Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2018
Date of Report: May 17, 2018
Teekay Tankers operates a fleet of conventional oil tankers (Suezmax, Aframax, LR2) and a VLCC joint venture. The company employs vessels through a mix of fixed-rate time charters and spot market trading. The first quarter of 2018 was characterized by a cyclical downturn in the tanker market, driven by OPEC supply cuts, an oversupply of tonnage, and seasonal refinery maintenance.
Key Financial Metrics
| Metric | Q1 2018 | Q4 2017 | Q1 2017 |
|---|---|---|---|
| Total Revenues | $168.5 million | $105.2 million | $130.5 million |
| GAAP Net (Loss) Income | ($19.2 million) | ($1.9 million) | $3.7 million |
| GAAP EPS (Basic) | ($0.07) | ($0.01) | $0.02 |
| Adjusted Net (Loss) Income (Non-GAAP) | ($22.0 million) | ($5.9 million) | $7.0 million |
| Adjusted EPS (Non-GAAP) | ($0.08) | ($0.03) | $0.04 |
| Cash Flow from Vessel Operations (Non-GAAP) | $22.3 million | $32.1 million | $42.5 million |
| Free Cash Flow (Non-GAAP) | $7.9 million | $22.9 million | $34.4 million |
| Total Liquidity | $100.7 million | $160.0 million | N/A |
Note: Liquidity as of March 31, 2018, comprised $48.0 million in cash/cash equivalents and $52.7 million in undrawn revolving credit facilities.
Material Changes vs. Prior Periods
- Revenue Increase: Total revenues increased to $168.5 million in Q1 2018 compared to $105.2 million in Q4 2017. This increase is primarily due to a change in accounting presentation (ASU 2014-09) adopted on January 1, 2018, which reclassified revenue sharing arrangement allocations into voyage charter revenues and expenses, increasing reported revenue by approximately $61.3 million.
- Operating Loss: The company reported a GAAP operating loss of $8.4 million, compared to an operating income of $2.8 million in Q4 2017 and $10.7 million in Q1 2017. This decline is attributed to lower average spot tanker rates and the expiry of time-charter out contracts.
- Year-Over-Year Comparison: The Q1 2017 results included a one-time loss on the sale of three vessels (two Suezmax and one Aframax), which impacted the comparability of net income figures.
- Liquidity Decline: Total liquidity decreased from $160.0 million in Q4 2017 to $100.7 million in Q1 2018, driven by debt repayments and quarterly dividend payments.
Guidance, Outlook, and Management Commentary
Strategic Actions
- Sale-Leaseback Transaction: In April 2018, the company signed a term sheet for a sale-leaseback financing of seven tankers (three Suezmax, two Aframax, two LR2). This is expected to increase liquidity by approximately $36.0 million and refinance the company's 2018 balloon debt maturity.
- Dividend Policy Change: The company eliminated its minimum quarterly dividend of $0.03 per share to preserve cash. The earnings-linked variable portion of the dividend policy remains intact, allowing investors to participate in a market recovery.
Market Outlook
- Near-Term Pressure: Management expects the tanker market to remain under pressure in the near term due to OPEC supply cuts and a backwardated oil market.
- Recovery Expectations: An inflection point is anticipated in the latter part of 2018 and into 2019. This is based on strong global oil demand forecasts (1.6 mb/d growth in 2018), significant increases in tanker scrapping (over 8 million deadweight tonnes in Q1 2018), and moderate fleet growth.
- Fleet Growth Forecast: The company revised its global tanker fleet growth forecast downwards to just under 2% for 2018 and approximately 3% for 2019.
Investor Verification Checklist
- Accounting Change Impact: Verify the impact of the ASU 2014-09 adoption on Q1 2018 revenue figures, as the $61.3 million increase is a presentation change rather than operational growth.
- Sale-Leaseback Completion: Monitor the final closing of the $36 million sale-leaseback transaction for seven vessels to confirm the liquidity boost and debt maturity extension.
- Dividend Policy Execution: Confirm the elimination of the fixed dividend component and the mechanics of the variable dividend policy in future quarters.
- Spot Rate Trends: Track spot TCE rates for Suezmax and Aframax vessels, as the company's profitability is heavily exposed to spot market volatility following the expiry of fixed charters.
- Debt Maturity Profile: Review the updated debt maturity schedule post-sale-leaseback to assess refinancing risks for the 2018 balloon payment.