Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2019
Date of Report: February 27, 2020
Teekay Tankers operates a fleet of double-hull tankers, primarily Suezmax and Aframax vessels, employed through a mix of fixed-rate time charters and spot market trading. The company also operates a ship-to-ship transfer support business. The reporting period coincided with a significant tightening of crude tanker spot rates, reaching levels not seen since 2008.
Key Financial Metrics
| Metric (in thousands USD) | Q4 2019 | Q3 2019 | Full Year 2019 | Full Year 2018 |
|---|---|---|---|---|
| Total Revenues | $303,885 | $182,304 | $920,967 | $755,763 |
| GAAP Net Income | $63,072 | ($19,850) | $41,362 | ($52,548) |
| Adjusted Net Income | $82,991 | ($21,173) | $64,323 | ($54,718) |
| Total Adjusted EBITDA | $131,513 | $27,837 | $258,974 | $128,870 |
| Free Cash Flow | $102,386 | $11,735 | $178,057 | $66,980 |
| Net Debt (GAAP) | $929,135 | $997,411 | $929,135 | $1,050,188 |
| Liquidity | $150.3 million | $95.1 million | $150.3 million | N/A |
Note: Per share data reflects a one-for-eight reverse stock split completed in November 2019. Q4 2019 GAAP EPS was $1.88; Adjusted EPS was $2.47.
Material Changes vs. Prior Periods
- Revenue Growth: Q4 2019 revenues increased 67% compared to Q3 2019 and 27% compared to Q4 2018, driven by significantly higher average spot tanker rates.
- Profitability Turnaround: The company moved from a GAAP net loss of $19.9 million in Q3 2019 to a net income of $63.1 million in Q4 2019. Full-year 2019 resulted in a net income of $41.4 million, a reversal from a $52.5 million loss in 2018.
- Debt Reduction: GAAP net debt decreased by approximately $68 million from Q3 2019 to Q4 2019. Proforma for agreed asset sales, net debt would have decreased by $153 million (15%) from Q3 2019.
- Rate Environment: Average spot TCE rates for the Suezmax fleet rose to $39,083 per day in Q4 2019 from $16,321 in Q3 2019. Aframax spot rates increased to $32,951 from $14,850.
Guidance, Outlook, and Management Commentary
Management Commentary
CEO Kevin Mackay highlighted that Q4 2019 was one of the most profitable quarters since the 2009 super-cycle ended. Management emphasized a strategy of opportunistic asset sales and balance sheet deleveraging. The company successfully transitioned to IMO 2020 low sulphur fuel regulations with minimal disruption.
Outlook and Recent Events
- Q1 2020 Rates: As of late February 2020, secured spot rates for the Suezmax fleet averaged $51,700 per day and $38,600 per day for the Aframax/LR2 fleet, significantly higher than Q4 2019 levels.
- Asset Sales: Agreements reached to sell four Suezmax tankers and a portion of the ship-to-ship transfer business for combined proceeds of approximately $104 million.
- Debt Refinancing: Completed a 5-year, $533 million revolving credit facility in January 2020 to refinance 31 vessels, extending maturities to 2024.
- Proforma Liquidity: Including asset sales and refinancing, proforma liquidity as of Dec 31, 2019, is estimated at $260 million.
Risks and Contingencies
- Coronavirus Impact: Rates have come under pressure in February 2020 due to the coronavirus outbreak in China, which negatively impacts oil demand and refinery runs.
- Supply/Demand: The return of previously sanctioned COSCO vessels to the trading fleet adds supply pressure. However, management expects long-term fundamentals to remain positive due to low fleet growth (estimated 3% in 2020) and increased non-OPEC supply.
Investor Verification Checklist
- Asset Sale Closings: Verify the closing dates and final proceeds for the four Suezmax tankers and the ship-to-ship transfer business sale, as these impact proforma liquidity and debt metrics.
- Q1 2020 Rate Sustainability: Monitor if the high spot rates secured in early Q1 2020 ($51,700 Suezmax) persist given the headwinds from the coronavirus and the return of COSCO vessels.
- IMO 2020 Compliance Costs: Review actual fuel cost variances and operational impacts post-January 1, 2020, implementation of low sulphur regulations.
- Debt Maturity Profile: Confirm the terms of the new $533 million facility and the specific extension of balloon maturities to 2024.
- Freight Tax Adjustments: Note the $10.9 million adjustment to freight tax accruals included in Q4 2019 results; verify the sustainability of such recoveries in future periods.