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spk01: Good morning all and welcome to the International Seaways fourth quarter and four year 2023 results call. All lines have been placed on mute during a presentation portion of the call with an opportunity for question and answer at the end. If you would like to ask a question please press star followed by one on your telephone keypad. I would now like to hand this conference call over to our host James Moore, International Seaways General Counsel. Please go ahead.
spk02: Thank you Candice. Good morning, everyone, and welcome to International Seawaste Earnings Call for the fourth quarter and full year 2023. Before we begin, I would like to start off by advising everyone on the call today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics. Outlooks for the crude and product tanker markets, changes in 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 ongoing and threatened conflicts around the globe, the company's strategy, our business prospects, expectations regarding revenues and expenses, including vessel, charter hire, and G&A expenses, estimated bookings, TCE rates, and or capital expenditures during 2024 or in any other period, projected scheduled dry dock and off-hire days, purchases and sales of vessels, construction of new build vessels, and other investments, the company's consideration of strategic alternatives, anticipated and recent financing transactions, and any plans to issue dividends, the company's relationships with its stakeholders, the company's ability to achieve its financing and other objectives, and other economic, political, and regulatory developments globally. 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. Forward-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 the statements. Factors, risks, and uncertainties that could cause international COAs' actual results to differ from expectations include those described in our annual report on Form 10-K for 2023 and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. Now, let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocki. Lois?
spk08: Thank you very much, James. Good morning, everyone. Thank you for joining International CEWA's earnings call for the fourth quarter and for the full year of 2023. You can find our presentation on the investor relations section of our website. 2023 was a record year for International Seaway. Our net income was $556,011.25 per share. This eclipsed 2022's net income of $388,077 per share. Net income for the fourth quarter of 2023 was $132 million, $2.68 per share. Included in these figures are gains on vessel sales and a write-off of deferred financing costs. Excluding these special items, adjusted net income was $525 million for the year and $108 million for the quarter. Seaways closed 2023 with just over $600 million in total liquidity, $187 million in cash, and $414 million in undrawn revolvers. Jeff will highlight our balance sheet in just a few moments, but stealing a little bit of his thunder, our $547 million in net debt is well below our fleet recycle market value. In 2023, we repaid $475 million in debt, of which $300 million was incremental to our natural debt amortization schedule. With this sizable prepayment during the year, we reduced our break-even levels to an impressive sub $14,500 per day level across the fleet. We unencumbered 30 vessels, and we doubled the size of our revolving credit capacity to $414 million. Today we announced that we signed an MOA to purchase six ECO MR vessels for $232 million. We expect to fund this through shares of common stock for 15% of the price, and the remainder will be financed from our available liquidity. We anticipate closing this series of transactions prior to the end of the second quarter. These MRs are high quality vessels that reduced the age of our overall MR fleet by one year. During 2023, we sold three MRs for $39 million in net proceeds after debt repayment. The sales of the older ships crystallized value generated since our merger with Diamond S in 2021 at the bottom of the tanker market. These ships returned nearly 80% all in, from purchase price due to both their strong earnings and the strong price realized in their sales. Finally, we added two vessels to our charter out portfolio, which now has over 354 million in contracted revenue with an average term of nearly three years. On the lower right hand of the slide, you can see the chart where we continue to share our strong earnings returning a substantial portion to shareholders. During 2023, we paid $308 million in dividends, plus $14 million of repurchases. Combined, we returned over $320 million to shareholders, a 16% return on our average market cap over the year. Today, we build upon the Seaways record, declaring a combined dividend of $1.32 per share to be paid at the end of this quarter. This is 60% of adjusted net income. At Seaways, we're committed to our balanced capital allocation strategy. We pulled all the levers to secure our future and to provide value to shareholders in 2023. We continue to high grade the fleet, investing in our profitable LR1 joint venture, We're renewing the MR fleet, and we have time-chartered out selected vessels with strong customers to secure revenue beyond today. Our balance sheet is strong, with net loan-to-value of 17%. We have liquidity over $600 million, and break even so low you would expect them for a company with only smaller vessels, not for a tanker company where half the fleet is large crews. We continue to share success with the shareholders with double digit yield on our share value. Turning to slide five, we've updated our bullets on tanker demand drivers with green up arrows next to the bullets representing positive developments for tankers, black dashes for neutral impact, and red down arrows indicating tanker negatives. Pulling some highlights, the forecast for oil demand in 2024 remains robust, with demand growth estimated to be about 1.5 million barrels per day in 2024, representing a percent and a half growth year over year. This is an above average demand growth forecast. Particularly for seaborne transportation demand, oil demand growth is largely concentrated in Asia, where countries are structurally short oil with incremental new supply coming from the West. Quite a long haul trade for tankers. Non-OPEC production growth of around a million barrels per day is mostly coming from the Americas in 2024, a supportive tanker trend. In the chart at the bottom of the page, we highlight oil supply and oil demand projected trends for the next few years. Europe and Asia, structurally short, and therefore focused on imports from the Americas, the Middle East, and Russia. With sanctions on Russian oil, further ton-mile support underlies demand and is very supportive for the tanker market going forward. Much of this hinges upon the global macro environment. With recent data suggesting and leaning toward a softer landing, It is constructive that commercial inventories are low. Any trade disruptions within the market increases the call for seaborne transportation. Slide six. The supply side continues to be a compelling part of the strong tanker market story. On the lower left-hand chart, we break down the order book by each vessel class relative to the operating fleet, and more specifically, potential candidates in the next few years that would be, at the very least, removed from broad commercial trading at around 20 years of age. Since the order book is largely fixed through 2026, we are showing vessels that would be 20 years old by this inflection point. They are 18 years old today. In aligning the dark bars on the graph, you can see that the vessels on order do not even meet the need to replace the existing fleet on the water. On the lower right-hand chart, we show expected deliveries in the near term. In most categories, they are largely lower than they have been over the last 30 years. The number of ships reaching over 20 years of age as a percentage of the total fleet continues to rise exponentially. Essentially, when the cycle turns, the fleet size will rationalize, laying the foundation for the future health of the tanker industry. We do not expect a meteoric rise in new orders either. As tanker owners face pending environmental regulations, shipyards are full of other shipping sectors and prices remain very robust. We expect a great run for tankers over the next few years. As mentioned, Regional imbalances of oil should continue to increase the need for tankers as growth in oil production is coming from the West and the oil demand is driven by non-OECD in the East. At Seaway, we will continue capturing the strength of the tanker market. We will utilize every possible lever to build upon our track record of returning to shareholders, maintaining a healthy balance sheet, and growing the value of Seaway. I'll now turn it over to Jeff Pribor, our CFO, to provide the financial review. Jeff?
spk07: Thanks, Lois, and good morning, everyone. On slide eight, net income for the fourth quarter was $132 million, or $2.68 per diluted share. This includes gains on vessel sales and the write-off of deferred financing costs. When you exclude the impact of these special items, adjusted net income was $108 million. On the upper right chart, adjusted EBITDA for the fourth quarter of 2023 was $159 million, which also excludes these same special items. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. While our expense guidance for the third quarter and fourth quarter fell mostly in line with the range of expectations, I'd like to point out a few items of note with our income statement. Vessel expenses were higher than expected, with the largest variance due to some opportune storing, repairs, and maintenance costs, as well as increased spend for crew changes during dry docks and training on the new dual-fuel VOCCs. G&A expenses were in line with guidance. On the revenue side, our lightery business had another strong quarter, earning about $11 million in revenue. With $2 million in vessel expenses, $3 million in charter hire, and $1 million of G&A, The binary business contributed about $4 million in EBITDA in the fourth quarter and a record of nearly $20 million for the year. Turning now to our cash bridge on slide 9. We began the quarter with a total liquidity of $581 million, composed of $214 million in cash and $360 million in undrawn revolving debt capacity. Following along the chart from left to right on the cash bridge, we first add up $159 million in adjusted EBITDA for the fourth quarter, less $44 million in debt service, composed of scheduled debt repayments and cash interest expense. Then, less our dry dock and capital expenditures of about $9 million per quarter, and a draw on working capital due to timing of about $14 million. We therefore achieved our definition of free cash flow of about $91 million for the fourth quarter. To combine our free cash flow for the year, we generated over $500 million during 2023, or over $10 a share, representing a 20% free cash flow yield on today's share price. The remaining bars on the cash bridge reflect our capital allocation for the quarter. We received about $28 million in debt proceeds that are debt repayments for the two vessels sold during the quarter. We also spent $12 million in progress payments for the first two L01 orders. We announced last quarter we repaid just about $71 million in debt, of which $50 million could be drawn again since it increased our revolving credit capacity. And we paid $1.25 per share or about $61 million in dividends during the quarter. These components then led us to an ending liquidity of $601 million with $187 million in cash and short-term investments and $414 million in undrawn revolving debt capacity. Now moving to slide 10, we have a strong financial position detailed by the balance sheet shown on the left-hand side of the page. Cash and liquidity remain strong at over $600 million. Vessels on the books at cost are approximately $2 billion versus current market values of over $3 billion. And with about $734 million in gross debt at the end of the year, detailed on the bottom right of the page, this equates to a net moment of value of just 17%. Our debt today is 85% hedge toward fixed rates, which equates to an all-in weighted average interest cost interest rate of about 6%, or less than 100 basis points above SOFR. As Owen mentioned earlier, we continue to execute on a balanced capital allocation strategy. We are returning $1.32 per share to shareholders in a combined dividend. This represents 60% of adjusted net income for the prior quarter for the second straight quarter. At the same time, we have positioned our balance sheet to support growth. We are purchasing six MRs with our available liquidity and a portion of share issuance. With cash break evens below $14,500 per day and net debt below 20%, in 2024, we will continue to look for opportunities to enable fleet renewal and growth, as well as to share in our successful results by continuing to prioritize returning cash to shareholders. On the last slide that I'll cover, please turn to slide 11. This reflects our forward-looking guidance and book-to-date TCE aligned with our cash break-even limits. Starting with TCE fixtures for the first quarter of 2024, I'll remind you that actual TCEs or an external call may not be quite the same, but as of today, we have a blended average spot TCE of about $43,500 per day, fleet-wide, for the quarter. On the right-hand side of the slide, you can see our cash break evens, which we have displayed for the next 12 months, reflective of our daily cash costs and capex plus principal and interest, as well as the new fixed revenues before any profit share on our long-term charts. At this time last year, our cash break evens were $3,000 per day higher than they are today. Just to repeat that, $3,000, the amount per day that we reduced in our cash break-evens year over year. And we've returned over $320 million of shareholders, representing a 16% yield on our average share price in 2023, while also taking considerable steps to renew the fleet. Looking forward, if you were to compare our break-evens to average spot earnings, you can see the first quarter of 2024 looks like another very strong quarter for Seaway. Looking at the bottom left-hand chart for the modelers out there, we provide some updated guidance for expenses in the first quarter and estimates for 2024. We also include in the appendix our quarterly expected off-hire and capex schedules for 2023 and 2024. I don't plan to read this slide by line, but encourage you to use them for modeling purposes. That concludes my remarks, so I'd now like to turn the call back to Lois for her closing comments.
spk08: Thank you very much, Jeff. In 2023, Seaways executed our strategy. We had significant operating leverage, low cash break even. We achieved record earnings in 2023 with a fleet nearly evenly split between crude and product tankers. We continue to develop the fleet composition that enables us to build upon our operating leverage and capitalize on today's strong market fundamentals. Last year, we took delivery of three dual-fuel VLCCs with long-term charters and profit sharing that are running extremely well in our fleet. We ordered four LR1s for our niche Panamax International Joint Central. We trimmed some older MRs that returned an 80% IRR for us in the last two years. and entered an agreement to purchase six modern MRs. Our balance sheet has never been better. 2023 was transformational for International Seaway in deleveraging us and to capitalize on growth opportunities. We evenly matched our incremental deleveraging with returns to shareholders with a substantial portion of the cash generated during the year. We built on our track record of balanced capital allocation that positions the company to maximize earnings, build a fortress balance sheet, grow through the cycle, and return 16% to shareholders over the last 12 months. Going forward, we will continue to vigilantly prioritize the safety of our crews and our seafarers, our vessels, in very challenging geopolitical times. I want to conclude my remarks. I thank you very much, and we'll open it up to questions.
spk01: Thank you. If you'd like to ask a question, please press star on your telephone keypad, ensuring that you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing star followed by two on your telephone keypad. As a reminder, it's star followed by one to ask your question. Our first question comes from the line of Chris Robertson. of Deutsche Bank. Your line is now open. Please go ahead.
spk05: Hey, good morning, Lois and Jeff. Congratulations on the very strong quarter here. Just have a couple questions. One's more market-oriented and then a detailed one. So just as it relates to the Red Sea disruptions going on, in your mind, is the market for tankers at peak disruption at the moment? Is there further dislocations that could occur or have all the tankers that were going to switch and divert around the Cape of Good Hope already done so, or is there more room there?
spk08: Chris, this is Lois. Good morning. And I would jump in there and say that I think we are at peak disruption levels. I think that with the number, variety of attacks, you know, sort of indiscriminately on tanker assets, you know, traveling through the area that we're really seeing a large amount of tankers deviate around the bottom.
spk05: Okay. This next question just relates to the MRs. When you guys take delivery of those vessels, is there going to be any incremental CapEx associated with, you know, some energy-saving upgrades or anything like that that we should think about?
spk08: You know, Chris, what I would say is that these vessels are built at SPP. We already have eight in our fleet that we built a predecessor company at SPP. They're strong design, they're eco vessels. We will, of course, bring them into the fleet and then over time, just as we do with every one of our ships on the water, look at, okay, you know, are we going to, in due course, you know, maybe when they're at their natural dry dock cycle, will we look to put on slick paint? And efficiency factors, you know, naturally we will do that. But we don't have any immediate required capex spend.
spk05: Okay. Okay, great. Thanks, Lois. I'll turn it over.
spk01: Thank you. Thank you. Thank you. Our next question comes from the line of Liam Burke of B Reilly. Your line is now open. Please go ahead.
spk00: Yes, thank you. Good morning, Lois. Good morning, Jeff.
spk01: Good morning.
spk00: Lois, is there any interest in or a tendency to sell some of your older MRs?
spk08: Yeah, so, you know, and I know you've been following us along. You know, we've sold 18 MRs, you know, over the last two and a half years. So, you know, we thought it was especially when, you know, you just see that continued strong fundamentals in that MR sector, time to bring some in. And we do continue to prune MRs. some of the older vessels, and this is just a natural regeneration. You know, these vessels coming in are seven years younger, you know, and it just brings in a renewal that we think is very natural and organic to the company.
spk07: Okay. Liam, as Lois mentioned in her remarks, you know, these vessels, when we're selling vessels that we acquired in the Diamond S merger, looking at the purchase price, the cash contributed to profits while we've held them, and the sale price, it comes out to an 80% IRR. So we like the ones we have and the ones we're acquiring to continue generating good cash flow, but we like taking profits like that.
spk00: Thanks, Jeff. And on the – do you have any interest in terms of adding to your current time charter fixtures, or are you happy with the balance of spot and time charters?
spk03: Hi, Liam. This is Derek Stallone, the commercial officer for Seaways.
spk00: Hi, Derek.
spk03: Thanks for the question. Thanks for the question. You know, we've continued to add to our TC coverage through 2023. Like Lois and Jeff covered in their remarks, putting away two more ships in the fourth quarter. We continue to look for time charter opportunities, Liam. I think for us, we continue to look for the multi-year charters. So for the shorter term stuff, one year or less, we'd rather stay in the spot market right now. But for the availability of coverage that's two or three years out, if we develop rates that are attractive to us, then we'll continue to look at that.
spk00: Great. Thank you, Derek. Thank you, Lois. Thank you, Jeff.
spk02: Thank you.
spk01: Thank you. Our next question comes from the line of Jay McGarry of Jefferies. Your line is now open. Please go ahead.
spk06: Hey, guys. Thanks for taking our question and, you know, congrats on a solid year. Just turning to 2024, you know, market withstanding, just in terms of allocating capital, are you looking to deleverage, you know, at the same rate to last year or you know, are you more or less content with the amortization profile you have now, maybe look to build on, you know, shareholder returns or your cash position? You know, just trying to see, you know, is there any priority where you're leaning towards with respect to free cash flow?
spk07: Yeah, thanks, Jay, and welcome. This is Jeff. Yeah, in 2023, we were able to both the lever to that level that we mentioned, though, where we're at 17% net loan to value and well below recycled value, while still returning a lot to shareholders, a combined 16% to dividend as a share purchase on average market cap. But to your question, as we look forward to 2024, having achieved that low level of debt, and with a lot of the debt that's left being You know, we kind of call it quality debt, like your home mortgage that's below current interest rates that you receive. You know, we're, I don't know if contentious, but we are satisfied that we've reached a level of debt where our priorities are what you've heard today. It's renewing the fleet, like the six MRs we just talked about, and continuing to return cash to shareholders, where for the second quarter in a row, we've returned 60% of that income. combined dividend, which I think speaks for itself. So I think that's the picture going forward.
spk06: Great. Thanks for the color on that. And maybe just to follow up on Liam's question with the older MRs, you know, you just said that you're well capitalized, but, you know, six MRs coming in, is this, you know, purely just fleet renewal or, you know, do you like the size of the MR fleet now and you're maybe just looking to build and expand within the MR space?
spk08: Well, I guess what I would say is when you look at the MR sector, the fundamentals and the earnings that they have put up, they have been by far the best performing sector throughout the tanker market. Now we're going well into year three and the market continues very strong. You know, you look at where our book days are in Q1, and you can see why we're bringing these ships in.
spk06: Great. Thanks, guys. I'll turn it over.
spk08: Thank you.
spk01: Thank you. Our final question comes from the line of Sharif Al-Maghrabi of BTIG. Your line is open. Please go ahead.
spk04: Good morning, everyone. Thanks for taking my questions. Lois, is there any way to kind of think about the composition of the Dark Fleet in terms of different types of vessels? On the dirty side, it's probably Afris, but what about on the clean side?
spk08: Okay, thank you for the question. I'm looking at Derek, you know, as we, you know, there's a healthy amount of both crude and product that is moving in the Dark Fleet, but if you think about it, it's going to be more crude
spk03: Um, you know, I'm thinking, uh, I think if we, you get the whole darker gray fleet around 700 ships, right? So some of that has to be on the clean side, uh, would be my, would be my view. So it's both to your question. It's both, uh, crude, uh, and clean, uh, to, so I guess your specific question, you know, you have the dark fleet doing some of the sanction trades. Uh, out of Venezuela and Iran. So that's, you know, that's, that's one element of that fleet. And then you have, as you said, the gray fleet, which is doing a little bit more of the Russian trade, you know, is it, or isn't it under the price cap? What are the requirements for showing you under the price cap? When did the authorities pay attention to if you are, or if you aren't violating the price cap? Um, but you know, that, that composition is probably half of that whole dark gray fleet. And it's a little bit less than, you know, a quarter of it would be clean, would be just an estimation, Jerry, if that helps.
spk04: That is helpful. Thanks, Derek. And then on the order back split out by vessel type on class six, excuse me, which is interesting because not all parts of the fleet are growing evenly next year. So I think LR2s are leading tanker fleet, product tanker fleet growth, while MRs, for example, are more muted. And so I guess my question is, do you see that shifting the balance of trade between LR2s and MRs, or is it more to do with kind of shifting refinery capacity?
spk03: Sharif, it's Derek again. If I could take that, I mean, you know, obviously the numbers are the numbers, so I agree with you that LR2 fleet is growing, the order book is growing pretty rapidly. We've been talking about LR2s cannibalizing the MR trade for the past 20 years. So I think the MRs will continue to be the workhorse of that fleet. But some of the geopolitical events that we see right now are really helping that LR2 fleet go. I think not so much the Russia-Ukraine situation, but clearly the Israel-Hamas conflict and what that's bringing over the Red Sea. Because there you're starting to see the LR2s having to go around the Cape of Good Hope a lot more, adding a ton of miles. So that market's really, really running. Is that larger LR2 side going to replace DMRs? I don't really think so, just on trade patterns. And then, you know, that does leave the AFRA fleet a little bit vulnerable as well, because they'll just switch to dirty depending upon what's better.
spk04: Yeah, it's helpful. Thanks, everyone.
spk08: Thank you.
spk01: Thank you. If there are no additional questions waiting at this time, I'd like to hand the conference call back over. to Lois Zabrocki for closing remarks.
spk08: Thank you very much, everyone, for joining International Seaways as we shared with you our 2023 record earnings. We really appreciate it and we look forward to talking soon. Thank you very much.
spk01: Ladies and gentlemen, I would like to thank you for joining us on today's call. Have a great rest of your day. You may now disconnect your lines.
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