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Participants

James Small; Chief Administrative Officer, Senior Vice President, Secretary, General Counsel; International Seaways Inc

Lois Zabrocky; President, Chief Executive Officer; International Seaways Inc

Jeffrey Pribor; Chief Financial Officer, Senior Vice President, Treasurer; International Seaways Inc

Derek Solon; Senior Vice President, Chief Commercial Officer; International Seaways Inc

Omar Nokta; Analyst; Jefferies

Liam Burke; Analyst; B. Riley Securities

Chris Robertson; Analyst; Deutsche Bank

Sherif Elmaghrabi; Analyst; BTIG

Presentation

Operator

Good morning, and thank you for attending today’s International Seaways First Quarter 2024 Results Call. My name is Jennifer, and I’ll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers. At the end, if you’d like to ask a question, press star one on your telephone keypad. I would now like to turn the conference over to CEO and General Counsel, James Small. James, please proceed for Gerber.

James Small

Good morning, everyone, and welcome to International Seaways earnings call for the third quarter of 2024. Before we begin, I would like to start off by advising everyone with us on the call today are the following. During this call, management may make forward-looking statements regarding the Company or the industry in which it operates. The statements may address without limitation the following topics outlooks for the crude and product tanker markets and changes in trading patterns, forecasts of world and regional economic activity and the demand for and production of oil and other petroleum products, the effects of ongoing and threatened conflicts around the globe the company strategy, our business prospects, expectations regarding revenues and expenses, including vessel charter hire and G&A expenses, estimated bookings, TCE rates and or capital expenditures for periods during 2024 are in any other period projected scheduled drydock and off-hire days purchases and sales of vessels constructed of newbuild vessels and other investments. The company’s consideration of strategic alternatives anticipated in recent financing transactions and any plans to issue dividends, the Company’s relationships with its stakeholders, the Company’s ability to achieve its financing and other objectives and other economic, political and regulatory developments globally, any such forward-looking statements take into account various assumptions made by management based on a number of factors include management’s experience, perception of historical trends, current conditions, expected 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, which could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause International Seaways actual results to differ from expectations include those described in our annual report on Form 10 K for 2023, our report on Form 10 Q for the first quarter of 2024 and other filings that we have made or the future may make with the US Securities and Exchange Commission.
Now let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky.

Story continues

Lois Zabrocky

Thank you very much. James, and good morning, everyone. Thank you for joining Seaways earnings call for the first quarter of 2024. You can find our presentation on our website in the Investor Relations section.
Starting on Slide 4. Our results for the first quarter represent our eighth consecutive quarter of strong earnings. Net income was $145 million and $2.92 per diluted share this quarter came in higher than our prior two quarters. Adjusted EBITDA was over $190 million.
On the upper right hand slide, we highlight enhancements that we have made to our already strong balance sheet. At the end of the first quarter, we had $626 million in total liquidity, including $411 million of undrawn revolver. Now we have consolidated our terminals and converted them into more revolver capacity. In the execution of this facility, we have saved about $80 million per year in mandatory payments for about $3,000 per day across our spot fleet.
For some perspective on how Seaway Heavy evolved our balance sheet two years ago in 2022, we had mandatory debt repayments of $180 million. Now for the forward 12 months, our mandatory payments are under $50 million. This is a tremendous work by Jeff and his finance team, along with our valued relationship with our bankers. This gives us extensive flexibility embedded in the balance sheet. As a result of these efforts, our spot vessels need to earn $13,600 per day to breakeven with 52% of our spot days booked in the second quarter. It looks like we will generate a significant amount of free cash flow. Again, in the second quarter, we now have $559 million in undrawn revolver capacity, putting key ways in a position to respond to market opportunity.
On the lower left-hand slide, we give detail on our fleet upgrading progress. In the last couple of weeks. We have taken delivery of three of six Eagle MRs that we purchased in February, the remaining ships delivered before the end of May. The six vessels are under contract for $232 million. In Ag, we also declared our options for an additional tool to dual fuel ready LR1 expected to deliver in the third quarter of 2020. But overall, our program of building 6 has the first two deliveries in the second half of next year.
The lower right-hand slide outlines our continued return to shareholders. Our strong earnings and our strong balance sheet allowed us to return a substantial portion of our net income to our shareholders. Today, we declared a combined dividend of $1.75 per share. This represents 16% of our adjusted net income and another quarter of double digit yield for our shareholders. Over the last 12 months, we have returned an actualized greater than 13% return here and see where we are focused on a balanced approach to capital allocation continues to create value for the Company and our shareholders. We utilize the cash we’re generating in this upcycle to strengthen our balance sheet and put us in position for the next opportunity. We’re now renewing our fleet by acquiring new six more modern eco MR. We are building vessels for our niche premium LR one trade and we are selling some older vessels fleet. Older MRs have more than paid for themselves since acquiring them in 2021, we’re able to execute each of these assets while still remaining double digit yield to our shareholders.
On Slide 5, we’ve updated our standard set of bullets on tanker demand drives with the positive green up arrows neutral black dashes and red arrows for negative tanker factors.
Touching on the highlights, oil demand continues to grow, with estimates of growth averaging around 1.5% for this year of 2024 year over year with similar projection for 2025. This represents an above average demand growth level, specifically for seaborne transportation, existing regional imbalances of crude oil production and the availability of refined products contrasted with distant strong demand centers makes the tanker in the bottom chart. We highlight the difference between crude oil production, expected throughput and product demand by region. Both Europe and Asia are structurally short crude oil, which they source from the Americas, Middle East, Russia, with the enforcement of sanctions on Russian oil tightening, the disruption of traditional routes can enhance ton-mile demand and supported the tanker markets on the refined market product sector, most regions are short specific refined products, except for the Middle East and Russia is create a lightly product stream as charters continued to take advantage of arbitrage plays to meet demand in different regions for specific grades, it remains very constructive that commercial inventories are low throughout the world continued disruption within the tanker market on top of strong fundamentals underpin an increased need for seaborne transportation.
Slide 6, the supply side has seen some orders with our tanker order book now at 9% of the existing total tanker fleet. You can see that in the lower left-hand chart, these new orders stretch into 2027, as shown in the chart on the lower left-hand corner of the slide, the vessels that are on order will replace older ships turning 20 plus years old that at the very least would be removed from commercial trading. As a result, the average fleet age will rise in the next few years at a faster rate than it has over the prior 10. Generally older ships have less efficiency and lower utilization. With an increasing percentage of the fleet falling into this category, the industry will flip the new ships to work covering the increasing seaborne demand overall This sets the stage for a strong up-cycle over the next few years, and Seaways remains well positioned to capitalize on these market conditions. You can count on the way to utilize our balanced capital allocation approach to renew our fleet and 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 financial review. Jeff?

Jeffrey Pribor

Thanks, Melissa, and good morning, everyone. Turning to slide 8, net income for the first quarter was just about $145 million or $2.92 per diluted share.
On the upper right chart, adjusted EBITDA for the first quarter of 2024 was $192 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. Our expense guidance for the first quarter fell largely within a range of expectations, but I’d like to point out a few items of note within our income statement on the revenue side, our lottery business continues to outperform earning about $14 million of revenue in the quarter with about $2.5 million of vessel expenses, $3.5 million in charter hire and $1 million of G&A delayered business contributed about $7 million of EBITDA in the first quarter just shy of its record nearly $8 million .
Turning now to our cash bridge on Slide 9. We began the quarter with a total liquidity of $601 million, which was composed of $187 million of cash and $414 million in undrawn revolving capacity. Following along along the chart from left to right on the cash bridge. We first had $192 million in adjusted EBITDA for the quarter as $44 million in debt service, which is composed of scheduled debt repayments and cash interest expense less our drydock and capital expenditures of about $40 million in the quarter and the draw of working capital due to timing for the $13 million , we therefore achieved our definition of free cash flow of about $121 million first quarter. This represents an annualized cash flow yield of 18% on today’s share price. The remaining bars on the cash spreads reflect our capital allocation for the quarter, we spent $23 million as a deposit for the six ECOMR.s that are delivering in the second quarter as well as pension. And we paid $1.32 per share for about $65 million in dividends during the quarter. These components that lead us to an ending liquidity of $626 million, comprised of $215 million of cash, short-term investments and $400 million in undrawn evolving capacity.
Now moving to slide 10, we continue to have a strong financial position detailed by the balance sheet. You see on the left hand side of the page. Cash and liquidity remains strong at over 600, 26 vessels on the books at cost or approximately $2 million versus current market values of nearly $3.5 million and was $700 million in gross debt at March 31 this equates to a net loan-to-value of just about 14%. Our debt today is 85% hedged at fixed rates, therefore, equating to an all-in weighted average interest rate of about 6% or less than 100 basis points above. So in the table on the bottom right of the slide, our debt balances as of April 30th reflect the amendment extends our $50 million facility, which we now call the $500 million RCF. As Lois mentioned earlier, this facility has no mandatory debt repayments at this time, representing a savings of about $80 million per year. We continue to enhance the balance sheet to create the financial flexibility necessary to facilitate growth and returns to shareholders, we have $559 million of undrawn revolvers for years maturity of the portfolio isn’t until the next decade to continue to lower our breakeven costs. And we share in the upside double digit returns to material.
And the last slide that I’ll cover Slide 11 reflects our forward-looking guidance and are booked to date TC., aligned with our spot cash breakeven rate, starting with TCA fixtures, the second quarter of 2024. I’ll also remind you, as I always do, that actual TC earn that you’ll see on our next earnings call what may be different. But as of today, we have a blended average spot TCE of about $43,700 per day fleet-wide for the quarter on the right-hand side of slide, you can see how that lights up against our spot cash breakeven rates. The methodology here is exclusively using expenses on our spot vessels, less the excess of our time charter revenues above chartered vessel costs and dividing that by spot days. The same relates to the average spot TCE, which as I said, was $43,700 per day for more than half the days second quarter.
Looking at the bottom left hand chart for the modelers out there, we provided some updated guidance on our expenses for the second quarter and our estimates for 2024. We also include in the appendix our quarterly expected off-hire and CapEx scheduled to come forward. I don’t plan to read these items line by line, but I want to encourage you to use them for modeling purposes.
That concludes my remarks. So I’d now like to turn the call back to Lois for her closing comments.

Lois Zabrocky

Thank you very much. Jan. Slide 12 details our investment highlights in brief. Over the last seven years, International Seaways has built a track record of returning to shareholders maintaining a healthy balance sheet while growing the Company. Our total shareholder return is over 490% since our inception, representing 24% compounded annual returns over the last 12 months, our combined dividend of $5.74 represents a 13% yield. We continue to upgrade our fleet purchasing six equal MRs and building six LR ones for our strong niche Panamax International joint venture. We’ve taken advantage of strong down south. Are you selling some of our older MRs? The MRs have gains on the sale that are higher than what we paid for the vessels. This is all while quietly improving our balance sheet, we now have 36 unencumbered vessels and under $700 million in debt. We have $559 million in undrawn credit capacity, which we will carefully utilize to opportunistically grow our balanced fleet.
Finally, our balanced fleet spot share now need earn below $14,000 per day to breakeven in the forward 12 months. At this point in the cycle, we expect to continue generating cash that we will put to work, creating value for the Company and most importantly for our shareholders.
Thank you very much.
And with that said, Jim, we’d like to open up the lines for questions.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. Our first question comes from the line of Omar Nokta with Jefferies. Mr, your line is now open.

Omar Nokta

Thank you, guys. Good morning and congrats on another strong quarter. I apologize in advance because I’m going to ask this question about the Panamax LR ones, which I feel like I’m asking habitually on your calls, but we are again with a very strong performance in the mid 60s in the first quarter and again, here into 2Q, well above global averages, whether it’s in Panamaxes on the dirty side or clean LR ones because there are seasonal elements underway, and that’s why we’re seeing this strong performance at the moment.
And then also just kind of thinking about that in terms of I know it’s a nice trade in South America, you’ve added to the LR1 newbuilding, Tyler, you’re up to six ships now. Are those plan to all be deployed into that into that market on delivery?

Lois Zabrocky

Good morning. Omar, thank you for the compliment on the performance on the sector. You know, I would say that in the first quarter, you again saw very strong performance here across the midsize sector you’re now seeing in the spot market to be sort of assert themselves for the first time really and kind of have a little lift off for the first time in a couple of years. So well, I think the seasonality of the first quarter is generally quite a strong quarter in the tank for margin. And you see that on the LR ones, which, as you know, are trading in the Americas in their niche trades. And we look forward to the additional barrels that will be coming out of Vancouver with the TMX pipelines come to even add probably more to Aframaxes mostly but also to the base three on four Panamaxes as well. And as far as the building on the LR ones, the intention is to add those into that particular customer base and joint venture. You know, if you look at the LR1 space, it is not us big growth. Trade, however, is a very strong customer base there. And the age profile of that sector is quite old, our tax flows.

Omar Nokta

Okay. That’s interesting. So a lot of the TMX discussion has been on Aframaxes but you see potential at least Aframaxes that seemed like they won’t be fully loaded. So perhaps kind of what you’re talking about the out the LR ones or the Panamaxes may start to capture some of that

Lois Zabrocky

We’re going to we’re going to have to be here at that trade emerges, how many barrels go down in the West Coast company get exported to Asia, for sure. The Aframaxes, the largest size that you can load directly at first there, but, you know, overall it increased volumes in that arena?

Omar Nokta

Yes. Yes. Okay.
And then just a follow up, but you’ve obviously been adding more and more toward recovery still have predominantly of our spot exposure, but you added the charge on the loan LR two, you have. And then you add couple on the oh nine build MRs and what are you thinking here in terms of more cover? Clearly, it sounds like there’s opportunities to continue to put ships away if you wanted, is that something you want to do? And is there a particular segment you’d like to add more cover? And yes, any color there, please? Thank you.

Lois Zabrocky

I’m going to start and then I’m going to have our Chief Commercial Officer, Derrick complete the question. And we have around 15% of the fleet on time charter at the moment. So we maintain a significant operating leverage to this very strong market. And when we see outside return, outsized returns for us along a longer period, somewhere certainly more than a year in all heading towards three years at a high level that we can lock in, we tend to see those opportunities. And then, Derek,

Derek Solon

I think most Good morning, Omar, I’d just piggyback on those. So, you know, we’ve been we’ve been able to sort of crystallize the value on some of the 15 plus MRs for two years. And we recently three years. So we’ve been happy to sort of lock in that value for the 15 plus ships.
And thanks for highlighting the LR2 as well. Like you say, she’s our loan aligned to. So putting her away for three years, seemed like the right thing. But to your point, with any specific sector, not necessarily, we’ll just continue to look for as Lois said outsized returns for longer periods.

Omar Nokta

Okay. Sounds great. Thank you. Thanks for the color, and I’ll turn it over Infomax.

Operator

Thank you. Our next question comes from the line of Liam Burke with B. Riley. Liam, your line is now open.

Liam Burke

Thank you. Good morning, Lars. Good morning, Jeff. Good morning, Louis, it doesn’t look like it, but has there been any pushback from your shipping customers on your older MRs, have you had and had trouble chartering them as they move into that 15 to 20 at range?

Lois Zabrocky

Thank you for that question, Leo. Because that really said, Derek, of the theater, if you look at this sector and on the strength of those rates rightly so

Derek Solon

Good morning, this is Derek here. What to your point, we’re looking at several ships in our fleet. The trade spot, better opinion is older, but we’re coming in at 38 a day for the quarter and continuing to show strong rates into Q1 sorry, correction into Q2. So at the moment, with the freight market like this, no, we’re not really seeing too much discrimination on age.

Liam Burke

Great. Thank you very much, Jeff, on the dividend policy, it seems to be the investors are very comfortable with the fact that you have variable quarterly, but your cash costs are coming down. Your cash flow is accelerating. Any thought to moving the $0.12 up? Are you comfortable with the base dividend plus the bus, the variable right now?

Jeffrey Pribor

Hi, Liam. Yes, we moved it. The fixed component from $0.06 to $0.12. It was two years ago. So I think it’s something we’ll evaluate from time to time. It’s sort of a natural thing of this company’s growing, but there’s no set timetable for that. So I think it’s good question, and it’s something we always so we always consider in the fullness of time, but I think that’s probably likely.

Liam Burke

Fair enough. Thank you.

Operator

Thank you. Our next question comes from the line of Chris Robertson with Deutsche Bank. Chris, your line is now open.

Chris Robertson

Hey, good morning, everybody. And apologize for my voice in advance have been a little bit under the weather. But from Jeff, now that you have 14% net loan to value, the cash breakevens and lowered, especially on this consolidation of the senior secured facilities. I mean, it seems like the Company is in a very good place to kind of just sit back here and in harvest and return capital from, I guess, would you characterize it that way? Is there anything more to do to further lower the cash breakeven, whether it comes to something that you can do with the financing or the cap structure or targeting OpEx, things like that. I mean, where are we at just the cash breakeven level and plan to lower it further or are we just kind of steady as she goes from this point forward?

Jeffrey Pribor

Hey, Chris, I think we’re pleased that we’ve been able to achieve what we have on reducing the cash breakeven rates where they are today. I think we’re getting it all kind of works together like we’re not heading for AMI even for zero debt, but getting your debt that’s below recycle value with it in the middle 10s range enables us to do things like the new facility where we switch or transforms the term debt to revolver. And at these levels, does it require any fixed amortization we may choose to amortize, but the breakevens are lower, which produces more cash as well as process in a place where, you know, it’s hard to remember and as a market, but it was only a couple of years ago that we had a terrible market.
So having your breakeven such that you’re you would still do well, even in a low market, it is one of our objectives. So we’re really happy about that. So yes, we’ll always look for ways to do even a little better but I think but the debt that we have now, I don’t see major changes in the next year or so of kind of high-quality debt. We’d like to say, you know, some of it’s below the rates are running an interest and others have had. This is naturally not in place for a while. So I don’t know, Chris, I guess one reason way of saying, I think we’re not sitting back. I don’t think that would characterize the company that as you have seen, Lois talked about it pretty extensively. We do find opportunities to use cash flow. In addition to the returns to shareholders, we’ve found some good opportunities to use the cash flow to renew the fleet in motor fleet. So I think we are harvesting, but we’re also looking selectively to grow, I’ll say it.

Chris Robertson

Yes, fair enough. Yes. Thank you. Thank you, Jack, for clarifying that categorization as well. Yes, speaking of the fleet renewal efforts? And just kind of looking at the portion of the MRs that are still a little bit dated on you’ve had that recent sale on. Should we be looking forward to some potential sales of the other MR assets at this point? Or what’s the what’s the secondhand market looking like today?

Lois Zabrocky

So current secondhand market is very strong, 38, a day in the first quarter and thus far booked in the second quarter. Very strong, putting six 70s on a multiyear time charters at very strong historically strong rates. We will selectively prune and we do it carefully because it’s a balance in this very strong market,

Chris Robertson

definitely lower on the proceeds from any potential vessel sales on. Would that then in turn be used for further renewal efforts on maybe some acquisitions or even ordering?

Lois Zabrocky

We don’t we don’t want to specifically bucket it exactly that way by It does. It does tend to be how we execute and how we book to continue to high-grade.

Jeffrey Pribor

I’d say, Ali, you get free cash flow, gets free cash of operations and you get free cash flow from monetizing older vessels at a significant profit all becomes cash to be allocated.

Chris Robertson

Yes. Thank you.

Jeffrey Pribor

Thank you, Jeff.

Chris Robertson

I’ll turn it over. Thanks for taking the time.

Operator

Thank you. Before our next question. A quick reminder, if you would like to ask a question. It is star one on your telephone keypad. Our next question comes from the line of Srini Alma Grabe with PTIG. series. Your line is now open.

Sherif Elmaghrabi

Hey, good morning. Thanks for taking my question. So these LR1 newbuilds are a pretty unique opportunity given how early their delivery is, and I’m curious if you were to go to a yard today and order a tanker first, when would that be delivered? And do you have any insight into how many similar open slots for delivery before 2027 may exist at yard.

Lois Zabrocky

I’m going to I’m going to tie a little bit of that now I’ll give it to Derek as well as our commercial land. So yes, we need to you know, obviously, this has been a strong sector for us for some time. So we wanted to take advantage of those slots as we found them and most slots today are into 2027 and really kind of across the tanker space. Maybe you can get some MRs in 2026 and Sir, could you give a little more color on that or?

Derek Solon

Sure, Louis, the venture is the only color I can really add to a lower service. There are like to go to of the first available will be in 2027.
And then for us on these dollar one specifically, what we tried to highlight is, yes, are there are other LR ones being built at other yards. Our LR ones are still built to the old Panamax Canal in that 32.2 meter B. So that’s been part of the reason for our strong earnings is being able to go through the canal, our trade on both sides of the Pacific and the Atlantic. And these new buildings will be the same while most of the newbuild LR ones are around 38 meter B. So really built for that clean trade and can’t really compete with us on the on the crude trade in the Americas.

Sherif Elmaghrabi

Yes, that’s interesting color. Thanks, Louis.

Operator

Thank you. There are no questions registered at this time, so I’ll pass the call back over to CEO, Lois Zabrocky for any closing remarks.

Lois Zabrocky

I just wanted to thank everyone for joining us for our first quarter earnings call at International Speedway, and we’ll talk to you soon. Thank you.

Operator

Yes. That concludes today’s call. Thank you for your participation. You may now disconnect your lines.