International Seaways, Inc.

Hello and welcome to the International Seaways Inc. Fourth Quarter 2024 Earnings Conference Call. My name is Carla and I will be coordinating your call today. During the presentation, you will have the opportunity to register a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I would now like to hand you over to James Small, General Counsel, to begin. James, please go ahead when you're ready.

Thank you, operator. Good morning, everyone, and welcome to International Seawaste Earnings Call for the fourth 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, which 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 petroleum products. The company's strategy and business prospects. Expectations about revenues and expenses, including vessel, charter hire, and G&A expenses. Estimated future bookings, TCE rates, and capital expenditures. Projected dry dock and off-hire days. Vessel sales and purchases. New build vessel construction. the effects of ongoing and threatened conflicts around the globe, the changing global regulatory environment, the company's ability to achieve its financing and other objectives and its consideration of strategic alternatives, anticipated financing transactions and plans to issue dividends, the company's relationships with its stakeholders, and other political, economic, and regulatory developments globally. Any such forward-looking statements take into account various assumptions made by management based on the 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. Those 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 2024 and in other filings 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 Dabrocki, our President and Chief Executive Officer. Lois?

Thank you very much, Shane. Good morning, everyone. Thank you for joining International Seaway's earnings call for the fourth quarter and the full year of 2024. On slide four of the presentation, which you can find in the investor relations section of our website, net income for the fourth quarter was $36 million, or 72 cents per diluted share. Excluding a loss on vessel sales, adjusted net income for the fourth quarter was $45 million, or 90 cents per diluted share, and our adjusted EBITDA was $95 million. We are proud to announce today that we continue to modernize our fleet during the fourth quarter with a vessel swap, as you can see in the upper right-hand corner of the slide. We sold two of our oldest VLCCs and paid $3 million in cash for three EcoMRs built in 2015. The swap is less indicative of a specific preference for any one particular class of ship, but more showcases our ability to opportunistically reduce our vessel ages across various ship classes, enhance our fleet efficiency, while limiting risk compared to a full cash transaction. We have optimized earnings across our tanker segment, which gives us plenty of flexibility to execute fleet optimization. The various transactions within the swap created some temporary changes to our balance sheet in the fourth quarter and the first few months of 2025. During the fourth quarter, we paid $53 million in cash for deposits and the delivery of one MR vessel. Due to this temporary timing difference, we borrowed $70 million on a revolving credit facility, which has been repaid in the first quarter following the final execution of the swap. As a result, our line of credit capacity reduced to a still quite healthy $475 million at the end of the fourth quarter. We expect that to be around $560 million on a pro forma basis. Our balance sheet highlights are strong. Shown in the bottom left of the slide, $632 million of total liquidity composed of 157 million of cash and 475 million on the revolving credit facility. We have $695 million of debt with a net loan to value ratio of below 16% and our spot break even rate are about $13,700 per day. On the lower right, we are proud to have shared for a second consecutive year over $300 million returned to shareholders in 2024. We paid $5.77 in dividends during 2024, representing a 12% dividend yield on our average share price over the time. We also used proceeds from that sale of an older MR to repurchase 500,000 shares for $25 million during 2024. Today we announced $0.70 in dividends that we will pay in March, representing a payout ratio of about 77%, marking our highest since we've been supplementing a regular $0.12 dividend. We believe in sharing with our shareholders. during this cycle and we expect a payout ratio similar to this last two quarters of around 75% to continue into the future. We believe in our balanced capital allocation approach so that we can provide competitive returns to our shareholders and still position the company for the future with opportunistic fleet renewal while maintaining a healthy balance sheet to support growth. On slide five, we've updated our standard set of bullets on tanker demand drivers with the subtle green up arrows next to the bullets represented as good for tankers, the black dash representing a neutral impact, and a red down arrow, meaning that particular topic is not good for tanker demand. Without reading these bullets individually, I will pull some highlights. Oil demand growth. in the near term is still going to grow at its historical rate of about 1% per year, which on 100 million barrels per day of demand is about 1 to 1.5 million barrels of growth anticipated for 2025. Oil demand growth specifically is spread across the world in 2025 with no one large outlier as China has been for many years. Crude production growth is largely coming from the Americas, which is supportive for tanker demand as much of the incremental growth will be exported. The global economy is still settling the dust from a post-2024 election period, and there have always been headline grabbers, particularly from the United States. The geopolitical situations are not going away. They may modify and that could have an effect on the tanker market, but with many moving parts, the markets will adjust. We expect the United States to take a stronger position with Iran and we see tanker movements shadowing that. Pun intended. The Israel Hamas conflict is still very tense and most ships are wary of their safety in the Red Sea. Russia-Ukraine is similar. And even if there is a resolution on the horizon, we believe that the unwinding could last longer for Russian crews moving to the West. We embrace these tanker markets because we can't control them in any case. And we believe that sanctions and their enforcement can only help the legitimate commercial fleet. In the charts below on slide five, inventory in the OECD drew about 100 million barrels in the second half of the year. This in the short term impacted tanker rates and will refill over time based on history. The United States SPR has grown in 2024 in small chunks. President Trump has indicated refilling the SPR is a priority to historic level. This would mean around 300 plus million barrels, which may include imports of medium sour crude, which has historically been a medium. On slide six, the order book popped in 2024, particularly in the middle of the year. But as seen in the lower left chart, shifts on order are still quite low relative to the size of the fleet in historical context. We added a weighted average tanker rate in the chart as an indicator that orders grow when the market is hot. But as we've shown many times, not factored into the chart on the left is the longer time horizon that many of these shifts on order are expected to deliver over the next four years and the corresponding age of vessels on the water over this time. The chart on the right reflects that 45% of the fleet is headed towards 20 plus years. the age where we identify as removed from the commercial fleet compared to 14% of the fleet that exists on order. As you can see, there are about 900 ships that are already 20 years old and there are still another 1500 plus vessels that are turning 20 during delivery schedules that will need replacement. This is significant for the tanker industry as the limited tanker supply continues to be supportive of strong tanker earnings. We believe this should translate into a continued upcycle over the next few years, and Seaways remains well positioned to capitalize on these market conditions. We will continue to execute 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 turning it over to our CFO, Jeff Prevore, who will provide the financial review. Jeff?

Thanks, Lois, and good morning, everyone. On slide 8, net income for the fourth quarter was $36 million for $0.72 per diluted share. This includes the loss of vessel sales as a result of timing of the vessel swap that Lois discussed earlier. Excluding this, Our net income was $45 million or $0.90 per diluted share. On the upper right chart, adjusted EBITDA for the fourth quarter of 2024 was $95 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. While our revenue based on market conditions was largely within expectations in the fourth quarter, our expenses were a little higher than our guidance from last quarter. Vessel expenses were higher in the fourth quarter to the timing of stores and spares at the end of the year and additional repairs and maintenance. G&A was hired primarily for one-off legal matters. Our lightening business continues to prosper with over $9 million in revenue in the quarter. Combining this with about $3 million in vessel expenses, $3 million in charter hire, and $1 million of G&A, the lightening business contributed nearly $3 million in EBITDA in the fourth quarter as well as an annual EBITDA contribution of nearly $20 million in 2024. Turning now to our cash bridge on slide 9, we began the quarter with total liquidity of $694 million, composed of $153 million in cash, $540 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we first add $95 million in adjusted EBITDA for the fourth quarter, plus $23 million in debt service, another $18 million of dry docking capital expenditures offset by working capital benefit of about $24 million due to the timing of deferred revenue, payables, or accruals. We therefore achieved our definition of free cash flow of about $78 million for the fourth quarter. This represents an annualized cash flow yield of over 17% on today's share price. We spent $53 million in connection with the vessel swap due to the timing of deposits and the delivery of one of the MRs in the swap. Due to the temporary timing difference, we borrowed $70 million on our lines of credit that we repaid in the first quarter of 2025. The remaining bars on the cash bridge reflect our capital allocation for the quarter. We repaid $20 million of debt early in the fourth quarter, made $12 million in installment payments for our LR1 new buildings, and also paid $59 million in dividends to shareholders equating to $1.20 per share. Altogether, these components led to ending liquidity of $632 million, with $158 million in cash and short-term investments, and $475 million in underground revolving capacity. Now moving to slide 10, we have a strong financial position detailed by the balance sheet on the left-hand side of the page. Cash and liquidity remain strong at $632 million. We have invested about $2.2 billion in vessels that cost, which are not on the books currently, at a value of $3.5 billion. And with $695 million of gross debt at the end of the year, our net loan-to-value is below 16%. Our debt at December 31st was over 70% hedged or at fixed rates, equating to an all-in weighted average interest rate of about 614 basis points, or under 200 basis points above today's SOFR. Following our payment in the first quarter of 2025, we expect our fixed rate hedge amount to be closer to 80%. We continue to enhance the balance sheet to create the financial flexibility necessary to facilitate growth and returns to shareholders. We have $475 million in undrawn revolvers at year end. This grows to about $560 million pro forma of our debt repayment following the close of the swap transaction. Our nearest maturity in the portfolio isn't until the next decade. 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 reflects our forward-looking guidance and book-to-date TCE aligned with our spot cash breakeven rate. Starting with TCE pictures for the first quarter of 2025, and I'll remind you that actual TCE during our next earnings call may be different Currently, we have a blended average spot TCE of about $26,500 per day, fleet-wide, on 70% of our first quarter expected revenue base. On the right-hand side of the slide, our forward spot breakeven rate is about $13,700 per day, composed of a fleet-wide breakeven of about $16,200 per day, plus nearly $2,500 per day in prime charter revenues. Based on our spot TCE book-to-date and our spot breakeven, It looks like C-Ways can continue to generate significant free cash flow during the quarter and build on our track record of returning cash to shareholders. On the bottom left-hand chart, we provide some updated guidance for expenses in the first quarter and our estimates for 2025. We also included in the appendix our quarterly expected off-hire and capex. I won't plan to read each item line 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. Lois?

Thank you so much, Jeff. On slide 12, we have provided you with Seawaste Investment Highlights, which we encourage you to read in its entirety. And I will summarize briefly. Over the last eight years, International Seawaste has built a track record of returning cash to shareholders, maintaining and improving our healthy balance sheet, and growing the company. Our total shareholder return represents around 20% compounded annual return. For the second consecutive year, we've returned over $300 million to shareholders, which is about 25% combined return over the last two years. We continue to renew our fleet so that our average age is about 10 years old in what we see as the sweet spot for tanker investments and returns. We've invested in a range of asset classes to cast a wider net for growth opportunities and to supplement our scale in each class by operating in larger pools. We aim to keep our balance sheet fortified for any down cycle. We have over $500 million in undrawn credit capacity to support our growth. Our net debt is under 16% of the fleet's current value, and we have 36 vessels that are unencumbered Lastly, we only need our spot shifts to collectively earn $14,000 per day to break even in the next 12 months. At this point in the cycle, we expect to continue generating cash that we will put to work to create value for the company and for our shareholders. Thank you very much. And with that said, operator, we'd 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 two. When preparing to ask your question, please ensure your device is unmuted locally. We will make a quick pause for the questions to be registered. Our first question comes from Ben Nolan with Stafford.

I appreciate it. Hey, good morning, Jeff, Lois, and team. So I've got a couple. The first relates to sort of maybe your charter route strategy at the moment, and I think this is particularly true for some of the crude tankers. The charter market is pretty elevated relative to certainly where you've built some of your spot vessels and generally, I think, spot. You know, obviously that's pointing to an inflection up in the spot market. But I'm curious if you think about, you know, just given that dislocation, maybe taking a little risk off the table and locking in some capacity just because, you know, there is a gap between the two at the moment.

Okay. Good morning. How are you? So I would start to answer that question. Sorry. Sorry, I didn't wait for your remaining question. Let me answer that one, and then we'll take your second one. How's that?

Okay. Sounds good.

We have 14 time charters in our books right now out of our 78 vessels that are on the water, and then we have our six new buildings that will be arriving. So we have nearly 20% of our time on time charter at present, and then I would just have Derek jump in there.

T. John McCune, WSBA Advancement Department Director, Good morning, Ben.

T. John McCune, WSBA Advancement Department Director, You know, T. John McCune, WSBA Advancement Department Director, Further to your question, we would continue to look at time charters like we always do with the right partners, the right term, and the right rate. It's something that we're always evaluating.

T. John McCune, WSBA Advancement Department Director, Okay, but there's nothing about the market at the moment that makes you more or less compelled to move in that direction, I suppose, is the answer. Oh, sorry.

Go ahead.

I was going to ask my next question, but if you were going to add any more to it, that's fine. Well, my next question, just to have it out there, is in the quarter, the MR, you guys thus far in the first quarter, your MR rates were pretty decent thus far for what you already have booked. Just curious if maybe you can give a little color, like is there a specific geographic focus? Is this, you know, how should we think about the remainder of the quarter? Or is it just, you know, hey, things are going pretty well there at the moment?

Ben, it's Derek again, if I can take that one. Thank you. Yes, the Q1 bookings we're pleased with so far. I think we're doing well when we look at our peer group. I think we're starting to see a little bit of dislocation in the MR rates, whereas we've been kind of carried by the Atlantic Basin over the last couple of quarters. We're seeing... The U.S. Gulf starts to come down a little bit, but we do have a good deal of exposure. But we're seeing Asia come up, and luckily with an MR fleet of our size and our pool employment, we have good exposure to the east part of it as well. So we should be covered to capture some of that eastern upside.

Okay. I appreciate it. Thank you, guys.

Thank you. Our next question comes from Omar Nocta with Jefferies.

Thank you. Hey, guys. Good morning. Good update. Just wanted to ask a couple questions. Clearly, over the past few years, you've done a lot in terms of strengthening the balance sheet. Debt is now, as you say, below 16%. You have plenty of liquidity, fleet renewals, inconsistent capital returns, whether buyback dividends. Just in terms of the dividend at the moment, the 4Q payout, 77% of earnings. That's up from 75% previously, and that 50% to 60% you were doing kind of going back to the beginning in 2022. How should we think about this ratio going forward? I know it's been moving upwards, but just in general, 77% of what we should be expecting going forward. How do we think about what that payout looks like as earnings kind of move up and down? As in, if rates strengthen materially, kind of go back to where they were in 23, should we expect kind of a more normal payout kind of coming down closer to that 50% threshold again? Any kind of color you can give on what you're thinking of the payout ratio, especially in terms of earnings swinging? Sorry for the question.

Oh, good morning, and excellent tee-up for us, Omar, because we do want to highlight that. And as you know, we have steadily increased the percentage of adjusted net income that we have been returning to shareholders, and we have to have Jeff Hess's thunder here on what you should expect going forward.

Hi, Omar. You recapped it well. We raised the payout ratio gradually from 2022 until the end of last year as we were allocating free cash flow capital to delever. Having reached a level of leverage which is sufficiently low, 50%-ish net loan-to-value, 20% loan gross, we were able to move up the payout ratio 75% or a little more last quarter. And again, this quarter, as you noticed, so it's 77%. I think what I hear from shareholders, or we hear from shareholders, or potential shareholders, most often is clarity and consistency around this return of capital to shareholders' program. And I think we can say clearly that shareholders should expect a minimum of a 75% payout ratio. I mean, it's helpful to have a round number like 70 cents per share, but I think that's the clear message. And to the second part of your question, I think if rates were to moderate or go up, net income will go up and the payout ratio still works. The payout will go up or down depending on how the year develops. So I think it's fair to say that we put ourselves in a position to have a payout ratio of a minimum of 75%. That's the message.

Okay. That's clear. I appreciate that. That's really helpful. And maybe just a second question. You know, the VLCC MR swap has certainly been innovative, and we've been hearing about that for a while, at least in shipping circles, as something that was in the hopper. Just in general, as we think about that transaction, how should we think about it in terms of, you what your plan has been is it de-emphasizing the vlccs in favor of products or is it really de-emphasizing older tankers and then that's one sort of part one and then part two i guess would be as you think about further transactions from here what part of the the fleet profile do you look to um try to increase the ratio up thank you yeah omar it would be the latter of your you know

what you were opining, essentially, we really want to drive down the age of the fleet going forward. And because we're in each of these sectors and we have a very broad network, we were able to come up with what I think was a pretty creative deal from the team and execute that pretty flawlessly here. And our overall age on the fleet is right around 10 years. And, you know, selling ships that are, you know, 210 and then bringing in 215, you know, you just, you're buying yourself that longer horizon to capture that upside. I think that would kind of do the summation. And then when you, we're not de-emphasizing crude at all. It simply happens to be an opportunity for us to shed some older, inefficient ships.

Okay, thanks, Lois. And just quickly, in terms of thinking about expansion or adding vessels or fine tuning further, is there any part of the fleet that you want to bolster or is it just kind of, it'll depend on what the opportunity set is at the time?

It certainly will depend upon the opportunity set at the time. And, you know, over time, you should look for us to add to the big crew side, you know, which is, you know, where we've had a little bit of attrition now, right? So that will be a focus as and when that suits.

Very good. All right. Thanks, Lois. And thanks, Jeff. I'll pass it back. Thanks, Lois.

Our next question comes from Chris Robertson with Deutsche Bank.

Hey, good morning, Lois and Jeff. Thank you for taking my questions. Jeff, this might be a question for you. Just turning to the breakeven, just broadly speaking, looking at what makes that up. As you look forward, and there's maybe a bit of a de-emphasis here on further de-levering, so maybe, you know, there's not more savings with regards to the break-even there, but as you look at OpEx and other components to it, where do you see kind of the floor that you could theoretically get to?

Chris, that's a good, how are you? Good, thank you. That's a good question. You know, I think that, uh, you know, we're always, uh. Working on keeping. Cloths, uh, in line and and from going up too much. I don't think you'd expect us to be driving down out there. So if it's a cold as well, we can't GNA. We're always working on that to make sure it's on a per ship basis. Uh, you know that that that's a good number. And then if we were. But if we find ourselves growing, as we have done in the past at the right time, that does bring you a little lower per day cost on G&A. In terms of interest, I think we're interested in the debt cost. I think there's a little bit that you can look forward to in the future without necessarily leveraging further, just as we have a little bit of debt that's higher price that will roll off. We have the ability to think about more revolvers as opposed to more advertising debt as we look out towards the end of this year and into next year. So it's kind of incremental. I think we feel good about our break-evens right now. So I think when you look at a fleet that has everything from VLCCs down to MRs to have a break-even maintenance, $16,000 before. when taking into account time charts. I feel good about that, but we'll always like to find incremental ways to lower even more if we can.

Okay, great. Yeah, that's what I like to hear on that. Turning to the LR1 segment, I know this is a segment that you guys have outperformed historically speaking. So I was wondering if you could just talk about that particular segment for a moment with the current market dynamics there and do you still have kind of a competitive advantage there?

I'll leave that at Lois, and then I'll turn to Derek. I think you can see when you stack up the LR1 Panamax sector against the competition in the fourth quarter, we continue to out-earn our competition, and that market continues to be a strong niche. Derek?

Thanks, Lois. As you said, it continues to be a strong niche, and And Chris, you know, I think you're probably raising the question because the rates from sort of the start of the year to the end of the year have come down a good deal. But, you know, like you said, like you said, though, it's still a good niche for us. A lot of the decrease in rates have to do with just the overall market, but also a little bit from Ecuador. You know, we're seeing a little bit of Ecuador sending more of their barrels out to China, so that'll be in bigger shifts. But that dynamic shift to come back to sort of the I hope that answers your question, Chris.

Yes, thank you very much. I'll turn it over.

Just as a 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 with B Reilly.

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

Good morning.

Hi. David Miller, Lewis there's lots of puts and takes out there in terms of sanctions redistribution of production and most of the discussion has been the effect on vlc sees specifically, how are you looking at the outlook for the Suez Maxis.

So. The CSMAX has had, you know, prior to, I would say, the last three years, had a very tight correlation pretty systematically with BLCCs with, you know, something along 85% to 90% correlation with the Vs. And I think that, you know, as you see the components of strength coming into place piece by piece with a lot of the political – moves that we read every day and the over 450 ships or like 100 bees on OPAC lists, you know, as you see those components start to build and the bees can, you know, hopefully get a little bit more of a ground swell here and continue to improve, you're going to see the Suez Maxes come along for that ride.

Great. Thank you. Jeff, with your liquidity situation, you have a tremendous amount of flexibility. Are opportunistic buybacks in the mix, or is the payout ratio your primary method of returning cash to shareholders?

William, is the simple answer not to be viewed as both? You're right. I mean, the payout ratio is the primary method. that we anticipate that we have been returning and expect to continue returning cash. However, as you asked, share of purchases are in the mix in the sense that we have a $50 million share of purchase program. We did $25 million of share of purchasing right after we sold the ship for roughly the same amount in last year, third quarter. So we have the ability to look at that again. But I'd say the primary plan is dividend, so focusing on payout ratio, but we have the flexibility to do share of purchase as well.

Great. Thank you, Lois. Thank you, Jeff.

Thank you.

Thanks, Liam.

Our next question comes from Sheriff El-Meghrabi Widd. Hey, good morning.

Thanks for taking my questions. So a couple on, I guess, charter sentiment. You highlighted that nearly 20% of the tanker fleet is over 20 years old, but given that new build deliveries aren't going to replace those older vessels at the same rate, do you think we could see charters relaxing their specification requirements if there isn't as much modern tonnage available?

I would say that you do see a bit of flex on the margin from charters, depending upon what the tonnage availability is and what the strength of the overall markets are. So very well-maintained vessels, I think, could retain their ability to trade and their efficiency. On the other hand, you know, the OFAC list of the 100Bs, those vessels, it's a rare exception that there's one under, you know, a few there that are under 20 years old, right? So, you know, you do tend to see these ships that are on the water and, yeah, highly inefficient and really marginalized being, you know, older and certainly controlled by those that are not doing a high-level maintenance. So, I think it'll be incremental from the charters. It's never going to be wholesale.

And then on on Red Sea transit, I appreciate nobody wants to be the first mover in the Red Sea and everyone has a different opinion on when transit could resume. But is this something that charters are pushing for at this time?

I'm going to turn it over to our head of ops, Bill Nugent, and just have him give a little bit of an opinion there.

Thank you, Lois. We don't talk about our specific security measures or policies. What I can say, I think, is that the whole market is looking for a bit more of a sustained stability in the region and a de-escalation. To answer your question, I'm not aware of any pressure or inquiries from charterers to go through, and grateful for their support and light thinking. Thank you.

Got it. Thanks, Lois, and thanks, Bill.

And that was our final question, so I will hand back over to you, Lois, for any final remarks.

I would just like to thank everyone for joining us today, and we live in very interesting times and are watching the news frequently, right? So we see an overall construction in the tanker market to be really rather robust, and we hope to hear from you next quarter. Thank you very much.

So this concludes today's call. Thank you everyone for joining and for participating. Have a great day. You may now disconnect.