International Seaways Inc (INSW) 2022 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the International Seaways Fourth Quarter and Earnings Conference Call. My name is Glenn, and I will be the moderator for today's call. (Operator Instructions) I will now hand you over to your host, James Small, General Counsel. James, please go ahead.

Thank you, Glenn. Good morning, everyone, and welcome to International Seaways Earnings Call for the fourth quarter and full year 2022. Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements have been addressed without limitation the following: the outlooks for the crude and product tanker markets and changes in trading patterns, forecast of world and regional economic activity and up the demand for production of oil and other petroleum products; -- the effects of the ongoing conflict between Russia and Ukraine, the company's strategy, the effects of the ongoing coronavirus pandemic, our business prospects, expectations regarding revenues and expenses, including vessel charter hire and G&A expenses; estimated bookings, TCE rates and/or capital expenditures in 2023 or any other period, projected scheduled drydock and off-hire days; purchases and sales of vessels and construction of new build vessels and other investments; the company's consideration of strategic alternatives; anticipated and 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, including experienced 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, 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, in particular, those described in our annual report on Form 10-K for 2022 and 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, Ms. Lois Zabrocky. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the fourth quarter and full year of 2022. We're going to start out on Page 4. Today, International Seaways has reported our highest earnings in our history. Net income for the fourth quarter was $218 million, $4.40 per share and $388 million or close to $8 per share for the full year of 2022. As a result and building upon our solid track record of returning cash to shareholders, we have declared a combined dividend of $2 per share. We are continuing our disciplined capital allocation strategy. We have a demonstrated history of investing at low points in the cycle. Vessel assets on our books are at less than $2 billion that are today worth over $3 billion. With $1 billion in debt and cash of nearly $325 million, our net loan to value is currently under 24%. In March, we will take delivery of our first dual fuel VLCC, the Seaways endeavor, which along with our 2 sister ships expected to deliver in the first half of 2023, will commence long-term time charters to Shell.

These ships are fully funded, creating another $172 million of debt in aggregate. We sold a 2008-built MR in the fourth quarter, and we're delivering another to reliable buyers in the first quarter. This saves us about $4 million each from their 2023 drydocking and ballast water treatment installations. We will allocate the estimated $28 million in combined net proceeds from these 2 vessel sales towards the $41 million net cash cost for 2 Aframaxes, where we have exercised low market purchase options. These Aframaxes will not be further encumbered. We announced today unanimous commitment from the syndicate of our largest senior secured facility to amend terms to repay $100 million of the outstanding term loan and increased the revolver capacity to over $250 million. The amendment will also release 22 vessels from the collateral package. These 22 ships combined with the 2 aforementioned Aframaxes and 3 LRs released as a result of repaying our Macquarie loan facility in the fourth quarter positions Seaways with 1/3 of our fleet unencumbered. -- highlights and recent developments. Slide 5.

The hottest topic in tankers today is what's happening with Russian oil exports. The chart on the left shows that while crude oil exports from Russia have been fairly consistent within a range over the last few years, Russian oil that was going to Europe is now traveling longer distances to Asia, primarily India and China and absorbing crude tonnage for longer periods of time. On the right-hand chart, our data reflected here through January 2023 shows that self-sanctioning has been limited on oil products. As much of Russian oil was still heading into the EU in the months leading up to the sanctions that were implemented on February 5. We expect that the product sanction will create displacement. It's early days, and we have a limited data set. However, the changes in trade flows are anticipated to be a positive for the busy product tanker market.

Turning to Slide 6. We updated our standard set of bullets on tanker demand drivers. With the subtle green up arrow next to the bullet represented as good for tankers, the black dash representing usual impact and the red down arrows, meaning the factor is not positive for tanker demand. Pulling some highlights. In total, oil demand is expected to grow about 2% in 2023, a good portion of which is attributable to Chinese-Chinese demand reopening after relaxing the Zero Covid policy that had been in place. We saw increased travel at the beginning of the year for the New Year's holiday, and this has continued with higher congestion in major Chinese cities. If you look at the chart in the lower left-hand corner, Chinese demand should increase nearly 5% or almost 700,000 barrels per day in 2023. This is especially important for the crude tanker market, where Chinese imports about 10 million barrels per day. It's also very helpful for the product carrier market as China has increased its product export quota. Crude oil production is expected to increase primarily from the Americas by around 1 million barrels per day. While OPEC announced their production cuts in 2022 using a reference point at peak production levels, there have been some noticeable cuts from Saudi, Iraq and the UAE that have been offset by some of the countries that do not have limits such as Libya, where production has now resumed a more consistent level.

The last key point that I'd like to bring up on this page is the inventory levels. On the bottom right-hand chart, Slide 6, you can see that we have separated the OECD crude and product inventories, which have grown recently to above their averages from 10 years ago. We expect that some of the build has been ahead of the sanctions on Russian oil and natural ebbs and flows around the regional oil demand, refinery turnaround schedules and other geopolitical factors. These charts are commercial inventories only, and they do exclude the OECD strategic reserves, which, as we know, are a historic lows.

On Slide 7, we updated our tanker supply statistics as we see them developing. Tanker supply remains constrained due to a lack of orders and a rapidly aging fleet. -- yards are busy with other shipping sectors, keeping newbuild prices high and limiting economic decisions on ordering. The industry is expected to face more environmental regulations ahead, further limiting conventionally fueled new buildings for tankers. Alternative fuels for propulsion are still in the first generation in the tanker space, and we're likely to see more opportunistic partnering with sponsors along the supply chain. The worldwide oil tanker fleet age is now above 12 years old with more than 1/3 of the fleet above 15 years old. As we show in the charts below for the crude and product sectors, vessels over 20 years old are not going to be replaced in the coming years based on the order book we have today. The charts reflect the millions of deadweight tons that are either 20 years old today or will be in the given years, aligned with the millions of deadweight tons that are scheduled during those years for delivery.

On the crude side, there is a more complete mismatch and dearth of orders. While on the product side, we have seen some MR and LR2 ordered in recent months. The supply outlook for tankers in the near term is incredibly positive, combined with higher oil demand, low inventories and disruptive trade flows, the overall outlook for tankers remains strong, barring global economic slowdown. At International Seaways, we are well positioned to capture the strong rate environment with our operational leverage from our diversified fleet of 77 tankers in both crude and products. With our healthy balance sheet and our liquidity, we expect to continue our balanced capital allocation strategy, investing in the fleet opportunistically, reducing our debt and very importantly, returning cash to shareholders. I will now turn it over to our CFO, Jeff Pribor, to provide the financial review. Jeff?

Thanks, Lois, and good morning, everyone. Let's go straight to reviewing our record earnings in greater detail. We turn to Slide 9. Adjusted net income for the full year 2022 reflected in the upper left-hand chart was $380 million, which eclipses our next highest earnings from 2020 on an adjusted basis. We provided in the appendix reconciliation from reported net income to adjusted net income, but is largely $1 million nonrecurring items such as gains or losses on vessel sales, write-off of deferred financing costs and parts. Similarly, on the upper right chart, adjusted EBITDA, which removes these items as well, for the full year 2022 was nearly $550 million. These results clearly show the significant operating leverage of our 77 vessel fleet.

On the bottom of the page, you can see our TCE revenues by segment along with our spot earnings in 2015. The full year 2022, TCE revenues were $854 million, and you can really see the tremendous contribution of Paget bankers to their record highlighting again the benefits of the time of use. Overall, spot earnings in all of our asset class is depart from VLCCs with the highest in 5 years reflected in the charts. Not only our earnings per day higher, but we have significantly more assets in these class than we had in prior years due to the successful execution of our capital allocation strategy, renewing the fleet at the bottom of the cycle.

Slide 10 reflects our historical earnings sequentially over the last 5 quarters. In Q4, adjusted net income nearly doubled over the previous record level from Q3 to add over $200 million. Adjusted EBITDA came in at $254 million for the quarter, which was higher than any prior full year history. Regarding expenses, during our Q3 2022 earnings call, we advised that vessel expenses would be approximately $57 million, which is at the high end of the range for Q4 of 2022. Actual vessel expenses for the quarter were approximately $62 million. The $5 million increase is primarily due to timing of stores and spares on board and higher repairs and manages opportunistically performed during Vito. Total G&A was approximately $13.5 million during the fourth quarter of 22, which was about $2 million higher than expected due to the timing of certain projects and costs for other shareholder matters. All remaining expenses fell within the guidance previously.

Now turning to our cash bridge on Slide 11. I -- we finished the third quarter with $254 million of cash and $20 drones. Following the chart then left to right the cash bridge, we add $254 million in adjusted EBITDA for the fourth quarter plus $58 million of debt service, which is composed of scheduled debt repayments and cash interest expense, less our drawdown to CapEx of $16 million in the quarter and the working capital build, i.e. use of cash of $51 million, which gets us to free cash flow of about $130 million in the fourth quarter. Continuing on, we sold on 28 bill MR for net proceeds of $14 million and a minor reduction of $3 million in our revolving capacity. -- related to that. During the fourth quarter, we repaid our highest margin credit facility, the Macquarie loan about $18 million, which had the effect of incumbent to vessels. And lastly, as announced during our last earnings call, in the fourth quarter, we paid $10.12 dividend or supplemental process regular mono approximately $55 million.

These components then lead us to the ending liquidity you see on the right of over $55 million $324 million of cash and short-term investments plus $270 a nonmunis. Now moving to Slide 12, we talk about our balance sheet. We continue to and our already strong balance sheet in 2022. A Cash increased dramatically from the prior year at -- going from $98 million to $324 million. Vessels saw the books stand at approximately $1.9 million at the end of 2022, similar to the prior year, but far less than the current market value to evolve between. Net load also as Les mentioned, net loan-to-value is under 24%, and net debt to total debt is approximately 33%. One last point I'd like to make on the balance sheet is the accounting treatment of the 2 Aframaxes for which we exercised our purchase offices during the fourth quarter for delivery of those vessels in backs in Q1 2022.

The accounting treatment for these vessels up to the date of the exercise of the options with grandfathered under previous accounting rules at operating leases or right-of-use assets corresponding liability was that they're both rates to expiry on the date of the exercise of the option, the -- on the asset side, these move to financial leases assets for about $44 million received on the end of your balance sheet and a corresponding current portion of financial $43 million $2.2 million. Sorry, this is a little granular, but just important for you moan. The active delivery and payment of approximately $41 million, which will be in the first quarter of 2023, the accounting change agent these 2 vessels will provide use assets to the vessels line and that amount that we're paying restages on the books at a 45% discount approximately to current market values. There will be no corresponding debt for the have 2 more vessels added to outcome.

So now turning to Slide 13, the last slide that I'll cover for Creditas, reflects our forward-looking guidance and booked to date TCEs along with cash breakeven do. Starting with the TCE fixtures for the first quarter of '23. I'll remind you, as I always do, that the PCs we actually report during our next earnings call will be different one way or not. However, the important point is that the market continues to be strong in the first quarter, blended average CD $45,000 per amongst various classes as you see -- this segues well to the right side of the slide, where you can see our cash break evens. We can show pro forma for the additional debt profile from both our new building program and the proposed amendment to our $750 million credit facility. As Lois mentioned, we expect all the dual-fuel VLCCs to deliver in the first half of the year. They are fully financed and they're adding approximately $172 million of both assets and debt. These assets these vessels will be our time charter, therefore, decreasing the breakeven from fixed revenue.

In connection with the commitment of our banks to amend the $750 million credit facility, we expect to make a nearly $100 million cash repay -- in turn, the capacity of our revolving credit facility will increase by approximately $40 million. Therefore, the net reduction of liquidity would be about $60 million in total. The scheduled debt repayment of this facility going forward for your body will be approximately $28 million for the quarter, down from $31 million, and we also expect to free another 22 vessels for the collateral package, which, along with the exercise of purchase options on 2 Aframaxes and the quality loan in Q4, means we'll have a total of 27 vessels on the comp during the last 6 months.

The net impact of the amendment is expected to reduce our cash breakeven by about $600 a day down to $17,500 per day. And this figure would actually be even lower by about $350 factor interest income, which 4% of cash in return -- when you compare this pro forma even pro forma breakeven to our fixtures today, it certainly looks like the first quarter sale be able to generate strong free cash flow. On the bottom left-hand chart, we provide updated guidance for expenses in Q1 and all of 2023, and we will continuously update them to the year. We included in the appendix our quarterly expected off-hire CapEx hedges for 2022. No need to go through them line by line, but I encourage you to use that for mother purposes and call with any questions. That concludes my remarks. I'd now like to turn the call back to Lois for her closing comments.

All right. Thank you so much, Jeff. On Slide 14, we provide you with Seaways investment highlights, which I encourage you to read in its entirety. -- summarizing briefly, International Seaways in our history as a public company has grown a proven track record of building value without sacrificing the balance sheet with good stewards of capital, balancing our consistent returns to shareholders with future forward fleet growth and healthy financial metrics. We have a focused and flexible operating model that has allowed us to expand and contract at appropriate moments in the cycle under a disciplined approach. The company is positioned today with significant operating leverage to capitalize in what we expect to be a robust tanker cycle over the next few years. Regional imbalances of oil are expected to continue and to grow in distance from sources to consumer creating seaborne demand, while the supply of vessels remain limited and likely to shrink as vessels age and eventually are removed from the commercial trading fleet.

We're staying in front of the growing ESG mandate, investing in the fleet to reduce our carbon footprint, keeping our seafarers safe and building a corporate culture of diversity with appropriate checks and balances. And we're willing to back this message up with transparent ESG reporting and sustainability linked incentives in our debt portfolio. We strive to continue to evolve these principles and to provide a meaningful platform for all of our stakeholders. Thank you very much. And with that said, Glenn, we'd like to open it up for questions.

Thank you. (Operator Instructions) With our first question comes from Chris Robertson from Deutsche Bank.

Good morning Lois and Jeff, how are you? Go. Lois, you mentioned the potential for having partners or sponsors, I guess, for new buildings in the future, not just as it relates to Seaways but also others as well. So, as you think about the future of the tanker market here, do you think that the new building order future is going to happen when ships are being derisked to some degree with these medium- to long-term time charters. And I guess the point of my question is that I'm trying to figure out how will the next ordering cycle be different compared to the 2007, 2008 period?

Yes. No, I think that we have -- the industry has an opportunity and trying to work more closely with customers so that together, we can decarbonize and derisk some of the new technology that's on the horizon. I do think there will be some conventional orders placed, but I think there will be many owners like ourselves that are going to be very reluctant to order a conventional engine in the market today.

Okay. Yes, that makes a lot of sense. Jeff, this might be a question for you. But I guess, going over to the dividend, which looks like the shares are up today, so the market is responding well to that announcement. But as -- I know you guys don't have a formula-driven approach, but looking at the combined dividend here, roughly 45% of adjusted net income. When thinking about it, are you coming at that from the perspective of looking at adjusted net income? Or are you assessing it based on free cash flow after debt repayment? And is there a minimum cash balance that you're trying to target and kind of in order to hold back enough cash to fund potential growth in the future? And kind of how do you think about balancing all that?

Chris, what if I just said, yes. Yes. So you hit the point. We do always look at do we have what we consider to be a sufficient cash and liquidity balance to be able to make capital allocation like we do. So, there's not a specific target public number. But yes, we made sure, first of all, that we have a good cash fusion. And then I say, we look at all metrics, but it's clear that if you look at this quarter or what we're declaring is our allocation in Q1 based on Q4 results and also look at what we did in Q4 based on Q3 results. It's in the neighborhood of just below 50% of net income and 75% of free cash flow, which has laid out there for you. So, I think it's a pretty consistent allocation of the combined supplemental and regular dividend. So, we kind of look at everything is up to the Board based on recommendations from management, but that's how we're looking at it. I hope that's clear.

All right. Yes, very clear. I'll turn it over... Thank you.

Thanks, Chris. Our next question comes from Omar Nokta from Jefferies.

Congrats on a -- obviously, another record result is yes. So, between the VLCCs, the midsized crude business and your MRs, I think you've got all your bases covered here in this market. I wanted to ask maybe just about the fleet and how it is now. You sold an MR here recently, followed another one back in the fourth quarter. If I heard you correctly, Lois, you're going to take the proceeds from those 2 sales and use those to exercise the option on the APRA -- what are you thinking -- yes, so what are you thinking kind of going forward with the fleet as it is clearly got the critical mass across the main segments. But do you look to sell more ships here more of the older ones in the MR fleet? Are you looking to replace sales with acquisitions? How are you thinking about that big picture wise?

No, absolutely, Omar. So, thank you for giving me that opportunity. These 3 VLCCs that we're going to take in the first half of the year and then combined with those 2 Aframaxes, brings on to our balance sheet, $500 million worth of assets at today's market levels. So that represents a couple of years of depreciation, amortization, CapEx. So that's a nice tenet of our growth. On the MRs, we've been pretty judicious. We -- the reason that we are targeting the MRs for sales is truly just because those are the '08 built vessels -- and we are earning a lot of money on them and you make a lot of money when you sell them. So we're just -- we're really being very prudent in just doing that very judiciously, not in a big movement. So, I guess that's how I would respond to that. At present, every one of the ship sets on the water earning is earning very impressively. So -- but we're still going to be disciplined with making sure we are keeping that fleet competitive for the future.

Yes. Makes sense, Lois. And maybe one of the things that we've noticed here over the past maybe year is at least on the bigger ships that go into dry dock looking to install scrubbers, not a substantial amount, but there are a few companies that are doing 1 or 2 here there. How are you thinking about that? I know you -- I think just looking at the grid in your appendix, you've got a few ships going into dry dock. Any interest in just taking maybe a flyer on a handful of scrubbers when those go in.

So of course, our 10 VLCCs that are on the water have scrubbers. We have 2 of our Suezmaxes that have scrubbers. One of those scrubbers we put on last year, and it is providing a good return. We don't -- we like to target the largest vessels. That's where you're going to get your biggest alpha from. We don't have any of the Suezmaxes going into dock this year. But we're constantly -- that's an argument that I have with Bill all the time we go back and forth on whether or not we would put in more at this juncture. But definitely, the scrubber investment that we've done, we're very happy with that.

Yes, definitely. All right, Louis. I'll do one more, if you don't mind. Just as the VLCC newbuilding. Yes. So those DLCs that come on here in the next several months. Obviously, you bought those at the absolute right time if we look back at the price level. And yet even though they're on time charter, they do have the profit share component, if I remember correctly. How should we I can't remember I can't remember exactly how should we think about the profit share? Should we just simply assume -- is it 50% of the upside above like prevailing market spot rate averages? Is there an LNG price component to that? Or how should we just model the profit shares?

I basically I don't think we've ever gone out with what the actual base was, but you can assume that the base has a 3 in front of it, but not a lot more. And then just run a calculation on the monthly TD3, which is AG East and 50% above that run on low sulfur bunkers will come to the owner and half will go to Shell.

Okay. And is there a cap?

No.

There is no cap, sorry.

No.

Okay. Thank you. All right. Well, I'll turn it over.

Thank you, our next question comes from Ben Nolan from Stifel.

Jeff L. you guys once again questioned on the LR1s or Panamaxes. That's a pretty nice sweet spot for you. The -- but I did notice in the appendix that I think 3 of the charter in vessels are coming up for renewal. How should we think about sort of your position there? I mean, obviously, it costs more to charter in vessels today. So, you'd be taking a long position, but you make a lot of money simply put, should we model in that you'll continue to be chartering in vessels for the LR1 trade?

We're working on it, but I almost would model them falling off and then let us surprise you when we managed to secure some renewals. It is - it's a frothy market out there, Ben. But we're working... I am sure

Okay. Well, to the extent that it's a frothy market, I mean, do you put any of your other assets on the longer try? I know you have a handful, but take advantage of the frost in the other direction.

Yes. No, absolutely. And as the market has increased, the team is starting to layer that in Q1, we put out 1 Suezmax for a couple of years, and it's just building on itself. So yes, we will -- we don't have a huge target somewhere between 10%, 15% at the moment that we would look to put on time charter.

Okay. And then lastly for me, sort of in keeping with the charter-in aspect of things on -- again, I think it was Page 21 of the presentation, there was a note about chartering in the work boats for lightering I'm just curious, maybe think a little bit about sort of where -- how you think about the lightering business. It's always been this little sort of quiet add-on. Where does that fit into the profile for you guys going forward?

Well, basically, the lightering is a very low-cost base takes a small amount of capital, and it's essentially a very high-touch business. So, it keeps us very close to customers. And they really outdid themselves to the upside in 2022. Now a piece of that the SBR released a tremendous amount of barrels and that also created a lot of activity data. When we're looking at the lightering and we say, okay, how does that fit into everything. In Q1, if you were to put $1.5 million of EBITDA in Q1 for lightering and try to keep that steady, that could be a potential plug number. I think trying to build it up from the work boats really very fraught because the lightering business is responds to the tanker market as well, right? So, when you have a tremendous amount of exports, imports in not only U.S. Gulf but in Panama and the U.S. West Coast. It's really been a little gem for International Seaways and it's a team that's really pulling more than their weight. But that would be my plug number if you wanted to model that.

Okay. Very helpful. I appreciate it. Thanks...

Thank you, -- our next question comes from Greg Lewis from BTIG.

Lois, I was hoping you could talk a little bit about EXXI, realizing that, I guess, it's kind of -- this is more of a data year than an actual execution year. As we think about the outlook and the potential impact for what that has on the fleet, any thoughts you can share with us about vessel efficiency as really EXXI kind of flows through the crude tanker fleet?

Yes, absolutely. In fact, I'm going to -- Greg, I'm going to throw that one to Bill Nugent, who is the Head of our technical department.

How are you today?

So, I'm doing great. excise...

Great. EEXI is really interesting. It is a onetime measure, right? So, all ships are measured this year against that against a benchmark and have to implement -- most ships have to implement some sort of power limitation on the engines. And I could say for our fleet, the impact of that on current trading speeds and profiles, minor, if nonexistent, right? So, it's something we have to do. It's a good thing to do. It's going to affect other shipping segments more than it's going to impact tankers.

Efficiency, which goes -- every dollar we spend on trying to save fuel goes right back to the bottom line in terms of fuel costs and everything else that comes back. That's been an ongoing focus for a long time. That really carries forward in the form of the CII measures, which is our -- the carbon intensity measures. And I think we're in a good place for that. We're working closely with our commercial partners. We're working with our technical partners to make sure that every day, we're focused on the old little bits that add up to that ton of fuel that gets saved and the 3 tonnes of emissions that get saved as a result of that. I hope that was -- that answered your question.

Yes, absolutely. Great. And then Luis, I did want to talk a follow up on Ben's question around the chartered-in vessels in your West Coast Panamax trade. In the in the event -- in the event INSW does not op the charter in those vessels. Those vessels then, just given that relationship with what flow pack, they -- those vessels then are kind of pushed out of that trade. Is that the right way to think about that? -- i.e., someone else just can't throw them into that trade and run them.

Well, let's put it this way. In Panamax International, which is a joint venture with Chile and Flopec of Ecuador and International Seaways, -- that is not a -- that's a joint venture we don't look to grow that pool in particular, per se. However, there are many vessels, Panamaxes and Aframax is that trade on the West Coast and lit cargoes in and out of Ecuador. So, it's an open trade. That's for sure. If some of our charter ins are for some European-based owners. So those vessels may trade here, but they were also trading clean before we chartered them in. So, there's a real strength in LR1s right now, and that's whether they're being traded clean or dirty with a lot of opportunity. In particular, I've mentioned before, United States was importing 600,000 barrels a day from Russia. A lot of that was heavy VGO, fuel oil that was going into the refineries. And so that's really helped keep not only the apps and the Suezmax is very strong, but the Panamax as well.

Okay. And then just following up on that. I know in the past, we've talked, there's always that balance between the chartered-in vessels and the ability to buy vessels. I mean, clearly, the balance sheet is in a good position this great position at this point. You did mention that whether you're chartering in or buying maybe the market's a little bit frothy. And I guess it's going to stay that way for the foreseeable future. But I'm kind of wondering, as we look further ahead, I mean, are we kind of agnostic, maybe whether we're going to for that trade, whether we decide to charter in or buy...

Yes, agnostic. Yes. Just look for the opportunity... Yes.

Thank you, Greg. (Operator Instructions)-- our next question comes from Liam Burke from Riley.

(inaudible) interest as some of these vessels or classes start getting frothy rates to start time chartering 71s out? Or do you let prefer to ride them into the spot market.

Well, we love having that spot market presence at the moment. Obviously, we will opportunistically look to lay in some of these time charters. Remembering that the 3Ds that are coming into the fleet, yes, they have a profit share, but they do have a base time charter rate. So, we sort of put those in the time charter bucket. And then we look to add some other vessel classes into that, some MRs, potentially some Suezmaxes. That's sort of our approach at the moment. And I was saying probably 10% to 15%, we would look to put on 1-year time charter doesn't really do a lot at the moment, maybe a multiyear time charter has provided we can get enough alpha in that to make that -- look very good on our balance sheet.

Great. And Jeff, on the variable component of the dividend, I mean, you don't have to share with us, but do you have any percentage of cash flow that you allocate to that variable dividend? Or how do you think about that internally?

Yes. Hi Liam. So, we'll stick with the terminology of a regular dividend with a supplemental dividend quarter-by-quarter as board sees fit for a combined total. And what we would point out from our presentation is that we had free cash flow of about $130 million. That's in that cash bridge in the debt. And if you look at the combined dividend, it's just right around 75% of that. So, it's a substantial portion of free cash flow, and that's very similar to what we did in the prior quarter. Everyone's net income is a little different relative to their cash flow based on their balance sheet and their depreciation. So -- but I also think we look at this as a percentage of the share price, and we find it as very competitive that way as well. So -- but I think maybe look at that free cash flow, that's a good guide to what we've done in the last 2 quarters.

Thank you... We have no further questions on the line. I will now hand back to Louis for closing remarks.

Thank you very much, Glenn. Thank you, everyone, for your interest in International Seaways, the tanker company for today and tomorrow. Thank you very much.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.