Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Earnings Release)
Reporting Period: First Quarter ended March 31, 2009
Date of Report: July 23, 2009
Teekay Tankers Ltd. operates a fleet of double-hull Aframax and Suezmax crude oil tankers. The company's strategy involves a mix of fixed-rate time-charter contracts and spot market trading. As of July 1, 2009, the fleet consisted of 12 vessels (9 Aframax and 3 Suezmax).
Key Financial Metrics
| Metric | Q1 2009 | Q4 2008 |
|---|---|---|
| Net Income (GAAP) | $14.1 million ($0.57/share) | ($0.8) million loss ($0.03/share) |
| Adjusted Net Income | $11.8 million ($0.47/share) | $13.0 million ($0.52/share) |
| Net Voyage Revenues | $29.9 million | $32.0 million |
| Cash Available for Distribution | $17.7 million | N/A |
| Cash Dividend Paid | $0.59 per share | N/A |
| Operating Cash Flow | $25.8 million | N/A |
| Total Liquidity (as of Mar 31) | $78.1 million | N/A |
| Long-Term Debt | $314.3 million | $325.2 million |
Operational Rates (TCE per day):
- Spot Aframax: $24,970 (vs. $33,971 in Q4 2008)
- Spot Suezmax: $43,979 (vs. $46,497 in Q4 2008)
- Time-Charter Aframax: $31,962 (vs. $31,766 in Q4 2008)
Material Changes vs. Prior Period
- Profitability: GAAP net income improved significantly from a loss of $0.8 million in Q4 2008 to a profit of $14.1 million in Q1 2009. This turnaround was largely driven by a $2.4 million unrealized gain on an interest rate swap in Q1 2009, compared to a $13.8 million unrealized loss in Q4 2008.
- Revenue: Net voyage revenues decreased by approximately 6.6% to $29.9 million, reflecting lower spot market rates.
- Debt Reduction: Long-term debt decreased by roughly $11 million, primarily due to scheduled repayments and the use of equity proceeds to repay a portion of the revolving credit facility.
- Dividend: The company declared and paid a dividend of $0.59 per share, consistent with its policy of distributing Cash Available for Distribution.
Guidance, Outlook, and Management Commentary
Recent Acquisition: On June 24, 2009, the company acquired the Suezmax tanker Ashkini Spirit for $57.0 million. The purchase was financed through the issuance of 7.0 million Class A common shares, raising $68.6 million. Excess proceeds were used to repay debt, and the acquisition added $58.0 million in undrawn revolver capacity.
Liquidity Position: Management states that the equity offering and increased revolver capacity nearly doubled the company's available liquidity and reduced financial leverage. Approximately 60% of the fleet is currently on fixed-rate charters at levels above current spot rates.
Market Outlook: Management notes a weakening spot market due to global economic downturns and increased fleet supply. However, they anticipate benefits from a global economic recovery starting in 2010 as spot market exposure increases.
Q2 2009 Dividend Estimates: The company provided a matrix of estimated dividends for Q2 2009 based on spot rate assumptions. Estimates range from $0.24 per share (at $10k/$10k spot rates) to $0.73 per share (at $60k/$40k spot rates).
Risks: Key risks include global oil demand contraction, OPEC production cuts, above-average fleet growth, and potential delays in shipyard deliveries or order cancellations.
Investor Verification Checklist
- Non-GAAP Adjustments: Verify the reconciliation of Adjusted Net Income to GAAP Net Income, specifically the impact of the $2.4 million unrealized gain on the interest rate swap.
- Dividend Sustainability: Confirm the company's ability to maintain the $0.59/share dividend given the decline in spot TCE rates and the reliance on fixed-rate charters.
- Liquidity Post-Acquisition: Validate the total liquidity position after the June 24, 2009 equity offering and the addition of the $58 million revolver capacity.
- Fleet Composition: Monitor the ratio of spot vs. time-charter exposure, as the company notes spot exposure will increase from 2010 onwards.
- Debt Covenants: Review the terms of the revolving credit facility and long-term debt to ensure compliance with leverage ratios following the recent capital structure changes.