Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Report Date: February 21, 2019
Reporting Period: Fourth Quarter and Full Year ended December 31, 2018
Teekay Tankers operates a fleet of double-hull tankers, including Suezmax, Aframax, and LR2 product tankers, employed through a mix of fixed-rate time charters and spot market trading. The company also manages a ship-to-ship transfer business and holds a 50% interest in a VLCC joint venture.
Key Financial Metrics
| Metric (in thousands USD) | Q4 2018 | Q3 2018 | Q4 2017 | Full Year 2018 | Full Year 2017 |
|---|---|---|---|---|---|
| Total Revenues | $239,724 | $175,915 | $105,229 | $755,763 | $431,178 |
| Income from Operations | $31,206 | ($2,166) | $2,822 | $7,204 | $1,416 |
| GAAP Net Income (Loss) | $11,502 | ($17,484) | ($1,879) | ($52,548) | ($58,023) |
| Adjusted Net Income (Loss) (Non-GAAP) | $14,002 | ($18,001) | ($5,939) | ($54,718) | ($19,945) |
| Cash Flow from Vessel Ops (Non-GAAP) | $62,254 | $27,750 | $32,134 | $128,870 | $123,138 |
| Free Cash Flow (Non-GAAP) | $44,580 | $12,558 | $22,859 | $66,980 | $87,875 |
| Liquidity (as of Dec 31, 2018) | $66.7 million | $89.2 million | N/A | N/A | N/A |
Note: Liquidity as of February 20, 2019, was approximately $115 million, excluding a pending $25 million sale-leaseback transaction.
Material Changes vs. Prior Periods
- Q4 2018 vs. Q3 2018: GAAP net income improved from a loss of $17.5 million to a profit of $11.5 million. This was driven primarily by higher average spot tanker rates, partially offset by increased general and administrative expenses.
- Q4 2018 vs. Q4 2017: The company moved from a net loss of $1.9 million to a net income of $11.5 million. Improvements were attributed to higher spot rates and the acquisition of Tanker Investments Ltd. in late 2017. These gains were partially offset by higher interest expenses from sale-leaseback transactions completed in September and November 2018.
- Full Year 2018 vs. 2017: Total revenues increased significantly from $431.2 million to $755.8 million, largely due to the adoption of new revenue accounting standards (ASU 2014-09) which grossed up voyage charter revenues and expenses. Despite higher revenues, the company reported a GAAP net loss of $52.5 million for 2018 compared to $58.0 million in 2017.
Guidance, Outlook, and Management Commentary
Market Outlook
Management expects near-term headwinds in the first half of 2019 due to OPEC supply cuts, higher fleet growth, and seasonal refinery maintenance. However, the outlook for the second half of 2019 and 2020 is positive, driven by strong underlying oil demand, increased U.S. crude exports, lower fleet growth, and the impact of IMO 2020 regulations.
Strategic Actions
- Liquidity Enhancement: Completed financings in November 2018 adding ~$40 million in liquidity. Signed a term sheet in February 2019 for a sale-leaseback of two Suezmax tankers, expected to add ~$25 million.
- Fleet Expansion: Entered into time charter-in contracts for 2.5 Aframax vessel-equivalents at a weighted average daily rate of $17,600 to increase operating leverage.
- Dividend Policy: The company elected to reserve the Q4 2018 dividend to repay outstanding debt, citing market weakness in the first three quarters and recent debt incurrence.
Risks and Contingencies
Key risks include the potential for early termination of charter contracts, inability of charterers to make payments, changes in oil production/demand, and the failure to complete the pending sale-leaseback transaction. Forward-looking statements regarding market recovery are subject to these uncertainties.
Investor Verification Checklist
- Accounting Changes: Verify the impact of the January 1, 2018 adoption of ASU 2014-09, which increased reported revenues and voyage expenses by $292.6 million for the full year 2018 without affecting net loss.
- Liquidity Status: Confirm the closing of the February 2019 sale-leaseback transaction for two Suezmax tankers to validate the projected $25 million liquidity increase.
- Dividend Suspension: Review the Board's rationale for withholding the Q4 2018 dividend and assess the impact on shareholder returns given the return to profitability in Q4.
- Debt Maturity: Analyze the maturity profile of the new debt incurred from sale-leaseback transactions and the associated interest expense impact on future earnings.
- Charter Rates: Monitor Q1 2019 spot rates against the secured rates mentioned (Suezmax ~$26k, Aframax ~$28.5k) to gauge the severity of the expected near-term market softening.