Nordic American Tankers Limited — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; this is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars unless stated otherwise. NAT operates 23 Suezmax crude-oil tankers, primarily in the spot market.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Voyage revenue | $317.2 million | $289.0 million |
| Net voyage revenue (revenue less voyage expenses) | $175.5 million | $124.0 million |
| Average TCE rate per day | $21,655 | $13,095 |
| Operating income (loss) | $32.0 million | ($38.6 million) |
| Net income (loss) | ($10.4 million) | ($95.3 million) |
| Basic and diluted loss per share | ($0.07) | ($0.67) |
| Cash from (used in) operations | $52.9 million | ($16.1 million) |
| Cash and cash equivalents at year-end | $48.8 million | $49.3 million |
| Total assets | $1,030.9 million | $1,071.1 million |
| Shareholders’ equity | $595.4 million | $602.0 million |
Voyage expenses were $141.8 million and vessel operating expenses were $66.0 million in 2019. Interest expense was $38.4 million, up from $34.5 million. The balance sheet reports $23.5 million of current debt and $375.4 million of long-term debt. Separately, facility balances were $291.8 million under the 2019 senior secured facility and $119.9 million for financing the three 2018 vessels; these are reported net of financing costs in the balance sheet. Restricted cash was $12.8 million.
Material changes versus 2018
- Revenue increased 9.8%, while net voyage revenue rose 41.5% and TCE rates increased 65.4%. Management attributed the improvement mainly to stronger tanker rates.
- Operating results moved from a $38.6 million loss to $32.0 million of operating income. Net loss narrowed by $85.0 million.
- Operating cash flow improved by $69.0 million to $52.9 million. Investing cash flow was a $2.3 million use, versus $85.1 million provided in 2018, when vessel sales generated proceeds.
- Vessel operating expenses fell 17.9%, principally reflecting the smaller fleet after the 2018 sale of ten vessels. Depreciation rose 5.4%, partly due to the full-year effect of the three 2018 deliveries.
- No vessel impairment was recorded in 2019, compared with $2.2 million in 2018. The 2019 net loss nevertheless included a $3.2 million fair-value loss on investment securities and higher interest expense.
Debt, liquidity and shareholder returns
In February 2019, NAT refinanced its former facility with a five-year, $306.1 million senior secured facility maturing in February 2024. It has a floating LIBOR-based rate, a 20-year amortization profile, a $30 million minimum-liquidity covenant, a maximum 70% loan-to-vessel-value ratio and a lender excess-cash repayment mechanism. The company reported compliance with covenants at year-end and stated that cash and expected operating cash flows were sufficient for its needs over the following 12 months. The three 2018 newbuildings have separate ten-year bareboat financing arrangements, with a $20 million minimum-liquidity covenant and vessel-value requirements.
NAT paid $14.3 million in dividends in 2019, or $0.10 per share. A $0.07-per-share fourth-quarter dividend was declared in February 2020 and paid March 16, 2020. The 2019 at-the-market share program issued 5.26 million shares for $17.9 million net proceeds; the filing reports no further sales through its date. The board announced a buyback authorization of up to 4.5 million shares in March 2020.
Outlook, commentary and risks
- Management described 2019 as a stronger tanker market, especially in the fourth quarter. It noted that voyage reporting lags fixtures, so some late-2019 rate strength was expected to appear in first-quarter 2020 results.
- The filing reports weaker indicative Suezmax spot rates in first-quarter 2020 than in fourth-quarter 2019, but says March rates increased amid lower oil demand, higher oil output and demand for floating storage. The duration and financial effects of COVID-19 were uncertain as of the filing date.
- Results remain highly exposed to volatile spot rates, oil demand and production, fleet supply, vessel values, fuel costs, and operating disruptions. Management estimated that a $1,000-per-day-per-vessel decrease in spot rates would have reduced 2019 voyage revenue by about $8.4 million.
- IMO 2020’s lower-sulfur fuel rules took effect January 1, 2020. NAT said its vessels had transitioned to compliant fuels and expected fuel costs to rise. It also disclosed that 17 vessels did not comply with updated ballast-water guidelines, with compliance costs potentially material.
- Broker estimates placed the fleet’s charter-free market value at $788.9 million, about $111.1 million below its $900.0 million carrying value. NAT recorded no impairment, based on estimated undiscounted future vessel cash flows; those estimates rely on freight-rate and other assumptions.
- Unusual items included an $11.0 million settlement to terminate the CEO’s deferred compensation plan and the refinancing of the senior secured facility. The company reported no material pending legal claims and no off-balance-sheet arrangements.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at December 31, 2019.
Important facts for investors to verify
- Whether spot-market earnings and cash generation can support dividends, debt service and covenant compliance if tanker rates weaken.
- The unrestricted cash available for covenant purposes, including the effect of restricted cash and the facility’s excess-cash repayment mechanism.
- Actual vessel market values and the sensitivity of impairment conclusions to freight-rate, utilization, operating-cost and useful-life assumptions.
- Expected costs and timing to bring the 17 vessels into ballast-water compliance, and ongoing costs of IMO 2020 fuel and other regulations.
- Share-count dilution from the ATM and options, and the terms, execution and funding of the announced share buyback.
- The realized effect of COVID-19 on port access, crew changes, charterer payments, oil demand and floating-storage activity; the filing states that future financial effects could not be reasonably estimated.