Teekay Tankers Ltd. ReportsSecond Quarter 2019 Results

Highlights

  • Reported GAAP net loss of $14.3 million, or $0.05 per share, and adjusted net loss(1) of $12.1 million, or $0.05 per share, in the second quarter of 2019 (excluding items listed in Appendix A to this release).
  • Total Adjusted EBITDA(1) of $36.2 million.

VANCOUVER, British Columbia, Aug. 01, 2019 (GLOBE NEWSWIRE) —  Teekay Tankers Ltd. (Teekay Tankers or the Company) (NYSE: TNK) today reported the Company’s results for the quarter ended June 30, 2019:

Consolidated Financial Summary

  Three Months Ended
(in thousands of U.S. dollars, except per share data) June 30,
2019
March 31,
2019
June 30,
2018
GAAP FINANCIAL COMPARISON            
Total revenues 202,277     232,501     171,659    
Income (loss) from operations 5,051     32,097     (13,415 )  
Net (loss) income (14,307 )   12,447     (27,413 )  
(Loss) earnings per share (0.05 )   0.05     (0.10 )  
NON-GAAP FINANCIAL COMPARISON          
Total Adjusted EBITDA (1) 36,197     63,428     16,554    
Adjusted net (loss) income (1) (12,142 )   14,647     (28,743 )  
Adjusted (loss) earnings per share (1) (0.05 )   0.05     (0.11 )  
Free cash flow (1) 19,383     44,554     1,980    

(1) These are non-GAAP financial measures. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).

Second Quarter of 2019 Compared to First Quarter of 2019

During the second quarter of 2019, the Company reported a GAAP net loss and a non-GAAP adjusted net loss compared to GAAP net income and non-GAAP adjusted net income in the prior quarter.  The change was primarily due to lower average spot tanker rates and more scheduled dry dockings in the second quarter of 2019.

Second Quarter of 2019 Compared to Second Quarter of 2018

GAAP net loss and non-GAAP adjusted net loss for the second quarter of 2019 improved compared to the GAAP net loss and non-GAAP adjusted net loss for the same period of the prior year, primarily due to higher average spot tanker rates, partially offset by more scheduled dry dockings and higher interest expense associated with the three sale-leaseback transactions that were completed between September 2018 and May 2019.

CEO Commentary

“As expected, crude tanker spot rates declined during the second quarter of 2019 mainly due to seasonal factors and some near-term headwinds; however, crude tanker spot rates were up compared to the same period of the prior year, reflecting tighter market fundamentals, and were the highest second quarter rates since 2016,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer. “Lower OPEC oil production and heavier than normal refinery maintenance as refineries prepare for the implementation of the new IMO 2020 standards impacted crude tanker demand, which we expect will continue into the early part of the third quarter. However, these headwinds were partially offset by continued strong growth of U.S. crude oil exports which bolstered our full-service lightering business and drove our Aframax crude tanker spot rates to average over $20,000 per day during the second quarter, which was above our peer group and benchmarks. We expect this strength to continue into the third quarter as additional pipeline capacity comes online, allowing U.S. crude oil exports to further increase.”

“We continue to believe that tanker market fundamentals support a market recovery in the latter part of the year and into 2020 due to projected underlying oil demand growth, an expected increase in U.S. crude oil exports, significantly higher refinery throughput ahead of IMO 2020 regulations, and lower tanker fleet growth. With healthy liquidity, a market-leading position and significant operating leverage, we believe we are well-positioned to benefit from a tanker market recovery.”

Tanker Market

Crude tanker spot rates declined during the second quarter of 2019 compared to the first quarter of 2019 primarily due to seasonal factors, as well as some near-term headwinds which have continued into the beginning of the third quarter.

Lower OPEC oil production has impacted crude tanker demand during the first half of 2019, with OPEC crude oil production down by around 2.5 million barrels per day (mb/d) since November 2018. This reduction is due to both over-compliance with the 1.2 mb/d of supply cuts announced in early-2019 and reduced volumes from Iran and Venezuela due to U.S. sanctions. In addition, the elimination of Venezuelan oil shipments to the U.S. has resulted in a reduction in shipping activity in the U.S. Gulf / Caribbean Aframax market. Furthermore, at its most recent meeting, OPEC decided to extend production cuts through to March 2020 in an effort to reduce global oil inventories and support oil prices.

Tanker rates have also been impacted by heavier than normal refinery maintenance in the first half of the year as refiners prepare for the upcoming IMO 2020 regulations. According to the IEA, global refining throughput fell by 0.7 mb/d year-on-year in the second quarter of 2019, the largest annual decline in 10 years. This led to reduced crude tanker demand, which has carried over into the early part of the third quarter.

Finally, the first half of 2019 saw relatively high tanker fleet growth of 20.5 million deadweight tonnes (mdwt), or 3.5 percent, which was the highest level of fleet growth in a six-month period since the first half of 2011. This high fleet growth was a result of a heavy newbuilding delivery schedule since the start of the year and a lack of tanker scrapping, with just 2.7 mdwt of vessels removed in the first half of the year compared to 21.5 mdwt for the full year of 2018.

Despite some near-term headwinds, the tanker market fundamentals continue to support a market recovery in the latter part of the year and into 2020. First, refinery throughput is expected to increase significantly in the coming months as refiners ramp up activity in order to produce sufficient low sulphur fuels ahead of the impending IMO 2020 regulations. According to the IEA, global refinery throughput is estimated to increase by over 3 mb/d in the third quarter of 2019 compared to the second quarter, which is expected to be positive for crude tanker demand. The new IMO 2020 regulations could create additional volatility for the tanker market through new trade patterns and arbitrage movements, floating storage demand, and a potential increase in port congestion as the market adjusts to the change.

The second half of the year is also expected to see an increase in U.S. crude oil exports as new pipeline infrastructure is brought online that will allow more Permian Basin shale oil to reach the U.S. Gulf coast. U.S. crude oil exports have averaged 2.8 mb/d in 2019 to date, up from 2.0 mb/d last year. However, further increases are being hampered by a lack of pipeline capacity to the Gulf coast. This is expected to be alleviated in the coming months when three large pipelines with a combined capacity of around 2 mb/d are planned to come online, allowing U.S. crude exports to increase significantly. This is expected to be positive for mid-size tanker demand due to both direct exports to Europe on Aframax and Suezmax tankers, and increased Aframax lightering demand for transportation on Very Large Crude Carriers (VLCCs) to Asia.

Finally, the tanker fleet is set for a period of much lower fleet growth over the next two years due to a relatively small orderbook. The tanker orderbook currently totals 53 mdwt, or 8.7 percent of the existing fleet size, which is the lowest tanker fleet-to-orderbook ratio since early-1997. Fleet growth could be further offset by an increase in vessel off-hire time in the coming months as ships are taken out of service for scrubber retrofitting in anticipation of IMO 2020 regulations. As a result, lower fleet growth levels are expected in the second half of the year, with continued low fleet growth during 2020.

In summary, the tanker market is currently at a seasonal low point, which is compounded by some near-term factors. However, the fundamentals continue to point towards a stronger tanker market during the latter part of 2019 and into 2020 due to a tighter tanker supply / demand balance.

Operating Results

The 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(v) per revenue day, or time-charter equivalent (TCE) rates, before off-hire bunker expenses:

  Three Months Ended
  June 30, 2019(i) March 31, 2019(i) June 30, 2018(i)
Time Charter-Out Fleet            
Suezmax revenue days   91       90       182    
Suezmax TCE per revenue day $ 17,281     $ 17,281     $ 21,508    
Aframax revenue days         75       512    
Aframax TCE per revenue day       $ 24,276     $ 21,269    
LR2 revenue days               137    
LR2 TCE per revenue day             $ 17,214    
             
Spot Fleet            
Suezmax revenue days   2,418       2,415       2,516    
Suezmax spot TCE per revenue day (ii) $ 17,267     $ 23,568     $ 12,745    
Aframax revenue days   1,763       1,752       1,345    
Aframax spot TCE per revenue day (iii) $ 20,075     $ 24,797     $ 12,113    
LR2 revenue days   840       815       590    
LR2 spot TCE per revenue day (iv) $ 15,679     $ 20,694     $ 10,854    
             
Total Fleet            
Suezmax revenue days   2,509       2,505       2,698    
Suezmax TCE per revenue day $ 17,268     $ 23,342     $ 13,336    
Aframax revenue days   1,763       1,827       1,857    
Aframax TCE per revenue day $ 20,075     $ 24,775     $ 14,638    
LR2 revenue days   840       815       727    
LR2 TCE per revenue day $ 15,679     $ 20,694     $ 12,057    
  1. Revenue days are the total number of calendar days the Company’s vessels were in its possession during a period, less the total number of off-hire days during the period associated with major repairs, dry dockings or special or intermediate surveys. Consequently, revenue days represents the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available to earn revenue but is not employed, are included in revenue days.
  2. Includes vessels trading in the Teekay Suezmax RSA, Teekay Suezmax Classic RSA and non-pool voyage charters.
  3. Includes vessels trading in the Teekay Aframax RSA, Teekay Aframax Classic RSA, non-pool voyage charters and full service lightering voyages.
  4. Includes vessels trading in the Teekay Taurus RSA and non-pool voyage charters.
  5. Net revenues is a non-GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” for a definition of this term.

Third Quarter of 2019 Spot Tanker Rates Update

Below is Teekay Tankers’ spot tanker fleet update for the third quarter of 2019 to-date:

  • The portion of the Suezmax fleet trading on the spot market has secured TCE rates per revenue day of approximately $15,600 on average, with 37 percent of the available days fixed(1);
  • The portion of the Aframax fleet trading on the spot market has secured TCE rates per revenue day of approximately $12,800 on average, with 37 percent of the available days fixed(2); and
  • The portion of the Long Range 2 (LR2) product tanker fleet trading on the spot market has secured TCE rates per revenue day of approximately $12,200 on average, with 32 percent of the available days fixed(3)

(1) Combined average TCE rate includes Teekay Suezmax RSA, Teekay Suezmax Classic RSA and non-pool voyage charters.
(2) Combined average TCE rate includes Teekay Aframax RSA, Teekay Aframax Classic RSA, non-pool voyage charters and full service lightering voyages.
(3) Combined average TCE rate includes Teekay Taurus RSA and non-pool voyage charters.

Teekay Tankers’ Fleet

The following table summarizes the Company’s fleet as of July 31, 2019 (excluding one time chartered-in vessel that is scheduled to be delivered to the Company in the third quarter of 2019):

  Owned and
Leased Vessels
Chartered-in
Vessels
Total
Fixed-rate:      
Suezmax Tankers 1 1
Total Fixed-Rate Fleet 1 1
Spot-rate:      
Suezmax Tankers 29 29
Aframax Tankers(i) 17 3 20
LR2 Product Tankers(ii) 9 2 11
VLCC Tanker(iii) 1 1
Total Spot Fleet 56 5 61
Total Conventional Fleet 57 5 62
STS Support Vessels 3 3 6
Total Teekay Tankers’ Fleet 60 8 68
  1. Includes three Aframax tankers with charter-in contracts that are scheduled to expire in November 2019, December 2019 and March 2021, respectively.
  2. Includes two LR2 product tankers with charter-in contracts that are scheduled to expire in January 2021, each with an option to extend for one additional year.
  3. The Company’s ownership interest in this vessel is 50 percent.

Liquidity Update

As at June 30, 2019, the Company had total liquidity of $119.5 million (comprised of $35.4 million in cash and cash equivalents and $84.1 million in undrawn capacity from its revolving credit facilities and the undrawn portion of a loan, which is determined based on certain borrowing criteria, to finance its pool management operations) compared to total liquidity of $116.2 million as at March 31, 2019.

Conference Call

The Company plans to host a conference call on Thursday, August 1, 2019 at 12:00 p.m. (ET) to discuss its results for the second quarter of 2019. All shareholders and interested parties are invited to listen to the live conference call by choosing from the following options:

  • By dialing (877) 260-1479 or (647) 490-5367, if outside of North America, and quoting conference ID code 8155890.
  • 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 Second Quarter 2019 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

About Teekay Tankers

Teekay Tankers currently owns a fleet of 56 double-hull tankers (including 30 Suezmax tankers, 17 Aframax tankers and nine Long Range 2 (LR2) product tankers), and three ship-to-ship support vessels, and also has eight time chartered-in tankers. Teekay Tankers’ vessels are typically employed through a mix of short- or medium-term fixed-rate time charter contracts and spot tanker market trading. Teekay Tankers 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. 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 Measures

This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission (SEC). These non-GAAP financial measures, which include Adjusted Net (Loss) Income, Free Cash Flow, Net Revenues and, commencing in the first quarter of 2019, Adjusted EBITDA, are intended to provide additional information and should not be considered substitutes for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized definitions across companies, and therefore may not be comparable to similar measures presented by other companies.  These non-GAAP measures are used by management, and the Company believes that these supplemental metrics assist investors and other users of its financial reports in comparing financial and operating performance of the Company across reporting periods and with other companies.

In prior periods, the Company reported cash flow from vessel operations (CFVO) as a non-GAAP measure. In the first quarter of 2019, the Company made certain changes to its non-GAAP financial measures to more closely align with internal management reporting, Company reporting in its SEC Annual Report on Form 20-F and metrics used by certain investors. Total CFVO and CFVO from Equity-Accounted Joint Venture are replaced with Total Adjusted EBITDA and Adjusted EBITDA from Equity-Accounted Joint Venture, respectively, for current and comparative periods.

Non-GAAP Financial Measures

Adjusted net (loss) income excludes items of income or loss from GAAP net (loss) 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.

Adjusted EBITDA represents net (loss) income before interest, taxes, and depreciation and amortization and is adjusted to exclude certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance. Such adjustments include foreign exchange gains and losses, gains and losses on sale of vessels, unrealized gains and losses on derivative instruments and certain other income or expenses. Adjusted EBITDA also excludes realized gains or losses on interest rate swaps as management, in assessing the Company’s performance, views these gains or losses as an element of interest expense and realized gains or losses on derivative instruments resulting from amendments or terminations of the underlying instruments. Consolidated Adjusted EBITDA represents Adjusted EBITDA from vessels that are consolidated on the Company’s financial statements.  Adjusted EBITDA from Equity-Accounted Joint Venture represents the Company’s proportionate share of Adjusted EBITDA from its equity-accounted joint venture, and as a result, the Company does not have the unilateral ability to determine whether the cash generated by its equity-accounted joint venture is retained within the entity in which the Company holds the equity-accounted joint venture or distributed to the Company and other owners. In addition, the Company does not control the timing of any such distributions to the Company and other owners. Adjusted EBITDA is a non-GAAP financial measure used by certain investors and management to measure the operational performance of companies. Please refer to Appendices C and D of this release for reconciliations of Adjusted EBITDA to net (loss) income and equity (loss) income, respectively, which are the most directly comparable GAAP measures reflected in the Company’s consolidated financial statements.

Free cash flow (FCF) represents net (loss) income, plus depreciation and amortization, unrealized losses from derivative instruments, loss on sales of vessels, equity loss from the equity-accounted joint venture, and any write-offs and certain other non-cash non-recurring items, less unrealized gains from derivative instruments, gain on sales of vessels, equity income from the equity-accounted joint venture and certain other non-cash items. The Company includes FCF from equity-accounted joint venture as a component of its FCF. FCF from the equity-accounted joint venture represents the Company’s proportionate share of FCF from its equity-accounted joint venture. The Company does not control its equity-accounted joint venture, and as a result, the Company does not have the unilateral ability to determine whether the cash generated by its equity-accounted joint venture is retained within the entity in which the Company holds the equity-accounted joint venture 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 joint venture may not be available to the Company in the periods such FCF is generated by the equity-accounted joint venture. 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 net (loss) income, 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.

Teekay Tankers Ltd.
Summary Consolidated Statements of (Loss) Income
(in thousands of U.S. dollars, except share and per share data)

    Three Months Ended   Six Months Ended
    June 30, March 31, June 30,   June 30, June 30,  
    2019 2019 2018   2019 2018  
    (unaudited) (unaudited) (unaudited)   (unaudited) (unaudited)  
                 
Voyage charter revenues (1) 186,805   216,417   144,328     403,222   279,970    
Time-charter revenues 1,456   3,410   17,384     4,866   39,494    
Other revenues (2) 14,016   12,674   9,947     26,690   20,660    
Total revenues 202,277   232,501   171,659     434,778   340,124    
                 
Voyage expenses (1) (92,668 ) (97,339 ) (86,933 )   (190,007 ) (166,926 )  
Vessel operating expenses (53,600 ) (54,587 ) (52,652 )   (108,187 ) (105,647 )  
Time-charter hire expenses (10,792 ) (9,448 ) (5,697 )   (20,240 ) (10,380 )  
Depreciation and amortization (30,658 ) (29,865 ) (29,573 )   (60,523 ) (59,003 )  
General and administrative expenses (9,508 ) (9,165 ) (9,407 )   (18,673 ) (19,192 )  
Gain on sale of vessel     170       170    
Restructuring charges     (982 )     (982 )  
Income (loss) from operations 5,051   32,097   (13,415 )   37,148   (21,836 )  
               
Interest expense (16,607 ) (16,942 ) (13,931 )   (33,549 ) (26,660 )  
Interest income 221   365   160     586   318    
Realized and unrealized (loss) gain              
  on derivative instruments (3) (1,778 ) (847 ) 1,116     (2,625 ) 4,129    
Equity (loss) income (4) (169 ) 753   (70 )   584   624    
Other expense (1,025 ) (2,979 ) (1,273 )   (4,004 ) (3,141 )  
Net (loss) income (14,307 ) 12,447   (27,413 )   (1,860 ) (46,566 )  
               
(Loss) earnings per share attributable              
  to shareholders of Teekay Tankers              
  – Basic (0.05 ) 0.05   (0.10 )     (0.17 )  
  – Diluted (0.05 ) 0.05   (0.10 )     (0.17 )  
                 
                 
Weighted-average number of total common            
  shares outstanding              
  – Basic 268,990,399   268,678,226   268,558,556     268,835,175   268,426,201    
  – Diluted 268,990,399   268,876,324   268,558,556     268,835,175   268,426,201    
                 
Number of outstanding shares of common stock
at the end of the period
268,990,399   268,990,399   268,558,556     268,990,399   268,558,556    
  1. Voyage charter revenues include revenues earned from full service lightering activities. Voyage expenses include certain costs associated with full service lightering activities, which include: short-term in-charter expenses, bunker fuel expenses and other port expenses totaling $19.5 million, $11.4 million and $22.9 million for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively, and $30.9 million and $44.3 million for the six months ended June 30, 2019 and June 30, 2018, respectively.
     
  2. Other revenues include lightering support and liquefied natural gas services revenue, and pool management fees and commission revenues.
     
  3. Includes realized gains on interest rate swaps of $0.8 million, $1.0 million and $0.7 million for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively, and realized gains of $1.8 million and $0.9 million for the six months ended June 30, 2019 and 2018, respectively. The Company also recognized realized losses of $29 thousand, $13 thousand and $18 thousand for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively, and realized losses of $42 thousand and $18 thousand for the six months ended June 30, 2019 and 2018, respectively, relating to its forward freight agreements.
     
  4. Equity (loss) income relates to the Company’s 50 percent interest in the High-Q Investment Ltd. (High-Q) joint venture, which owns one VLCC tanker.

Teekay Tankers Ltd.
Summary Consolidated Balance Sheets
(in thousands of U.S. dollars)

  As at As at As at
  June 30, March 31, December 31,
  2019 2019 2018
  (unaudited) (4) (unaudited) (4) (unaudited)
ASSETS            
Cash and cash equivalents 35,429     75,045     54,917    
Restricted cash 1,916     2,087     2,153    
Pool receivable from affiliates 15,330     31,535     56,549    
Accounts receivable 51,451     29,946     17,365    
Due from affiliates 1,240     7,979     39,663    
Current portion of derivative assets 1,229     2,277     2,905    
Bunker and lube oil inventory (1) 63,441     50,485     23,179    
Prepaid expenses (1) 10,146     11,649     10,917    
Other current assets 48,296     53,369     17,943    
Total current assets 228,478     264,372     225,591    
Restricted cash – long-term 3,437     3,437     3,437    
Vessels and equipment – net 1,327,480     1,388,464     1,401,551    
Vessels related to finance leases – net 529,286     475,962     482,010    
Operating lease right-of-use assets (2) 19,089     22,014        
Investment in and advances to equity-accounted joint venture 26,351     26,520     25,766    
Derivative assets 240     1,829     2,973    
Intangible assets – net 10,498     11,055     11,625    
Other non-current assets 1,010     1,074     74    
Goodwill 8,059     8,059     8,059    
Total assets 2,153,928     2,202,786     2,161,086    
             
LIABILITIES AND EQUITY            
Accounts payable and accrued liabilities 103,980     74,338     52,002    
Short-term debt (3) 15,000     25,000        
Due to affiliates 12,320     23,456     18,570    
Current portion of derivative liabilities     105     57    
Current portion of long-term debt 101,264     101,227     106,236    
Current obligations related to finance leases 24,397     20,616     20,896    
Current portion of operating lease liabilities (2) 12,224     12,038        
Other current liabilities 316     417        
Total current liabilities 269,501     257,197     197,761    
Long-term debt 491,962     590,085     629,170    
Long-term obligations related to finance leases 402,539     349,137     354,393    
Long-term operating lease liabilities (2) 6,865     9,976        
Other long-term liabilities 37,166     36,343     32,829    
Equity 945,895     960,048     946,933    
Total liabilities and equity 2,153,928     2,202,786     2,161,086    
  1. Commencing in 2019, the Company is separately presenting bunker and lube oil inventory on its balance sheets. Such amounts were previously classified as prepaid expenses. Bunker and lube oil inventory has increased significantly commencing in the first quarter of 2019 as a result of changes to the Company’s RSAs whereby the Company now directly procures and has legal title to the bunker fuel for the vessels in the RSAs, with such assets being used as collateral for the new loan to finance its pool management operations entered into by the Company. Bunker and lube oil inventory is stated at cost which is determined on a first-in, first-out basis. Comparative figures have been reclassified to conform to the presentation adopted in the current period.
     
  2. Upon adoption of the new lease accounting standard on January 1, 2019, the Company’s chartered-in vessels, with lease terms of more than one year, are now treated as operating lease right-of-use assets and operating lease liabilities. This resulted in increases in the Company’s assets and liabilities of $19.1 million and $22.0 million at June 30, 2019 and March 31, 2019, respectively. This adoption had no impact on the Company’s Consolidated Statements of (Loss) Income.
     
  3. Short-term debt relates to the Company’s loan to finance its pool management operations that was initially drawn during the first quarter of 2019.
     
  4. In late 2018, the Company initiated a new RSA structure under a newly formed subsidiary, Teekay Tankers Chartering Pte. Ltd (TTCL). By the second quarter of 2019, the Company transitioned a large portion of its RSA activities under TTCL with the remainder planned to be completed throughout 2019. Under the TTCL structure, the balances in the RSA are consolidated, reflecting the Company’s rights and obligations as per the TTCL RSA agreements, whereas the previous RSA structure had an agency agreement and therefore balances were not consolidated. The transition to TTCL has therefore resulted in notable increases in various balance sheet working capital categories. A breakdown of the impact of consolidating TTCL on the Company’s consolidated balance sheets as at June 30, 2019 and March 31, 2019 is included in Appendix E to this release. Please note that other than interest expense relating to the working capital loan, there is no impact from the new RSA structure on the consolidated statements of (loss) income.

Teekay Tankers Ltd.
Summary Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)

    Six Months Ended
    June 30, June 30,
    2019 2018
    (unaudited) (unaudited)
Cash, cash equivalents and restricted cash provided by (used for)        
OPERATING ACTIVITIES        
Net loss (1,860 )   (46,566 )  
Non-cash items:        
Depreciation and amortization 60,523     59,003    
Gain on sale of vessel     (170 )  
Unrealized loss (gain) on derivative instruments 4,366     (3,283 )  
Equity income (584 )   (624 )  
Other 6,538     5,467    
Change in operating assets and liabilities 23,198     3,368    
Expenditures for dry docking (27,815 )   (6,725 )  
Net operating cash flow 64,366     10,470    
         
FINANCING ACTIVITIES        
Proceeds from short-term debt 65,000        
Proceeds from long-term debt, net of issuance costs 16,421     45,659    
Scheduled repayments of long-term debt (50,800 )   (66,333 )  
Prepayments of long-term debt (109,688 )      
Prepayments of short-term debt (50,000 )      
Proceeds from financing related to sales and leaseback of vessels 63,720        
Scheduled repayments of obligations related to finance leases (12,073 )   (3,503 )  
Cash dividends paid     (8,052 )  
Other (126 )   (92 )  
Net financing cash flow (77,546 )   (32,321 )  
         
INVESTING ACTIVITIES        
Proceeds from sale of vessel     589    
Expenditures for vessels and equipment (6,545 )   (2,207 )  
Return of capital from equity-accounted joint venture     746    
Net investing cash flow (6,545 )   (872 )  
         
Decrease in cash, cash equivalents and restricted cash (19,725 )   (22,723 )  
Cash, cash equivalents and restricted cash, beginning of the period 60,507     75,710    
Cash, cash equivalents and restricted cash, end of the period 40,782     52,987    

Teekay Tankers Ltd.
Appendix A – Reconciliation of Non-GAAP Financial Measures
Adjusted Net Loss
(in thousands of U.S. dollars, except per share amounts)

      Three Months Ended
      June 30, 2019   June 30, 2018  
      (unaudited)   (unaudited)  
      $ $ Per
Share(1)
  $ $ Per
Share(1)
 
Net loss – GAAP basis (14,307 )   ($ 0.05 )   (27,413 )   ($ 0.10 )  
                   
Add specific items affecting net loss:                
  Gain on sale of vessel           (170 )        
  Unrealized loss (gain) on derivative instruments (2) 2,578           (460 )        
  Other (3) (413 )         (700 )   ($ 0.01 )  
Total adjustments 2,165           (1,330 )   ($ 0.01 )  
Adjusted net loss attributable to shareholders of                
  Teekay Tankers (12,142 )   ($ 0.05 )   (28,743 )   ($ 0.11 )  
  1. Basic per share amounts.
  2. Reflects unrealized gains or losses due to the changes in the mark-to-market value of derivative instruments that are not designated as hedges for accounting purposes, including unrealized gains or losses on interest rate swaps and forward freight agreements.
  3. The amount recorded for the three months ended June 30, 2019 primarily relates to unrealized foreign exchange gains and debt issuance costs that were written off in connection with the refinancing of the Company’s debt facilities. The amount recorded for the three months ended June 30, 2018 primarily relates to adjustments relating to freight tax accruals from prior years.

Teekay Tankers Ltd.
Appendix B – Reconciliation of Non-GAAP Financial Measures
Free Cash Flow
(in thousands of U.S. dollars, except share data)

      Three Months Ended
      June 30, 2019 June 30, 2018
      (unaudited) (unaudited)
             
  Net loss – GAAP basis (14,307 )   (27,413 )  
             
  Add:        
    Depreciation and amortization 30,658     29,573    
    Proportionate share of free cash flow from equity-accounted joint venture 285     380    
    Unrealized loss on derivative instruments 2,578        
    Equity loss (1) 169     70    
             
  Less:        
    Unrealized gain on derivative instruments     (460 )  
    Gain on sale of vessel     (170 )  
             
Free cash flow 19,383     1,980    
             
Weighted-average number of common shares outstanding for the period – basic 268,990,399     268,558,556    
  1. Equity income relates to the Company’s 50 percent interest in the High-Q joint venture, which owns one VLCC tanker.

Teekay Tankers Ltd.
Appendix C – Reconciliation of Non-GAAP Financial Measures
Total Adjusted EBITDA
(in thousands of U.S. dollars)

  Three Months Ended
  June 30, 2019 June 30, 2018
  (unaudited) (unaudited)
Net loss – GAAP basis (14,307 ) (27,413 )
Depreciation and amortization 30,658   29,573  
Interest expense, net of interest income 16,386   13,771  
Freight tax and other tax expenses 1,639   6,086  
EBITDA 34,376   22,017  
     
Add (subtract) specific income statement items affecting EBITDA:    
Foreign exchange gain (595 ) (4,794 )
Gain on sale of vessel   (170 )
Realized gain on interest rate swaps (829 ) (674 )
Unrealized loss (gain) on derivative instruments 2,578   (460 )
Equity loss 169   70  
Other income – net   (1 )
Consolidated adjusted EBITDA 35,699   15,988  
Adjusted EBITDA from equity-accounted joint venture (See Appendix D) 498   566  
Total Adjusted EBITDA 36,197   16,554  

Teekay Tankers Ltd.
Appendix D – Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA from Equity-Accounted Joint Venture
(in thousands of U.S. dollars)

  Three Months Ended
  June 30, 2019 June 30, 2018
  (unaudited) (unaudited)
  At Company’s At Company’s
  100 % Portion (1) 100 % Portion (1)
Revenues 1,750   875   2,012   1,006  
Vessel and other operating expenses (754 ) (377 ) (880 ) (440 )
Depreciation and amortization (908 ) (454 ) (849 ) (425 )
Income from vessel operations of equity-accounted joint venture 88   44   283   141  
         
Net interest expense (427 ) (213 ) (436 ) (218 )
Realized and unrealized gain on derivative instruments     13   7  
Equity loss of equity-accounted joint venture (339 ) (169 ) (140 ) (70 )
         
Equity loss of equity-accounted joint venture (339 ) (169 ) (140 ) (70 )
Depreciation and amortization 908   454   849   425  
Interest expense, net of interest income 427   213   436   218  
EBITDA from equity-accounted joint venture 996   498   1,145   573  
         
Add (subtract) specific income statement items affecting EBITDA:        
Realized and unrealized gain on derivative instruments     (13 ) (7 )
Adjusted EBITDA from equity-accounted joint venture 996   498   1,132   566  

(1)   The Company’s proportionate share of its equity-accounted joint venture is 50 percent.

Teekay Tankers Ltd.
Appendix E – Impact from Consolidating the New RSA Structure on Summary Consolidated Balance Sheets as at June 30, 2019
(in thousands of U.S. dollars)

  As at June 30, 2019
  Balances before
impact of the
new RSA
structure
Impact of the
new RSA
structure
As Reported on
Summary
Consolidated
Balance Sheets
  (unaudited) (unaudited) (unaudited)
ASSETS            
Cash and cash equivalents 23,371     12,058     35,429    
Restricted cash 1,916         1,916    
Pool receivable from affiliates 15,330         15,330    
Accounts receivable 23,469     27,982     51,451    
Due from affiliates 45,619     (44,379 )   1,240    
Current portion of derivative assets 1,229         1,229    
Bunker and lube oil inventory 9,026     54,415     63,441    
Prepaid expenses 10,146         10,146    
Other current assets 7,099     41,197     48,296    
Total current assets 137,205     91,273     228,478    
Restricted cash – long-term 3,437         3,437    
Vessels and equipment – net 1,327,480         1,327,480    
Vessels related to finance leases – net 529,286         529,286    
Operating lease right-of-use assets 19,089         19,089    
Investment in and advances to equity-accounted joint venture 26,351         26,351    
Derivative assets 240         240    
Intangible assets – net 10,498         10,498    
Other non-current assets 1,010         1,010    
Goodwill 8,059         8,059    
Total assets 2,062,655     91,273     2,153,928    
             
LIABILITIES AND EQUITY            
Accounts payable and accrued liabilities 39,083     64,897     103,980    
Short-term debt     15,000     15,000    
Due to affiliates 1,532     10,788     12,320    
Current portion of derivative liabilities            
Current portion of long-term debt 101,264         101,264    
Current obligations related to finance leases 24,397         24,397    
Current portion of operating lease liabilities 12,224         12,224    
Other current liabilities 316         316    
Total current liabilities 178,816     90,685     269,501    
Long-term debt 491,962         491,962    
Long-term obligations related to finance leases 402,539         402,539    
Long-term operating lease liabilities 6,865         6,865    
Other long-term liabilities 36,578     588     37,166    
Equity 945,895         945,895    
Total liabilities and equity 2,062,655     91,273     2,153,928    

Teekay Tankers Ltd.
Appendix E – Impact from Consolidating the New RSA Structure on Summary Consolidated Balance Sheets as at March 31, 2019
(in thousands of U.S. dollars)

  As at March 31, 2019
  Balances before
impact of the
new RSA
structure
Impact of the
new RSA
structure
As Reported on
Summary
Consolidated
Balance Sheets
  (unaudited) (unaudited) (unaudited)
ASSETS            
Cash and cash equivalents 55,321     19,724     75,045    
Restricted cash 2,087         2,087    
Pool receivable from affiliates 31,535         31,535    
Accounts receivable 20,504     9,442     29,946    
Due from affiliates 37,388     (29,409 )   7,979    
Current portion of derivative assets 2,277         2,277    
Bunker and lube oil inventory 10,924     39,561     50,485    
Prepaid expenses 11,649         11,649    
Other current assets 6,184     47,185     53,369    
Total current assets 177,869     86,503     264,372    
Restricted cash – long-term 3,437         3,437    
Vessels and equipment – net 1,388,464         1,388,464    
Vessels related to finance leases – net 475,962         475,962    
Operating lease right-of-use assets 22,014         22,014    
Investment in and advances to equity-accounted joint venture 26,520         26,520    
Derivative assets 1,829         1,829    
Intangible assets – net 11,055         11,055    
Other non-current assets 1,074         1,074    
Goodwill 8,059         8,059    
Total assets 2,116,283     86,503     2,202,786    
             
LIABILITIES AND EQUITY            
Accounts payable and accrued liabilities 33,362     40,976     74,338    
Short-term debt     25,000     25,000    
Due to affiliates 3,174     20,282     23,456    
Current portion of derivative liabilities 105         105    
Current portion of long-term debt 101,227         101,227    
Current obligations related to finance leases 20,616         20,616    
Current portion of operating lease liabilities 12,038         12,038    
Other current liabilities 376     41     417    
Total current liabilities 170,898     86,299     257,197    
Long-term debt 590,085         590,085    
Long-term obligations related to finance leases 349,137         349,137    
Long-term operating lease liabilities 9,976         9,976    
Other long-term liabilities 36,139     204     36,343    
Equity 960,048         960,048    
Total liabilities and equity 2,116,283     86,503     2,202,786    

Forward Looking Statements

This 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, among other things, statements regarding: crude oil and refined product tanker market fundamentals, including the balance of supply and demand in the oil and tanker markets, the occurrence and expected timing of a tanker market recovery, the impact of geopolitical tensions, forecasts of worldwide tanker fleet growth, the amount of tanker scrapping and newbuilding tanker deliveries, estimated increase in vessel off-hire time, estimated growth in global oil demand and supply, future tanker rates, future OPEC oil production, the expected increase in global refinery throughput, the expected increase in U.S. crude oil production, pipeline capacity and exports and the corresponding impact on tanker demand, tanker spot rates and the Company’s full service lightering business, and the estimated impact of IMO 2020 regulations on refinery throughput and tanker demand; the Company’s liquidity and market position; and the timing for completion of the transition to the Company’s new RSA structure. 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: the potential for early termination of charter contracts of existing vessels in the Company’s fleet; the inability of charterers to make future charter payments; the inability of the Company to renew or replace charter contracts; changes in tanker rates; changes in the production of, or demand for, oil or refined products; changes in trading patterns significantly affecting overall vessel tonnage requirements; the impact of geopolitical tensions; 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 and the impact of such changes, including IMO 2020; increased costs; the availability under the Company’s revolving credit facilities and loans; and other factors discussed in Teekay Tankers’ filings from time to time with the United States Securities and Exchange Commission, including its Annual Report on Form 20-F for the fiscal year ended December 31, 2018. 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. 

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