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, 2018
Business Overview: Teekay Tankers owns and operates a fleet of double-hull tankers, including Suezmax, Aframax, and LR2 product tankers, alongside a ship-to-ship transfer business. Vessels are employed through a mix of fixed-rate time charters and spot market trading.
Key Financial Metrics
| Metric | Q2 2018 | Q1 2018 | Q2 2017 |
|---|---|---|---|
| Total Revenues | $171.7 million | $168.5 million | $108.8 million |
| GAAP Net Loss | ($27.4 million) | ($19.2 million) | ($37.5 million) |
| Loss Per Share (GAAP) | ($0.10) | ($0.07) | ($0.21) |
| Adjusted Net Loss (Non-GAAP) | ($28.7 million) | ($22.0 million) | ($7.1 million) |
| Cash Flow from Vessel Ops (Non-GAAP) | $16.6 million | $22.3 million | $28.0 million |
| Free Cash Flow (Non-GAAP) | $2.0 million | $7.9 million | $18.7 million |
| Total Liquidity (as of June 30, 2018) | $80.2 million | $100.7 million | N/A |
Note: Revenue figures for 2018 reflect the adoption of new revenue accounting standards (ASU 2014-09) effective January 1, 2018, which increased reported revenues and voyage expenses.
Material Changes vs. Prior Periods
- vs. Q2 2017: GAAP net loss improved from $37.5 million to $27.4 million. The prior year period included a significant non-cash impairment of $28.1 million on the Company's investment in Tanker Investments Ltd. (TIL). Excluding this impairment, the current quarter's loss was driven by lower average spot tanker rates and the expiry of time-charter out contracts.
- vs. Q1 2018: GAAP net loss widened from $19.2 million to $27.4 million, primarily due to lower average spot tanker rates in the second quarter.
- Operating Rates: Total fleet Time-Charter Equivalent (TCE) rates declined year-over-year. For example, Suezmax TCE dropped from $19,363/day in Q2 2017 to $13,336/day in Q2 2018.
Guidance, Outlook, and Management Commentary
Liquidity and Financing
Management signed term sheets for three financing transactions (two sale-leasebacks and one working capital loan) expected to increase liquidity by approximately $110 million upon completion. Pro-forma liquidity is projected to reach approximately $190 million as of June 30, 2018. Completion is targeted for the third quarter of 2018.
Market Outlook
- Near-Term: The tanker market remains under pressure due to OPEC supply cuts and drawdowns in global oil inventories.
- Inflection Point: Management expects an inflection point in the latter part of 2018 driven by improving demand fundamentals and slowing fleet supply growth (elevated scrapping and shrinking orderbook).
- IMO 2020: New International Maritime Organization regulations on sulphur content in bunker fuels (effective Jan 1, 2020) are expected to boost demand for crude and clean tankers, as well as floating storage.
Risks and Contingencies
- Financing transactions are subject to customary conditions precedent and execution of definitive documentation.
- Uncertainty regarding the impact of potential declines in Iranian exports due to U.S. sanctions.
- Forward-looking statements regarding market recovery and fleet growth are subject to risks including changes in oil production, demand, and regulatory timing.
Investor Verification Checklist
- Financing Completion: Verify the closing of the three announced financing transactions (sale-leasebacks and working capital loan) and the actual increase in liquidity.
- Charter Coverage: Confirm the commencement of the new 12-month time charter for the Suezmax tanker expected to start mid-August 2018.
- Market Rates: Monitor spot tanker rates (TCE) to assess if the predicted market inflection point materializes in late 2018.
- Accounting Changes: Review the impact of the new revenue accounting standard (ASU 2014-09) on future revenue and expense reporting comparability.
- Debt Maturity: Assess the extension of the debt maturity profile resulting from the new financings.