Teekay Tankers Ltd. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. The filing is an annual report, not a standalone fourth-quarter filing; it does not provide a clear, separately presented Q4 2017 income statement. Financial statements are prepared under U.S. GAAP.
Business context
Teekay Tankers owns and operates conventional crude-oil and product tankers and provides ship-to-ship transfer, lightering, commercial management, technical management, and LNG terminal consultancy services. At December 31, 2017, the fleet comprised 58 conventional tankers, including four under capital leases, one chartered-in vessel, and a 50% interest in one VLCC, plus six ship-to-ship support vessels. Approximately 51% of 2017 net revenues came from spot-market exposure, directly or through revenue-sharing arrangements.
Teekay Corporation controlled the company through its Class B shares and held a 28.8% economic interest. The company relies substantially on Teekay and affiliates for management, crewing, technical services, commercial pooling, and administrative support.
2017 financial and operating metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $431.2 million | $550.5 million | Down 22% |
| Net revenue, non-GAAP | $353.8 million | $496.9 million | Down 29% |
| Income from operations | $1.4 million | $96.8 million | Down 99% |
| Net income (loss) | $(58.0) million | $67.8 million | Declined $125.8 million |
| Basic and diluted EPS | $(0.31) | $0.40 | From profit to loss |
| Adjusted EBITDA, non-GAAP | $120.4 million | $234.1 million | Down 49% |
| Operating cash flow | $79.6 million | $206.7 million | Down 61% |
| Cash dividends declared per share | $0.12 | $0.18 | Down 33% |
Net revenue margin, calculated as net revenue divided by reported revenue, was approximately 82.1% in 2017 versus 90.3% in 2016. Income from operations margin was approximately 0.3% versus 17.6% in the prior year. Adjusted EBITDA is a non-GAAP measure and includes contributions from equity-accounted investments that may not be available directly to the company.
Balance sheet, debt and liquidity
| Metric at December 31 | 2017 | 2016 |
|---|---|---|
| Cash and cash equivalents | $71.4 million | $94.2 million |
| Total liquidity, including undrawn facilities | $160.0 million | $102.4 million |
| Total debt, including capital-lease obligations and other debt components | $1.121 billion | $969.3 million |
| Long-term debt principal | $963.2 million | $941.7 million |
| Capital-lease obligations | $148.9 million | None reported |
| Total equity | $1.007 billion | $932.7 million |
- Revolving credit facilities provided aggregate availability of $628.3 million, of which $88.6 million was undrawn at year-end.
- A new $270.0 million facility maturing in December 2022 was used partly to refinance $215.8 million of TIL-related facilities; $220.0 million was drawn at year-end.
- 2017 debt and lease commitments totaled approximately $1.142 billion, including scheduled debt repayments, maturities, capital leases, and charter-in obligations.
- The company was in compliance with its debt and lease covenants at year-end. Hull-coverage ratios were 191% for the 2017 Revolver, 145% for the 2016 Debt Facility, 118% for another revolver, and approximately 105% for the capital leases.
Material changes versus 2016
- Weak tanker market: Average conventional-tanker TCE declined to $17,867 per revenue day from $23,445, primarily because of high fleet growth, OPEC supply cuts, and additional vessels returning from floating storage.
- Conventional tanker performance: Net revenue fell to $303.4 million from $455.8 million and income from vessel operations fell to $4.0 million from $99.0 million.
- Ship-to-ship segment: Net revenue increased 23% to $50.4 million, but the segment remained loss-making, with a $2.6 million operating loss versus a $2.2 million loss.
- TIL merger: In November 2017, the company acquired the remaining 88.7% of Tanker Investments Ltd. through issuance of 89.0 million Class A shares valued at $151.3 million. TIL contributed 10 Suezmax, six Aframax, and two LR2 tankers, but only approximately one month of results was consolidated in 2017.
- TTOL acquisition: In May 2017, the company acquired the remaining 50% of Teekay Tanker Operations Ltd. for $39.0 million, including approximately 13.8 million Class B shares and $13.1 million of assumed working capital. Comparative periods were retrospectively adjusted for common-control accounting.
- Asset actions: The company sold five tankers for aggregate proceeds of approximately $52.8 million and recorded a $13.0 million aggregate loss on vessel sales. It also completed a $153.0 million sale-leaseback financing for four Suezmax tankers.
- Equity dilution: Shares outstanding rose to 268.2 million from 159.3 million, principally because of the TIL merger and TTOL-related issuance.
- Equity-accounted loss: Equity loss was $25.4 million versus $7.7 million of equity income in 2016, mainly due to a $28.1 million write-down of the pre-existing TIL investment before the merger.
Outlook, management commentary and risks
Management expected tanker markets to remain challenging through the first few quarters of 2018, with potential recovery later in 2018 and into 2019. The expected recovery was based on moderating fleet growth, higher U.S. crude exports, increased oil demand, and possible changes to OPEC supply restrictions. Management nevertheless expected 2018 spot tanker rates to be lower than 2017 rates for going-concern liquidity analysis.
The company stated that it expects sufficient liquidity for at least one year, but this conclusion depends on additional financing, including refinancing a loan facility maturing in the third quarter of 2018. The filing identifies this refinancing as probable based on historical access to financing, but it is not guaranteed.
- Spot-market and revenue-sharing exposure creates substantial earnings and cash-flow volatility; 16 fixed-rate time-charter contracts were scheduled to expire in 2018 and one in 2019.
- Debt maturities, vessel-value covenants, interest-rate exposure, and dependence on Teekay’s covenant compliance create refinancing and liquidity risks.
- At year-end, 38 conventional tankers had market values below carrying values: market values totaled approximately $859.8 million versus carrying values of $1.489 billion. No impairment was recorded because estimated undiscounted cash flows exceeded carrying values.
- The company has material exposure to environmental regulation, ballast-water and emissions requirements, pollution liabilities, piracy, geopolitical disruption, cyberattacks, insurance limitations, and customer credit risk.
- The dividend policy targets 30% to 50% of quarterly adjusted net income, with a stated minimum of $0.03 per share, but dividends remain discretionary and subject to cash availability, covenants, law, and board approval.
- Teekay’s dual-class ownership structure limits the influence of Class A shareholders and creates related-party and business-opportunity conflicts.
- The filing states that adoption of new lease guidance was expected to recognize approximately $16.0 million of right-of-use assets and corresponding liabilities for certain charter-in arrangements.
Most important facts for an investor to verify
- Progress and terms of refinancing the facility maturing in the third quarter of 2018, including any collateral requirements, pricing, or equity issuance.
- Current spot tanker rates, TCE performance, vessel utilization, and the timing of any recovery anticipated by management.
- Debt maturities and covenant headroom, particularly hull-coverage ratios if vessel values decline.
- Cash flow available after debt service, capital-lease payments, dry docking, working capital, and dividends.
- Integration benefits and operating contribution from the TIL merger and full consolidation of TTOL.
- Potential impairment of vessels whose market values remain below carrying values.
- Actual dividend declarations under the discretionary policy and the effect of the 2017 share issuances on per-share cash requirements.
- Related-party fees, management agreement termination rights, Teekay guarantees, and Teekay’s continuing control over the company.