleet of double-hull tankers, including Suezmax, Aframax, and LR2 product tankers, alongside a ship-to-ship transfer business. The company employs vessels through a mix of fixed-rate time charters and spot market trading. In Q1 2019, the company updated its non-GAAP financial measures, replacing "Cash Flow from Vessel Operations" (CFVO) with "Adjusted EBITDA" to align with internal reporting and SEC Form 20-F standards.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2019 | Q4 2018 | Q1 2018 |
|---|---|---|---|
| Total Revenues | $232,501 | $239,724 | $168,465 |
| GAAP Net Income | $12,447 | $11,502 | ($19,153) |
| Adjusted Net Income (Non-GAAP) | $14,647 | $14,002 | ($21,976) |
| Total Adjusted EBITDA (Non-GAAP) | $63,428 | $63,030 | $22,342 |
| Free Cash Flow (Non-GAAP) | $44,554 | $44,580 | $7,862 |
| Liquidity (as of Mar 31, 2019) | $116.2 million | $66.7 million | N/A |
| Liquidity (as of May 22, 2019) | ~$160 million | N/A | N/A |
Per Share Data (Q1 2019): GAAP EPS of $0.05; Adjusted EPS of $0.05.
Material Changes vs. Prior Periods
- vs. Q4 2018: GAAP and Adjusted net income improved slightly. This was driven by higher average spot tanker rates and lower general and administrative expenses, partially offset by higher vessel operating expenses due to the timing of purchases.
- vs. Q1 2018: Significant improvement from a net loss to net income. The turnaround was primarily due to substantially higher average spot tanker rates. This was partially offset by higher interest expense resulting from sale-leaseback transactions completed in late 2018.
- Balance Sheet: Cash and cash equivalents increased to $75.0 million from $54.9 million in Q4 2018. Bunker and lube oil inventory increased significantly to $50.5 million due to a change in revenue sharing arrangements where the company now directly procures fuel.
Guidance, Outlook, and Management Commentary
Market Outlook: Management expects spot tanker rates to decline in Q2 2019 due to seasonal headwinds and heavy refinery maintenance. However, they anticipate a significant firming in the market from the second half of 2019 into 2020. Key drivers for recovery include positive underlying oil demand, increased U.S. crude exports, lower fleet growth, and the impact of IMO 2020 regulations.
Recent Developments:
- Financing: In May 2019, the company completed a sale-leaseback of two Suezmax tankers (adding ~$25 million liquidity) and increased its working capital loan facility limit (adding $15 million liquidity).
- Dividends: The company elected not to pay a dividend for Q1 2019. Funds that would have been paid out are being reserved to reduce outstanding debt, citing prior losses, recent debt incurrence, and current market weakness.
- Contracts: Entered a 2-year time charter-in for an Aframax vessel (commencing July 2019 at $21,000/day) and a 6-month time charter-out for a Suezmax tanker (at $27,500/day).
Risks: Forward-looking statements are subject to risks including early termination of charters, inability of charterers to pay, changes in oil production/demand, and regulatory changes.
Investor Verification Checklist
- Liquidity Position: Verify the $160 million liquidity figure as of May 22, 2019, following the sale-leaseback and working capital loan expansion.
- Dividend Policy: Confirm the suspension of the Q1 2019 dividend and the rationale regarding debt reduction versus the standard 30-50% payout policy.
- Non-GAAP Reconciliations: Review Appendices A, B, C, and D to understand the adjustments made to GAAP Net Income to arrive at Adjusted Net Income and Adjusted EBITDA, specifically regarding derivative instruments and foreign exchange.
- Spot Rate Trends: Monitor Q2 spot rates, which management expects to weaken before recovering in H2 2019.
- IMO 2020 Impact: Assess the company's preparedness for the 2020 sulfur cap regulations, which management cites as a key demand driver for H2 2019.