Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2013
Date of Report: February 20, 2014
Teekay Tankers operates a fleet of conventional crude and product tankers, employing a mix of fixed-rate time-charter contracts and spot market trading. The company reported results for Q4 2013 and the full year 2013, highlighting a recovery in spot rates and strategic corporate developments.
Key Financial Metrics
Quarter Ended December 31, 2013
- GAAP Net Income: $14.1 million ($0.17 per share), compared to a net loss of $356.6 million ($4.27 per share) in Q4 2012.
- Adjusted Net Loss (Non-GAAP): $2.4 million ($0.03 per share), compared to an adjusted net loss of $7.8 million ($0.09 per share) in Q4 2012.
- Net Revenues (Non-GAAP): $39.7 million, down from $44.5 million in Q4 2012.
- Cash Available for Distribution (CAD): $10.4 million ($0.12 per share), up from $8.7 million in Q3 2013.
- Liquidity: $173.9 million as of December 31, 2013 (comprising $25.6 million cash and $148.3 million undrawn credit facility).
- Dividend: Declared $0.03 per share for Q4 2013.
Full Year Ended December 31, 2013
- GAAP Net Loss: $8.1 million ($0.10 per share), compared to a net loss of $361.0 million ($4.54 per share) in 2012.
- Adjusted Net Loss (Non-GAAP): $16.3 million ($0.20 per share), compared to an adjusted net loss of $11.4 million ($0.14 per share) in 2012.
- Net Revenues (Non-GAAP): $161.8 million, down from $192.8 million in 2012.
- Operating Cash Flow: $6.2 million provided by operating activities.
Material Changes vs. Prior Period
The significant improvement in GAAP net income for Q4 2013 versus Q4 2012 was primarily driven by a $14.9 million reversal of a loss provision on term loan investments secured by two VLCC vessels, following an increase in vessel values and the release of a detained vessel from Egypt. This non-recurring item increased GAAP net income by $16.5 million for the quarter.
On an adjusted basis (excluding specific items), the net loss narrowed due to stronger Suezmax and Aframax spot rates in Q4 2013 and reduced depreciation expenses following vessel impairments recorded in 2012. These gains were partially offset by vessels transitioning from fixed-rate charters to lower spot rates and reduced interest income from term loans.
For the full year 2013, the adjusted net loss increased compared to 2012, primarily due to lower net voyage revenues as fixed-rate charters expired into a lower spot market environment and reduced interest income.
Guidance, Outlook, and Strategic Developments
Market Outlook
Management anticipates a firming of average spot tanker rates starting in 2014, driven by stronger oil demand (projected 92.5 million barrels per day), limited fleet growth (1.2% in 2014), and improving global economic conditions. Spot rates in December 2013 and January 2014 reached their highest levels since Q3 2008.
Operational Highlights
- Q1 2014 Booking Rates: Based on 65% of days booked, average spot TCE rates are approximately $34,300/day for Suezmax and $25,300/day for Aframax vessels, significantly higher than Q4 2013 rates of $15,200 and $13,900, respectively.
- New Joint Venture: In January 2014, Teekay Tankers and Teekay Corporation created Tanker Investments Limited (TIL). Teekay Tankers invested $25 million for a 20% ownership interest. TIL plans to acquire eight tankers (four Aframax, four Suezmax) and list on the Oslo Stock Exchange.
- Management Acquisition: Teekay Tankers agreed in principle to acquire Teekay Corporation's conventional tanker commercial and technical management operations, aiming to become a full-service platform.
- Charter Activity: Two Aframax tankers were time-chartered out in December 2013 at $14,100 and $16,500 per day. The chartered-in vessel BM Breeze was extended for 12 months at $12,000 per day.
Risks and Contingencies
Recovery of the carrying value of term loans secured by VLCCs depends on future operating cash flows and sale proceeds of the vessels. The company faces risks related to oil demand fluctuations, fleet growth rates, interest rate changes, and the successful execution of the TIL listing and management operations acquisition.
Investor Verification Checklist
- Non-GAAP Reconciliations: Verify the $14.9 million loan loss reversal and other specific items excluded from Adjusted Net Loss in Appendix A.
- Loan Recovery: Monitor the status of the two VLCC vessels securing term loans and the realization of proceeds from their eventual sale.
- TIL Execution: Track the progress of Tanker Investments Limited's vessel acquisitions and its listing on the Oslo Stock Exchange.
- Charter Expirations: Assess the impact of fixed-rate charters expiring into the spot market on future revenue stability.
- Liquidity Position: Confirm the utilization of the $148.3 million undrawn revolving credit facility against upcoming capital expenditures and debt maturities.