International Seaways Inc (INSW) 2024 Q4 法說會逐字稿

Hello, and welcome to the International Seaways Inc., fourth-quarter 2024 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 James Small, General Counsel, to begin. James, please go ahead when you're ready.

Thank you, operator. Good morning, everyone and welcome to International Seaway's earnings call for the fourth quarter of 2024. 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 taker markets; changes in trading patterns; forecasts 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 higher days; vessel sales and purchases; new build vessel construction; the effects of ongoing and threatened conflicts around the globe; the changing global regulatory environment; 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; the company's relationships with stakeholders; and other political, economic, and regulatory developments globally.

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 in 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. Those could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks, and uncertainties that could cause International Seaway's actual results to differ from expectations include those described in our annual report on Form 10-K for 2024 and in other filings we have made or in the future may make with the US Securities and Exchange Commission.

Now, let me turn the column to Ms. Lois Zabrocky, our President and Chief Executive Officer.

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaway's earnings call for the fourth quarter and the full year of 2024. On slide 4 of the presentation, which you can find in the investor relations section of our website, net income for the fourth quarter was $36 million or $0.72 per diluted share. Excluding a loss on vessel sales, adjusted net income for the fourth quarter was $45 million or $0.90 per diluted share, and our adjusted EBITDA was $95 million.

We are proud to announce today that we continue to modernize our fleet during the fourth quarter with a vessel swap as you can see in the upper right-hand corner of the slide. We sold two of our oldest VLCCs and paid $3 million in cash for three eco MRs built in 2015. The swap is less indicative of a specific preference for any one particular class of ships but more showcases our ability to opportunistically reduce our vessel ages across various ship classes, enhance our fleet efficiency while limiting risk compared to a full cash transaction.

We have optimized earnings across our Tanker segment which gives us plenty of flexibility to execute fleet optimization. The various transactions within the swap created some temporary changes to our balance sheet in the fourth quarter in the first few months of 2025.

During the fourth quarter, we paid $53 million in cash for deposits and the delivery of one MR vessel. Due to this temporary timing difference, we borrowed $70 million on a revolving credit facility, which has been repaid in the 1st quarter following the final execution of the swap. As a result, our line of credit capacity reduced to a still quite healthy $475 million at the end of the fourth quarter. We expect that to be around $550 million on a pro forma basis.

Our balance sheet highlights are strong. Shown in the bottom left of the slide, $632 million of total liquidity composed of $157 million of cash and $475 million on the revolving credit. We have $695 million of debt with a net loan to value ratio of below 16% and our spot breakeven rates are about $13,700 per day.

On the lower right, we are proud to have shared for a second consecutive year over $300 million returned to shareholders in 2024. We paid $5.77 in dividends during 2024, representing a 12% dividend yield on our average share price over the time. We also used proceeds from that sale of an older MR to repurchase 500,000 shares for $25 million during 2024.

Today, we announced $0.70 in dividends that we will pay in March, representing a payout ratio of about 77%, marking our highest since we've been supplementing a regular $0.12 dividends. We believe in sharing with our shareholders during this cycle, and we expect a payout ratio similar to this last two quarters of around 75% to continue into the future.

We believe in our balanced capital allocation approach so that we can provide competitive returns to our shareholders and still position the company for the future with the opportunistic fleet renewal while maintaining a healthy balance sheet to support growth.

Only slide 5, we've updated our standard set of bullets on tanker demand drivers with the [subtle] green up arrows next to the bullets represented as good for tankers. The black dash representing a neutral impact and a red down arrow means that particular topic is not good for tanker demand.

Without reading these bullets individually, I will pull some highlights. Oil demand growth in the near term is still going to grow at its historical rate of about 1% per year, which on 100 million barrels per day of demand is about 1 million to 1.5 million barrels of growth anticipated for 2025.

Oil demand growth specifically is spread across the world in 2025 with no one large outlier as China has been for many years.

Crude production growth is largely coming from the Americas, which is supported for tanker demand as much of the incremental growth will be exported. The global economy is still settling the dust from a post-2024 election period, and there have always been headline grabbers, particularly from the United States.

The geopolitical situations are not going away. They may modify, and that could have an effect on the tanker market, but with many moving parts, the markets will adjust. We expect the United States to take a stronger position with Iran, and we see tanker movements shadowing that. Pun intended.

The Israel Hamas conflict is still very tense, and most ships are wary of their safety in the Red Sea. Russia-Ukraine is similar and even if there is a resolution on the horizon, we believe that the unwinding could last longer for Russian crews moving to the west. We embrace these tanker markets because we can't control them in any case, and we believe that sanctions and their enforcement can only help the legitimate commercial fleet.

In the chart below on slide 5, inventories in the OECD drew about 100 million barrels in the second half of the year. This, in the short term, impacted tanker rates and will refill over time based on history. The United States SPR has grown in 2024 in small chunks. President Trump has indicated refilling the SPR is a priority to historic levels. This would mean around 300 million-plus barrels, which may include imports of medium sour crude, which has historically been [or] medium.

On slide 6, the order book popped in 2024, particularly in the middle of the year. But as seen in the lower left chart, ships on order are still quite low relative to the size of the fleet in historical context. We added a weighted average tanker rate in the chart as an indicator that orders grow when the market is hot.

But as we've shown many times, not factored into the chart on the left is the longer time horizon that many of these ships on order are expected to deliver over the next four years and the corresponding age of vessels on the water over this time. The chart on the right reflects that 45% of the fleet is headed towards 20-plus years, the age where we identify as removed from the commercial fleet, compared to 14% of the fleet that exists on order.

As you can see, there are about 900 ships that are already 20 years old, and there are still another 1,500 plus vessels that are turning 20 during delivery schedules that will need replacement.

This is significant for the tanker industry as the limited tanker supply continues to be supportive of strong tanker earnings. We believe this should translate into a continued upcycle over the next few years, and Seaways remain well positioned to capitalize on these market conditions. We will continue to execute 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 turning it over to our CFO, Jeff Pribor, who will provide the financial review. Jeff?

Thanks, Lois, and good morning, everyone. On slide 8, net income for the fourth quarter was $36 million for $0.72 per diluted share. This includes a loss of vessel sales as a result of timing of the vessel swap that Lois discussed earlier. Excluding this, our net income was $45 million or $0.90 per diluted share.

On the upper right chart, adjusted EBITDA for the fourth quarter of 2024 was $95 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. While our revenue based on market conditions was largely within expectations in the fourth quarter, our expenses were a little higher than our guidance last quarter.

Vessel expenses were higher in the fourth quarter due to the timing of stores and spares at the end of the year and additional repairs and maintenance. G&A was hired primarily for one-off legal matters.

Our Lightering business continues to prosper with over $9 million in revenue in the quarter. [Mining] this with about $3 million in vessel expenses, $3 million in charter hire, and $1 million of G&A. The Lightering business contributed nearly $3 million of EBITDA in in the fourth quarter, as well as an annual EBITDA contribution of nearly $20 million in 2024.

Turning now to our cash bridge on slide 9. We began the quarter with total liquidity of $694 million composed of $153 million in cash, $540 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we first had $95 million of adjusted EBITDA in the fourth quarter. Plus $23 million in debt service, and another $18 million in dry dock in capital expenditures, offset by working capital benefit of about $24 million due to the timing of deferred revenue, payables, or rules.

We therefore achieved our definition of free cash flow of about $78 million for the fourth quarter. This represents an annualized cash flow yield of over 17% on today's share price. We spent $53 million in connection with the vessel swap due to the timing of deposits and the delivery of one of the MRs in the swap. Due to the temporary timing difference, we borrowed $70 million on our lines of credit that we paid in the first quarter of 2025.

The remaining bars on the cash bridge reflect our capital allocation for the quarter. We repaid $20 million of debt early in the fourth quarter, made $12 million in installment payments for our LR1 new buildings and also paid $59 million in dividends to shareholders equating to $1.20 per share.

Altogether, these components led to any liquidity of $632 million with $158 million in cash short-term investments, $475 million in under revolving capacity.

Now 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 remain strong at $632 million. We have invested about $2.2 billion in vessels that cost, which are not on the books currently at a value of $3.5 million.

And with $695 million of gross debt at the end of the year, our net mode of value is below 16%. Our debt at December 31 was over 70% hedged or at fixed rates, equating to an all-in weighted average interest rate of about 614 basis points or under 200 basis points above today's [silver].

Following our repayment in the first quarter of 2025, we expect our fixture hedge (inaudible). We continue to enhance the balance sheet to create the financial flexibility necessary to facilitate growth and returns to shareholders. We have $475 million in undrawn revolvers at year end. This grows to about $560 million pro forma of our (inaudible) following the close of the swap transaction.

Our nearest maturity in the portfolio isn't until the next decade. We continue to lower our breakeven costs and we share in 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 date TCE aligned with our spot cache breaking. Starting with TCE pictures for the first quarter of 2025, and I'll remind you that actual TCE during our next call may be different.

Currently, we have a blended average TCE of about $26,500 per day. 70% of our first quarter expected revenues. On the right-hand side of the slide, our forward spot break even rate is about $13,700 per day, composed of a sleeve-wide breakeven of about $16,200 per day, that's nearly $2,500 per day (inaudible).

Based on our spot TC book to date and our spot break even, it looks like Seaways can continue to generate significant free cash flow during the 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 first quarter in our estimates for 2025. We also included in the appendix our quarterly expected off hire in CapEx. I won't plan to read each item line by line but 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

Thank you so much, Jeff.

On slide 12, we have provided you with Seaways' investment highlights, which we encourage you to read in its entirety, and I will summarize briefly. Over the last eight years, International Seaways has built a track record of returning cash to shareholders, maintaining and improving our healthy balance sheet, and growing the company.

Our total shareholder return represents around 20% compounded annual return. For the second consecutive year, we've returned over $300 million to shareholders, which is about 25% combined return over the last two years. 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 16% of the fleet's current value. And we have 36 vessels that are unencumbered.

Lastly, we only need our spot ships to collectively earn $14,000 per day to breakeven in the next 12 months. At this point in the cycle, we expect to continue generating cash, and we will put to work to create value for the company and for our shareholders.

Thank you very much. And with that said, operator, we'd like to open the lines for questions.

(Operator Instructions) Ben Nolan, Stifel.

So I've got a couple. The first relates to sort of maybe your charter out strategy at the moment, and I think this is particularly true for some of the crude tankers. The charter market is pretty elevated relative to certainly where you built some of your spot vessels and generally, I think spot.

Obviously, that's pointing to an inflection up in the spot market, but I'm curious if you think about, just given that dislocation, maybe taking a little risk off the table and locking in some capacity just because there is a gap between the two at the moment.

So I will start to answer that question. Sorry, I didn't wait for your remaining questions. Let me answer that one, and then, yeah, and then we'll take your second one. How's that?

Okay, sounds good.

We have 14-time charters in our boats right now out of our 78 vessels that are on the water, and then we have our six new buildings that will be arriving. So we have nearly 20% of our [time charter] at present, and then I would Derek jump in there.

Further to your question, we would continue to look at time charters like we always do with the right partners, the right term, and the right rate that's something that we're always evaluating.

Okay, but there's nothing about the market at the moment that makes you more or less compelled to move in that direction, I suppose it's the answer. Okay, so -- oh sorry, go ahead. Well I was going to ask my next question, but if you would -- you're going to add any more to that's fine, but --

Well, my next question just to have it out there. In the quarter, the MR you guys thus far in the first quarter your MR rates were pretty decent thus far for what you already have booked. Just curious if maybe you can give a little color or like is there a specific geographic focus? Is this -- how should we think about the remainder of the quarter or is it just, hey, things are things are going pretty well there, at the moment?

Ben, it's Derek, again, if I can take that one. Yes, the Q1 bookings we're pleased with so far. I think we're doing well when we look at our peer group. I think the -- we're starting to see a little bit of dislocation in the MR rates, whereas we've been kind of carried by the Atlantic basin over the last couple of quarters. We're seeing the US Gulf start to come down a little bit, but we do have a good deal of exposure, but we're seeing Asia come up and luckily with an MR fleet of our size and our pool employment, we have good exposure to the [east] market as well, so we should be covered to capture some of that eastern upside.

Okay, I appreciate it. Thank you, guys.

Omar Nokta, Jefferies.

Good update. Just wanted to ask a couple questions. You clearly, over the past few years, you've done a lot in terms of strengthening the balance sheet, that is now, as you say, below 16%. You have plenty of liquidity, fleet renewals, inconsistent capital returns whether buy back dividends. And just in terms of the dividend at the moment, the 4Q payouts 77% of earnings, that's up from 75% previously, and in that 50% to 60% you were doing, kind of going back to the beginning and say in 2022.

How should we think about this ratio going forward? I know it's moving -- it's been moving upwards, but just in general, 77% of what we should be expecting going forward. And then how do we think about what that payout looks like as earnings kind of move up and down?

As in if rates strengthen materially kind of go back to where they were in '23, should we expect kind of a more normal payout kind of coming down closer to that 50% threshold again, any kind of color you can give on what you're thinking of the of the payout ratio, especially in terms of earning [swinging].

Sorry for the question.

No, good morning, and excellent tee up for us, Omar, because we do want to highlight that and as you know, we have steadily increased the percentage of adjusted net income that we have been returning to shareholders, and we have to have -- Jeff has his thunder here on what you should expect going forward.

Yeah, hi, Omar. You recapped it well, we raised the payout ratio gradually from 2022 until the end of last year as we were allocating free cash flow capital to delever, having reached a level of leverage which is sufficiently low, 50%. Net loan to value 20% gross, we were able to move up the payout ratio to 75% or a little more last quarter and again this quarter, as you noticed, so it's 77%.

I think what I hear from shareholders or we hear from shareholders or potential shareholders most often is clarity and consistency around this return of capital to shareholders program, and I think we can say clearly that shareholders should expect 75% -- a minimum of 75% payout ratio. I mean it's helpful to have a round number like 70, so cents per share, but I think that's the clear message.

And to the second part of your question, I think if rates were to moderate or go up. Net income will go up and the payout ratio still works, the payout will go up or down depending on how the year develops. So I think it's fair to say that we put ourselves in a position to have a payout ratio of minimum of 75%, and that's the message.

Okay, that's clear. I appreciate that and that's really helpful. And maybe just second question, the VLCC MR swap, certainly a bit innovative and we've been hearing about that for a while, at least in shipping circles of something else in the hopper. Just in general as we think about that transaction, how should we think about it in terms of 3hat your plan has been, is it deemphasizing the VLCCs in favor of products or is it really deemphasizing older tankers?

And then -- that's sort of part one. And then part two, I guess would be as you think about further transactions from here, what part of the fleet profile do you look to try to increase the ratio of?

Yeah, Omar, it would be the latter of your -- what you were opining, essentially we really want to drive down the age of the fleet going forward and because we're in each of these sectors and we have a very broad network, we were able to come up with what I think was a pretty accretive deal from the team and execute that pretty flawlessly here and our overall age on the fleet is right around 10 years, and selling ships that are [210] and then bringing in [215], you just -- you're buying yourself that longer horizon for it to capture that upside.

I think that would kind of do the summation and then when you -- we're not deemphasizing crude at all, it simply happens to be an opportunity for us to shed some older inefficient ships.

Okay, thanks, Lois. And just quickly, in terms of -- is it -- thinking about expansion or adding vessels or fine tuning further, is there any part of the fleet that you want to bolster or is it just kind of it'll depend on what the opportunity set is at the time?

It certainly will depend upon the opportunities set at the time. And over time, you should look for us to add to the big crude side, which is where we've had a little bit of attrition now, right? So that will be a focus as and when that [suits].

Very good. All right, thanks, Lois, and thanks Jeff. I'll pass it back.

Chris Robertson, Deutsche Bank.

Thank you for taking my questions. Jeff, this might be a question for you just turning to the breakeven, just broadly speaking and looking at what makes that up. As you look forward, and there's maybe a bit of a deemphasis here on further delevering, so maybe there's not more savings with regards to breakeven there but as you look at OpEx and other components to it, where do you see kind of the floor that you could theoretically get to?

Hi Chris, that's good one. I like it. That's a good question. I think that we're always working on keeping costs in line and from going up too much. I don't think you'd expect us to be driving down OpEx (inaudible) hold as well as we can. G&A we're always working on that to make sure it's on a per shift basis, that's a good number and then if we were -- if we find ourselves growing as we have done in the past at the right time that does bring you a little lower per day cost on G&A.

In terms of interest, I think we're interested the debt cost, I think there's a little bit that you can look forward to in the future without (inaudible) leveraging further just as we have a little bit of debt that's higher price that will roll off.

We have the ability to think about more revolvers as opposed to more advertising debt as we look out towards the end of this year and next year, so it's kind of incremental. I think we feel good about our breakevens right now, right? So I'm not -- I think when you look at a fleet that has everything from the LCCs down to (inaudible) to have a 16,000 before taking accounts and under 14,000 when taking into account charters. I feel good about that, but we'll always like to find incremental ways to lower it even more.

Okay, great, yeah, that's what I like to hear on that. Turning to the LR1 segment, I know this is a segment that you guys have outperformed, historically speaking, so I was wondering if you could just talk about that particular segment for a moment, with the current market dynamics there are and you still have a kind of a competitive advantage there.

I'll leave that at [Lois] and then I'll turn to Derek. I think you can see when you stack up the LR1 Panamax sector against the competition in the fourth quarter, we continue to outearn our competition. And that market continues to be a strong niche. Derek?

(inaudible) And Chris, I think you're probably raising the question because the rates from sort of the start of the year to the end of the year have come down a good deal, but like you said a good niche for us. A lot of the decrease in rates have to do with just the overall market, but also a little bit from Ecuador. We're seeing a little bit of Ecuador sending more of their barrels out to China, so that will be in bigger [shift].

When that dynamic shifts to come back to the west of the Americas, we expect that market to pick up more again. Hope that answers your question.

Yes, thank you very much. I'll turn it over.

(Operator Instructions) Liam Burke, B. Riley.

Lois, there's lots of puts and takes out there in terms of sanctions, redistribution of production, and most of the discussion has been the effect on VLCCs. Specifically, how are you looking at the outlook for the Suezmaxes?

So, the Suezmaxes had, prior to, I would say, the last three years had a very tight correlation, pretty systematically with the LCCs with something along 85% to 90% correlation with the [bees]. And I think that, as you see the components of strength coming into place piece by piece with a lot of the political news that we read every day and the over 450 ships or like 100 these on [OPEC] list.

As you see those components start to build and the []bees can, hopefully get a little bit more of a groundswell here and continue to improve, you're going to see the Suezmaxes come along for that ride.

Great, thank you. Jeff, on the -- with your liquidity situation, you have a tremendous amount of flexibility. Are opportunistic buybacks in the mix or is the payout ratio your primary method of returning cash to shareholders?

The simple answer not to be (inaudible) both. You're right. I mean, the payout ratio is the primary method that we anticipate that we have been returning and expect to continue returning cash. However, as you asked, share repurchases are in the mix in the sense that we have a $50 million share repurchase program. We did $25 million of share purchasing right after we sold the ship for the same amount last year, third quarter, so we have the ability to look at that again.

And -- but I'd say the primary plan is dividends, so focus on payout ratio, but we have the flexibility to do share of purchase as well.

Great. Thank you, Lous. Thank you, Jeff.

Sherif Elmaghrabi, BTIG.

Thanks for taking my questions. So a couple on, I guess, charter sentiment, you highlighted that nearly 20% of the tanker fleet is over 20 years old but given that new build deliveries aren't going to replace those older vessels at the same rate, you think we could see charters relaxing their specification requirements if there isn't as much modern tonnage available?

I would say that you do see a bit of flex on the margin from charters depending upon what the tonnage availability is and what the strength of the overall markets are, right? So, very well maintained vessels, I think could retain their ability to trade in their efficiency. On the other hand, the OPAC list of 100 bees, those vessels, it's a rare exception that there's 100, a few there that are under 20 years old, right? So you do tend to see these ships that are on the water and yeah, highly inefficient and really marginalized being older and certainly controlled by those that are not doing a high level of maintenance. So I think it'll be incremental from the charters, it's never going to be wholesale.

And then on Red Sea transit, I appreciate nobody wants to be the first mover in the Red Sea, and everyone has a different opinion on when transits could resume, but is this something that charters are pushing for at this time?

I'm going to turn it over to our Head of Ops, Bill Nugent, and just have him give a little bit of an opinion there.

Thank you, Lois. The -- we don't talk about a specific security measures or policies. What I can say I think is that the whole market is looking for a bit more of a sustained stability in the region and de-escalation. So to answer your question, I'm not aware of any pressure or inquiries from charterers to go through and grateful for their support and like thinking.

Got it. Thanks, Lois, and thanks, Bill.

And that was our final question. So I would like to hand back over to you, Lois, for any final remarks.

I would just like to thank everyone for joining us today, and we live in very interesting times and are watching the news frequently, right? So we see an overall construction in the tanker market to be really rather robust, and we hope to hear from you next quarter. Thank you very much.

So this concludes today's call. Thank you everyone for joining and for participating. Have a great day. You may now disconnect.