INSW - NYSE

Hello, everyone, and welcome to the International Seaways Third 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 your host, the General Counsel, James Small, to begin. Please go ahead when you're ready.

Thank you, operator. Good morning, everyone, and welcome to International Seaways Earnings Call for the Third 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 and recent financing transactions and plans to issue dividends; the effects of ongoing and threatened conflicts around the world; economic, regulatory and political developments in the United States and globally, including the impact of protectionist trade regulations; 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 based on a number of factors, including 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 reports on Form 10-Q for the first 3 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

Thank you so much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the third 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 third quarter was $71 million or $1.42 per diluted share. Excluding gains on vessel sales, adjusted net income for the third quarter was $57 million, or $1.15 per diluted share with adjusted EBITDA $108 million. Today, we also announced a combined dividend of $0.86 per share to be paid in December, as you can see in the upper right section of the slide. This is our fifth consecutive quarter with 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. We also announced the extension of our $50 million share repurchase program to the end of 2026, as we believe repurchasing shares is an option as an addition to our payout ratio. On the lower left part of the page, we took delivery of 2 of our 6 LR1 vessels. The Suez Alacran delivered in the second half of September and the Seaways Balboa delivered on October 30. In connection with the deliveries, we borrowed $82 million, or $41 million per vessel on our new Korean export agency-backed financing that we put in place during the quarter. On our last call, we announced the ECA financing for up to $240 million with a blended 20-year amortization profile and a margin of 125 basis points with a 12-year maturity. The balance of the financing will be drawn upon delivery of each new building vessel in 2026, and the company has only $30 million of additional liquidity required to complete the program. During the third quarter, we sold 5 vessels with an average age above 17.5 years old for proceeds of $67 million. Another 3 of our oldest MRs with an average age close to 19 years old have been agreed to be sold in the fourth quarter for proceeds of about $37 million. When these transactions close, we expect to record a gain on the sale. Also in the fourth quarter, we expect to date delivery of our 2020-built scrubber-fitted VLCC, which we will utilize our available liquidity to pay the remaining $107 million due since making a deposit of $12 million in the third quarter. Overall, in 2025 through the end of October, we sold 8 vessels for proceeds of around $100 million, and we'll be purchasing this eco, modern VLCC in the fourth quarter for close to the same amount. 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. While we did not execute any fresh charters this quarter, and even though some have rolled off, we will have over $230 million in future contracted revenue with an average duration of about 1.5 years. We continue to work with the market for opportunities as we believe generally a portion of the fleet will remain on fixed chart. On to the balance sheet in the lower right part of the page. We continue to explore and execute options to enhance our capital stack. After executing the ECA facility documents to fund our LR1 new building, the team went back to work on a knock bond opportunity as an option to pay for our upcoming purchase option that we declared on some of our sale leasebacks. I'm very pleased with the execution to secure a coupon as one of the lowest for first-time issuers in the tanker space. Due to the strength in demand, we increased the size of the bond to $250 million, which is nearly equal to the amount needed to repay the leases. We're very grateful to welcome in our new credit investors, and quite proud of the success in the execution of the bond. Due to the timing of the settlement of the bonds in the third quarter and repayment of the leases in the fourth quarter, we ended the third quarter with $985 million in total liquidity with $413 million in cash and $572 million in undrawn revolver capacity. Net debt at the end of the quarter was under $400 million, which on over $3 billion in fleet value, our net loan-to-value is a very low 13%. Turning over to Slide 5. We've updated our standard set of bullets on tanker demand drivers with the subtle green up arrow next to the bullets representing positive for tankers, the black dash representing a neutral impact, and a red down arrow meaning the topic is not good for tanker demand. Without reading each bullet individually, we believe demand fundamentals are solid and continue to support a constructive outlook for seaborne transportation. Oil demand growth remains healthy at 1 million barrels per day of growth for this year and next. OPEC+ is supplementing 1 million barrels per day of production growth from outside the group with their own production increases that we have not seen the full scope of what could be on the water soon. Some countries in the cartel had penalties for overproduction during the cuts and others were using some production increase in country for power generation. The fourth quarter looks to be the environment where the increased production is hitting the water. For now, it's much needed after the inventory levels have been near their historic lows, as you can see in the chart on the lower left. We are still monitoring how these increased barrels on the water can affect the tanker markets in the longer term. The geopolitical intensity on tankers remains strong with port fee discussions altering trade routes and working through a multitude of scenarios that could impact our business. On the lower right-hand chart, sanctioned barrels out of Russia and Iran have historically been transported to India and China. Lately, we've been seeing more pressure on those exports on those 2 specific countries, in particular, along with more sanctions put on the tanker fleet. Both effects could be positive for international tanker markets, and we expect more development in time, as we have had over the last few years. Moving on to the supply side on Slide 6 of the presentation. It remains one of the most compelling cases for tanker shipping. Orders have slowed in 2025 following a surge in 2024, as you can see on the lower left-hand chart. Tankers on order represent 14% of the fleet that deliver over the next 4 to 5 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 3 to 4 years it takes to deliver a new ship. In practicality, based on actual ship deliveries, there is a significant number of removal candidates that were built in the golden age from '04 to 2010. By the time the order book delivers fully in 2029, nearly 50% of the fleet will be over 20 years old and likely excluded from the commercial trade. There is simply not enough tankers to replace the current aging fleet, as we show in the graph on the lower right-hand side, less than 800 ships are delivering over the next 4 years, representing 1/3 of ships likely to face challenges in securing tonnage for the global trade, not to mention further sanctions or environmental regulations. We also highlighted in dark blue as sanctioned vessels in the chart, which currently tops the number of vessels on order. We believe these fundamentals should translate into a continued up cycle 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 to adapt to industry conditions with a strong balance sheet while returning to shareholders. I'm now going 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 third quarter was $71 million or $1.42 per diluted share. Excluding gains on vessel sales, our net income was $57 million or $1.15 per diluted share. On the upper right chart, adjusted EBITDA for the third quarter was $108 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. On the lower left chart, I would like to point out that our TCE revenues from crude and products have been evenly balanced over the past year. Our revenue and expenses were largely within expectations for the third quarter. We're pleased with our cost management, particularly with vessel expenses. The lightering business generated approximately $9 million in revenue in the third quarter and contributed nearly $1 million in EBITDA after $3 million in vessel expenses, less than $4 million in charter hire, just over $1 million in G&A. During the summer, the number of jobs decreased, but we're pleased that since September, activity has picked back up again. Turning to our cash bridge on Slide 9. We began the quarter with total liquidity of $790 million, composed of $149 million in cash, $560 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we first had $108 million in adjusted EBITDA for the third quarter, plus $22 million of debt service and another $22 million of dry dock and capital expenditures. We therefore achieved our definition of free cash flow of about $63 million for the third quarter. This represents an annualized cash flow yield of nearly 10% on today's share price. We received $67 million proceeds from the sale of the 5 vessels Lois mentioned earlier. We also paid a $12 million deposit for a 2020-built VLCC, which delivers in the fourth quarter. We paid about $36 million in LR1 newbuilding installments, net of the $41 million drawn down from our new ECA facility. We repaid $27 million on our revolver during the third quarter, of which $15 million offset our capacity reduction, increasing our undrawn revolver capacity to $572 million. Net of fees, we received $247 million of proceeds from our issuance of senior unsecured NOK bonds. The remaining $38 million represents our $0.77 per share dividend that we paid in September. The latter few bars on the chart reflect our balanced capital allocation approach, where we utilize all the pillars, fleet renewal, balance sheet optimization and returns to shareholders. In summary, the result of our activity this quarter yielded a net increase in cash of $264 million. This equates to ending cash of $413 million with $572 million in undrawn revolvers for total liquidity of nearly $1 billion. Naturally, this is impacted by the timing of the settlement of the NOK bond proceeds and the $258 million of purchase options that we will execute on the Ocean Yield leases during the fourth quarter. Now moving to Slide 10. We have a strong financial position detailed by the balance sheet on the left-hand side of the page. Pro forma cash and liquidity remained strong at $727 million when including the impact of payment in the Ocean Yield purchase options. We have invested about $2 billion in vessels at cost on the books currently valued at about $3 billion. And with under $400 million in net debt at the end of the third quarter, our net loan-to-value is approximately 13%. Shown on the lower right-hand table of the page, we have included the pro forma impact of our debt till the end of 2026. Gross debt at the end of September was $804 million. We'll repay the Ocean Yield leases in November and add another $200 million of debt in connection with the LR1 newbuildings in the K-SURE ECO facility. Mandatory debt repayments through the end of 2026 are $33 million, giving us a little over $700 million in debt by the end of 2026 based on our latest balance sheet initiatives. We continue to enhance our balance sheet to maintain the financial flexibility necessary to facilitate growth as well as returns to shareholders. Our nearest maturity in the portfolio isn't until the next decade. We have 31 unencumber vessels on a fully delivered basis, and we have ample undrawn RCF capacity. We continue to explore ways to lower our breakeven cost even more and share in the upside with substantial 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 fourth quarter of 2025, I'll remind you that actual TCE during our next earnings call may be different. But in the fourth quarter, we are now seeing the impact of the elevated rate environment we began to see in late Q3. We currently have a blended average spot TCE of about $40,400 per day fleet-wide, 47% of our fourth quarter expected revenue days. On the right-hand side, our expected 2026 breakeven rate is about $14,500 per day compared with roughly $13,100 per day when we last presented a next 12-month view. On a comparable next 12-month basis, the breakeven remained about $13,500 per day with that difference primarily reflecting higher operating costs and the roll-off of time charter volume. The higher -- full year 2026 figure is mainly driven by timing, specifically higher dry dock costs in the fourth quarter of 2026 compared with the fourth quarter of 2020. 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 fourth quarter, and build on our track record of returning significant cash to shareholders. In the bottom left-hand chart, we provide some updated guidance for our expenses for the fourth quarter and our preliminary estimates for 2026. We also included 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. I'd now like to turn the call back to Lois for her closing comments.

Thank you, Jeff. On Slide 12, we have provided you with Seaways' investment highlights, which I encourage you to read in its entirety and summarizing briefly here, over the last 9 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 over 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 tanker-class 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 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 31 vessels that are unencumbered. Lastly, we only have our spot ships earned under $15,000 per day to breakeven in 2026. 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 want to thank you very much. And with that said, operator, we'd like to open the lines for questions.

[Operator Instructions] And our first question comes from Omar Nokta with Jefferies.

Obviously, it looks like things are continuing to work out quite nicely for you guys, and you're doing a bit of everything. You're growing, rejuvenating the fleet, strengthened balance sheet, lowering your breakevens and obviously paying out capital. I wanted to just ask a couple of questions, more market-related, just based on what we've been seeing here recently. And I like your slide, on Slide 4, you showed the table of your achieved rates so far in the fourth quarter. There's quite a bit of a step-up, you'd say, across all the different segments from what you've earned during the prior 4 quarters. And I think in general, when people have been thinking about this market with OPEC and all that, it's been viewed that the VLCCs are going to lead the way, and certainly, we're seeing that. But we're also seeing some strength in the other classes, especially the Suezes and the Afras. And just wanted to get a sense from you, given your vantage point, is the midsized tankers, are they benefiting from what's going on with the VLCC? Are they getting pulled into those trades? Or is this a shift in cargo flows for those vessels that maybe has to do with Russia?

So I'm going to have Derek Solon, our Chief Commercial Officer, attempt to tackle that one.

Great. Thanks, Lois. Omar, this is Derek. Thanks for the question. I mean you're, of course, right. The fourth quarter has been a lot stronger than the prior quarters. And a lot of that is OPEC+ sort of removing some of their voluntary cuts and kind of returning to a tanker market, a more normal tanker market where the VLCCs would lead the way on the big crude. So when the Vs are strengthening, what we see is they're doing a lot less of the business that they have done since post Russia, meaning fewer transatlantic cargoes that were really cannibalizing off the Suez and the Aframax. So now that we've got the VLCCs with healthy rates back in more of their normal trades, that naturally benefits the Suez and the Afras. To the point now where we're seeing, the Suezmaxes try to start to cannibalize back on the VLCC trade, right? So with that healthy V market, you're going to have a healthy midsized crude sector.

Okay. So it's a bit more -- it's a pull basically upwards by the VLCCs, which is the old-fashioned way as you're kind of hinting at. And, I guess, maybe as we've seen this big move up in crude spot rates, products seem to have lagged and been held back. Is this normal? Do you think crude is leading the way, eventually products will get there? But here, obviously, I'm looking at your MR performance, and it's at 29,000, still fairly strong, quite a bit stronger than, say, indexes. But I guess maybe the indexes have lagged the crude. Do you think that's a lag? Or is this one of those things where maybe product fits this one out, and it's really more of a crude trade here in the next few months?

So, yes, Omar, imagine that we earned just shy of 26 a day in the third quarter on MR and earning 29 a day in the fourth quarter for days booked, and that we think that's lagging. So that is just stunning stellar outperformance continued, I think, on the MR sector. Derek, could you add on that?

On that. Sure. Look, I mean, obviously, the MR rates are very healthy. I think our third quarter is strong. Our fourth quarter to date is very strong. A lot of that has to do with where we trade here in the Americas with a substantial portion of our MR fleet. But Omar, I think it's also -- it's certainly not that the MRs are sitting it out because the market is strong, but there's just different geopolitical factors impacting the MRs on the positive side. So you kind of talked about Russia in the bigger crude, but I talked about Russia more here on the clean sector, because a combination of things happening between stronger newer sanctions on Russian oil companies and Ukraine upping its attack on Russian oil infrastructure, we see a lot less diesel exports from Russia. So that void is being filled by the U.S., by some Latin American stuff. And the benefit to us, and a lot of our peers, is also that those are barrels that the compliant fleet can move, not the dark fleet, not the gray fleet, but the combined fleet. So that's part of why you see -- where we see the MRs pretty helped.

Okay. Yes. And certainly, you can see from your results, definitely a fairly strong, I would say, outperformance in that segment.

The next question comes from Chris Robertson with Deutsche Bank.

Just wanted to turn to the current crude inventory levels and get your thoughts around how that inventory building cycle will play out here? And do you think given the current forward oil curve, will this incentivize any offshore storage opportunities in the coming quarters? Or is the curve not steep enough yet to kind of incentivize that?

It's interesting for sure. What we're seeing at the moment is that there's a lot of oil on the water. We don't really see heightened inventories yet onshore. So we speculate that some of these barrels that are on the water are not sure where they're going to land yet as a home. So it may be somewhat sanctions-impacted. And we're watching the forward oil curve very carefully. It's pretty flat. So this is definitely not a steep contango situation that we are involved in right now. So it seems a little bit more, you've got a lot of oil on the water, disagreements between IEA and OPEC and on just how much production is out there. So it's really interesting times for us.

Just turning to the S&P market, given the recent momentum in rates and things, as part of your normal fleet renewal strategy, are you seeing an increase in opportunities here to potentially divest further older assets? Or are rates sufficiently high at the moment that you might want to slow down on divesting assets at the moment?

Well, on those older MRs, we've had a high degree of success, and we are starting to see asset values pick up, reflecting increased rates. We will continue to judiciously upgrade the fleet going forward. So in 2026, it will be more of the same of some disposals of the older vessels, and then we want to high-grade the fleet so that we really improve our earnings capability.

[Operator Instructions] And as we have no further questions, I will hand back over to Lois for any final comments.

Thank you very much. We appreciate it, Carla, and I want to thank everyone for tuning into International Seaways' quarterly conference call as we continue strong rates into the winter. Thank you.