Overseas Shipholding Group, Inc.

Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Sam Norton, President and Chief Executive Officer. Please go ahead.

Thank you very much, Kate. Good morning, everyone, and thank you all for joining Dick and me on this call for the presentation of our 2021 first quarter results and for allowing us to provide additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead. As usual, Molly Arcia and Princeton McFarland are participating with us on this presentation. I would like to direct everyone to the narrative on pages two and three of the PowerPoint presentation available on our website regarding forward-looking statements, estimates, and other information that may be provided during the course of this call. The contents of that narrative are an important part of this presentation and I urge everyone to read and consider them carefully. We will be offering you more than just historical perspective on OSG today, and our presentation includes forward-looking statements, including statements about anticipated future results. These statements are subject to uncertainties and risks. Actual results may differ materially from objections and could be affected by a variety of risk factors, including factors beyond our control. For a discussion of those risk factors, we refer you specifically to our annual report on Form 10-K for the fiscal year ended December 31, 2020, and our other filings with the SEC, which are available at the SEC's Internet site, www.sec.gov, as well as on our own website, www.osg.com. Forward-looking statements in this presentation speak only as of the date of these materials, and we do not assume any obligation to update any forward-looking statements except as may be legally required. In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile to the most closely comparable GAAP measures in our first quarter earnings release, which is posted on our website. The ongoing coronavirus pandemic and associated lockdowns, business closures, and travel restrictions continue to severely impact global and national energy markets, and by extension, demand for crude oil and refined product marine transportation. In this very difficult operating environment, the results announced this morning have met our expectations and point to the continuing benefit of having a diversified asset portfolio. Although our conventional Jones Act tankers experienced losses this quarter, our other operating assets performed largely in line with historical norms. Vic will take you through those details shortly. As it has been only a short month, Since the last time we spoke publicly about the state of our business, I will add only brief comments in the way of an update to our last presentation. The pace and trajectory of demand recovery continues to be influenced by many factors, including importantly progress in resolving the pandemic outside the United States. Near-term uncertainty will continue to define a wide spectrum of possible vessel reactivation outcomes as we move through the current quarter. Mathetically, the trends that we have identified in our last presentation continue to show improvement. Provided in the slide deck on pages numbered five to eight are charts updating the data sets that we presented on our last call. I will not repeat the explanation and logic chain as to why we see these trends depicted in these slides as supportive of our recovery thesis. Anyone who wants more details on this may refer back to my comments given on our April 7th call. Suffice it to say that we remain encouraged by the underlying trends. I would, however, highlight the data on refinery utilization rates. This week's data indicated an 86.5% utilization rate nationally, and importantly for our trades, a 90.7% utilization rate in Pad 3, the first time since the onset of the pandemic that utilization rates in the region have exceeded 90%. Inventory levels for both gasoline and diesel remain below five-year averages, and high-frequency data points continue to indicate demand for these products on an upwardly sloping trend. Even with these improving trends, public commentary from refiners and distributors characterize the emerging recovery as a grind, with progress being slower than hoped for and sensitized to local pandemic conditions. Domestic gasoline consumption remains about 5% below pre-pandemic norms. Jet fuel consumption is 25% to 30% below historically comparable levels. Cautious commentary from our customer base confirms our view that they remain relatively risk-averse while awaiting for clearer signals of a sustained demand recovery. It is clear to us that we remain in the early stages of an emerging recovery. which we anticipate will become more fully apparent as the year progresses. We believe that as our customers' visibility and confidence in the future returns, more typical customer behavior and time charter activity will rebound, leading to improved financial performance for OSG. Market conditions that have led us to lay off six tankers and one of our lightering ATBs have been showing signs of improvement domestically, but as noted, heightened uncertainty remains a concern for many, if not most, of our customers. In particular, the surge of recent virus spread outside of the United States and the resulting drag on economic activity internationally has acted to inhibit a rebound in international tanker markets. Weakened demand for refined products overseas, coupled with very low freight rates in the international market, have combined to induce a meaningful increase in petroleum product imports in recent weeks. Last week, gasoline imports topped one million barrels per day nationally for the third week in a row and for the fourth time in the last five weeks. These elevated import levels have dampened demand for domestic refined product and a corresponding impact on refinery utilization. While EIA data continues to show improving run rates of domestic refineries, the slope of recovery has flattened somewhat in recent weeks from the sharp recovery seen following the winter storm Uri. As we progress through the months ahead, a continued increase in refinery utilization rates and improving demand for refined product outside the United States should have the effect of reversing the import trend seen recently and act to stimulate demand for domestic maritime transportation. Since the end of the first quarter, we have seen encouraging signs of slowly increasing demand for cargo movements on available vessels. Spot cargo fixtures for tankers emerged in April for the first time in nearly a year. This activity has allowed us to keep the overseas Houston working in the spot market since her re-delivery from time charter at the end of March. We are also maintaining the availability of the overseas Boston on the West Coast at this time. As vaccine distribution continues to expand and there is a continued lifting of the COVID-19 restrictions, mobility and related U.S. consumption of transportation fuels are expected to normalize to fuel demand patterns consistent with historical levels. With product inventories below average levels at this time of year, the normalization of consumption patterns should stimulate more marine transportation demand, leading us to reactivate our vessels from land. Our near-term focus is squarely on sustaining sufficient liquidity to ensure a pathway for our long-term future. In this context, we ended the quarter with $45 million of cash on hand. We have as well contracted to sell the overseas Gulf Coast with delivery scheduled near the end of this month. Proceeds from the sale of the overseas Gulf Coast, which is debt-free, will add approximately $32 million of additional cash to our balance sheet at month end and position OSG to end the second quarter with about $60 million of cash on hand. We have taken steps to defer capital expenses where appropriate and to reduce vessel operating and shore-based overhead spend in ways that will not compromise our commitment to safe and reliable transportation. Incremental gains achieved through these efforts will remain important in the months ahead, and acknowledgments should be given to all who have worked hard to bring about these results. Our conviction remains that a recovery of normalized charging demand is a question not of if, but when. The lack of committed employment for such a large percentage of the available Jones Act fleet is a function of missing demand and not, as in years past, a reflection of a fundamental excess of supply. The steep backwardation in crude oil future markets is a pricing signal that the market wants and needs more oil. and the demand to transport this oil should follow. Our short-term forward planning anticipates a return of demand for our time-chartered transportation capacity during the second half of this year. In awaiting this development, we will continue to regularly assess the prospects for our six Jones Act tankers and one Light Army ATB currently in layup. Availability of acceptable vessels in the Jones Act will remain static at worst and most likely will tighten in the years ahead. Incremental demand from emerging product flows of renewable diesel and potentially other alternative fuels should add to the domestic base load transport needs for crude oil and refined products. Sentiment is and will remain an important factor in the decision trees that affect our businesses. Analogous to Yogi Berra's observation that baseball success is 90% physical and the other half mental, I think it's fair to conclude my comments and summing up by saying that my sense is for the tanker market, especially at this time, the market is 90% fundamentals and the other half sentiment. With that, I'll turn it over to you, Dick, to provide further details of our first quarter results for 2021.

Thanks, Sam. Our first quarter results, as Sam mentioned, were consistent with our expectations. The market continued to be depressed as COVID-19 lockdowns and reduced economic activity persisted in the face of higher disease levels. Elevated inventory levels, depressed refinery operations, and reduced mobility characterized the quarter. Winter storm Yuri effectively shut down many Gulf Coast refineries. Additionally, international petroleum markets continued to be unsettled, and international transportation rates were at historic lows. These circumstances resulted in our customers' continued unwillingness to make transportation commitments. Spot market activity for the first two months of the quarter was virtually non-existent, and those moves that did occur were small and accommodated on ATVs. March saw an increase in spot market activity, but again, all were accommodated on ATVs. We continued to manage our costs by maintaining shifts in layup for which there was no current demand. The daily per vessel operating cost reduction is approximately $15,000. As we indicated during our last call, our expectation was for breakeven adjusted EBITDA in the first quarter with a modest increase in the second quarter. Overall, we continue to expect approximately the same level of combined first half EBITDA as we look ahead. Vaccinations and declining disease levels are resulting in wider reopening of society. Airlines are reactivating their fleets and jet fuel consumption is beginning to rise. Observers are predicting that pent-up travel demand will result in a spike this summer. One of our vessels currently in the spot market has been performing a series of voyage charters, all in direct continuation subsequent to the end of the first quarter. We have another vessel currently available in the spot market on the West Coast. We continue in our firm belief that the recovery in our markets is a question of time, not one of if. We expect to see demand return during the second half of 2021 with the expectation of significant operating improvement coupled with substantial strengthening of adjusted EBITDA. If you take a look at slide 11, please. CCE revenues declined 32.5% when compared to the first quarter of 2020 and sequentially declined by 23.9% from 2020's fourth quarter. The decreases result from six vessels in layup at the end of the fourth quarter, one additional vessel placed in layup at the beginning of the first quarter of 2021, and one vessel trading in the spot market, collectively causing a reduction in vessel utilization. Currently, we have seven vessels in layup. During the quarter, we had two additional vessels redelivered to us. One vessel, post-redelivery, operated on a short-term time charter through mid-April and is now currently available in the spot market. The other vessel has operated under a series of voyage charters and direct continuation of one another. Additionally, the overseas Martinez, which had been available in the spot market without employment since October, entered into a six-month time charter with two three-month extension options. Adjusted EBITDA in the first quarter of 2021 declined significantly from the year-ago quarter, which included a $19.2 million gain related to our acquisition of the Alaska Tanker Company. Dry dock days decreased to 43 from 74 in the fourth quarter of 2020. Please turn to slide 12. The TCE revenue change was most pronounced in our Jones Act MR tankers, where we experienced a year-over-year 50% decline in revenues. Consequently, the decline was 39%. We had six Jones Act tankers in layup during the quarter. And the overseas Martinez, again, was available in the spot market, but not employed prior to entering into the previously discussed time charter. The MR tankers represent six of the seven vessels currently laid up. Lightering revenues were flat compared to the fourth quarter of 2020 and declined 45% from the year-ago period when we had both lightering barges operating. The OSG 350 has been in layup during the fourth quarter of 2020 and the first quarter of 2021. Lightering volumes have decreased, reflecting our customers' binary operations. The first quarter of 2021 is the first quarter in which both of our new-build ATBs were in operation for a complete quarter. We have previously sold for recycling all of our rebuilt ATBs. The two new ATBs will operate under time charters throughout 2021. We also operate four non-Jones Act MR tankers, the overseas Gulf Coast and overseas Suncoast had completed their one-year time charters at the end of the third quarter of 2020. And since then, they have operated in an international MR pool on a time charter arrangement. Realized rates have declined due to the international market conditions. Mykonos and Santorini continue to perform in the maritime security program and provide services to the government of Israel. During the quarter, we performed one GOI voyage. Our Alaskan tankers, acquired in March 2020, all operate on long-term time charters and continue to perform in line with expectations. Both the first quarter of 2021 and the fourth quarter of 2020 contained one month each of a two-month dry dock period for the Alaskan Navigator. The resulting off-hire period accounted for the decline in revenues for these vessels. Please turn to slide 13. Conventional tanker spot market TCE revenues continued at the de minimis level seen since the second quarter of 2020. The decrease in fixed revenues during the quarter were, as previously discussed, driven principally by the number of vessels in layup. Dry dock off-hire days continued to negatively impact revenues, but to a lesser extent than during the fourth quarter. Please turn to slide 14. Revenues from our niche businesses declined compared to both the same quarter last year and Q4 2020 due to reduced customer demand for lightering services resulting from the pandemic, coupled with the layup of one lightering barge and one shuttle tanker that had been operating as a conventional tanker. Lightering revenues were flat compared to the fourth quarter of 2020 and decreased from the first quarter of 2020 due to the layup of the OSG 350 during the fourth quarter. Non-Jones Ag tanker revenues decreased compared to both the prior quarter and last year due to lower international rates, as well as a reduction in demand. Revenues from shuttle tankers providing shuttle tanker services were essentially flat in the prior quarter and year. Please turn to slide 15. Special operating contribution, which is defined as TCE revenues Less vessel operating expenses and charter hire expenses declined 71% from Q1 2020 to $11.4 million in the current quarter. The Jones Act tanker swung from a contribution of $12.4 million to a loss of $12.3 million. This $24.7 million swing results from the six tankers currently laid out due to the lack of demand. Combined vessel operating contribution of our niche market activities, ATVs and the Alaska crude oil tankers provided a vessel operating contribution in the current quarter of $23.6 million compared to $26.4 million in last year's comparative quarter. The niche market contribution decreased $8.6 million from last year due to the decline in lightening revenues, lower international rates, and the layup of the OSG 350. The increases in the Alaska tanker vessel operating contribution reflects a full quarter of operations in the first quarter of 2021, partially offset by one month of dry dock off-fire for the Alaska Navigator, compared to a partial month of operations in the year-ago quarter. I mentioned previously our new ATBs both operated for the first time in this quarter. Vessel operating contribution decreased $12.8 million from Q4 2020. $9.8 million of this decrease resulted from the six tankers in layup during the first quarter and one tanker that was available but without employment for two months of the quarter. Reduction in demand by our Delaware Bay Lightering customers and reductions in international rates and demand contributed to the remaining decrease. Please turn to slide 16. First quarter adjusted EBITDA decreased $46.6 million from $52.8 million in Q1 2020 to $6.2 million in the current quarter. We recognize the $19.2 million gain related to our acquisition of Alaska Tanker Company in the first quarter of 2020. The operating decrease resulted from lower utilization levels in Q1 2021 for our MR tankers resulting from the vessels in layup, virtually no spot market activity for tankers during the first quarter, decreased demand for layering services due to pandemic reduced demand, and lower international tanker rates. The impact of this was partially offset by our Alaska tanker operations. Consequently, adjusted EBITDA declined $14.3 million from the prior 2020 quarter, And the quarterly decrease was driven by the previously discussed factors. Please turn to slide 17. In early April 2021, we entered into a contract to sell the overseas Gulf Coast, which is unencumbered for $32.5 million in an all-cash transaction. Completion of the sale is expected to occur in late May 2021. This transaction will provide approximately $32 million of additional liquidity to the company. Our balance sheet, we have classified this asset as held for sale at March 31, 2021, and the first quarter reflects the estimated loss on the sale of $5.4 million. Net loss for the first quarter of 2021 was $15.9 million compared to net income of $25 million. 2020, which again included the $19.2 million pre-tax gain based to the ATC acquisition. The change was driven by the loss associated with the Gulf Coast sale, lower vessel utilization, decreased lightering demand, a reduction in international rates, all of which were partially offset by our Alaska tanker acquisition. Please turn to slide 18. Our capital expenditures will be well below 2020 levels, which were elevated due to the number of vessels required to go through their normal dry dock cycle and the installation of ballast water treatment systems. 2020 capital expenditures were $43.8 million. Dry dock and ballast water treatment systems investment 2021 is estimated at $27 million. Approximately 80% of this effort will occur in the first half of the year. While vessels are in dry dock or otherwise unavailable for use, they are off-hire, even if otherwise employed on a time charter. We lost $2.5 million in revenues due to off-hire during the first quarter. Turn to slide 19. At the end of 2020, we had total cash of $70 million, which included $100,000 of restricted cash. During the first quarter, we generated $6 million of adjusted EBITDA. Working capital consumed $4 million of cash. We expended $8 million on dry docking and improvements to our vessels. And we invested $3 million in vessel and other CapEx. Additionally, we incurred $6 million in interest expense and repaid $10 million in debt. The result was we ended the quarter with $45 million of cash, including $100,000 of restricted cash. Please turn to slide 20. Continuing our discussion of cash and liquidity, as we mentioned on the previous slide, we had $45 million of cash March 31, 2021, including $100,000 that was restricted. Our total debt was $426 million. This represents a decrease of $10 million in outstanding indebtedness since December 2020. We will amortize an additional $29 million of our loans over the remainder of 2021. With $364 million of equity, our net debt to equity ratio is one time. This concludes my comments on the financial statements, and I'd like to turn the call back to Sam. Sam?