Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Third quarter ended September 30, 2010
Release Date: November 4, 2010 (Filed November 12, 2010)
Teekay Tankers operates a fleet of double-hull Aframax and Suezmax tankers, utilizing a mix of fixed-rate time-charter contracts and spot market trading. The company also holds investments in term loans secured by VLCC newbuildings.
Key Financial Metrics
- Revenue: Total revenues were $30.3 million for the quarter, compared to $31.9 million in the prior quarter. Net revenues (revenues less voyage expenses) were $29.9 million.
- Profitability:
- GAAP Net Loss: $0.3 million ($0.01 per share).
- Adjusted Net Income: $5.8 million ($0.13 per share), excluding unrealized losses on interest rate swaps ($4.2 million) and a loss on the sale of a vessel ($1.9 million).
- Cash Flow: Cash Available for Distribution (CAD) for the quarter was $15.4 million. Net operating cash flow for the nine months ended September 30, 2010, was $48.5 million.
- Dividends: Declared a cash dividend of $0.31 per share for the third quarter, payable November 30, 2010.
- Liquidity: Total liquidity as of September 30, 2010, was $132.9 million ($11.2 million cash + $121.7 million undrawn credit facility).
- Debt: Long-term debt stood at $415.9 million as of September 30, 2010.
- Operating Rates (TCE):
- Time-Charter Fleet: Aframax $25,466/day; Suezmax $27,255/day.
- Spot Fleet: Aframax $14,806/day; Suezmax $18,445/day.
Material Changes vs. Prior Period
- Income Decline: Adjusted net income per share decreased from $0.18 in Q2 2010 to $0.13 in Q3 2010. This was primarily due to lower average spot tanker rates, partially offset by $2.4 million in interest income from term loans.
- Revenue Decrease: Total revenues declined 5% quarter-over-quarter ($31.9 million to $30.3 million) due to weaker spot market conditions.
- Liquidity Reduction: Total liquidity decreased from $225.4 million in Q2 to $132.9 million in Q3, driven by dividend payments and capital expenditures, though expected to rebound with pending acquisitions.
- GAAP Loss: The company reported a GAAP net loss in Q3 compared to a net income of $2.1 million in Q2, largely due to non-cash unrealized losses on derivative instruments.
Guidance, Outlook, and Management Commentary
- Acquisition Activity: Agreed to acquire the Suezmax tanker Iskmati Spirit and Aframax tanker Esther Spirit for $107.5 million, expected to close mid-November 2010. This transaction is expected to increase total liquidity to approximately $213 million.
- Charter Coverage: Fixed-rate coverage is approximately 69% for Q4 2010 and 49% for 2011. A new 24-month fixed-rate time-charter for an Aframax tanker commenced in late October 2010 at ~$20,000/day.
- Q4 Dividend Outlook: Management provided a sensitivity table for the Q4 2010 dividend based on spot rates. Estimated dividends range from $0.20 to $0.48 per share depending on Suezmax and Aframax spot rates (ranging from $10,000 to $40,000 per day).
- Market Conditions: Spot rates remain weak due to increased fleet supply (newbuilding deliveries and return of vessels from floating storage) and seasonal factors. Global oil demand growth is forecast to reach record levels in 2010.
- Risks: Key risks include volatility in oil demand and trading patterns, potential early termination of contracts, interest rate fluctuations, and delays in vessel acquisitions or drydockings.
Investor Verification Checklist
- Verify the closing of the $107.5 million acquisition of the Iskmati Spirit and Esther Spirit and the associated financing terms.
- Monitor spot tanker rates (TCE) for Q4 2010 to assess the accuracy of the estimated dividend range provided by management.
- Review the impact of the $115 million term loan investment on future cash flows and the creditworthiness of the borrower.
- Confirm the schedule and costs of upcoming vessel drydockings, which are reserved against in the dividend calculation.
- Track the company's leverage ratio post-acquisition to ensure it remains within management's target range.