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, 2020
Report Date: August 13, 2020
Teekay Tankers operates a fleet of double-hull tankers (Suezmax, Aframax, LR2) and a Very Large Crude Carrier (VLCC) joint venture. The company employs vessels through a mix of fixed-rate time charters and spot market trading. The quarter was characterized by strong spot rates in the first half, followed by pressure in the latter half due to the unwinding of floating storage and OPEC+ production cuts.
Key Financial Metrics
| Metric (in thousands USD) | Q2 2020 | Q1 2020 | Q2 2019 |
|---|---|---|---|
| Total Revenues | $246,492 | $341,900 | $207,007 |
| GAAP Net Income | $98,198 | $106,839 | ($14,307) |
| Adjusted Net Income (Non-GAAP) | $80,700 | $109,981 | ($12,142) |
| Total Adjusted EBITDA | $124,241 | $155,370 | $36,197 |
| Free Cash Flow (Non-GAAP) | $125,799 | $141,334 | $19,383 |
| Net Debt (Non-GAAP) | $549,347 | $730,276 | $929,135 |
| Liquidity | $467,500 | $368,100 | N/A |
Note: Per share data reflects a one-for-eight reverse stock split completed in November 2019. GAAP EPS for Q2 2020 was $2.91; Adjusted EPS was $2.39.
Material Changes vs. Prior Periods
- vs. Q1 2020: GAAP and Adjusted net income decreased primarily due to lower average spot tanker rates and the sale of non-core assets (ship-to-ship transfer support services and LNG terminal management) in Q2. Q1 included proceeds from the sale of three Suezmax tankers.
- vs. Q2 2019: Net income significantly improved, turning from a loss to a profit. This was driven by higher average spot tanker rates and fewer off-hire days, partially offset by asset sales in the current period.
- Balance Sheet: Net debt decreased by approximately $180 million (25%) in Q2 alone, reaching $549 million. Liquidity increased to $468 million.
Outlook, Management Commentary, and Risks
Management Commentary
CEO Kevin Mackay highlighted the company's financial strength, noting the elimination of debt maturities until 2023 following a new $67 million term loan. The company successfully navigated COVID-19 crew change challenges with no reported cases or service interruptions. Approximately 23% of the fleet is now on fixed-rate charters, reducing the free cash flow breakeven to approximately $12,700 per day through mid-2021.
Market Outlook
Management expects a relatively weaker crude tanker market in the second half of 2020 compared to the strong first half. While global oil production is expected to increase, this may be offset by ships returning from floating storage. Long-term fleet supply fundamentals remain favorable with a 24-year low orderbook.
Risks and Contingencies
- Market Volatility: Uncertainty regarding the pace of oil demand recovery and the impact of COVID-19 containment measures.
- Operational Risks: Crew change logistics and potential for early termination of charter contracts.
- Regulatory: Implementation of new laws such as IMO 2020 and IMO 2030.
Investor Verification Checklist
- Debt Maturity Profile: Verify the details of the new 3-year, $67 million term loan and confirm the absence of debt maturities until 2023.
- Asset Sales: Confirm the final proceeds and tax implications of the sale of the non-US ship-to-ship transfer support business and LNG terminal management business.
- Charter Mix: Validate the 23% fixed-rate charter coverage and the specific rates locked in for the fleet through mid-2021.
- Freight Tax Accruals: Review the $15.2 million reduction in freight tax accruals included in Q2 GAAP net income to understand the sustainability of this benefit.
- Spot Rate Exposure: Assess the impact of the projected weaker H2 2020 market on the remaining 77% of the fleet trading on the spot market.