International Seaways, Inc.

Good morning. Welcome to the International Seaway Second Quarter 2020 Earnings Conference Talk. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to James Small, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings release conference call for the second quarter of 2020. Before we begin, I would like to start off by advising everyone on the call with us today of the following. During this call, management may make forward-looking statements regarding international seaways or the tanker industry, which may address, without limitation, the following topics. Outlooks for the crude and product tanker markets, changing oil trading patterns, forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products, the effects of the ongoing COVID-19 pandemic, company strategy, purchases and sales of vessels and other investments, anticipated financing transactions, expectations regarding revenues and expenses, including vessel charter hire and G&A expenses, estimated bookings and TCE rates in the third quarter of 2020 or other periods, estimated capital expenditures in 2020 or other periods, projected scheduled dry dock and off-hire days, the company's consideration of strategic alternatives, the company's ability to achieve its financing and other objectives, and other economic, political, and regulatory developments around the world. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Board-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements. Factors, risks, and uncertainties that could cause International Seaway's actual results to differ from expectations include those described in the company's annual report on Form 10-K for 2019 and its quarterly reports on Form 10-Q for the first and second quarter of 2020, and in other filings the company has made or may make in the future with the U.S. Securities Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Dabrocki. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways Earnings Call to discuss our second quarter 2020 results. Before we discuss our strongest quarterly results since our inception, please turn to slide four for an update on our COVID-19 response. We're continuously working to serve and keep safe our onshore and at sea professionals. First onshore, we've maintained full staffing capabilities with our employees all working remotely since March 16th. We will continue to evaluate our return to our New York and Houston offices based upon our highest priority, the safety of our staff. Our commercial and technical operations, finance, and administrative departments continue to run smoothly. We completed the quarterly close on time. All SEC reporting requirements have been done without delay. Seaway's ability to operate smoothly during this challenging time is a testament to the team's dedication, and we thank everyone for their continued hard work and commitment to Seaway. Regarding our crew, We've implemented strict measures on all of our ships to ensure the safety of our seafarers, and we have had no COVID cases to date on board. We are implementing these procedures not only while they're on board, but also while we are traveling to and from the vessels. As we discussed last quarter, global travel restrictions have made it exceptionally difficult to rotate our crews. We continue to support industry efforts to designate seafarers as key workers and to allow them to return home to their families after many months at sea. To meet this important objective, we have deviated vessels where possible to help facilitate safe and effective crew changes. Given that many of our dedicated crew members have been on board vessels for longer than their original contract, the situation remains incredibly dynamic As an example, one of our VLCC crew was disappointed to have a full flight of relievers from Manila to Singapore canceled by the airline at the last minute. We're working now on finding the next best opportunity to get these seafarers home. Another example, with an enormous amount of effort and coordination across three continents, we were successful relieving 20 seafarers at Reunion Island in the Indian Ocean. We thank all of our seafarers for their professionalism and their commitment throughout this extremely challenging circumstances. From an operational standpoint, we have not yet seen material cost increases due to COVID-19. While we have confronted certain challenges, including difficulty arranging fire inspections from the oil major customers and other inspections, as well as delays transporting spare parts, our operations are running smoothly. Going forward, and especially as we continue to operate amidst the global pandemic, our priorities remain the safety of our onshore and SC professionals and providing best-in-class service to our leading energy customers. If you'll turn to slide five, we review our second quarter 2020 highlights and our recent accomplishments. Our quarterly performance was very strong. We're pleased to have posted our second consecutive quarter of record earnings. while continuing to implement our discipline and accretive capital allocation strategy, unlocking value for our shareholders. Turning to the first bullet, we highlight our significant operating leverage and success capitalizing on the robust rate environment in the second quarter. We once again generated our highest quarterly net income as a public company. For the quarter, we earned a net income of $68.5 million. excluding items related to an impairment and a gain on the sale of vessels, or $2.39 per share. Our second quarter adjusted EBITDA was $96 million, representing a year-over-year increase of $75 million and quarter-over-quarter increase of 22. With our strong results and during a time when we've continued to return capital to shareholders, we ended the quarter with $184 million in total liquidity, including cash and our $40 million undrawn revolver. Moving to the next bullet, our strong Q2 results have extended into the third quarter, notably with significant exposure to the VLCC market and to the midsize tanker sectors. We have already booked over half of our third quarter revenue days at profitable rates. Additionally, we capitalized on the elevated market in the second quarter, and we entered into favorable time charters, which strengthen our earnings prospects moving forward. Specifically, we secured four VLCC time charters for periods ranging from seven to 36 months at an average of $73,000 per day. We have positioned international seaways to optimize revenue during a time when rates have come off their highs. Lastly, we further executed on our disciplined and balanced capital allocation strategy with an intense focus on providing a return to shareholders. We maintained our balance sheet strength and enhanced our capital structure. Specifically, in addition to the repurchase of $10 million of our shares in the first quarter, we completed the repurchase of an additional $20 million of our shares during the second quarter. This brings our total purchases to just under 5% of our outstanding shares. We believe this was an attractive opportunity for Seaways to unlock value given our stock valuation relative to our NAV. We took further steps to de-lever the company, and we are in the process of repaying the full $40 million outstanding under our transition term loan facility in August. This will reduce our already low cash break-evens by an additional $1,800 per day to under $15,000 per day. Once the repayment is made, we will have 14 unencumbered vessels worth more than $200 million. We continue to have one of the lowest leverage profiles in the public shipping sector, with our net loan-to-value further improving to 38%. Our liquidity has allowed us the flexibility to continue to deploy capital to best serve shareholders. In June, we paid our regular quarterly dividend of 6 cents. And our board has approved another regular quarterly $0.06 dividend to be paid in September. Our priority is to continue optimizing how we allocate the capital throughout the cycle. In addition to repurchasing close to 5% of our outstanding shares, which we discussed a moment ago, this has included capitalizing on attractive asset values at the bottom of the cycle, repaying $40 million of debt, and providing shareholders with dividends totaling $0.12 since implementing our policy this year. In order to ensure that we remain well positioned to act opportunistically, subsequent to the end of the quarter, the company's board of directors authorized a new $30 million share repurchase program for Seawaste. Turning to slide six, we provide an update on oil supply and demand. The economic impacts of COVID-19 have reduced the demand for oil. Recently, the IEA has taken a more positive view on demand restoration, increasing their demand forecast to 92 million barrels per day for all of 2020 and 97 million barrels per day for 2021. This is largely driven by the strength of Chinese demand and delays at discharge ports in China, which are due to the logistical issues dealing with record imports. and this has reduced the affected VLCC fleet size. While down from 100 million barrels per day achieved in 2019, the IEA forecast represents a significant increase from previous estimates and reflects demand for oil in the second half of 2020, given that large segments of the global economy were abruptly halted earlier in the year in response to COVID-19. On the supply side, After extending agreements to curb production in June, OPEC has agreed to ease these cuts and is expected to produce an additional 2 million barrels per day in August. Regarding U.S. shale production, the EIA estimates a 2 million barrel per day reduction in August from its peak in March due to pressures from mole oil prices. During the second quarter, we saw strong demand for floating storage due to a steep oil price contango. However, as can be seen in the chart on the right hand of the slide, as global oil demand recovered and production decreased, the price contango flattened, and this de-emphasized the need for new floating storage while inventory de-stocking began. Although we remain positive on the long-term outlook for the tanker market, the combination of June OPEC production cuts reduced demand for floating storage and inventory de-stocking. have pushed rates down from the highs that we saw earlier this year. On slide seven, an update on ship supply. Overall, the tanker order book remains historically low. You can see this on the chart at the top right-hand of the slide. Only 10 Vs have been ordered in 2020 to date, and 31 were ordered in the full year of 2019. Uncertainty regarding the current market, as well as decarbonization and a lack of suitable propulsion systems to meet decarbonization goals continue to temper new ordering. Moving to the bottom half of the slide, the VLCC fleet is aging, with nearly a quarter of the existing fleet now over 15 years old, as depicted in the chart at the bottom right. Ships 20 years or older have grown by nearly 3 million deadweight from last quarter, an increase of 19%. As we have noted consistently and previously, once vessels reach 15 years of age, they are more expensive to operate, with significant investments required to continue to trade. As ships reach ballast water treatment deadlines, even greater capital expenditure is necessary. Wrapping has been limited during the last 18 months. due to the market recovery. But the potential for scrapping has been building based on the aging fleet. There have been no VLCC scraps thus far in 2020. As rates moderate, scrapping is likely to increase. I'll now turn the call over to Jeff to provide additional details on our second quarter results. Jeff?