Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2018 (unaudited)
Business Overview: The Company owns and operates crude oil and product tankers (Suezmax, Aframax, LR2) and provides ship-to-ship (STS) transfer services. As of September 30, 2018, the fleet consisted of 64 vessels, including 60 owned/capital lease vessels and 4 chartered-in vessels. The Company operates two reportable segments: Conventional Tanker and Ship-to-Ship Transfer.
Key Financial Metrics
| Financial Metric (in thousands USD) | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2017 |
|---|---|---|
| Total Revenues | $516,039 | $330,512 |
| Net Loss | $(64,050) | $(56,144) |
| Loss from Operations | $(24,002) | $(1,406) |
| Operating Cash Flow | $(5,445) | $67,837 |
| Cash and Cash Equivalents (End of Period) | $54,361 | $60,606 |
| Total Debt (Principal) | $814,709 | $963,247 |
| Capital Lease Obligations | $296,710 | $148,908 |
| Loss Per Share (Basic & Diluted) | $(0.24) | $(0.31) |
Material Changes vs. Prior Period
- Revenue Increase: Total revenues increased by 56% to $516.0 million. This was primarily driven by the adoption of ASU 2014-09 (Revenue from Contracts with Customers), which reclassified net pool revenues to gross voyage charter revenues and expenses, increasing reported revenue by $202.4 million. Excluding this accounting change, net revenues remained relatively flat compared to the prior year.
- Operating Loss Expansion: Loss from operations widened significantly to $24.0 million from $1.4 million in the prior year. This was due to lower average realized spot Time-Charter Equivalent (TCE) rates and the expiry of fixed-rate time-charter contracts, partially offset by the absence of significant vessel sale losses recorded in 2017.
- Net Loss Improvement: Despite the operating loss, the Net Loss decreased to $64.1 million from $56.1 million. This improvement was largely due to a $27.2 million equity loss in the prior year related to the write-down of the investment in Tanker Investments Ltd. (TIL) prior to its acquisition, which did not recur in 2018.
- Debt Reduction: Total principal debt decreased by approximately $148.5 million due to scheduled repayments, prepayments, and refinancing activities, including a $156.6 million sale-leaseback transaction in September 2018.
Guidance, Outlook, and Risks
- Market Outlook: Management anticipates a recovery in the tanker spot market. Crude tanker rates firmed counter-seasonally in Q3 2018 due to increased global oil production (OPEC, Russia, U.S.) and low fleet growth (0.6% net growth YTD). The Company expects fleet growth to remain below long-term averages in 2019 and 2020.
- Dividend Policy: Effective May 2018, the Company eliminated its minimum quarterly dividend of $0.03 per share to preserve liquidity. Future dividends are expected to range from 30% to 50% of quarterly adjusted net income, subject to Board discretion.
- Liquidity: The Company estimates sufficient liquidity to continue as a going concern for at least 12 months. Total consolidated liquidity (cash + undrawn credit facilities) was $89.2 million as of September 30, 2018. A $40.0 million working capital facility was entered into in November 2018.
- Key Risks:
- Market Volatility: Exposure to cyclical spot market rates and vessel values.
- Debt Covenants: Compliance with hull coverage ratios and liquidity covenants is critical; a decline in vessel values could trigger prepayment requirements.
- STX Arbitration: The Company received STX equity shares as part of a rehabilitation plan for a shipbuilding contract dispute; these shares are delisted, and their value is uncertain.
Investor Verification Checklist
- Accounting Change Impact: Verify the impact of ASU 2014-09 on revenue and expense recognition, as it significantly inflates gross revenue figures without changing net economic results.
- Debt Covenants: Review the hull coverage ratios (currently 134% to 174% for major facilities) and monitor vessel valuations to ensure compliance with loan covenants.
- Liquidity Position: Confirm the status of the $47.6 million revolver maturing in Q4 2018 (refinanced via subsequent sale-leaseback) and the utilization of the new $40.0 million working capital facility.
- Dividend Sustainability: Assess the Company's ability to resume dividends based on the new policy tied to adjusted net income, given the current operating losses.
- STX Recovery: Monitor the status of the STX equity shares and the potential for cash recovery from the arbitration award.