Business Context and Reporting Period
Teekay Tankers Ltd. filed its Form 20-F for the fiscal year ended December 31, 2022. The filing is an annual report, not a standalone fourth-quarter filing. The company owns, leases and charters crude-oil and refined-product tankers, with substantial exposure to spot markets, plus full-service lightering, ship-to-ship support and vessel-management activities. At year-end, the fleet comprised 45 owned or leased tankers, five chartered-in tankers, one jointly owned VLCC and two ship-to-ship support vessels.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $1,063.1 million | $542.4 million | +96% |
| Net revenues, non-GAAP | $567.5 million | $227.2 million | +150% |
| Income (loss) from operations | $255.9 million | $(194.1) million | Improved by $450.0 million |
| Net income (loss) | $229.1 million | $(242.4) million | Improved by $471.5 million |
| Diluted earnings (loss) per share | $6.68 | $(7.16) | Turned profitable |
| EBITDA, non-GAAP | $363.1 million | $(103.3) million | Improved by $466.4 million |
| Adjusted EBITDA, non-GAAP | $348.1 million | $3.3 million | Substantially higher |
| Operating cash flow | $193.3 million | $(107.3) million | Improved by $300.6 million |
| Cash and cash equivalents | $180.5 million | $50.6 million | +257% |
| Total debt and finance-lease obligations | $532.8 million | $639.8 million | Down $107.0 million |
| Total equity | $1,070.0 million | $838.4 million | +27.6% |
Reported operating margin was approximately 24.1% and net margin approximately 21.6%, compared with negative margins in 2021. Net revenues represented approximately 53.4% of reported revenue, reflecting the substantial voyage-expense burden of spot-market operations. The average TCE rate increased to $32,034 per revenue day from $11,704 in 2021.
At December 31, 2022, long-term debt was nil. The company had $82.5 million available under its revolving credit facility and $80.0 million available under its working-capital facility, both undrawn. Consolidated liquidity, including cash and undrawn facilities, was $343.0 million. Finance-lease obligations were $532.8 million, with a weighted-average interest rate of 7.2%; approximately $390.0 million of obligations bore variable rates.
Material Changes Versus the Prior Comparable Period
- Higher spot tanker rates drove a $325.5 million increase in net revenues, particularly for Suezmax and Aframax/LR2 vessels.
- Revenue growth also reflected stronger full-service lightering activity, higher STS support revenue and additional chartered-in vessels.
- Vessel operating expenses declined 9% to $150.4 million, primarily due to vessel sales, lower crewing costs and the timing of maintenance.
- Impairment and asset-sale results improved materially: 2022 included an $8.9 million net gain versus a $92.4 million loss and write-down in 2021. The 2021 period included $85.0 million of tanker impairments.
- The company completed two sale-leaseback transactions totaling $291.3 million for 13 vessels, while repaying or prepaying existing debt and fully repaying its term loan.
- Nine vessels underwent dry docking in 2022, compared with 10 in 2021. Dry-docking and ballast-water-treatment off-hire days declined to 561 from 611.
- The company sold one Suezmax and three Aframax/LR2 tankers for total proceeds of $68.4 million and recognized an aggregate gain of $9.4 million.
Outlook, Commentary, Risks and Unusual Items
Management reported that mid-size tanker spot rates were near historic highs in early 2023. It expects rerouted Russian oil trade, replacement of Russian imports into Europe, recovering Chinese demand and limited tanker fleet growth to support 2023 tanker rates, although rates are expected to remain volatile. The company also cited a global tanker orderbook below 4% of the existing fleet and anticipated low deliveries over the following two to three years.
Subsequent to year-end, the company exercised purchase options for 15 vessels for an aggregate $307.1 million. Nine vessels were acquired in March 2023 for $164.3 million, and the remaining six were expected to be acquired in May 2023 for $142.8 million. The company signed a term sheet for a secured revolving credit facility of up to $350.0 million to refinance 19 vessels under sale-leaseback arrangements; completion was expected in the second quarter of 2023.
Management stated that year-end liquidity plus expected operating cash generation should satisfy cash requirements for at least one year. Dividends remain discretionary while the company focuses on deleveraging, net-asset-value growth and reducing its cost of capital.
- The business is highly exposed to volatile spot tanker rates; approximately 93.7% of 2022 net revenue came from spot-market operations, compared with 72.0% in 2021.
- Geopolitical developments, including the Russia-Ukraine conflict and related sanctions or price caps, materially affected 2022 rates and could reverse or change trading patterns.
- Variable-rate finance leases expose earnings and cash flow to higher interest rates and the transition from LIBOR to SOFR.
- Vessel values and finance-lease covenants remain important. The company was in compliance at year-end, but declines in vessel values could require prepayments, additional collateral or refinancing.
- Approximately 30% of the fleet was aged 15 years or older, creating potential fleet-renewal requirements and capital needs.
- Ballast-water-treatment upgrades were completed on 33 vessels at an average cost of approximately $1.3 million per vessel; similar upgrades for the remaining fleet were expected before July 2024.
- The company had $42.0 million of recognized uncertain freight-tax liabilities at year-end and guaranteed 50% of a $24.4 million loan held by its joint venture.
- 2022 included a $1.8 million restructuring charge related to organizational changes at the Teekay management affiliate. No performance fee was incurred under the management agreement.
Important Facts for Investors to Verify
- Whether the planned $350.0 million refinancing was completed on expected terms and whether the 15 vessel purchase-option transactions were fully funded.
- Current spot tanker rates, utilization, TCE rates and the proportion of vessels exposed to spot markets.
- Cash generation after finance-lease payments, vessel purchases, dry docking and fleet-renewal expenditures.
- Progress on LIBOR-to-SOFR transition and the effect of higher rates on the approximately $390.0 million of variable-rate obligations.
- Compliance with vessel-value, liquidity and other financing covenants after the subsequent vessel acquisitions.
- The size and timing of remaining ballast-water, emissions, CII/EEXI and other regulatory capital expenditures.
- The status and potential resolution of the $42.0 million of uncertain freight-tax liabilities.
- The sustainability of 2022 earnings, which benefited from unusually strong tanker-market conditions and significant geopolitical trade-route changes.
- The company’s discretionary dividend policy and the extent to which cash is allocated to debt reduction, vessel repurchases, fleet renewal or shareholder distributions.