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spk01: Jennifer Purser, Good morning, thank you for attending today's international seaways first quarter 2024 results call my name is Jennifer and i'll be your moderator today. Jennifer Purser, All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question press star one on your telephone keypad. Jennifer Purser, I would now like to turn the conference over to CEO and general counsel James small James please proceed.
spk04: James Small, Thank you, Jennifer. Good morning, everyone, and welcome to International Seaway's earnings call for the first quarter of 2024. Before we begin, I would like to start off by advising everyone with us 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 and 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 for periods 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, our report on Form 10-Q for the first quarter of 2024, 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 LeBrock. Lois?
spk03: Thank you very much, James. Good morning, everyone. Thank you for joining Seaway's earnings call for the first quarter of 2024. You can find our presentation on our website in the investor relations section. Starting on slide four, our results for the first quarter represent our eighth consecutive quarter of strong earnings. Net income was $145 million, $2.92 per diluted share. This quarter came in higher than our prior two quarters. Adjusted EBITDA was over $190 million. On the upper right-hand slide, we highlight enhancements that we have made to our already strong balance sheet. At the end of the first quarter, we had $626 million in total liquidity, including $411 million of undrawn revolver. Now, we have consolidated our term loans and converted them into more revolver capacity. In the execution of this facility, we have saved about $80 million per year in mandatory repayments, or about $3,000 per day across our spot. For some perspective on how C-Ways have evolved our balance sheet, two years ago in 2022, we had mandatory debt repayments of $180 million. Now, for the forward 12 months, our mandatory payments are under $50 million. This is tremendous work by Jeff and his finance team, along with our valued relationships with our bankers. This gives us extensive flexibility embedded in the balance sheet. As a result of these efforts, our spot vessels need to earn $13,600 per day to break even. With 52% of our spot days booked in the second quarter, it looks like we will generate a significant amount of free cash flow, again, in the second quarter. We now have $559 million in undrawn revolver capacity, putting Seaways in a position to respond to market opportunities. On the lower left-hand slide, we give detail on our fleet upgrading progress. In the last couple of weeks, we have taken delivery of three of six EcoMRs that we purchased in February. The remaining ships deliver before the end of May. The six vessels are under contract for $232 million in aggregate. We also declared our options for an additional two dual fuel ready LR1s expected to deliver in the third quarter of 2026. Overall, our program of building six LR1s has the first two deliveries in the second half of next year. The lower right-hand slide outlines our continued return to shareholders. Our strong earnings and our strong balance sheet allow us to return a substantial portion of our net income to our shareholders. Today we declared a combined dividend of $1.75 per share. This represents 60% of our adjusted net income and another quarter of a double-digit yield for our shareholders. Over the last 12 months, we have returned an actualized greater than 13% return. Here at Seaway, we are focused on a balanced approach to capital allocation. This continues to create value for the company and our shareholders. We utilize the cash we're generating in this upcycle to strengthen our balance sheet and put us in position for the next opportunities. We're now renewing our fleet by acquiring these six more modern eco MRs. We are building vessels for our niche premium LR1 trade, and we are selling some older vessels. These older MRs have more than paid for themselves since acquiring them in 2021. We're able to execute each of these facets while still remaining double-digit yield to our shareholders. On slide five, we've updated our standard set of bullets on tanker demand drives with the positive green up arrows, neutral black dashes, and red arrows for negative tanker factors. Touching on the highlights, oil demand continues to grow with estimates of growth averaging around 1.5% for this year of 2024, year over year, with similar projections for 2025. This represents an above average demand growth level, specifically for seaborne transportation. Existing regional imbalances of crude oil production and the availability of refined products contrasted with distant strong demand centers makes a tanker market. In the bottom chart, we highlight the difference between crude oil production, expected throughput, and product demand by region. Both Europe and Asia are structurally short crude oil, which they source from the Americas, Middle East, Russia. With the enforcement of sanctions on Russian oil tightening, the disruption of traditional routes has enhanced ton-mile demand and supported the tanker market. On the refined marked product sector, most regions are short, specific, refined products, except for the Middle East and Russia. This creates a lively products trade as charters continue to take advantage of arbitrage plays to meet demand in different regions for specific grades. It remains very constructive that commercial inventories are low throughout the world. Continued disruptions within the tanker market, on top of strong phenomenon underpin increased need for seaborne transportation. Slide six. The supply side has seen some ordering with our tanker order book now at 9% of the existing total tanker fleet. You can see this in the lower left-hand chart. These new orders stretch into 2027. as shown in the chart on the lower left-hand corner of the slide. These vessels that are on order will replace older ships turning 20 plus years old that at the very least would be removed from commercial trading. As a result, the average fleet age will rise in the next few years at a faster rate than it had over the prior 10. Generally, older ships have less efficiency and lower utilization. With an increasing percentage of the fleet falling into this category, the industry will put the new ships to work covering the increasing seaborne demand. Overall, this sets the stage for a strong upcycle over the next few years, and seaways remain well positioned to capitalize on these market conditions. You can count on seaways to utilize our balanced capital allocation approach to renew our fleet and adapt to industry conditions with a strong balance sheet while returning to shareholders. I'm now going to turn it over to our CFO, Jeff Pribor, to provide financial review. Jeff?
spk09: Thanks, Lois, and good morning, everyone. Turning to slide eight, net income for the first quarter was just about $145 million, or $2.92 per diluted share. On the upper right chart, Adjusted EBITDA for the first quarter of 2024 was $192 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. Our expense guidance for the first quarter fell largely within a range of expectations, but I'd like to point out a few items of note within our income statement. On the revenue side, our lightening business continues to outperform, earning about $14 million in revenue in the quarter, with about $2.5 million in vessel expenses, $3.5 million in charter hire, and 1 million of G&A, the lottery business contributed about $7 million in EBITDA in the first quarter, just shy of its record of nearly 8 million. Turning now to our cash bridge on slide 9, we began the quarter with a total liquidity of $601 million, which was composed of $187 million in cash and $414 million in undrawn revolving capacity. Along the chart from left to right on the cash bridge, we first add $192 million in adjusted EBITDA for the quarter, plus $44 million in debt service, which is composed of scheduled debt repayments and cash interest expense, plus our dry docking capital expenditures of about $14 million in the quarter, and a draw on working capital due to timing of about $13 million. We therefore achieved our definition of free cash flow of about $121 million for the first quarter. This represents an annualized cash flow yield of 18% on today's share prices. The remaining bars on the cash grid reflect our capital allocation for the quarter. We spent $23 million as a deposit for the six ECO MRs that are delivering in the second quarter, as well as mentioned. And we paid $1.32 per share, or about $65 million in dividends during the quarter. These components then lead us to an ending liquidity of $626 million Priced at $215 million in cash, short-term investments, and $411 million in undrawn revolving capacity. Now, moving to slide 10, we continue to have a strong financial position detailed by the balance sheet you see on the left-hand side of the page. Cash and liquidity remain strong at over $626 million. Vessels on the books at costs are approximately $2 million versus current market values of nearly $3.5 million. And with $700 million in gross debt at March 31, this equates to a net loan devalue of just about 14%. Our debt today is 85% hedged or at fixed rates, therefore equating to an all-in weighted average interest rate of about 6% or less than 100 basis points above SOC. In the table on the bottom right of the slide, our debt balance is of as of April 30th, reflect the amended and extended $750 million facility, which we now call the $500 million RCM. As Lois mentioned earlier, this facility has no mandatory debt payments at this time, representing a savings of about $80 million per year. We continue to enhance the balance sheet to create the financial flexibility necessary to facilitate growth and returns to shareholders. We have $559 million to drop revolvers, Our nearest maturity in the portfolio isn't until the next decade. We continue to lower our breakeven costs, and we share in the upside with double-digit returns to shareholders. On the last slide that I'll cover, slide 11, this reflects our forward-looking guidance and our booked-to-date TCE aligned with our spot cash breakeven rate. Starting with TCE fixtures, for the second quarter of 2024, I'll also remind you, as I always do, that Actual TCE that you'll see on our next earnings call may be different, but as of today, we have a blended average spot TCE of about $43,700 per day fleet-wide for the quarter. On the right-hand side of the slide, you can see how that lines up against our spot cash break-even rates. The methodology here is exclusively using expenses on our spot vessels, less the excess of our time-chartered revenues above chartered vessel costs. and divide that by spot days. This then relates to the average spot TCE, which, as I said, was $43,700 per day for more than half the days in the second quarter. Looking at the bottom left-hand chart for the modelers out there, we provided some updated guidance on our expenses in the second quarter and our estimates for 2024. We also included in the appendix our quarterly expected off-hire and capex schedule for 2024. I don't plan to read these items line by line, but I want to 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.
spk03: Thank you very much, Jeff. Slide 12 details our investment highlights. In brief, over the last seven years, International Seaway has built a track record of returning to shareholders, maintaining a healthy balance sheet, while growing the company our total shareholder return is over 490 percent since our inception representing a 24 compounded annual return over the last 12 months our combined dividend of 5.74 represent a 13 yield we continue to upgrade our fleet purchasing six eco mrs and building six LR1s for our strong niche Panamax International joint venture. We've taken advantage of strong values by selling some of our older MRs. These MRs have gains on the sales that are higher than what we paid for the vessels. This is all while quietly improving our balance sheet. We now have 36 unencumbered vessels and under $700 million in debt. We have $559 million in undrawn credit capacity, which we will carefully utilize to opportunistically grow our balanced fleet. Finally, our balanced fleet of spot ships now need earn below $14,000 per day to break even in the forward 12 months. At this point in the cycle, we expect to continue generating cash that we will put to work creating value for the company and most importantly for our shareholders. Thank you very much. And with that said, Jen, we'd like to open up the lines for questions.
spk01: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. Our first question comes from the line of Omar Nocta with Jefferies. Omar, your line is now open.
spk07: Thank you. Hey, guys. Good morning. Congrats on another strong quarter. I apologize in advance because I'm going to ask this question about the Panamax LR1s, which I feel like I'm asking habitually on your calls. But here we are again with a very strong performance in the mid-60s, you know, in the first quarter, and again here in Tutuque. well above global averages, whether it's in Panamaxes on the dirty side or clean LR1s. Is there a seasonal element underway? And that's why we're seeing this strong performance at the moment. And then also just kind of thinking about that in terms of, I know it's a niche trade in South America. You've added to the LR1 new building tally. You're up to six shifts now. Are those plans to all be deployed into that market on deliveries?
spk03: Good morning, Omar. Thank you for the compliment on the performance on that sector. You know, I would say that in the first quarter, you again saw a very strong performance, you know, across the mid-size sector. You're now seeing in the spot marks, you know, the bees sort of assert themselves for the first time, really, and kind of have a little liftoff for the first time in a couple of years. So, I think the Seasonality of the first quarter is generally quite a strong quarter in the tanker market, and you see that on the LR1s, which, as you know, are trading in the Americas in their niche trade. And we look forward to the additional barrels that will be coming out of Vancouver with the TMX pipeline to even add probably more to Acromaxis mostly, but also to the base trade for Panamaxis as well. And as far as the building of the LR1s, the intention is to add those into that particular customer base and joint venture. If you look at the LR1 space, it is not a big growth trade. However, it's a very strong customer base there. The age profile of that sector is quite old.
spk07: Oh, thanks, Lois. Okay, that's interesting. So a lot of the TMX discussion has been on Afromaxes, but you see potential, at least Afromaxes that seem like they won't be fully loaded. So perhaps kind of what you're talking about, the LR1s or the Panamaxes may start to capture some of that.
spk03: Well, we're going to have to see here as that trade emerges, how many barrels go down to the West Coast, how many get exported to Asia. For sure, the Afromax is the largest size that you can load directly at the first there. But, you know, overall, it's increased volumes in that arena.
spk07: Yeah, yeah. Okay. And then just to follow up, you've obviously been adding more and more charter cover. You still have predominantly a lot of spot exposure, but you added the charger on the lone LR2 you have, and then you added a couple on the 09 built MRs. What are you thinking here in terms of more cover? Clearly it sounds like there's opportunities to continue to push ships away if you wanted. Is that something you want to do? And is there a particular segment you'd like to add more cover in? Yeah. I have any color there, please. Thank you.
spk03: I'm going to start that, and then I'm going to have our Chief Commercial Officer, Derek, complete the question. And, you know, we have around 15% of the fleet on time charter at the moment, so we maintain a significant operating leverage to this very strong market. And when we see outside returns – outsized returns for – A long, you know, longer period, you know, somewhere certainly more than a year, you know, heading towards three years at a high level that we can lock in, we tend to seek those opportunities. And then Derek.
spk05: Thanks, Lois. Good morning, Omar. I just piggyback on Lois to say, you know, we've been able to sort of crystallize the value on some of the 15 plus MRs, you know, for two years and recently three years. So we've been happy to sort of lock in that value for the 15-plus shifts. And, you know, thanks for highlighting the LR2 as well. Like you say, she's our lone LR2, so putting her away for three years seemed like the right move. But, you know, to your point with any specific sector, not necessarily. We'll just continue to look for, as Lois said, outsized returns for longer periods.
spk07: Okay, sounds good. Thank you. Thanks for the color. I'll turn it over.
spk01: Thanks, Omar. Thank you. Our next question comes from the line of Liam Burke with B Reilly. Liam, your line is now open.
spk02: Thank you. Good morning, Lois. Good morning, Jeff.
spk01: Good morning.
spk02: Lois, it doesn't look like it, but has there been any pushback from your shipping customers on your older MRs? Have you had any trouble chartering them as they move into that 15 to 20 year range?
spk03: Thank you for that question, Liam, because that really sets Derek up to say, you know, if you look at this sector and the strength of those rates.
spk05: Right, Liam. So good morning. This is Derek. You know, to your point, we're looking at several ships in our fleet that trade spot that are 15 years older, but we're you know, coming in at 38 a day for the quarter and continuing to show strong rates into Q1. Sorry, correction, into Q2. So at the moment with the freight market like this, no, we're not really seeing too much discrimination on age.
spk02: Great. Thank you, Derek. Jeff, on the dividend policy, it seems to be the investors are very comfortable with the fact that you have a variable quarterly. But your cash costs are coming down. Your cash flow is accelerating. Any thought to moving the $0.12 up? Or are you comfortable with the base dividend plus the variable right now?
spk09: Hi, Liam. Yeah, we moved the fixed component from $0.06 to $0.12. I think it was two years ago. So I think it's something we'll evaluate from time to time. It's sort of a natural thing as the company's growing, but there's no set timetable for that. So, I think it's a good question, and it's something we always consider. And, you know, in the fullness of time, I think that's probably likely.
spk02: Fair enough. Thank you.
spk01: Thank you. Our next question comes from the line of Chris Robertson with Deutsche Bank. Chris, your line is now open.
spk08: Hey, good morning, everybody. Apologize for my voice in advance. I've been a little bit under the weather, but Jeff, now that you have 14% net loan to value, the cash break evens been lowered, especially around this consolidation of the senior secured facilities. I mean, it seems like the company's in a very good place to kind of just sit back here and harvest and return capital. I guess, would you characterize it that way? Is there anything more to do to further lower the cash breakeven, whether it comes to something that you can do with the financing or the cap structure or targeting OpEx, things like that? I mean, where are we at just with the cash breakeven level? Plan to lower it further, or are we just kind of steady as she goes from this point forward?
spk09: Hey, Chris. I think we're pleased that we've been able to achieve what we have on reducing the cash break evens to where they are today. I think we're getting – it all kind of works together. We're not heading or aiming even for zero debt, but getting debt that's below recycle value and that's middle teens range enables us to do things like the new facility where we switch or transform the term debt to revolver that at these levels doesn't require any fixed amortization. We may choose to amortize, but the break evens are lower, which produces more cash as well as puts us in a place where, you know, it's hard to remember and it's upmarket, but it wasn't only a couple years ago that we had a terrible market. So, you know, having your break evens such that you would still do well even in a low market, is one of our objectives. So we're really happy about that. So yeah, we'll always look for ways to do even a little better. But I think with the debt that we have now, I don't see major changes in the next year or so. It's kind of high-quality debt, we like to say. Some of it's below the rates of earning and interest, and others of it, this is naturally not in place for a while. I don't know, Chris. I guess one way of saying I think we're not sitting back. I don't think that would characterize the company. And you have seen Lois talked about it pretty extensively. We do find opportunities to use cash flow in addition to the returns to shareholders. We've found some good opportunities to use the cash flow to renew the fleet and grow the fleet. So I think we are harvesting, but we're also looking selectively to grow.
spk08: Yeah, fair enough. Yeah, thank you. Thank you, Jeff, for clarifying that categorization as well. Yeah, speaking of the fleet renewal efforts and just kind of looking at the portion of the MRs that are still a little bit dated, you've had that recent sale. Should we be looking forward to some potential sales of the other MR assets at this point? Or what's the secondhand market looking like today?
spk03: So secondhand market is very strong. 38 a day in the first quarter and thus far booked in the second quarter, very strong. Putting six, seven of these on multi-year time charters, very strong, historically strong rates. We will selectively prune and we do it carefully because it's a balance in this very strong market.
spk08: Definitely. And, Lois, on the proceeds from any potential vessel sales, would that then in turn be used for, you know, further renewal efforts on maybe some acquisitions or even ordering?
spk03: You know, we don't specifically bucket it exactly that way, but it does tend to be how we execute and how we look to continue to hydrate the fleet.
spk09: I'd say you get free cash flow from operations and you get free cash flow from monetizing older vessels at a significant profit. It all becomes cash to be allocated.
spk08: Yeah, thank you. Thank you, Jeff. I'll turn it over. Thanks for taking the time.
spk01: Thank you. Before our next question, a quick reminder. If you would like to ask a question, it is star 1 on your telephone keypad. Our next question comes from the line of Sherif El-Megravi with BTIG. Sherif, your line is now open.
spk06: Hey, good morning. Thanks for taking my question. So these LR1 new builds are a pretty unique opportunity given how early their delivery is. And I'm curious, if you were to go to a yard today and order a tanker, First, when would that be delivered and do you have any insight into how many similar open slots for delivery before 2027 may exist at Yard?
spk03: I'm going to try a little bit of that and I'll give it to Derek as well, our commercial man. yes we we knew you know obviously this has been a strong sector for us for some time so you know we wanted to take advantage of those slots as we found them most slots today are into 2027 um really kind of across the taker space maybe you can get some mrs uh in 2026 and derek would you give a little more color on that or
spk05: Sure, Lois. Thanks, Cherie. The only color I could really add to what Lois said is, you know, that there are, like Lois said, most of the births available will be in 2027. And then for us, on these LR1s specifically, what we try to highlight is, you know, while there are other LR1s being built at other yards, our LR1s are still built to the old Panamax Canal beam, that 32.2-meter beam. So that's been... Part of the reason for our strong earnings is being able to go through the canal, trade on both sides, the Pacific and the Atlantic. And these new buildings will do the same, while most of the new-build LR1s are around 38-meter beam. So really built for that clean trade and can't really compete with us on the crude trade in the Americas.
spk06: That's interesting, caller. Thanks, Lois and Derek.
spk01: Thank you. There are no questions registered at this time, so I will pass the call back over to CEO, Lois Zabrocki, for any closing remarks.
spk03: I just want to thank everyone for joining us for our first quarter earnings call at International Seaway, and we'll talk to you soon. Thank you.
spk01: That concludes today's call. Thank you for your participation. You may now disconnect your line.
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