Business Context and Reporting Period
This Form 6-K filing by Nordic American Tankers Ltd (NAT) incorporates a press release dated May 14, 2019, detailing financial results for the first quarter ended March 31, 2019. NAT operates a homogeneous fleet of 23 Suezmax tankers with an average age of 11 years. The quarter marked the company's best financial result since the second quarter of 2016, driven by improved Time Charter Equivalent (TCE) rates and a finalized refinancing of its credit facility.
Key Financial Metrics
| Metric | Q1 2019 | Q4 2018 | Q1 2018 |
|---|---|---|---|
| Net Voyage Revenue | $53.6 million | $44.2 million | $29.6 million |
| Net Operating Earnings | $18.3 million | $5.4 million | ($11.1 million) |
| Adjusted Net Operating Earnings | $34.3 million | $23.6 million | $4.4 million |
| Net Profit (Loss) | $5.6 million | ($10.5 million) | ($19.7 million) |
| Net Cash from Operating Activities | $18.1 million | ($16.1 million) | Filing text does not provide a clear value |
| Net Debt (as of March 31, 2019) | $341 million | Filing text does not provide a clear value | Filing text does not provide a clear value |
| Cash and Cash Equivalents | $34.3 million | $49.3 million | Filing text does not provide a clear value |
| TCE per Vessel (Average) | $26,025/day | $20,100/day | Filing text does not provide a clear value |
Material Changes vs. Prior Periods
- Profitability Turnaround: The company reported a net profit of $5.6 million in Q1 2019, a significant improvement from a net loss of $10.5 million in Q4 2018 and $19.7 million in Q1 2018.
- Operating Performance: Net Operating Earnings increased by $12.9 million compared to the previous quarter. Adjusted Net Operating Earnings rose by $10.7 million quarter-over-quarter.
- Market Rates: TCE rates improved by 30% from Q4 2018, averaging $26,025 per day per ship.
- Debt Reduction: The company made net cash debt repayments of $17.7 million during the quarter. Net debt stood at $341 million ($14.8 million per vessel) as of March 31, 2019.
- Refinancing: NAT finalized a $306 million secured loan and registered a $40 million At-the-Market (ATM) issuance agreement, securing financing for all 23 vessels with longer maturities.
Guidance, Outlook, and Risks
Outlook: Management expects 2019 to be a better year than 2018, citing a strong global economic upswing and refinery adjustments required for new 2020 fuel regulations, which are expected to boost tanker demand. With the majority of the fleet in the spot market, NAT is positioned to benefit from improving rates.
Dividend Policy: The company declared its 87th consecutive quarterly dividend of $0.03 per share, representing 75% of earnings per share. Management stated an objective to increase dividends as tanker markets improve.
Risks and Contingencies:
- Market Volatility: Short-term spot rates are expected to be volatile due to supply/demand imbalances and refinery adjustments.
- Operational Risks: Risks include fluctuations in charter rates, bunker prices, drydocking costs, vessel breakdowns, and off-hires.
- External Factors: Potential disruptions from political events, accidents, changes in OPEC production, and regulatory actions.
Investor Verification Checklist
- Verify the sustainability of the 30% TCE rate improvement and its impact on future quarters.
- Confirm the terms and covenants of the new $306 million secured loan and the $40 million ATM facility.
- Monitor the execution of the dividend policy, specifically the ability to maintain or increase payouts if market rates fluctuate.
- Review the status of the $2.6 million restricted cash deposit for future drydocking and its impact on liquidity.
- Assess the reclassification of the Nordic American Offshore Ltd (NAO) investment from a capital asset to an investment security and its valuation impact.