Teekay Tankers Ltd. Q2 FY2024 earnings call

• Teekay Tankers reported strong quarterly results with adjusted EBITDA of $124M and adjusted net income of $107M.
• Declared a fixed quarterly cash dividend of $0.25 per share for Q2 2024.
• Midsized tanker spot rates remained strong in Q2, boosted by Trans Mountain pipeline exports and Red Sea shipping disruptions.
• Sold two older ships for ~$65M and redeployed capital into a modern 2021-built Aframax for $70.5M.
• Extended an in-chartered Aframax for 12 months at $34,000 per day and secured a 1-year option, and out-chartered another Aframax for 12 months at $49,750 per day.
• Tanker supply and demand fundamentals remain positive with minimal new tanker deliveries and tight shipyard capacity, supporting multiyear strength in the tanker market.
• TMX pipeline start-up boosted Aframax demand, with exports expected to increase towards full capacity.

Teekay Tankers generated total adjusted EBITDA of $124 million in the second quarter of 2024, down from $151 million in the previous quarter. Adjusted net income was $107 million or $3.11 per share, a decrease from $132 million or $3.96 per share in Q1 2024. The midsized tanker segment was the key, with spot rates remaining strong during Q2, supported by factors like Trans Mountain pipeline exports and Red Sea disruptions. The midsized tanker segment contributes significantly to the company's revenue, driven by strong spot market trading.

• Tanker supply and demand fundamentals point to multiyear strength in the tanker market.
• Expect spot tanker rates to remain well supported through the second half of 2024.
• Free cash flow yield increases by approximately 3.6% for each $5,000 per day increase in spot rates above the free cash flow breakeven of $15,000 per day.

• Geopolitical events like ongoing attacks on shipping in the Red Sea causing vessels to divert via longer routes, impacting trade flows.
• Volatility in spot tanker rates and seasonality in the tanker market.

Q: Congrats on the first acquisition in some time. How should we think about capital deployment for acquisitions moving forward?

A: Teekay is in a cyclical business and needs to reinvest in the fleet, but will be measured and prudent in deploying capital. They will sell older assets when asset prices are elevated and redeploy into modern ships.

Q: About the Aframax 1-year charter, was it for the acquisition of the '21 built Aframax?

A: The fleet is viewed as a portfolio; locking in $50,000 per day for 12 months is a good hedge, not tied to a specific ship.

Q: How sustainable is the trend of LR2 ships shifting to clean trade and its impact on Aframax?

A: LR2 vessels are fungible and can move between crude and clean trades based on earnings. While there may be short-term impact, over the long term, they are fungible assets that can shift between trades.

Q: How has the Trans Mountain pipeline impacted ton-mile demand long-term?

A: TMX has started boosting Aframax demand, with exports expected to increase towards full capacity, though trade patterns are still developing and will take time to fully materialize.