Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three and nine months ended September 30, 2017
Business Overview: The Company owns and operates crude oil and product tankers, employing a strategy of capturing spot market upside while utilizing fixed-rate time charters to mitigate downside risk. It also provides ship-to-ship (STS) transfer services. As of September 30, 2017, the fleet consisted of 47 vessels, including 43 owned/capital leased and 4 chartered-in.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended Sep 30, 2017 | 9 Months Ended Sep 30, 2016 | 3 Months Ended Sep 30, 2017 | 3 Months Ended Sep 30, 2016 |
|---|---|---|---|---|
| Total Revenues | 330,512 | 427,349 | 91,238 | 109,554 |
| Net (Loss) Income | (56,144) | 58,743 | (22,380) | (5,240) |
| Operating (Loss) Income | (1,406) | 86,565 | (13,734) | (3,207) |
| Operating Cash Flow | 66,942 | 180,633 | N/A | N/A |
| Cash and Cash Equivalents (Sep 30, 2017) | 60,606 | 94,157 (Dec 31, 2016) | 60,606 | 94,157 (Dec 31, 2016) |
| Total Debt (Principal) | 652,233 | 941,661 (Dec 31, 2016) | 652,233 | 941,661 (Dec 31, 2016) |
| Capital Lease Obligations | 150,956 | 0 | 150,956 | 0 |
| Diluted EPS | (0.31) | 0.35 | (0.12) | (0.03) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 22.7% for the nine months ended September 30, 2017, compared to the prior year. This was driven by lower average realized spot Time-Charter Equivalent (TCE) rates and a reduction in fleet size due to vessel sales.
- Net Loss: The Company reported a net loss of $56.1 million for the nine months ended September 30, 2017, a significant reversal from the $58.7 million net income in the same period in 2016. The loss was primarily driven by a $28.1 million write-down of the equity investment in Tanker Investments Ltd. (TIL) and lower operating earnings.
- Operating Expenses: Voyage expenses increased by 68.5% year-over-year for the nine-month period, largely due to a shift in vessel employment from time-charter (where customers pay voyage costs) to spot/voyage charters (where the owner pays).
- Debt Reduction: Total principal debt decreased by approximately $289 million from year-end 2016, resulting from significant prepayments and repayments of long-term debt.
Guidance, Outlook, and Significant Events
- Merger with TIL: On November 27, 2017, the Company completed a merger with Tanker Investments Ltd. (TIL), making it a wholly-owned subsidiary. The transaction was accounted for as an asset acquisition. The Company expects this merger to increase liquidity by approximately $70 million.
- Acquisition of TTOL: In May 2017, the Company acquired the remaining 50% interest in Teekay Tanker Operations Ltd. (TTOL) for $39.0 million, consolidating its results.
- Sale-Leaseback Transaction: In July 2017, the Company completed a $153.0 million sale-leaseback financing transaction involving four Suezmax tankers, structured as a 12-year bareboat charter.
- Market Outlook: Management expects tanker rates to recover in the fourth quarter of 2017 due to seasonal norms and increased U.S. crude exports. For 2018, lower fleet growth and strong oil demand are expected to support utilization and rates.
- Liquidity: The Company anticipates needing additional financing to meet minimum liquidity requirements and refinance a loan facility maturing in Q1 2018. Management believes it has sufficient liquidity to continue as a going concern for at least one year.
- Accounting Changes: The Company is preparing to adopt ASU 2014-09 (Revenue from Contracts with Customers) and ASU 2016-02 (Leases) effective January 1, 2018, which will impact revenue recognition timing and balance sheet presentation of leases.
Investor Verification Checklist
- Merger Integration: Verify the successful integration of TIL and the realization of the projected $70 million liquidity boost.
- Debt Refinancing: Monitor the refinancing of the loan facility maturing in the first quarter of 2018 and compliance with hull coverage ratios (currently 139% for the main facility).
- Spot Market Exposure: Assess the impact of fluctuating spot tanker rates on the 29 vessels currently operating in the spot market.
- Derivative Valuation: Review the fair value changes of interest rate swaps and forward freight agreements, which contributed to volatility in non-operating income.
- Dividend Policy: Confirm future dividend payments, as the policy is tied to "adjusted net income," which excludes items like the TIL write-down and vessel sale losses.