Overseas Shipholding Group, Inc.

Good morning, and welcome to the Overseas Shipholding Group Third Quarter 2021 Earnings Release Conference Call. All participants will be in the 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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, Anthony. Good morning. Thank you all for joining Dick Trueblood and me on this call for the presentation of our 2021 third quarter and nine months 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. To start, 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 an 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 those contemplated by our forward-looking statements and could be affected by a variety of risk factors, including factors beyond our control. For discussion of these factors, we refer you specifically to our annual report on Form 10-K for the fiscal year ended December 31st, 2020. Our Forms 10-Q for the quarters ended March 31st, 2021 and June 30th, 2021. And our Form 10-Q for the third quarter of 2021, which we anticipate being filed later today. 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 they may be legally required. In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile as the most closely comparable GAAP measures in our third quarter earnings release which is also posted on our website. Third quarter financial results released this morning offer both a reminder of the lingering impact of the global pandemic and the potential that lies latent in OSD's underutilized assets that are available for redeployment once market conditions normalize. Overall, we are pleased with the progress we have made and the cash flows delivered, which exceeded anticipated EBITDA during the quarter. Throughout the first three quarters of this year, the progression back to a healthy domestic energy transportation market has been uneven and protracted. Demand for conventional tanker use globally and in the U.S. in particular has remained subdued, affected by a combination of volatile market forces. These conditions of heightened uncertainty persisted in our core markets during the third quarter. Of particular note was the erratic recovery profile outside of the U.S., and the resulting drag on economic activity internationally, which continued to inhibit a rebound in the international tanker markets. Notwithstanding these challenging conditions, today's announced results, together with the refinancing details disclosed at the end of September, evidence progress in moving towards a sustainable financial future for OSG. Most notable in these results released today is the continued sequential improvement in quarter-to-quarter EBITDA performance and the increased cash levels available at quarter end. Vessels in operation performed well during the third quarter, providing solid cash flow. And as the third quarter has transitioned into the fourth, we have been encouraged by signs that what has been the weakest segment of our portfolio are conventional tankers. Demand has been gaining momentum. In recent weeks, two OSD tankers have been reactivated and rejoined the operating fleet. with a third preparing to begin work again in early December. Laid-up OSD vessels will thus be reduced from seven to four by year end. Further tightening market fundamentals have resulted in all of OSD's active vessels having been committed under time charters into at least the first quarter of 2022. As such, current conditions provide optimism that continuing sequential quarter-to-quarter EBITDA improvement is attainable over the next six months. As has been the case all year, our ATVs, Alaskan tankers, and niche market activities achieved results during the past quarter approaching or exceeding historical norms, highlighting the benefit of having diversified asset portfolios. Whereas the prior quarters saw us achieve a number of business initiatives that fall outside of the core MR petroleum transport trades, recent successes have occurred within the conventional tanker sector. Since our last communication, We have activated the overseas T-West from layup and completed our intermediate survey and dry dock, allowing the vessel to enter into a 27-month charter contract transporting renewable diesel commencing mid-November. We have secured a two-year time charter extension for one of our vessels operating on the West Coast, giving the vessel committed time charter business through the end of 2023. We have activated the overseas Nikitsky from layup And following a series of spot voyages in October and November, fixture on a three month time charter, the customer with whom we have no previous time charter history, an interesting indication of new entrants becoming active in the Jones Act tanker space. We have obtained time charter commitments of three to six month duration for two other vessels, the third on subjects to be declared within this week. While the duration of these fixtures is shorter than what we would optimally prefer, Our customers' willingness to start making longer time charter commitments suggests improving marketing conditions into next year. As we've been activating ships, so too have changes been seen in the broader Jones Act tanker market. Importantly, two older Jones Act tankers have been sold for demolition in recent weeks, reducing the available tanker supply by roughly 5%. A competitor MR tanker is also coming out of layup to enter into a long-term charter. and two larger ATBs that had been inactive for more than a year have been restored to service and committed on time charter. Available, uncommitted vessel supply has thus been quickly reducing in recent weeks. It bears remembering that no additional supply is currently on order, nor is any new capacity likely to be available for delivery at any time for the next several years. The latest Energy Information Agency data indicate that demand patterns for transportation fuels consistent with historical levels for these products have largely recovered in the U.S. With gasoline and diesel inventories below the lower band of five-year running historical levels for this time of year, this normalization of consumption patterns should stimulate more domestic marine transportation demand as we move through what is historically the seasonal high demand winter months. Increased chartering demand in a supply-constrained environment is supportive of a belief in better days ahead. I will now turn the call over to Dick to provide you with further details on our third quarter results for 2021. Dick? Thanks, Sam.

Please turn to slide seven. We completed a refinancing of significant elements of our debt during the third quarter. This resulted in a lengthening of our debt maturity, a reduction in annual cash debt service requirements, and an increase in our liquidity. Additionally, we were successful in harmonizing financial covenants across all of our loans. Specifically, we used proceeds from our $325 million new borrowing to repay in full our term loans with scheduled maturities in 2023 and 2026. And additionally, make a $16 million payment on our Alaskan tanker loan due in 2025. The remaining proceeds increased our liquidity This provides OSG with the financial flexibility to continue to make the post-COVID-19 transition to a normal market. In September, we return the overseas Key West and the overseas McKiskey to service. Each vessel performs spot voyages during the month. We are performing a survey and ballast water treatment system installation on the Key West to permit her to fulfill her 27-month time charter without interruption for scheduled means. Domestically, transportation fuel consumption levels continue to increase in comparison to the prior year. The continuing disruption in international tanker markets with resulting low transportation rates coupled with the continuing COVID-19 impact on international demand for transportation fuel resulted in a continuation of higher-than-normal clean product flows in the United States. spot market activity increased again during the third quarter. We performed more than half of the voyages executed by tankers. The Overseas Houston continued to operate in the spot market and was employed for approximately half of the quarter. The Overseas Boston operated under a short-term time charter during the second half of the quarter. The remaining spot voyages during the quarter were smaller in size and generally satisfied with ATVs. Please turn to slide eight. The third quarter, historically the slowest quarter of the year, continued to show a gradually improving market. The results we achieved reflect a sequential improvement over each of the prior 2021 quarters. TCE revenues increased 5% to $75.4 million, and adjusted EBITDA increased 20% to $12.2 million, both compared to the second quarter. Please turn to slide nine. Alaskan tanker revenues increased $2.6 million as the Alaskan Legend completed her 45-day dry dock period in June and was fully in service during the third quarter. Jones Act handy-sized tanker revenues increased $2.2 million due to the return to service of the McKiskey and Key West, coupled with increased utilization of the Boston, offsetting this with an off-hire dry dock period for the New York. Our ATV revenues increased as the OSG 204 commenced our new time charter contract at a higher daily rate during July. Lightering revenues decreased from the second quarter due to a seasonal decline in volumes. The Mykonos and Santorini continue to participate in the Maritime Security Program and provide services to the Government of Israel. During the quarter, we performed two resulting in a $600,000 increase in TCE revenues. We had five vessels in layup at the end of the third quarter, down from seven at the beginning of the quarter. Please turn to slide 10. Niche business TCE revenues declined slightly for the second quarter as lightering revenues decreased due to the lower summertime volumes. Shuttle tanker and non-Jones Act product tanker revenues both increased. Please turn to slide 11. Vessel operating contribution, defined as TCE revenues less vessel operating expenses and charter hire expenses, increased $1.5 million from Q2 2021 to $16.6 million in the current quarter. Niche market activities declined $1.4 million due to the lower summer volume, summer glidering volume. The ATB contribution increased due to the new charter for the OSG 204 starting in July. The Alaskan tanker contribution increased $2.9 million due to the completion of the Legends dry dock during the second quarter. The Jones Act tanker loss increased to $12 million from $11.5 million. The change principally resulted from an increase in costs as two tankers returned to service late in the quarter. the number of layup days decreased slightly between the two quarters. The combined vessel operating contribution of our hitch markets, ATVs, and Alaska crude oil tankers provided a vessel operating contribution in the current quarter of $28.5 million compared to $26.7 million in the second quarter. Please turn to slide 12. Third quarter, 2021 adjusted EBITDA increased $2 million from the second quarter of 2021. This resulted from increased contributions from our Alaskan tankers and ATVs. Adjusted EBITDA continued to be negatively impacted by the four Jones Act tankers in layup for the full quarter and two vessels in layup for two-thirds of the quarter. Lower spot market utilization also contributed. Please turn to slide 13. Net loss for the third quarter of 2021 was $16 million compared to a net loss of $10.7 million in the second quarter of 2021. During the third quarter, we recognized a $7.9 million pre-tax loss associated with the refinancing, resulting from prepayment fees and the write-off of previously deferred financing costs. Additionally, we recognized a $1 million impairment charge related to the right-of-use assets associated with two of our bare boat chartered tankers. Our assessment of these vessels indicated that estimated future employment would not fully recover the right of use assets. Please turn to slide 14. By early in Q3 2021, we had completed all scheduled dry dock work for 2021. The total 2021 investment to date, including amounts expended in early July, was approximately $20.4 million. We have activated the overseas Key West to enter her new time charter. And in order to make her available without interruption to her charterer during the 27-month charter period, we accelerated her dry dock that would have been due in the second quarter of 2022 to occur prior to the commencement of her charter in November 2021. We anticipate that that expenditure will be approximately $6 million, which includes the installation of the ballast water treatment system. Additionally, we accelerated the dry dock of the overseas Boston so that she would be available for the entire charter period without the need to conduct scheduled maintenance. At June 30, 2021, we had total cash of $62 million, including $100,000 in restricted cash. During the third quarter, we generated $12 million in adjusted EBITDA, and we entered into a $325 million term loan and used $274 million to pay off two loans and partially prepay another. We incurred $6 million of loan issuance and prepayment fees. Working capital consumed $11 million. We expended $1 million on dry docking and improvements to our vessels, and we invested $1 million in vessels and other CapEx. Further, we incurred $8 million in interest expense and repaid $10 million of debt through scheduled amortization. The result was we ended the quarter with $85 million of cash, including $100,000 restricted. Please turn to slide 15. Continuing our discussion of cash and liquidity, as we mentioned on the previous slide, we had $85 million in cash at June 30, including $100,000 of restricted cash. That would be September 30. Our total debt was $458 million. This represents an increase of $41 million in outstanding indebtedness since June. We will amortize an additional $4.4 million of our loans over the remainder of 2021. With $339 million of equity, our net debt-to-equity ratio is 1.1 times. This concludes my comments on the financial statements. I'd like to turn the call back to Sam. Sam? Thank you, Dick.