Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Earnings Release)
Reporting Period: First Quarter ended March 31, 2013
Date of Report: May 9, 2013
Teekay Tankers operates a fleet of double-hull oil and product tankers, managed through a mix of fixed-rate time-charter contracts and spot market trading. The company reported results for Q1 2013, highlighting a shift in vessel employment from fixed rates to lower spot rates.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net Revenues (Non-GAAP) | $42.0 million | $53.5 million |
| GAAP Net Loss | ($2.0) million | $4.1 million (Income) |
| GAAP EPS (Basic/Diluted) | ($0.02) | $0.06 |
| Adjusted Net Loss (Non-GAAP) | ($3.5) million | $3.1 million (Income) |
| Adjusted EPS (Non-GAAP) | ($0.04) | $0.04 |
| Cash Available for Distribution | $8.3 million ($0.10/share) | Filing text does not provide Q1 2012 value |
| Total Liquidity | $293.5 million | Filing text does not provide Q1 2012 value |
| Dividend Declared | $0.03 per share | Filing text does not provide Q1 2012 value |
Material Changes vs. Prior Period
- Profitability Decline: The company shifted from a GAAP net income of $4.1 million in Q1 2012 to a net loss of $2.0 million in Q1 2013. Adjusted net income turned into an adjusted net loss of $3.5 million.
- Revenue Decrease: Net revenues dropped 21.5% year-over-year from $53.5 million to $42.0 million.
- Operational Drivers: The decline is primarily attributed to the expiration of fixed-rate charters and a subsequent shift to lower spot rates. Average spot realized tanker rates were lower in Q1 2013 compared to the prior year.
- Specific Items: GAAP results were impacted by specific items, including unrealized gains on interest rate swaps and a loss on vessel sale, which decreased the GAAP net loss by $1.6 million compared to the adjusted figure.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Market View: Management expects a market recovery despite near-term challenges. Spot rates remained at similar levels to Q4 2012, with seasonal weakness expected in the Northern Hemisphere summer.
- Fixed Coverage: The company maintains approximately 40% fixed-rate charter coverage over the next 12 months.
- Capital Allocation: A new fixed dividend policy was initiated with a $0.03 per share declaration. Management intends to retain additional operating cash flow as the market recovers for future growth.
Strategic Initiatives
- Newbuildings: Ordered four fuel-efficient LR2 product tankers for delivery in late-2015 and early-2016 at a cost of approximately $47 million per vessel. Options exist for up to 12 additional vessels.
- Charter Activity: Commenced a 36-month time-charter for the Aframax tanker Everest Spirit at $15,500 per day.
Risks and Contingencies
- Loan Default: A borrower on $115 million in term loans secured by two VLCCs defaulted on interest payments in Q1 2013. The company has taken over technical and commercial management of these vessels. While the company estimates the security interest covers the debt, there is a risk of not fully recovering amounts due if vessel values decline or operating costs rise.
- Market Volatility: Risks include changes in oil production/demand, trading patterns, regulatory changes, and the ability to renew contracts.
Investor Verification Checklist
- Loan Recovery Status: Verify the current valuation of the two defaulted VLCCs and the progress of the company's management of these assets to ensure full recovery of the $115 million exposure.
- Spot Rate Trends: Monitor spot tanker rates for Suezmax and Aframax vessels to assess the impact of the 60% of the fleet trading on the spot market.
- Dividend Sustainability: Confirm if the new fixed dividend policy of $0.03 per share is sustainable given the Q1 adjusted net loss and reduced Cash Available for Distribution.
- Newbuilding Financing: Review the company's plan to finance the $188 million (4 vessels x $47m) newbuilding program, noting that payments are largely due on delivery in 2015/2016.
- Fixed Coverage Renewals: Track the expiration of the current 40% fixed-rate coverage to evaluate exposure to spot market volatility in the coming year.