Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Third Quarter and Nine Months Ended September 30, 2013
Date of Report: November 7, 2013
Teekay Tankers operates a fleet of double-hull oil tankers, including Aframax, Suezmax, LR2, and MR product tankers, alongside a joint venture interest in a VLCC. The company employs a mix of fixed-rate time-charter contracts and spot market trading. As of November 1, 2013, the total fleet consisted of 29 vessels (28 owned, 1 chartered-in).
Key Financial Metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Net Revenues (Non-GAAP) | $39.0 million | $43.9 million | $122.1 million | $148.3 million |
| GAAP Net Loss | ($14.6) million | ($9.7) million | ($22.3) million | ($4.4) million |
| Adjusted Net Loss (Non-GAAP) | ($4.0) million | ($7.7) million | ($13.9) million | ($3.7) million |
| Loss Per Share (GAAP) | ($0.17) | ($0.12) | ($0.27) | ($0.06) |
| Adjusted Loss Per Share | ($0.05) | ($0.09) | ($0.17) | ($0.05) |
| Cash Available for Distribution | $8.7 million | $5.6 million (Q2 2013) | N/A | N/A |
| Total Liquidity | $226.1 million | N/A | N/A | N/A |
Liquidity Composition (Sept 30, 2013): $29.2 million cash and $196.9 million undrawn revolving credit facility.
Debt Maturities: No significant debt maturities until 2017.
Dividend: Declared $0.03 per share for Q3 2013.
Material Changes vs. Prior Period
- Quarterly Performance: Adjusted net loss improved from $7.7 million in Q3 2012 to $4.0 million in Q3 2013. This improvement was driven by lower depreciation expenses (due to 2012 vessel impairments) and stronger Aframax spot rates, partially offset by vessels moving from fixed rates to lower spot rates and reduced interest income from term loans.
- Year-to-Date Performance: Adjusted net loss widened to $13.9 million for the nine months ended Sept 30, 2013, compared to $3.7 million in the prior year. This deterioration was primarily due to lower average spot rates for Suezmax and LR2 vessels and reduced interest income.
- Revenue Decline: Net revenues decreased 11% year-over-year in Q3 and 18% year-over-year for the nine-month period, reflecting market weakness and fleet employment shifts.
Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management maintains a fixed dividend policy and expects to retain increasing operating cash flow as the market recovers. The company highlights strong fixed-rate charter coverage of approximately 40% for the next 12 months and 35% for fiscal 2014. CEO Bruce Chan stated the company is financially stable and well-positioned for a market recovery.
Unusual Items and Contingencies
- VLCC Loan Provision: Recorded a $10.4 million loss provision in Q3 2013 on investments in term loans secured by two VLCCs. One vessel is detained in Egypt; insurers are negotiating its release. The other is trading in the spot market.
- LR2 Newbuilding Orders: In October 2013, the company exercised options to order four additional LR2 product tankers from STX Offshore & Shipbuilding. However, no installment payments have been made because STX has failed to provide acceptable refund guarantees. Teekay Tankers is evaluating alternatives, including legal action for damages.
- Derivatives: The company recorded unrealized losses on interest rate swaps, which are excluded from adjusted net loss calculations.
Risks
Key risks include the potential for early termination of contracts, failure to secure refund guarantees for newbuildings, delays in the release of the detained VLCC, and fluctuations in global oil demand and tanker supply. The IMF lowered GDP growth forecasts for 2013 and 2014, which may dampen oil demand.
Investor Verification Checklist
- VLCC Recovery: Verify the status of negotiations for the release of the VLCC detained in Egypt and the estimated recoverable value of the term loans.
- STX Newbuildings: Monitor the resolution of the refund guarantee dispute with STX Offshore & Shipbuilding and the potential for contract cancellation or legal proceedings.
- Charter Coverage: Confirm the actual fixed-rate coverage percentage for the upcoming 12 months as vessels expire from fixed charters.
- Spot Rates: Track the trend of Suezmax and LR2 spot rates, which have been lower than fixed rates and impacted year-to-date results.
- Liquidity Usage: Review the drawdown on the revolving credit facility and cash burn rate relative to the $226.1 million liquidity position.