Teekay Tankers Ltd. Reports Third Quarter 2017 Results

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Highlights
Reported GAAP net loss of $22.4 million, or $0.12 per share, and adjusted net loss(1) of $14.0 million, or $0.08 per share, in the third quarter of 2017.Cash flow from vessel operations (1) of $20.6 million in the third quarter of 2017.Declared cash dividend of $0.03 per share for the third quarter of 2017, representing the minimum quarterly dividend.Teekay Tankers' two largest shareholders will vote their shares in favor of the Company's proposed charter amendment to permit the merger with Tanker Investments Ltd (TIL); and two independent proxy advisory firms, Glass Lewis & Co. LLC (Glass Lewis) and Institutional Shareholder Services Inc. (ISS), have recommended that shareholders vote “FOR” the proposed charter amendment to permit the merger with TIL.Completed the sale of an older Aframax tanker and agreed to sell an additional older Aframax tanker for aggregate proceeds of $12.7 million.Announced new share repurchase program of up to $45 million of Teekay Tankers Class A common shares.HAMILTON, Bermuda, Nov. 09, 2017 — Teekay Tankers Ltd. (Teekay Tankers or the Company) (NYSE:TNK) today reported the Company's results for the quarter ended September 30, 2017:GAAP net loss and adjusted net loss for the third quarter of 2017 compared to the third quarter of 2016 were primarily affected by lower average spot tanker rates and a decrease in the Company's fleet size.
GAAP net loss and adjusted net loss for the third quarter of 2017 compared to the second quarter of 2017 were primarily affected by lower average spot tanker rates, partially offset by lower vessel operating expenses and the redeliveries of three time chartered-in vessels during the second quarter of 2017. GAAP net loss was also impacted by higher losses on vessel sales, partially offset by a non-cash write-down of the Company's investment in TIL in the second quarter of 2017.CEO Commentary“I’m pleased to report that we have secured support from our two largest shareholders, Teekay Corporation and Huber Capital, for the proposed charter amendment to permit the merger with TIL, and two independent proxy advisory firms, Glass Lewis and ISS, have recommended that shareholders vote 'FOR' the proposed charter amendment to permit the merger with TIL, which we view as strategically important for Teekay Tankers,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer.  “Including our existing vessels, the combined company will own and operate 59 conventional tankers, solidifying our market-leading presence in key markets, while also modernizing our fleet at the right point in the tanker market cycle. We believe this merger is in the best interests of Teekay Tankers’ shareholders as it is expected to be immediately accretive to earnings, reduces our average fleet age, reduces our cash break-even rate, and strengthens our balance sheet.  The date of the special meeting of shareholders has now been set for November 17, 2017 and we urge all shareholders to vote in favor of increasing the authorized share count which will allow us to move ahead with the proposed merger.”Mr. Mackay continued, “The proposed merger was priced using a fixed share-for-share exchange ratio based on the underlying fair market value of each fleet as determined earlier this year and, since that time, the fair market values of each respective fleet have remained relatively constant. As a result, the fundamental merger economics continue to remain intact for both Teekay Tankers and TIL shareholders.”Mr. Mackay added, “Seasonal weakness combined with global inventory drawdowns as crude oil pricing moved into backwardation contributed to weak spot tanker rates in the third quarter of 2017.  Our fixed charter coverage and our growing lightering business helped to mitigate some of this tanker market weakness during the quarter.  Since that time, we have seen a significant uptick in crude tanker rates into the fourth quarter, supported by refineries returning from seasonal maintenance and an increase in long-haul movements from the Atlantic to the Pacific, which is increasing tanker ton-mile demand.  Looking ahead to 2018, we expect that a significant slowdown in tanker fleet growth coupled with better oil market fundamentals will lead to a recovery in tanker rates.”Summary of Recent DevelopmentsVoting and Support AgreementTeekay Tankers has entered into a voting and support agreement with the Company's second largest shareholder, Huber Capital Management LLC (Huber Capital), whereby Huber Capital will vote its shares in favor of increasing the authorized number of Teekay Tankers’ Class A common shares at the November 17, 2017 special meeting of shareholders to permit the issuance of Class A common shares as consideration to complete the Company’s proposed merger with TIL.Sale of Two Older Aframax TankersSince August 2017, Teekay Tankers has entered into agreements to sell two 1999-built Aframax tankers for aggregate proceeds of approximately $12.7 million. One Aframax tanker delivered in September 2017 and the other is scheduled to be delivered in the second half of November 2017.Share Repurchase ProgramIn September 2017, Teekay Tankers announced that its Board of Directors had authorized a share repurchase program for the repurchase of up to $45 million of the Company’s Class A common shares.  Shares may be repurchased in the open market at times and prices considered appropriate by the Company.Secured a New Time-Charter Out ContractTeekay Tankers secured a time charter-out contract on an Aframax tanker for a firm period of 12 months at a daily rate of $15,000, plus a 12-month extension option at a higher rate, which commenced in October 2017.Tanker MarketCrude tanker spot rates declined in line with seasonal norms during the third quarter of 2017, as refiners reduced crude oil purchases ahead of autumn maintenance programs. This decline in spot tanker rates was exacerbated by a drawdown in global oil inventories during the third quarter, as crude oil prices moved into a backwardated pricing structure. According to the International Energy Agency (IEA), global oil inventories fell by a net 53 million barrels (mb) during the third quarter, including a 44 mb decline in floating storage. This had a negative impact on spot tanker rates as the vessels used for floating storage returned to the active trading fleet, which increased vessel supply, although some of the older vessels were sold for scrap.Crude tanker spot rates received some renewed support towards the end of the third quarter due to hurricane activity in the U.S. Gulf and Caribbean region, which disrupted vessel operations and tightened vessel supply. Crude tanker rates have strengthened further into the fourth quarter of 2017 due to an increase in tanker demand as refineries complete seasonal maintenance. In addition, an increase in long-haul exports from the Atlantic to the Pacific has led to an increase in tanker ton-mile demand in recent weeks. This has been led by U.S. crude exports, which at the end of September 2017 hit a record high of almost 2 million barrels per day (mb/d). Higher U.S. crude exports have also added to U.S. Gulf lightering demand in the form of increased reverse lightering operations.The global tanker fleet grew by 24.5 million deadweight tons (mdwt), or 4.4 percent, in the first nine months of 2017. This influx of new vessels has put downward pressure on tanker fleet utilization during the year; however, tanker fleet growth is expected to moderate in the coming months, as the peak of newbuilding deliveries has passed and as the pace of scrapping is expected to pick up. A total of 7.1 mdwt of tankers was scrapped in the first nine months of 2017, a significant increase from 2.5 mdwt of scrapping for the entire year of 2016. In addition, there have been a number of newbuilding contract cancellations so far in 2017, as some shipyards have been unable to acquire refund guarantees from financial institutions. For 2017 as a whole, the Company forecasts tanker fleet growth of just over 5 percent, down from approximately 6 percent in 2016. Lower fleet growth is expected in 2018 and 2019 as the orderbook continues to roll-off and as tanker scrapping increases, with additional upside from potential further cancellations of newbuilding contracts due to the lack of available refund guarantees.Global oil demand continues to grow at a robust rate, with the IEA now forecasting demand growth of 1.6 mb/d in 2017 versus a forecast of 1.3 mb/d growth at the start of 2017. The IEA forecasts a further 1.4 mb/d of demand growth in 2018, with most of the growth coming from the Asia-Pacific region. High oil demand growth in Asia is drawing more barrels from the Atlantic region into the Pacific, particularly as the Middle East OPEC nations maintain supply cuts, which is positive for overall ton-mile demand.Overall, the Company expects tanker rates to recover during the fourth quarter of 2017, in line with seasonal norms. Looking ahead to 2018, the Company expects that a period of lower tanker fleet growth coupled with stronger oil demand and a more balanced oil market should be positive for tanker fleet utilization and therefore crude spot tanker rates, particularly during the second half of the year.Operating ResultsThe following table highlights the operating performance of the Company’s time-charter vessels and spot vessels trading in revenue sharing arrangements (RSAs), voyage charters and full service lightering, in each case measured in net revenues(1) per revenue day, or time-charter equivalent (TCE) rates, before related-party pool management fees, related-party commissions and off-hire bunker expenses:(1) Net revenues is a non-GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” for a definition of this term.Teekay Tankers’ FleetThe following table summarizes the Company’s fleet as of November 1, 2017:Liquidity UpdateAs at September 30, 2017, the Company had total liquidity of $104.8 million (comprised of $60.6 million in cash and cash equivalents and $44.2 million in undrawn revolving credit facilities), compared to total liquidity of $113.2 million as at June 30, 2017.Conference CallThe Company plans to host a conference call on Thursday, November 9, 2017 at 1:00 p.m. (ET) to discuss its results for the third quarter of 2017. An accompanying investor presentation will be available on Teekay Tankers’ website at www.teekay.com prior to the start of the call.  All shareholders and interested parties are invited to listen to the live conference call by choosing from the following options:By dialing (888) 401-4671 or (416) 640-5942, if outside of North America, and quoting conference ID code 1579601.By accessing the webcast, which will be available on Teekay Tankers’ website at www.teekay.com (the archive will remain on the website for a period of one year).An accompanying Third Quarter Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.About Teekay TankersTeekay Tankers currently owns a fleet of 35 double-hull tankers, including 16 Suezmax tankers, 12 Aframax tankers, and seven Long Range 2 (LR2) product tankers, and has four capital leased Suezmax tankers and one contracted time charter-in vessel. Teekay Tankers’ vessels are employed through a mix of short- or medium-term fixed rate time charter contracts and spot tanker market trading. The Company also owns a Very Large Crude Carrier (VLCC) through a 50 percent-owned joint venture. In addition, Teekay Tankers owns a ship-to-ship transfer business and a minority interest of over 11 percent in Tanker Investments Ltd. (OSE: TIL), which currently owns a fleet of 18 modern tankers and which Teekay Tankers has agreed to acquire the remaining ownership interest. Teekay Tankers was formed in December 2007 by Teekay Corporation as part of its strategy to expand its conventional oil tanker business.Teekay Tankers’ common stock trades on the New York Stock Exchange under the symbol “TNK.”For Investor Relations
enquiries contact:
Ryan Hamilton
Tel:  +1 (604) 609-2963
Website:  www.teekay.com 
Definitions and Non-GAAP Financial MeasuresThis release includes various financial measures that are non-GAAP financial measures as defined under the rules of the U.S. Securities and Exchange Commission. These non-GAAP financial measures, which include Adjusted Net (Loss) Income, Free Cash Flow, Net Revenues and Cash Flow from Vessel Operations, are intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized meanings, and may not be comparable to similar measures presented by other companies.  The Company believes that certain investors use this information to evaluate the Company’s financial performance, as does management.Consolidated Financial MeasuresAdjusted net (loss) income excludes items of income or loss from GAAP net income that are typically excluded by securities analysts in their published estimates of the Company’s financial results. The Company believes that certain investors use this information to evaluate the Company’s financial performance, as does management. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to net (loss) income, the most directly comparable GAAP measure reflected in the Company’s consolidated financial statements.Free cash flow (FCF) represents net income, plus depreciation and amortization, unrealized losses from derivatives, certain non-cash items, FCF from equity accounted investments, loss on sale of vessel, and any write-offs or other non-recurring items, less unrealized gains from derivatives, equity income from the equity accounted investments, gain on sale of vessel and certain other non-cash items. The Company includes FCF from equity accounted investments as a component of its FCF. FCF from the equity accounted investments represents the Company’s proportionate share of FCF from its equity-accounted investments. The Company does not control its equity-accounted investments, and as a result, the Company does not have the unilateral ability to determine whether the cash generated by its equity-accounted investments is retained within the entity in which the Company holds the equity accounted investment or distributed to the Company and other owners. In addition, the Company does not control the timing of such distributions to the Company and other owners. Consequently, readers are cautioned when using FCF as a liquidity measure as the amount contributed from FCF from the equity accounted investments may not be available to the Company in the periods such free cash flow is generated by the equity accounted investments. FCF is a non-GAAP financial measure used by certain investors and management to evaluate the Company’s financial and operating performance and to assess the Company’s ability to generate cash sufficient to repay debt, pay dividends and undertake capital and dry dock expenditures. Please refer to Appendix B to this release for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure reflected in the Company’s consolidated financial statements.Net revenues represent revenues less voyage expenses. Because the amount of voyage expenses the Company incurs for a particular charter depends upon the type of the charter, the Company uses net revenues to improve the comparability between periods of reported revenues that are generated by the different types of charters and contracts. The Company principally uses net revenues, a non-GAAP financial measure, because the Company believes it provides more meaningful information about the deployment of the Company's vessels and their performance than does revenues, the most directly comparable financial measure under GAAP.Cash flow from vessel operations (CFVO) represents income from vessel operations before depreciation and amortization expense, amortization of in-process revenue contracts, vessel write-downs, and gains or losses on the sale of vessels and equipment.  CFVO – Consolidated represents CFVO from vessels that are consolidated on the Company’s financial statements. CFVO – Equity Investments represents the Company’s proportionate share of CFVO from its equity-accounted vessels and other investments. The Company does not control the equity-accounted vessels and investments, and as a result, the Company does not have the unilateral ability to determine whether the cash generated by its equity accounted vessels and other investments is retained within the entity in which the Company holds the equity accounted investment or distributed to the Company and other owners. In addition, the Company does not control the timing of such distributions to the Company and other owners. Consequently, readers are cautioned when using total CFVO as a liquidity measure as the amount contributed from CFVO – Equity Investments may not be available to the Company in the periods such CFVO is generated by its equity-accounted vessels and other investments.  CFVO is a non-GAAP financial measure used by certain investors and management to measure the operational financial performance of companies.  Please refer to Appendices C of this release for reconciliations of these non-GAAP financial measures to income from vessel operations and income from vessel operations of equity accounted investments, respectively, the most directly comparable GAAP measures reflected in the Company’s consolidated financial statements.Entities under common control represent a transfer of a business between entities under common control. As a result, Teekay Tankers consolidated financial statements prior to the date the interests in these entities were actually acquired by the Company are retroactively adjusted to include the results of these entities during the periods they were under common control of Teekay and had begun operations.Teekay Tankers Ltd.
Summary Consolidated Statements of (Loss) Income
(in thousands of U.S. dollars, except share and per share data)
Components of equity (loss) income are detailed in the table below:
Teekay Tankers Ltd.
Summary Consolidated Balance Sheets
(in thousands of U.S. dollars)
Teekay Tankers Ltd.
Summary Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
Teekay Tankers Ltd.
Appendix A – Reconciliation of Non-GAAP Financial Measures
Adjusted Net (Loss) Income
(in thousands of U.S. dollars, except per share amounts)
Teekay Tankers Ltd.
Appendix B – Reconciliation of Non-GAAP Financial Measures
Free Cash Flow
(in thousands of U.S. dollars, except share data)
Teekay Tankers Ltd.
Appendix C – Reconciliation of Non-GAAP Financial Measures
Cash Flow from Vessel Operations – Consolidated
(in thousands of U.S. dollars)
Teekay Tankers Ltd.
Appendix C – Reconciliation of Non-GAAP Financial Measures
Cash Flow from Vessel Operations – Equity Accounted Investments
(in thousands of U.S. dollars)
Forward Looking StatementsThis release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management’s current views with respect to certain future events and performance, including statements regarding: the timing and completion of the merger with TIL; the expected benefits of the merger, including the expected impact on the Company’s market position, fleet size, earnings per share, balance sheet strength, fleet age, cash break-even, cost savings and future results; crude oil and refined product tanker market fundamentals, including the balance of supply and demand in the tanker market, the estimated slowdown of growth in the world tanker fleet, the amount of tanker scrapping, estimated growth in global oil demand and supply, tanker fleet utilization, crude oil tanker demand, future tanker rates and impact of potential cancellation of newbuilding contracts; expected delivery on sale of an Aframax tanker; Huber Capital’s expected vote in relation to the TIL merger; and the potential for repurchases of Teekay Tankers’ common shares under the Company’s share repurchase program. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: changes in the production of, or demand for, oil or refined products; changes in trading patterns significantly affecting overall vessel tonnage requirements; greater or less than anticipated levels of tanker newbuilding orders and deliveries and greater or less than anticipated rates of tanker scrapping; changes in global oil prices; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; increased costs; failure to satisfy the closing conditions of the merger with TIL, including obtaining the required approvals from the Teekay Tankers and TIL shareholders; failure to successfully integrate TIL into the Company and realize the expected benefits and synergies from the combined company; a delay in, or a failure to complete, the sale of an Aframax tanker; and other factors discussed in Teekay Tankers’ filings from time to time with the United States Securities and Exchange Commission, including its Report on Form 20-F for the fiscal year ended December 31, 2016. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.Information about the Merger and Where to Find ItThis communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed merger of Tanker Investments Ltd. (TIL) and Teekay Tankers Ltd. (Teekay Tankers). In connection with the proposed merger, Teekay Tankers has filed a registration statement on Form F-4 with the U.S. Securities and Exchange Commission (SEC), including a joint proxy statement of Teekay Tankers and TIL that also constitutes a prospectus of Teekay Tankers. Teekay Tankers and TIL each mailed the joint proxy statement/prospectus to its respective shareholders. The joint proxy statement/prospectus contains important information about the proposed merger and related matters. SHAREHOLDERS OF TEEKAY TANKERS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS), CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT TEEKAY TANKERS, TIL AND THE MERGER. Shareholders will be able to obtain copies of the joint proxy statement/prospectus and other relevant materials (when they become available) and any other documents filed with the SEC by Teekay Tankers for no charge at the SEC’s website at www.sec.gov. Copies of the documents filed with the SEC by Teekay Tankers also can be obtained free of charge on Teekay Tankers’ corporate website at www.teekaytankers.com or by contacting Teekay Tankers’ Investor Relations Department by telephone at (604) 844-6654 or by mail to Teekay Tankers, Attention: Investor Relations Department, 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda.Participants in the SolicitationThis communication is not a solicitation of proxies in connection with the proposed merger and the proposed amendment to Teekay Tankers’ Amended and Restated Articles of Incorporation (the Charter Amendment). However, Teekay Tankers and its directors and executive officers and certain other employees may be deemed to be participants in the solicitation of proxies from Teekay Tankers’ shareholders in respect of the proposed merger and Charter Amendment. Information regarding persons who may be deemed participants in the proxy solicitation, including their respective interests by security holdings or otherwise, will be set forth in the joint proxy statement/prospectus relating to the proposed merger and Charter Amendment when it becomes available and is filed with the SEC. These documents can be obtained free of charge from the sources indicated above.

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Sarah Thompson

Sarah Thompson

Sarah is a financial reporter, focusing on technology, national security, and policing. Before joining Daily Telescope she worked as a staff writer at Fast Company and spent two years as a foreign correspondent in Turkey. Her work has been published in Al Jazeera America, The Nation, Vice News, Motherboard, and many other outlets.
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