Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2017
Date of Report: November 9, 2017
Teekay Tankers operates a fleet of conventional oil tankers, including Suezmax, Aframax, and LR2 product tankers, employed through fixed-rate time charters and spot market trading. The company is currently pursuing a merger with Tanker Investments Ltd. (TIL).
Key Financial Metrics
| Metric (in thousands USD) | Q3 2017 | Q2 2017 | Q3 2016 |
|---|---|---|---|
| Total Revenues | $91,238 | $108,789 | $109,554 |
| GAAP Net Loss | $(22,380) | $(37,477) | $(5,240) |
| GAAP Loss Per Share | $(0.12) | $(0.21) | $(0.03) |
| Adjusted Net Loss (Non-GAAP) | $(13,966) | $(7,068) | $(1,475) |
| Adjusted Loss Per Share (Non-GAAP) | $(0.08) | $(0.04) | $(0.01) |
| Cash Flow from Vessel Operations | $20,551 | $27,981 | $32,847 |
| Free Cash Flow (Non-GAAP) | $11,947 | $18,711 | $26,640 |
Liquidity and Balance Sheet (as of Sept 30, 2017):
- Total Liquidity: $104.8 million (Cash: $60.6 million; Undrawn Credit Facilities: $44.2 million).
- Total Assets: $1.74 billion.
- Long-term Debt: $486.8 million.
- Current Portion of Long-term Debt: $159.1 million.
Material Changes vs. Prior Periods
- Revenue Decline: Total revenues decreased 16.1% year-over-year (Q3 2017 vs. Q3 2016) and 16.1% quarter-over-quarter. This was primarily driven by lower average spot tanker rates and a reduced fleet size due to vessel sales.
- Operating Loss: Loss from vessel operations widened to $(13.7) million in Q3 2017 compared to a profit of $1.6 million in Q2 2017 and a loss of $(3.2) million in Q3 2016.
- Net Loss Improvement: GAAP net loss improved significantly from Q2 2017 ($(37.5) million) to Q3 2017 ($(22.4) million), largely due to the absence of a $28.1 million non-cash impairment charge on the TIL investment recognized in Q2 2017.
- Vessel Sales: The company recognized a $7.9 million loss on the sale of two older Aframax tankers in Q3 2017, compared to minimal losses in the prior year period.
Guidance, Outlook, and Management Commentary
Merger with TIL
Management secured support from its two largest shareholders (Teekay Corporation and Huber Capital) and proxy advisory firms (Glass Lewis and ISS) for a charter amendment to permit the merger with Tanker Investments Ltd. (TIL). The special shareholder meeting is scheduled for November 17, 2017. The combined entity is expected to own 59 conventional tankers, reduce average fleet age, and lower the cash break-even rate.
Market Outlook
Q4 2017: Management expects a recovery in tanker rates due to refineries returning from seasonal maintenance and increased long-haul movements from the Atlantic to the Pacific.
2018: Outlook is positive, anticipating a slowdown in tanker fleet growth (forecasted at just over 5% for 2017, down from 6% in 2016) coupled with robust global oil demand growth (1.4 mb/d forecast for 2018). This supply/demand balance is expected to support fleet utilization and spot rates.
Recent Developments
- Share Repurchase: Authorized a new program to repurchase up to $45 million of Class A common shares.
- Dividend: Declared a minimum quarterly cash dividend of $0.03 per share.
- Charter Activity: Secured a 12-month time charter-out contract for an Aframax tanker at $15,000/day commencing October 2017.
Investor Verification Checklist
- Merger Approval: Verify the outcome of the November 17, 2017 shareholder vote regarding the TIL merger and charter amendment.
- Rate Recovery: Monitor Q4 2017 spot rate performance to confirm management's expectation of seasonal recovery.
- Liquidity Position: Track cash burn and debt repayment schedules given the $104.8 million liquidity position and ongoing vessel sales.
- Share Repurchases: Monitor execution of the new $45 million share repurchase program.
- Fleet Composition: Confirm the delivery of the second Aframax tanker sale scheduled for late November 2017 and the impact on fleet size.