International Seaways, Inc.

Good morning, everyone, and welcome to the International Seaways Inc. Second Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask questions by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to hand you over to your host, James Small, General Counsel, to begin. Please go ahead when you're ready.

Thank you, Operator. Good morning, everyone, and welcome to International Seaway's earnings call for the second quarter of 2025. 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, forecasts 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, new build vessel construction, vessel purchases and sales, anticipated financing transactions and plans to issue dividends, the effects of ongoing and threatened conflicts around the globe, economic, regulatory, and political developments in the United States and globally, the company's ability to achieve its financing and other objectives and its consideration of strategic alternatives, and the company's relationships with its stakeholders. Any such forward-looking statements take into account various assumptions made by management TAB, Mark McIntyre, based on a number of factors, including management experience and perception of historical trends current conditions expected them future developments and other factors that management believes are appropriate to consider in the circumstances. TAB, Mark McIntyre, or looking statements are subject to risks uncertainties and assumptions, many of which are beyond the company's control that could cause actual results to different materially from those implied or expressed by the state. Factors, risks, and uncertainties that could cause the company's actual results to differ from expectations include those described in our annual report on Form 10-K for 2024 and our quarterly reports on Form 10-Q for the first and second quarters of 2025, as well as 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, Lois LeBron.

Lois? Thank you, Gene. Good morning, everyone. Thank you all for joining International Seaway's earnings call for the second quarter of 2025. On slide four of the presentation, found in the investor relations section of our website, net income for the second quarter was $62 million, or $1.25 per diluted share. Excluding gains on settled sales, adjusted net income for the second quarter was $50 million, or $1.02 per share and adjusted EBITDA was $102 million. Today, we also announced a combined dividend of 77 cents per share to be paid in September, as you can see in the lower left section of the slide. This is our fourth consecutive quarter of a payout ratio of at least 75%. We continue to believe in building on our track record of returning to shareholders as part of our consistent and balanced capital allocation strategy. Since we started supplementing a regular 12 cents per share dividend in the fourth quarter of 2022, we have paid combined dividends of $15.25 per share, which equates to a dividend yield of about 14% per year on our average market cap. Share repurchases remain an option for Seaway, and this would be additive to our payout ratio. On the upper right hand side, we have sold or agreed to sell six of our oldest vessels with an average age of 17 and a half years. Two were sold within the second quarter for proceeds of $28 million, with the other four delivering during the third quarter for proceeds of around $57 million. We have also taken steps to utilize those proceeds with our agreement to purchase a 2020 built scrubber fitted VLCC delivering in the fourth quarter. The impact of these sales and purchase reduce our age by half a year. Fleet renewal is always part of our strategy and we expect to execute sales and purchases throughout the tanker cycle. We continue to work through our time charter book as well We still have over $260 million in future contracted revenues on 12 vessels with an average duration of around two years. The first of our six LR1 new billings is set to be delivered in September. We are very pleased to share our expected financing for up to $240 million of the $300 million in outstanding payments. We have received secured commitments for export agency financing. with KSHR and DMV across two tranches. On a blended basis, the agreement carries a 20-year amortization profile, bearing interest of SOFR plus 125 basis points over the 12-year maturity. Funds will be drawn upon delivery of each vessel starting in the third quarter through September of 2026. All of this is subject to final documentation and closing expected later this month. with the remaining funding for these vessels to be sourced through cash on hand. We ended Q2 with over $700 million in total liquidity, with $149 million in cash and $560 million in undrawn revolver capacity. Our gross debt was $553 million on over $3 billion in fleet value. Our net loan-to-value is comfortably under 15%. We are proud of the strength of our balance sheet. With ample liquidity, debt below our recycled values, and low cash breakevens, we are able to grow the company and create further enhancements like our most recent financing. With breakeven levels where our spot shifts only need to make $13,000 per day, we expect to continue executing our balanced strategy. Turning to slide five, We've updated our standard set of bullets on tanker demand drivers with the green up arrows next to the bullets representing good for tankers, the blank dash representing neutral impact, and a red down arrow meaning the topic is not positive for tanker demand. Without reading these bullets individually, we do believe demand fundamentals are solid and continue to support a constructive outlook for seaborne transportation. Recent upward revisions to forecasted GDP may increase oil demand forecasts. The OECD has maintained crude storage at historically low levels that are slowly rising in 2025, as you can see in the chart on the lower left-hand side. Product inventories are also at historically low levels. Specifically, we are short on middle distillates, whose growing demand worldwide has increased the refinery margins and is currently pushing up refinery utilization. We've noted in the bottom right chart that over the next five years, refining capacity is growing east of Suez and largely for export purposes, while we have seen more capacity shutting down in the west. This is very supportive of the refined product ton-mile demand. The release of these barrels may impact non-OPEC production as these areas may be more sensitive to price fluctuations if prices decline significantly. The geopolitical environment remains fluid, making sustained trends in new trade routes more difficult to identify. This quarter alone saw an escalation within the Straits of Hormuz that grabbed headlines and was short-lived in the escalation of VLCC rates. Many vessels on subjects in late June were failed within the week. There are scenarios for an uptick in rates if there is sustained escalation of tensions. And there are scenarios for full de-escalation and peace, which could also rationalize the aging tanker fleet. This brings us to the supply side of slide six in the presentation. It remains one of the most compelling cases for tanker shipping. Tankers are currently on order representing 15% of the existing fleet. with this 15% delivering over the next four to five years. Over a 25 year life of a vessel, we would expect as much with a 4% increase per year of removal candidates multiplied by the four years it takes to deliver the new vessels. In practicality, based on actual ship deliveries, there is a significant number of removal candidates that were built in the golden age 204 to 210. In the graph on the lower left of the page, we note the relationship of older vessels to the order book. Since 2021, the fleet over 20 years, which are removal candidates exceeds the ships on order. By the time the order book delivers in 2029, nearly 50% of this fleet will be over 20 years old and likely excluded from the commercial trade. There is simply not enough ships on order to replace the current aging fleet. We show this in the graph in the lower right. 800 plus ships shall deliver over the next four years representing only one third of the likely tonnage to face trading challenges during the same period. Not to mention ever tightening regulations and either further environmental pressures. We believe this should translate into a combined up cycle over the next few years and Seaways is capitalizing on these market conditions. We will continue to execute our balanced capital allocation approach to renew our fleet and to adapt to industry conditions with a strong balance sheet while returning shareholders. Now I'm going to turn it over to our CFO, Jeff Pribor, to share the financial review. Jeff.

Thanks, Lois, and good morning, everyone. On slide eight, net income for the second quarter was $52 million over $1.25 per diluted share. Excluding gains on vessel sales, our net income was $50 million for $1.02 per diluted share. On the upper right chart, adjusted EBITDA for the second quarter was $102 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. Our revenue and expenses were largely within expectations in the second quarter, and we are pleased with our cost management this quarter. Our BLCC rates were impacted by a long-haul strategy that didn't allow us to fully capture short spikes during the quarter. MRs were more heavily weighted to the weaker Western market and positioning for a significant number of dry dockings for ships in the CPTA pool operating in the Americas. We're seeing the benefits of those already, as our third quarter bookings, which I'll talk about later, have strengthened. Our library business had over $9 million in revenue in the quarter. Combined with less than $3 million in vessel expenses, just under $4 million in charter hire, and $1 million in G&A, the library business contributed about $2 million in EBITDA in the second quarter. Turning to our cash bridge on slide nine, we began the quarter with total liquidity of $673 million, composed of $133 million in cash and $540 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we had $102 million in adjusted EBITDA in the second quarter, plus $22 million in debt service and another $29 million of dry dock and capital expenditures, offset by working capital benefit of $20 million due to the timing of payables and receivables. We therefore achieved our definition of free cash flows of just about $71 million for the second quarter. This represents an annualized cash flow yield of nearly 15% on today's share price. We received $28 million in proceeds from the two vessel sales at the end of the quarter. We paid about $16 million in LR1 new building installments. As previously announced on the last call, we repaid $36 million down on our revolver for the second quarter, $16 million offsets our capacity production. The remaining $30 million represents our $0.60 per share dividend that we paid in June. The latter few bars on the chart reflect our balanced capital allocation approach where we utilize all the pillars, fleet renewal, deleveraging, and returns to shareholders. In summary, $71 million of free cash flow plus $28 million in vessel sales plus 82 million in capital allocation gives us a net positive change in cash of $15 million and an increase in undrawn RCM of $20 million. This equates to ending cash of $149 million with $560 million in undrawn revolvers, a total liquidity of over $700 million. 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 $709 million. We have invested about $2 million in vessels and costs, which are currently valued at about $3 million. And with $553 million of gross debt at the end of the second quarter, our net loan value is below 14%. An important highlight to also mention, as we previously announced, is our intention to repay the Ocean Yield Loans in November. Under the accounting guidelines, we are required to classify the outstanding debt of $268 million as current debt, which impacts our current ratio. I want to be clear that this does not affect our financial covenants or our ability to fund our current liabilities. While we continue to evaluate numerous financing alternatives for this refinancing, we can simply draw on the RCF to fully fund the repayment. We expect that this refinancing should lower our ratekeeping costs. On the lower right-hand table, we have detailed our debt portfolio as of June 30th. Since then, we've repaid the remaining $27 million outstanding on the RCF third quarter. By the time of our next earnings call, you'll expect to have completed documentation and gone down on a new export agency-backed facility that was described. We'd like to thank our partners at KSURE and DMV for their efforts in financing up to $240 million on our LR1 new building effectively achieves a 20-year amortization profile and a margin of 125 basis points over the next 12 years. We've been excited about our dual-fuel-ready LR1 new building, and today we're very proud to be in the final stages of financing before our scheduled deliverance. We continue to enhance our balance sheet to maintain the financial flexibility necessary to facilitate growth as well as return to shareholders. Our nearest maturity in the portfolio isn't until the next decade. We have 32 uncovered vessels, and we have ample undrawn revolving credit facility capacity. We continue to explore ways to lower our breakeven costs even more and share in the upside with continued double-digit returns to shareholders. On the last slide that I'll cover, slide 11 reflects our forward of our spot cash breaking rate. Starting with TCE pictures for the third quarter of 2005, I'll remind you, as I always do, that actual TCE during our next earnings call may be different. But as of today, we currently have a blended average spot TCE of about $28,000 per day, statewide, at 40% of our third quarter expected revenue. On the right-hand side, forward spot breakeven rate is about $13,000 per day, composed of a fleet-wide breakeven of about $15,700 per day, plus around $2,600 per day in profit from time track revenues. Based on our spot TCE book to date and our spot breakeven, it looks like Seaways can continue to generate significant free cash flows during the third 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 third quarter and our estimates for 2025. We also include in the appendix our quarterly expected off-hire and capex. I don't plan to read each item line by line, but encourage you to use these for modeling purposes. That concludes my remarks and I'd like to now turn the call back to Lois for her closing comments.

Thank you so much, Jeff. On slide 12, we have provided you with detailed Seaways investment highlights. I will summarize briefly. Over the last eight years, International Seaways has built a track record of returning cash to shareholders, maintaining a healthy balance sheet, and growing the company. Our total shareholder return represents around 20% compounded annual return. We continue to renew our fleet so that our average age is close to 10 years old. in what we see as a sweet spot for tanker investments and returns. We have invested in a range of asset classes, casting a wider net for growth opportunities and supplementing our scale in each class by operating in larger pools. We aim to keep our balance sheet fortified for any down cycle. We have nearly $600 million in undrawn credit capacity to support our growth. Our net debt is under 15% of the fleet's current value and we have 32 vessels that are unencumbered. Lastly, our spot shifts only need to earn $13,000 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 up the lines for questions.

Of course, 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'll make a quick pause here for the questions to be registered. And our first question comes from the line of Chris Robertson with Deutsche Bank.

All right, good morning. Thank you for taking my questions. I have just one simple modeling type question and then a market question. The first is, Jeff, could you clarify on the four vessels expected to be delivered in the third quarter here for $57 million, is that $57 million of net proceeds or is that prior to debt repayment?

Chris, I think those should be considered to be debt proceeds.

Because they're part of our uncovered fleet. Got it. Yeah, thank you for that. Second question then on the recent sanctions package and then kind of some of the more recent threats by President Trump with regards to India taking Russian crude volumes. I guess, could you provide some color on your thoughts around what impact the sanctions package will have and then if there are uh an increase in sanctions u.s sanctions against india uh or certain refiners there something like that what do you expect to happen in the market with regards to trade patterns hey chris it's lois definitely you know definitely never uh never a dull day and we're already seeing india only take compliance tonnage for exports

They certainly have enjoyed a massive discount on copious volumes of Russian imports. You know, so I think this is in the midst of negotiations likely behind the scene. You have seen India take more U.S. Gulf crude in the last six months than what we had seen previously. So, you know... This administration, they seem to be highly tactical in their trading. So we're going to see how this is all going to cook over this probably the next 30 days.

Yeah, I agreed with that. All right. Thank you for the color.

Thank you. So the next question comes from Sheriff El-Moghrabi with BTIG.

Hey, good morning. Thanks for taking my question. So OPEC Plus announced they're going to finish unwinding those voluntary production cuts roughly a year ahead of schedule. That's a lot of crude, and a lot will probably flow on bees, but can you speak to where we may see a benefit for smaller tankers?

Yeah, absolutely. I'm going to turn that over to Derek Salone, our Chief Commercial Officer.

Thanks, Lois. Sharif, thanks for the question. Yeah, thank you. You hit the nail on the head, the easy answer is a lot of that will move on BLCCs, so that should be beneficial to the B market. We're seeing already an uptick in activity out of the Arabian Gulf over the last day or so on the back of this news. And then to your question specifically, the BLCCs being much more engaged in moving crude out of the Arabian Gulf will be beneficial to the smaller segments because there's less cannibalization

of the vlccs in the suez max routes and the afromax routes so all in should be very beneficial for uh recruit tankers as a whole thanks and and sticking with that um vessel mix thematic i guess um you guys are buying that modern v at the end of the year opportunities like that don't come around often um But how are you thinking about the balance of crude versus product in your own fleet, particularly given product tank rates seem resurgent this far in Q3?

So, Chris, you know, we brought in nine more modern MRs throughout 2024. And those vessels, you know, as you see with our days booked in the third quarter of $23,800 per day, Even though we're selling, and it pains me to tell those older MRs because they're earning incredibly, you know, we have shored up with more modern fleet profile across our MR space. And as you know, you know, we will be taking in September our first LR1 of our six new building delivery built in Korea in a sector where there's been five recycles, which for this year is a lot, and there's been no deliveries in three and a half years. So if you look at, you know, the smaller part of our fleet and the product carriers as we bubble up, it's time.

Okay. Thanks for taking my question.

Just as a reminder, you start one on your telephone keypad to ask a question. The next question comes from Omar Nocta with Jefferies. Thank you.

Good morning. Hi, Lois. Hi, Jeff. Just a couple questions and maybe just a little bit of a follow-up to start with Sharif's last question. Clearly, earlier in the year, you rolled those older VLCCs into modern MRs, and then recently you did the reverse by kind of rolling the older MRs into a new modern V. Do you see yourselves doing more of this type of action within those specific segments? Or are there any other segments you need or have a desire to tweak in a similar fashion?

No, thank you, Omar. You know, definitely, you know, the prices we received on those, you know, 15-year-old DLCs were really, you know, Strongly above mid cycle levels, you know. So we look very opportunistically at constantly improving our fleet profile. We're very deliberate with the moves that we're making and you know we do see upside on the VLCC that you know people have been waiting for that and kind of maybe move prematurely where we have a more balanced fleet. We think that the opportunity is coming on the horizon there.

Okay, thanks, Lois. And maybe, Jeff, for you, just sort of on the financing that you just announced, you secured the new $260 million for the LR1s. That gives you, it looks like, about two-thirds of the order cost, and the facility is repaid over 12 years. Can you talk a little bit about how you think the six VLCCs would be refinanced that are coming off those leases later in the year? I figure they may not be able to get the same type of package, given they're not new buildings, but Do you have an idea of what that type of financing package could look like?

Hi, Omar. Well, first of all, we're pleased about this K-Shore financing for the LR1 new bills.

I think marrying up new buildings in Korea with financing that's backed by government agencies there is a good way to do things and a good new to open up for us, so it was really appropriate for those ships in particular. Regarding the six ships that will be freed up or unencumbered by paying off ocean yield, there's numerous options. We really are in the middle of evaluating all that. First of all, we have enough revolver to simply stroke a check, right? But we'll use this as an opportunity to see whether or not we could get a further tweak on our balance sheet to lower our break-evens a bit. So we're evaluating sort of everything. So I really can't tell you much more than that, but we feel very fortunate that there'll be a lot of good opportunities for that financing.

OK, thanks, Jeff. And maybe just a quick follow-up to that. We've generally seen whenever a refinancing takes place of vessels on the water tends to be maybe a five-year term. and we're seeing these new buildings get 12 years, is five years still the more kind of, is that what can be expected, or do you see that extending?

Look, I think that there's usually trade-offs involved. Like, you can certainly possibly get six or seven years, but depending upon the age, you may, of the vessels securing it, may or may not make a trade-off for that. You know, if you look at the age of the vessels that are coming off, you know, It's certainly not going to be a 12-year term on those vessels that are relatively moderate, but come closer to 10 years old. But yeah, I think that is one of the factors. The other things that go into it are obviously margin. Everyone looks at margin. That's important. And they've been coming down. But it's also profile. Like, we have a 20-year profile on this ECA financing and a lot of our other financing sales. That's really helpful in terms of Lowring your daily cash break even. So we as a company kind of look at all of these factors as part of the fabric of, you know, what's the right choice. So any one of them is relevant, but you kind of look at them all together and make the best choice. So I hope that kind of answers your question, Omar.

That's helpful. I appreciate your comments, Jeff. Thank you. And thanks, Lois.

Thank you. okay all right we want to thank everyone for joining us for our earnings call today and as as we sit here uh in the middle of august we're starting to see a synchronized uptake in the stock market on both crude and products so we look forward to uh having you join us on the next quarter thank you so very much

Thank you, everyone. This concludes today's call. You may now disconnect.