INSW - NYSE

Hello, and welcome to the International Seaways First Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to the General Counsel, James Small to begin. James, please go ahead when you're ready.

Thank you, operator. Good morning, everyone, and welcome to International Seaways earnings call for the first 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, forecast 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, 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, anticipated financing transactions and plans to issue dividends, and the company's relationships with its stakeholders. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control, that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause 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 report on Form 10-Q for the first quarter 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 Ms. Lois

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the first quarter of 2025. On Slide 4 of the presentation, which you can find in the Investor Relations section of our website, net income for the first quarter was $50 million, or $1 per diluted share. Excluding gains on vessel sales, adjusted net income for the first quarter was $40 million or $0.80 per diluted share. And adjusted EBITDA was $91 million, essentially in line with our previous quarter. During the quarter, we saw month-on-month increases in the rate environment that continued into the second quarter with our weighted average rate at over $30,000 per day on 45% of our revenue days compared to our cash breakeven of about $13,500 per day as in the bottom left quadrant of the Slide 4. It looks to us, like, we're in for another strong quarter. We ended the first quarter with $673 million in total liquidity, which includes almost $550 million of undrawn revolver capacity. We have just over $600 million in gross debt at the end of the first quarter, which is about 15% net loan-to-value on our March vessel value. On the upper right hand side, we already mentioned the swap in our last quarter's earnings call. We swapped two older VLCC plus $3 million in cash for three eco MRs, a majority of the swap was executed in the first quarter, but due to the timing of these transactions, we had net proceeds of $50 million in the first quarter and net cash outflows for deposits in one MR in the prior quarter of $53 million. We also increased our time charter exposure to lock-in fixed revenue. In April, we agreed on a one year time charter on one of our Suezmaxes to reach $295 million in fixed revenue, most of which comes over the next two years. On the lower right, for the third consecutive quarter, we have announced another dividend, representing 75% of our adjusted net income. The combined dividend will be paid in June, equating to $0.60 per share. We believe in following through on our intentions to return to shareholders as part of our balanced capital allocation strategy. After returning over $300 million to shareholders in consecutive years, we continue to share in our upsides and we remain in position to do so today with our healthy balance sheet and strong tanker environment. Referencing the last bullet on Slide 4, we also have a repurchase program of up to $50 million. On Slide 5, we updated our standard set of bullets on tanker demand drivers with the subtle green up arrows next to the bullet represented as good for tankers, the black dash representing a neutral impact and a red down arrow meaning the development is not positive for tanker demand. Without reading these bullets individually, we pull highlights. Oil production in 2025 and in 2026 is expected to increase by over 1 million barrels per day. Non-sanctioned OPEC+ continues to reinforce their output increases, which is supportive of VLCC trade. As a result, non-OPEC production may continue to increase their output and yet they are more sensitive to price fluctuations if the market becomes oversupplied and prices decline. Production from non-OPEC is important for ton-mile demand since much of the growth is expected in the Americas region, supportive of long haul trades, oil demand should grow in line with its historical growth rates of 1% or about 1 million barrels per day for the next few years. This takes into account forecasts, which have recently dropped by as much as a couple hundred thousand barrels per day due to the ongoing geopolitical environment. With much uncertainty about establishment and enforcement of regulations that affect global trade, there may be a lack of investment that slows the global economy. On the other side of that is the increase in changes to tanker routing, that is less efficient in longer haul. This is supportive to our industry. In turn, we may see a forward curve in the crude price that incentivizes storage, which is needed, as you can see in the chart at the bottom left of Slide 5. OECD inventories have drawn 100 million barrels since August of 2024, which has muted the tanker markets in the short-term. As the price curve flattens, as is the case today, we could see some restocking, which is positive for the tanker demand. On the lower right side, I don't think we had a page big enough or an update fast enough to cover the intensity of geopolitical environment. Canadian barrels on the west coast are shifting a bit more toward a longer haul into Asia. The Red Sea remains on edge and ships are still rerouting to avoid the area. The USPR legislation on Chinese vessels is still uncertain, but could create more division in the tanker space. It's too early to predict how these events and others not yet in the headlines can impact the tanker markets over the medium-term. On Slide 6, the supply side continues to support a compelling case for tanker shipping. Tankers currently on order, represent 14% of the fleet that deliver over the next four years. And by the time those ships deliver, 47% of the fleet will be over 20 years old, which we identified as the age where generally those ships trade in a different environment. Some charters or some ports may not accept vessels of this vintage. The simplest way to summarize this is that there are not enough ships to replace the current aging fleet. We also saw an increase of recycling in the first quarter. The highest volume of ships since the second quarter of 2022. If vessels continue to recycle and it's hard to say at any pace since not all shipowners are alike, there may be a shortage of vessels on the water for commercial trading. We believe this should translate into a continued upcycle over the next few years and Seaways remains well positioned to continue capitalizing on these market conditions. We'll continue to execute our balanced capital allocation approach to renew our fleet and to adapt to the ever changing industry conditions with a strong balance sheet while returning to our shareholders. Now, I'd like to turn it over to our CFO, Jeff Pribor, to provide the financial review. Jeff?

Thanks, Lois, and good morning, everyone. On Slide 8, net income for the first quarter was $50 million or $1 per diluted share. Excluding gains on vessel sales, our net income was $40 million or $0.80 per diluted share. On the upper right chart, adjusted EBITDA for the first quarter of 2025 was $91 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. Our revenue and expenses were largely within expectations in the first quarter. We're pleased that our vessel expenses improved from last quarter and much of 2024, with reductions to repairs and maintenance. Our lightering business had over $8 million of revenue in the quarter. Combining that with a bit under $3 million in vessel expenses, less than $3 million in charter higher, about $1 million of G&A, the lightering business contributed about $2 million in EBITDA in the first quarter. Turning to our cash bridge on Slide 9, we began the quarter with total liquidity of $632 million, composed of $157 million in cash and $475 million in undrawn revolving credit capacity. Following along the chart from left to right on the cash bridge, we first add $91 million in adjusted EBITDA for the quarter, plus $23 million in debt service and another $19 million of dry docking capital expenditures offset by working capital benefit of about $7 million due to the timing of payables and receivables. We therefore achieved our definition of free cash flow of about $56 million for the first quarter. This represents an annualized cash flow yield of over 12% on today's share price. We received $48 million in connection with the now fully executed vessel swap, which began in the fourth quarter of 2024. Also in connection with that swap, we repaid $70 million on the revolving credit facility that we drew on in the fourth quarter, which is included in the delever column. This column also includes a net $12 million payment where we utilized and repaid amounts on the RCF for general cash management purposes, so the total for the quarter is $82 million. To the right of this column, you will find our remaining capital allocation for the quarter, which was $10 million in new building installments and $34 million in dividends, representing $0.70 per share. The remaining $3 million on the waterfall represents cash taxes paid for vesting or share exercises. Altogether, these components led to ending liquidity of $673 million comprised of $133 million in cash and $540 million in undrawn revolving capacity. 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 remains strong at $673 million. We have invested about $2 billion in vessels at costs, which are currently valued at about $3 billion. And with $600 million of gross debt at the end of the first quarter, our net loan to value is below 15%. Our debt at March 31 was nearly 80% hedged toward fixed rates, equating to an all in weighted average interest rate of about 670 basis points or just about 180 basis points above today's SOFR rate. On the lower right hand table, we have detailed our debt portfolio as of March 31. Since that time, I would note that we repaid $36 million on the RCF, of which about $16 million represents a reduction in RCF capacity that occurs at the end of every quarter. We like this practice of moderate payments to maintain our RCF capacity in order to support growth. And with $540 million undrawn, we have ample liquidity for growth. Also, as we noted in our 10-Q that we filed this morning, our intention is to repay the Ocean Yield debt that carries interest at SOFR+ 405 basis points. The outstanding principal amount of the loan is approximately $250 million as of the fourth quarter when payment will be made. And we were reviewing our opportunities to maintain our maturity profile and reduce our interest expense. We continue to enhance our balance sheet to maintain the financial flexibility necessary to facilitate growth and returns to shareholders. Our nearest maturity in the portfolio isn't until the next decade, we have 34 unencumbered vessels, and we have ample undrawn RCF capacity. We continue to explore ways to lower our breakeven costs even more and sharing 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 second quarter of 2025, I'll remind you, as I always do, that actual TCE reported during our next earnings call may be different. As of today, we currently have a blended average spot TCE of about $31,200 per day fleetwide and 45% of our second quarter expected revenue base. On the right hand side of the slide, our forward spot breakeven rate is about $13,500 per day, composed of a fleetwide breakeven of about $16,000 per day, nearly $2,600 per day on time charter 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 second quarter and build on our track record of returning cash to shareholders. On the bottom left hand chart, we provide some updated guidance for our expenses in the second quarter and our estimates for 2025. We also include in the appendix, a 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. I'd now like to turn the call back to Lois for closing comments.

Thank you very much, Jeff. On Slide 12, we have provided you with Seaway's investment highlights. Summarizing them 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 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 15% of the fleet's current value. And as Jeff mentioned, we have 34 vessels that are unencumbered. Lastly, we only need our spot ships to collectively earn less than $13,500 per day to breakeven 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. We'd like to thank you very much, and operator, we'd like to open up the lines for questions.

Thank you, Lois. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Omar Nokta with Jefferies.

Thank you. Hi, Lois and Jeff, good morning. I have just a couple of maybe finance questions. So maybe to you, Jeff, on the six LR1s, you've got a little over $300 million in payments to make on those, you've also got the $540 million of undrawn capacity. Do you expect to use that for financing these remaining installments or do you intend to secure separate financing package for those installments?

Good morning, Omar.

We're still evaluating...

We'll let Jeff answer that one.

Yes, sorry. Yes, good morning. Yes, lots of options, still evaluating. The great thing about the revolver is you always know you have that. So we kind of have the optionality to evaluate other financing possibilities and we're doing that. So not too much more to say right now, but lots of attractive well priced and good terms options for us. So I look forward to telling you about it when we get closer.

Okay. All right. So it sounds like perhaps maybe you're still evaluating, but something may be in the works is what -- inferring from that. Then -- and I guess definitely, Jeff, you mentioned the lease financing you mentioned a facility that you're looking to refinance in the amount of $250 million. Just thinking about the bar chart you show on Slide 11, where your combined breakeven is $16,100. With that refinancing kind of -- what do you think that comes down to? Is that magnitude of $300, $400 or am I doing back at the envelope math wrong?

Yes. Thank you, Omar. Yes, it can be the -- yes, go ahead, Jeff.

My following-up -- yes, just back to the first question for a second. Yes, I think you would expect us to evaluate lots of options that we're fortunate to have on the financing side. So we will do that knowing we always have to revolve. But back to the question you asked, yes. I mentioned in my remarks that this was -- this facility now is at SOFR+ 405, which was very attractive when it was done because it was virtually 100% financing. But now that the outstanding amount that I mentioned as of the payment date to approximately $250 is in the 50% of value -- special value area, we could expect to be refinancing that at a savings of at least a couple of hundred basis points on interest. If you look at our recent trend on financings with revolvers, there's likely to be significantly less amortization. So I would go with your estimate of several hundred dollars a day reduction in breakevens is the opportunity that we see in doing that refinancing, so spot on.

Okay. All right. Great. Jeff, thank you. Lois, thank you. I'll pass it back.

And the next question comes from Sherif Elmaghrabi with BTIG.

Hey, good morning. Thanks for taking my questions. Lois, you highlighted the 400,000 barrels a day OpEx cost bump this month and next. Has that shown up in conversations with charters or is it benefit tankers on a bit of a lag given some Middle Eastern overproduction there?

Yes. Good morning, and thank you for the question. It seems that it's a little bit of a lag at the moment from what we are sitting and seeing for the forward fixing markets. I mean, for sure, the VLCCs have picked-up in recent weeks, but they're a little bit sideways in the spot market at the moment. So we are anticipating increased liftings as we head into the next quarter.

Thanks. And then I've got one for Jeff. You guys completed some pretty substantial deleveraging over the last four months. So I guess, on the other side of Omar's question, is there a leverage target you keep in mind or are we just being opportunistic bearing in mind you've got some newbuild payments to make?

You go ahead, Jeff and share your views on that.

Sure. Thanks, Sherif. As we've said before, we like the leverage level we're at now broadly, sub-20%, we have to be sub-15% net loan to value, that's low leverage, not zero leverage. At this point in the cycle, that gives us the optionality to put some more leverage on when it's the right time to do it. So I don't think that now refinancing the lease that we mentioned, that doesn't increase leverage. The LR1 will require a little leverage and definitely put some on one way or another. But that's not going to be a substantial increase in leverage. So we can easily absorb that and still have room for additional leverage when the time comes for more investment in assets. Is that what you were asking or can I fill in more?

No, I think you've addressed it. Thanks very much for taking my question.

Sure.

[Operator Instructions] The next question comes from Chris Robertson with Deutsche Bank.

Hey, good morning, Lois and Jeff. Thanks for taking my questions.

Good morning.

Just a market question for me. Since you operate in both the product and crude segments, you'll be in an advantaged position to answer this. Some of your product tanker peers have talked about the LR2 order book and their expectation around a pretty big percentage of those trading dirty. I guess, can you speak to your views on the LR2 market and where those new builds might trade?

Absolutely. I mean, we have one LR2. We do have it out at a lucrative time chart around 40 grand a day at the moment. But we always think of Afras and LR2s as one combined fleet of coming on 1,300 vessels with an aging profile on the Afra side. And folks that are ordering LR2s, it looks like it's kind of the size of vessel at this time where you just elect to coat due to the cost of the coating in relative to your overall asset investment to give yourself that optionality. We tend to see the vessels dirty up when they become older, the more modern vessels tend to trade clean. And so when you look at that whole sector as a whole, even though there's a lot of LR2s on order, that entire fleet is aging fairly rapidly and you have had strong growth in your ton miles on both the Afras and the LR2.

Got it. Yes, that makes sense. That's really it for me. I'll turn it over.

Thank you.

And our next question comes from Liam Burke with B. Riley Securities.

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

Good morning, Liam.

Hi.

Lois, the step-up in OPEC+ production has boosted VLCC rates, but we've also got additional production coming out of non-OPEC+ countries as well. Where do you see -- does that benefit significantly your Suezmax vessels, even though we're seeing nice lift in VLCC rates?

Yes. Thank you. Absolutely, I mean, the -- now you've seen the VLCC take sort of their leadership position for the first time in probably three years and the Suezmaxes have always had a strong correlation, something around 85% in tandem with the bees and you've seen them step-up as well. I think another factor, that's playing very well for -- I'm going to say, the legitimate trading fleet in the world is these low oil prices are creating a situation where the Russian barrels are going on legitimate tonnage and that's creating more business for owners that have followed the right line all the way.

Great. Thank you. And you've been pretty adept at lowering the age of your fleet in a very shareholder friendly manner. Are you seeing more opportunities to do that?

We're always out there looking, Liam, and so we can never be idle, right? And indeed, we have our eyes open and are looking for those opportunities, as we speak.

Fair enough. Thank you, Lois.

Thank you.

[Operator Instructions] And as we currently have no further questions in the queue, I will hand back over to Lois

Yes. We just want to thank everybody for tuning in with International Seaways, and we look forward to speaking with you in the coming months. Thank you very much.