Nordic American Tankers Ltd. - 3Q2014 Filing Summary
Business Context and Reporting Period
This Form 6-K, filed on November 18, 2014, incorporates a press release dated November 10, 2014, reporting financial results for the third quarter ended September 30, 2014. Nordic American Tankers Ltd. (NAT) operates a homogeneous fleet of 22 Suezmax crude oil tankers. The company focuses on cost efficiency, accretive fleet growth, and quarterly dividend payments.
Key Financial Metrics
| Metric | 3Q2014 | 2Q2014 | 3Q2013 |
|---|---|---|---|
| Net Voyage Revenue | $40.9 million | $22.6 million | $22.5 million |
| Net Operating Gain (Loss) | $1.2 million | ($15.7 million) | ($16.7 million) |
| Net Gain (Loss) | $1.3 million | ($16.5 million) | ($19.2 million) |
| Earnings Per Share (Basic) | $0.01 | ($0.19) | ($0.29) |
| Operating Cash Flow (Non-GAAP) | $21.8 million | $4.3 million | $2.5 million |
| Average Daily Rate (Trading Fleet) | $21,000 | $12,100 | N/A |
| Cash and Cash Equivalents | $89.3 million | N/A | N/A |
| Net Debt | $105 million | N/A | N/A |
| Undrawn Credit Facility + Net Working Capital | $329 million | N/A | N/A |
Dividends: A cash dividend of $0.14 per share was declared on October 7, 2014, and paid on November 5, 2014. The company also received $5.7 million in dividends from its investment in Nordic American Offshore Ltd. (NAO) during 2014, with an additional $1.8 million expected on November 21, 2014.
Material Changes vs. Prior Periods
- Revenue and Profitability: Net voyage revenue increased significantly to $40.9 million in 3Q2014 compared to $22.6 million in 2Q2014, driven by improved market rates ($21,000/day vs. $12,100/day). The company returned to profitability with a net gain of $1.3 million, reversing losses of $16.5 million in the prior quarter.
- Cash Flow: Operating cash flow surged to $21.8 million, a substantial increase from $4.3 million in 2Q2014 and $2.5 million in 3Q2013.
- Fleet Expansion: The fleet grew to 22 vessels following the delivery of two secondhand vessels (Nordic Sprinter and Nordic Skier) in July and August 2014.
- Investment in NAO: NAT participated in the NAO IPO with $5.6 million and now owns approximately 17.1% of NAO. This investment is booked as a capital asset, with dividends credited to the profit and loss account.
Outlook, Risks, and Management Commentary
Market Outlook: Management notes improving fundamentals in the tanker market due to increased demand and flat supply. The Suezmax fleet has decreased to 445 vessels, with a current orderbook representing only 12% of the fleet. Bunker prices have fallen 25-30%, positively impacting results.
Strategy: NAT maintains a flexible strategy to benefit in both strong and weak markets. The company aims to keep a strong balance sheet with low net debt ($4.8 million per vessel) and a low cash-breakeven of approximately $12,000 per day per vessel. Future fleet expansion is contingent on increasing dividend and earnings capacity per share.
Risks and Contingencies:
- Arbitration: NAT was awarded $10.2 million in an arbitration involving the vessel Nordic Harrier (formerly Gulf Scandic) against Gulf Navigation Holding PJSC. As of the filing date, the claim has not been paid, and collection efforts are ongoing.
- Market Volatility: Risks include fluctuations in charter rates, vessel values, bunker prices, and global economic conditions affecting oil demand.
- Operational: One vessel is scheduled for drydock in 4Q2014 to optimize trading patterns.
Key Facts for Investor Verification
- Verify the collection status of the $10.2 million arbitration award from Gulf Navigation Holding PJSC.
- Confirm the sustainability of the $21,000/day average rate in the upcoming quarter given market volatility.
- Monitor the impact of the NAO investment on future cash flows and potential synergies in G&A costs.
- Review the company's ability to maintain its dividend policy if market rates revert to lower levels.
- Assess the timing and cost implications of the upcoming drydock for one vessel in 4Q2014.