International Seaways, Inc.

Hello everyone and welcome to the International Seaways Inc third quarter 2024 earnings conference call. My name is Carla and I will be coordinating the call today. During the presentation you can register your question by pressing star followed by one on your telephone keypad and if you change your mind please press star followed by two. I will now hand you over to your host James Small, General Counsel at International Seaways to begin. James, please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings call for the third 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 and in the accompanying presentation, 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 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 ongoing and threatened conflicts around the globe. The company's strategy and business prospects. Expectations regarding revenues and expenses, including vessel, charter hire, and G&A expenses. Estimated future bookings, TCE rates, and capital expenditures. Projected scheduled dry dock and off-hire days. purchases and sales of vessels and construction of new-build vessels, the company's consideration of strategic alternatives, anticipated financing transactions and plans to issue dividends, the company's relationships with its stakeholders, the company's ability to achieve its financing and other objectives, and other political, economic, 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. Overlooking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control, that 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 quarterly reports on Form 10-Q for the first three quarters 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 Ms. Lois LeBrock, our President and Chief Executive Officer. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaway's earnings call for the third quarter of 2024. Starting on slide four and noting our presentation can be found under investor relations on our website. Net income for the third quarter was $92 million, or $1.84 per diluted share. Excluding the gains on vessel sales and other one-off items, Adjusted net income for the third quarter was $78 million for $1.57 per share. Our EBITDA was over $143 million with adjusted EBITDA at $130 million. Referencing our balance sheet on the upper right-hand chart, we have nearly $700 million in total liquidity, which includes over $540 million of undrawn revolver capacity. With our gross debt at $660 million and our net debt at $500 million, our net loan to vessel value is historically low at under 14%. With no maturity until the next decade and 34 unencumbered vessels, the cash break even on our spot fleet is under $13,500 per day. We referenced our fleet optimization on the lower left section of the slide as we sold another vessel for $24 million in net proceeds. Overall during 2024, we sold three 15-year-old MRs for a total of $72 million and acquired six MRs under 10 years old for $232 million, partially funded by 624,000 shares issued in the second quarter. On the lower right, using proceeds from our last vessel sale, we purchased and retired over 500,000 shares at an average price of under $50 per share. In the same quarter, we paid a combined dividend of $1.50 per share. This combined $100 million in returns to shareholders over the third quarter represented 84% of our adjusted net income from the prior quarter. Today, we announced a combined dividend of $1.20 per share according to over 75% of our third quarter adjusted net income. Over the last 12 months, B-Ways has returned over 12% of our average market cap. We continue to believe in our balanced capital allocation approach, positioning the company for the future with opportunistic fleet renewal and enhancing our balance sheet while sharing in our upcycle with a double-digit dividend yield to our shareholders. On slide five, we've updated our set of bullets on tanker demand drivers with a subtle green up arrow next to the bullet represented as positive for tankers. The black dashes representing a neutral impact and a red down arrow meaning the driver is not positive for tanker demand. Pulling some highlights, oil demand growth over the next two years is still at or above the growth rate over the last 30 years. While China has lost some steam in its oil demand growth, we're monitoring the impacts of their announced stimulus, which has yet to be factored into oil demand forecasts for 2025 and beyond. During the third quarter, we saw weaker production from OPEC+, largely due to Libyan disruption. OPEC has now decided to hold off increasing output from December until January of 2025. The outcomes of elections worldwide may impact tanker demand, and it remains uncertain how shifting world politics will ultimately impact us. Finally, at the bottom of the page, the chart shows OECD inventories with a slight build in the third quarter. U.S. inventories, which are readily available each week, have shown draws over the last few months. Inventory draws negatively impact tanker demand in the short term But over time, this flipped to a positive factor for tankers as demand calls for barrels on the water. On slide six, the order book of tankers did creep up during 2024. Still, as you can see in the lower left-hand chart, shifts on order are still quite low relative to the size of the fleet in historical context. Not factored in on this chart, but reflected on the lower right-hand side of the page, New orders that deliver over the next four years barely replace the fleet that is turning 25 years old, the natural end of a ship's life. There are another 1,500-plus vessels that are turning 20 years old above the delivery schedule that need replacement. This is significant for the tanker industry as a limited tanker supply continues to be supportive of strong tanker earnings. We believe this translates into a continued strength over the next few years with Seaway's well-positioned to continue capitalizing on the market conditions. You can count on us to utilize our balanced capital allocation approach, renewing our fleet, adapting to industry conditions, and keeping a strong balance sheet while returning to shareholders. I'm now going to turn it over to our CFO, Jeff Prevore, to provide the financial review.

Thanks, Lois, and good morning, everyone. On slide eight, net income for the third quarter was $92 million, or $1.84 per diluted share. This includes gains on vessel sales and a minor provision for the settlement of our UK multi-employer pension funds. Excluding these impacts, our net income was $78 million, or $1.57 per share. On the upper right chart, adjusted EBITDA for the third quarter of 2024 was $130 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. Our expense guidance for the third quarter was largely within the range of expectations except for vessel expenses. During the third quarter, some of our older VLCCs had repairs and increased off-hire. As a result, we did receive a retroactive pool point adjustment on the fleet that somewhat impacted our TCE earnings for the period. Our lightering business continues to prosper with nearly $13 million in revenue in the quarter. Combined with about $3 million in vessel expenses, $4 million in charter hire, and $1 million of GNA, the lightering business contributed over $4 million in EBITDA in the third quarter and brought year-to-date EBITDA contributions to about $17 million. Turning to our cash bridge on slide nine, we began the quarter with total liquidity of $682 million. comprised of $176 million in cash and $506 million in undrawn revolver capacity. Following along the chart from left to right on the cash bridge, we first add $130 million in adjusted EBITDA for the third quarter, plus $24 million in debt service, plus our dry docking capital expenditures of about $21 million, and a working capital benefit largely due to the collection of receivables of about $29 million. We therefore achieved our definition of free cash flows of about $150 million for the third quarter. This represents an annualized cash flow yield of over 20% on today's share price. The remaining bars on the cash bridge reflect our capital allocation for the quarter. We sold a 2008 built MR during the quarter for net proceeds of $24 million. We also repaid $50 million that was drawn on our $500 million revolving credit facility in the prior quarter. which increased our RCF capacity by a net $35 million, as the facilities reduced in capacity by about $15 million per quarter. Lastly, this quarter we returned nearly $100 million to shareholders through a dividend of $1.50 per share, or about $74 million, and $25 million in share repurchases. These returns represent 84% of the prior quarter's adjusted net income. All together, these components led to ending liquidity of $694 million, comprised of $153 million in cash and short-term investments, and $541 million in undrawn revolving capacity. Moving now to slide 10, we 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 nearly $700 million. Vessels on the books at cost are approximately $2 billion, versus current market values of over 3.7 billion. And with about 657 million in gross debt at September 30th, this equates to a net loan devalue of below 14%. Our debt at September 30th was 80% hedged or fixed rates, equating to an all-in weighted average interest rate of about 619 basis points, or less than 150 basis points above today's SOFR rate. We continue to enhance the balance sheet to create the financial flexibility necessary to facilitate growth and returns to shareholders. We have $541 million in undrawn 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 our shareholders. On the last slide that I'll cover, slide 11, reflects our forward-looking guidance and book-to-date TCE aligned with our spot cash breakeven rate. Well, I'll remind you that actual TCE during our next earnings call may be different, but as of today, we have a blended average spot TCE of about $27,200 per day fleet-wide so far this quarter. On the right side of the slide, our forward spot breakeven rate is about $13,300 per day, composed of a fleet-wide breakeven of about $16,000 per day, less nearly $2,700 per day in time charter revenues. Based on our spot TCE book-to-date and our spot break-evens, it looks like C-Ways can continue to generate significant free cash flows during the fourth quarter and build on our track record of returning cash to shareholders. On the bottom left-hand chart, we provide some updated guidance for our expenses in the fourth quarter and our estimates for 2025. We also include in the appendix our quarterly expected all prior and capex. I don't plan to read each item line by line, but I encourage you to use these for your modeling purposes. Now, that concludes my remarks. I'd like to turn the call back to Lois for her closing comments. Lois?

Thank you, Jeff. On slide 12, we've provided you with Seaway's investment highlights, which I encourage you to read in its entirety. In brief, International Seaway has built a track record of returning to shareholders, maintaining a healthy balance sheet, and growing the company. Our total shareholder return is close to 400% since our inception, representing a 20% compounded annual return. Over the last 12 months, our combined dividends of $5.77 represent a yield of over 12%. We continue to make strides to keep our fleet below the global tanker average in what we see as the sweet spot for tanker investments and returns. We've invested in a range of asset classes, cast a wider net for growth opportunities and to supplement our scale in each class by operating in larger pools we will keep our balance sheet fortified for any down turn in the cycle we have over 540 million in undrawn credit capacity to support our growth our net debt is under 14 of the fleet's current value and we have 34 tankers that are unencumbered When our spot shifts collectively earn over $13,400 per day, we break even looking forward 12 months. We expect to continue generating cash that we will put to work creating value for the company and for our shareholders. And with that said, operator, we would like to open the lines for questions.

We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad If you change your mind, please press star followed by T. When preparing to ask your question, please ensure your device is unmuted locally. And our first question comes from the line of Omar Nocta from Jefferies.

Thank you. Hi, Lois and Jeff. Good morning. Just have a couple of questions, you know, first. Yeah, morning, Lois. Yeah, I just wanted to ask kind of about the tanker market as it is now and the product, especially as we move here forward into the fourth quarter. Obviously, a theme in the second and third quarters was the crude tankers invading, quote unquote, and and cannibalizing some of the the product trades. There's a lot of talk, obviously, of crude rates improving. Their ships have now moved away from the product fleet, but rates have continued to remain soft here for product. Want to get a sense from you on what's driving that softness here? And then what do you see on the horizon potentially that could lead to a reversal?

Yeah, absolutely, Omar. You know what's interesting? If you look at our spot performance on the MRs in the third quarter at $29,000 per day, it's just incredibly strong. And if you compare year over year to 2023, it was 26.5 in 2023 in the third quarter. So, you know, the MRs, have just continued to really hold their own and defend and be very strong. Both days in the fourth quarter, you're looking at close to 21,000 per day. You're seeing those rates sort of defend. The U.S. is putting out a lot of product. We're not loading Russian barrels, but you're seeing a lot of Russian diesel in Brazil. That's pretty long haul. The U.S. is defending. You know, as you look at the product, I think there's a sentiment in the market that they've run their course, and yet when we look forward to 2025, requiring margins are under pressure, and it looks like you're going to see some more EU refineries closed down, one on the U.S. coast has been announced, U.S. West Coast, but you still have the demand there for the product. So, it seems to us that I wouldn't write off the product side too early here as we look at 2025. Thanks, Lois.

And that makes sense. I guess, yeah, the 29 you know, clearly very strong rate to begin with in the third quarter and actually pretty, I'd say solid outperformance relative to what we've seen with the broader industries. I guess maybe just in general, because there's this general, you know, I've used the word malaise in a research note, but just in terms of kind of people's view on the sector, even though, you know, rates are still healthy, you're generating good free cash flow, there just seems to be this sense of, you know, unexcitement. What are you seeing perhaps maybe just in the sale and purchase or in the term charter market specifically? Has any of that sort of, you know, equity kind of, I don't want to say sloppiness, but just, you know, unexcitedness. Has that kind of made its way into the physical market too, or is it meant two completely separate things at this point?

I'm going to turn it over to Derek, our Chief Commercial Officer, just to opine on that a little more.

Thanks, Lois. Good morning, Omar. You know, I think with weights coming off a little bit in the MR side specifically, we haven't seen that hit the term charter market that hard yet, if we will. I mean, what we're working through on the MR side, like you and Lois already talked about, is sort of – invasion of the larger ships into the clean market. Like you said, most of them have gone back to the crude market. So we expect the clean markets to continue to improve. So I think we're seeing that in term rates, but they haven't really come off all that much. S&P market, sale and purchase market, you know, there, Omar, there is a decent amount of inventory out there for some of the older ships to sell. We haven't seen too much of a price decrease yet.

Okay. Thanks, Eric. And Lois, thank you. I'll turn it over.

Thank you, Omar. The next question comes from Chris Robertson from Deutsche Bank.

Good morning, Lois and Jeff. How are you guys?

Good morning. Good. Thank you, Chris.

Good. I just wanted to ask a little bit of a geopolitical question here as it relates to some comments made by some Trump advisors here on potentially increasing energy sanctions on Russia. If that came to fruition, what do you think the impact would be on the tanker market, on the product tanker side specifically, but also on crude?

Well, you know, on the election, Chris, what we would say is that impact on oil tankers could be more sanctions, reducing some uranium flow, maybe squeezing out some sanctioned parties and tankers, and potentially some on Venezuela as well. Potentially, you could see more U.S. drilling and exports. Early indicators, Brent's holding around $75, so that kind of equals the market thinking oil demand will perk up in $25. It seems like uncertainty is just, you know, even though we have certainty now in the elections, you still have uncertainty of policy developments feeding into an uncertainty of political world. And we'll have to see how that feeds into action. I'm not sure how any of that is specifically related to the Russian flows, other than potentially sanctioning those who have not followed the price ceiling. Is that what you're talking about in reference?

It's hard to know exactly what the policies are, so I'm not sure, to be honest with you. Maybe I can ask a more company-specific question so we don't have to scratch our heads here. Just on the $50 million for the repurchase program that remains, how are you guys thinking about that? You did $25 million in repurchases during the third quarter. Are you trying to target maybe a similar amount in the fourth quarter, or is the opportunity here with the, you know, shares trading at a significant discount to NAV, you would potentially look to try to do more in the fourth quarter?

Jeff, do you want me to, would you jump in there?

Sure. You know, we were, we used that tool in the toolkit in the third quarter, and we replenished it to 50 because we want to keep that, as an option for ourselves. You can see that we've leaned into dividends as our preferred way of returning cash to shareholders. And that's still going to be our main plan going forward. That's worked for us. But I think it's important to, as we signal by recharging that repurchase program, that it's a tool that we'll reserve and be willing to use. But there's no set guidelines for it, Chris. No set price. We'll just monitor the market.

Sure. Okay. That makes sense. Thank you, Jeff. I'll turn it over.

Thank you, Chris. The next question comes from Ben Nolan from Stiefel.

Yeah. Hi, this is Frank for Ben. Uh, thanks for taking our question. Um, I wanted to ask about the closure of the Los Angeles, uh, refinery. Um, and how does that impact the West coast Panamax business?

I'm going to turn it over to Derek Salone, just to opine on that one.

Thanks, Lois. Good morning. Thanks for the question. You know, that refinery closure is going to be interesting for us both on the crude and product side. You know, because you're looking at it, the refinery is closing for business reasons, but not necessarily demand reasons, right? So on the clean product side, we'll see further imports, we think, into sort of Pad 5. And then on the crude side, a lot of that crude was sourced locally. So as we see sort of TMX Vancouver come online and get bigger, I don't know if it's exports, that's sort of more barrels to be displaced to go further afield. So ultimately should be beneficial for us.

Okay, thank you. And then switching gears a little bit, given sort of the recent pullback in the tanker market and equity values specifically, does that sort of make it harder to consider M&A? And how likely do you think we'll see consolidation in the industry in the next year or two?

You know, interestingly, Frank, that could be influenced by Trump policy. Who knows? You know, you had a very...

strict application of non-compete policies. I mean, the tanker market is very fragmented in any case. But perhaps we'll see friendlier stances towards M&A. And I do believe that you'll continue to see consolidation as regulations just get tougher and tougher on tanker owners. And you need to spend more and more on research and development and making sure you're keeping up on the sustainability front.

Okay, that makes sense. Thanks very much.

Thank you.

Just as a quick reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Liam Burke from B Reilly.

Thank you. Good morning, Lois. Good morning, Jeff.

Good morning.

Good morning. Robert Hechtman, Jr.: : Lois, you touched on the OPEC plus holding firm on production cuts. Robert Hechtman, Jr.: : With demand growth still in place, that would mean a shift of production away from OPEC plus to non-OPEC countries like Latin America, US. How does that affect either ton mile demand or demand for different classes of crude vessels?

Yeah, you know, that's really the right question because 2025, you know, you're looking at demand growth projections anywhere from a million barrels to a million and a half and non-OPEC growth of about a million and a half. So it kind of meets the demand growth and then it comes to battle it out on, you know, whether or not how much we go to the upside of that or not and then whether or not OPEC Plus releases a lot of extra barrels, and then it does kind of affect the different classes. The status quo at present, you know, it is a good construct. Not OPEC is largely west, right, from the Americas, and you're moving those barrels. Some are going into Europe and some are going east. So that is additive for ton miles. When and as we see OPEC bringing back their barrels, that will be a little bit of an assist for the bees.

Great. Thank you. And on the asset acquisition, you've got quite a bit coming online. How does that pipeline look for you? You have a tremendous amount of financial flexibility, even with your debt amortization and your return of cash shareholders.

No, that's great. I appreciate that. It kind of sets me up to the one comment I wanted to really make on this call, which is, you know, at Seaway's, Throughout 23 and in 24, what you see is us fully deploying all of our free cash flow, primarily through shareholder returns, secondarily through renewing the fleet, And thirdly, Jeff and his team did a stellar job here of enhancing the balance sheet again in 2024, and that allows us to choose but not have that optionality of whether or not we want to pay down the non-advertising facility. So we're putting all of our cash flow to work, and it just puts us in a great spot. We've got the LR1 new buildings in the pipeline. We don't feel like we're in a have-to situation. We're in a look-for-opportunity situation.

Great. Thank you, Loss.

Thank you. The next question comes from Sherwin Elmakarabi from BTIG.

Hey, good morning. Thanks for taking my question. First, very simply, what do you think that ship recycling hires? You know, the fleet continues to age thanks to how well spot rates have done and possibly the needs of the dark fleet. recent volatility that I'm understanding.

We could see some of that happen. If indeed you did see tightened sanctions and it did force some of these, you know, aged vessels out of being able to trade and they can't get back into the legit trades and they're forced out of the sanctioned markets, you could see some recycling happening.

you know, the markets, danger markets is still very strong. I know, you know, we hear, you know, tepid and lukewarm, and that's an okay construct where we are right now. You see the ordering just way slow down right now, and our order book is, you know, now it's double digits, but it's not to 15%. It's like 12%, and it's spread over four years. So 2025, that's backloaded, and you only have a couple percent coming. So You know, yeah, I'd say we have an old folks home on the water, you know, with tanker ages approaching 14 as we head into 25 on average. It's going to need renewal at some juncture, and then we're just going to see how do we push these older ladies out.

I see. So a few catalysts coming up, maybe entering a little bit of a sweet spot there with some of the vessels continuing to age. So second, Jeff, for the vessels on sale leasebacks, The maturities are all pretty far out under those arrangements, but can you remind us if there are any upcoming repurchase options that could see seaways accelerate deleveraging, especially considering where asset values are at the moment, you know, versus where most of these vessels are going to be financed at?

Sure. So some of the are at such favorable. Some of these are at such favorable. rates that they'll happily stay there for a very long term. But I think it's well known that there's one of ours that does have a purchase option coming up towards the end of 25. So that's something we'll certainly evaluate. So there is one in calendar 25 towards the back end.

OK. Thanks very much for taking my question.

Does that answer your question? Yeah. Yeah, so it's actually specifically November 25, and then some of the others come up in 26. But again, we'll look at it on a case-by-case basis. But we do have some optionality for refinancing in the back end of 25 if we want to.

All right. Thanks, Jeff.

As we currently have no further questions in the queue, I will hand back over to Lois Zambrocki for any final remarks.

Thank you very much, everyone, for joining us, and we look forward to the next quarter as we build on Seawaste's strong performance. Thank you so much.

That does conclude the International Seawaste Inc. Third Quarter 2024 Earnings Conference Call. We appreciate your presence and participants. Have a nice day. You may now disconnect.