Business Context and Reporting Period
This Form 6-K filing by Nordic American Tankers Ltd (NAT) reports on the second quarter of 2012, ending June 30, 2012. NAT operates a homogeneous fleet of 20 Suezmax tankers, primarily employed in the spot market through the Orion Tanker Pool. The company emphasizes a conservative risk profile, a strong balance sheet with low net debt, and a policy of maintaining dividends even in soft market conditions.
Key Financial Metrics
| Metric | 2Q 2012 | 1Q 2012 | 2Q 2011 |
|---|---|---|---|
| Net Voyage Revenue | $28.5m | $30.5m | $23.8m |
| Net Operating Loss | ($7.2m) | ($8.7m) | ($9.6m) |
| Net Loss | ($7.9m) | ($9.4m) | ($10.0m) |
| EPS (Basic) | ($0.15) | ($0.18) | ($0.21) |
| Operating Cash Flow (Non-GAAP) | $10.3m | $11.4m | $7.7m |
| Cash Earnings Per Share | $0.18 | $0.22 | $0.15 |
| Cash on Hand | $104.3m | $24.0m (Dec 2011) | $11.6m (Jun 2011) |
| Net Debt | ~$5.0m per vessel | N/A | N/A |
| Dividend Per Share | $0.30 | $0.30 | $0.30 |
Liquidity and Debt: As of June 30, 2012, the company held $104.3 million in cash and cash equivalents. It maintains a $500 million revolving credit facility, of which $250 million was drawn. The facility matures in September 2013 and requires interest-only payments on drawn amounts.
Material Changes vs. Prior Periods
- Earnings Improvement: Net loss narrowed to $7.9 million in 2Q2012 compared to $9.4 million in 1Q2012 and $10.0 million in 2Q2011. EPS improved from -$0.21 in 2Q2011 to -$0.15 in 2Q2012.
- Revenue Decline: Net voyage revenue decreased to $28.5 million in 2Q2012 from $30.5 million in 1Q2012, reflecting a drop in spot market rates.
- Spot Rates: Net voyage revenue per vessel per day in the spot market fell to approximately $16,200 in 2Q2012 from $17,500 in 1Q2012.
- Cash Position: Cash on hand increased significantly to $104.3 million from $24.0 million at year-end 2011, driven by a $75.6 million equity issuance and $20.0 million in credit facility proceeds during the first half of 2012.
- Fleet Expansion: The fleet grew from 15 vessels in late 2010 to 20 vessels in 2Q2012, bolstering earnings capacity.
Guidance, Outlook, and Risks
Management Commentary: Management maintains that the company is in a strong financial position, differentiated by its ability to pay dividends in a soft market. The establishment of the Orion Tanker Pool has yielded cost savings and improved fleet utilization. The company does not engage in derivatives and focuses on cost efficiency and maintaining high technical standards.
Outlook: The global economic outlook remains uncertain, with sluggish growth in the US and struggles in Europe, though Asia remains stable. The Suezmax fleet supply is increasing with 18 vessels delivered in 2Q2012 and 29 planned for the remainder of the year. Management expects to take advantage of weak newbuilding prices to acquire vessels accretively when the time is right.
Risks and Contingencies:
- Market Volatility: Fluctuations in charter rates, bunker prices, and global economic conditions.
- Legal Dispute: NAT is in arbitration with Gulf Navigation regarding the redelivery condition of the vessel Nordic Harrier, claiming costs for drydocking and maintenance not covered by the charterer.
- Financing: Tightened terms and higher margins on shipping loans pose challenges for highly leveraged competitors, though NAT's low debt profile mitigates this risk.
Investor Verification Checklist
- Verify the reconciliation of the non-GAAP "Operating Cash Flow" ($10.3m) to GAAP net loss.
- Confirm the status and potential financial impact of the arbitration claim against Gulf Navigation regarding the Nordic Harrier.
- Review the terms of the $500m revolving credit facility extension currently in progress.
- Assess the impact of the $75.6m equity issuance on future dilution versus dividend capacity.
- Monitor the trend of spot market rates for Suezmax vessels against the company's cash break-even rate of ~$11,000 per day.