Operator
Hello and welcome to the International CUAs Inc. Fourth Quarter 2024 earnings conference call. My name is Karla and I will be coordinating your call today. During the presentation you will have the opportunity to register a question by pressing star followed by one on your telephone keypad. If you change your mind please press star followed by two. 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 seaways 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 tanker 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 gna expenses estimated future bookings tce rates and capital expenditures • Projected dry dock and off-hire days • Vessel sales and purchases • New-build vessel construction • The effects of ongoing and threatened conflicts around the globe • 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 its 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 COA's actual results to differ from expectations include those described in our annual report on form 10k for 2024 and in other filings we have made or the future may make with the U.S. securities exchange commission now let me turn the call over to Ms. Lois Nabrocki our president and chief executive officer Lois Thank you very much, Shane.
Good morning, everyone. Thank you for joining International Seaway's earnings call for the fourth quarter and the full year of 2024. On slide four 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 in vessel sales, adjusted net income for the fourth quarter was $45 million or 90 cents 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 VLTCs 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 ship, 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 our revolving credit facility, which had been repaid in the first quarter following the final execution of the 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 $560 million on a pro forma basis. Our balance sheet highlights are strong. Shown in the bottom left of the slide, 632 million dollars of total liquidity composed of 157 million of cash and 475 million on the revolving credit facility we have 695 million dollars of debt with a net loan to value ratio of below 16 and our spot break even 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 dividend. 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 opportunistic fleet renewal while maintaining a healthy balance sheet to support growth. on slide five 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 meaning that particular topic is not good for tanker demand without reading these bullets individually i will pull some highlights oil demand grows 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 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 supportive for tanker demand as much of the incremental growth will be exported. Germany 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 weary 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 charts below on slide five, 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 plus million barrels, which may include imports of medium sour crude, which has historically been a medium. On slide six, the order book popped in 2024, particularly in the middle of the year, but as seen in the lower left chart, shifts 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 shifts on order are expected to deliver over 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 percent 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 Freibor, who will provide the financial review. Jeff?
Thanks Lois and good morning everyone. On slide eight, net income for the fourth quarter was $36 million for 72 cents per diluted share. This includes the 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 90 cents 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 from 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 higher primarily for one-off legal matters. Our linearing business continues to prosper with over $9 million in revenue in the quarter. Combining this with about $3 million in vessel expenses, $3 million in charter hire, and $1 million of G&A, the linearing business contributed nearly $3 million in EBITDA in the fourth quarter, as well as an annual EBITDA contribution of nearly $20 million in 2020. 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 add $95 million in adjusted EBITDA for the fourth quarter, plus $23 million in debt service, another 18 million of dry dock and capital expenditures offset by working capital benefit of about 24 million dollars due to the timing of deferred revenue, payables, or accruals. We therefore achieved our definition of free cash flow of about 78 million dollars for the fourth quarter. This represents an annualized cash flow yield of over 17 percent on today's share price. We spent 53 million dollars in connection with the vessel swap due to the timing of deposits and the delivery of one of the MRs in this while. Due to the temporary timing difference, we borrowed $70 million on our lines of credit that we repaid 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 an ending liquidity of $632 million, with $158 million in cash and short-term investments, and $475 million in under longer evolving 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 million in vessels at cost, which are not unbooked currently, at a value of $3.5 million. And with $695 million of gross debt at the end of the year, our net motive value is below $16. Our debt at December 31st was over 70% hedged or at fixed rates, relating to an all-in weighted average interest rate of about 614 basis points, or under 200 basis points above today's SOFR. Following our repayment in the first quarter of 2025, we expect our fixed rate hedge about to be closer to 80%. 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 a year-end, which grows to about $560 million pro-forma of our debt retention 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 share. On the last slide that I'll cover, slide 11 reflects our forward-looking guidance and book-to-date TCE aligned with our spot cash. Starting with TCE pictures for the first quarter of 2025, and I'll remind you that actual TCE during our next service call may be different. Currently, we have a blended average spot TCE of about $26,500 per day fleet-wide on 70% of our first quarter expected revenue days. On the right-hand side of the slide, our forward spot breakeven rate is about $13,700 per day, composed of a three-wide breakeven of about $16,200 per day, plus nearly $2,500 per day in prime charter revenues. Based on our spot TCE book to date and our spot breakevens, it looks like Seaways can continue to generate significant free cash flow during the quarter and build out our track record of returning cash to shareholders. On the bottom left-hand chart, we provide some updated guidance for expenses in the first quarter in our estimates for 2025. We also included in the appendix our quarterly expected off-hire and capex. I won't plan to read each item line by line, but encourage you to use them. 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 Seawaste Investment Highlights. i encourage you to read in its entirety and i will summarize briefly over the last eight years international seaways 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 percent 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 break even in the next 12 months at this point in the cycle we expect to continue generating cash that we will put to work to create value for the company and for our shareholders thank you very much and with that said operator we'd like to open the lines for questions we will now begin the question and answer session if you'd like to ask a question please press star follow by one on your telephone keypad if you change your mind please press star followed by two when preparing to ask your question please ensure your device is unmuted locally we will make a quick pause
for the questions to be registered our first question comes from ben nolan with staff i appreciate it hey hey good morning uh jeff lois and team um so i i've got a couple um the first relates to sort of maybe your charter route 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've 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 Think about, you know, just given that dislocation, maybe taking a little risk off the table and locking in some capacity just because, you know, there is a gap between the two at the moment.
Good morning. How are you? So I will start to answer that question. Sorry. I didn't wait for your remaining question. Let me answer that one, and then, yeah, and then we'll take your second one.
We have 14 time charters in our books 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 charters at present, and then I would just have Derek jump in there.
Sure, Lois. Thanks. Good morning, Ben.
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, is the answer. Okay, so... You know, I just said that we... Oh, sorry, go ahead. I was going to ask my next question, but if you were going to add any more to it, that's Well, my next question, just to have it out there, is in the quarter, the MR, you guys thus far in the first quarter, your MR rates were pretty decent thus far for what you have booked um just curious if maybe you can give a little color or like is there a specific geographic focus is this you know how should we think about uh the remainder of the quarter is
it just you know hey things are things are going pretty well there uh at the moment uh and it's derrick again if i can take that one um you know thank you yes the the q1 bookings we're pleased with so far. I think we're doing well when we look at our peer group. I think 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 U.S. 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 feed 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.
Operator
Thank you. Our next question comes from Omar Nocta with Jeffreys.
Thank you. Hey, guys. Good morning. Good update. Just wanted to ask a couple of questions. Clearly, over the past few years, you've done a lot in terms of strengthening in the balance sheet, debt is now, as you say, below 16%. You have plenty of liquidity, fleet renewals, inconsistent capital returns, whether buyback dividends. Just in terms of the dividend at the moment, the 4Q payout, 77% of earnings, that's up from 75% previously. And 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% 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 strengthened 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 this.
Oh, good morning, and, you know, excellent tee-up for us, Omar, because we do want to highlight that. And, you know, 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 D-Lever. However, having reached a level of leverage which is sufficiently low, 50%-ish net loan-to-value, 20% loan 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 most or potential shareholders most often is for clarity and consistency around this return of capital to shareholders program. And I think we can say clearly that shareholders should expect 75% or minimum of 70%. I mean, it's helpful to have a round number like 70 cents per share, but I think that's the clear message. And to the second part of your question, you know, I think if rates were to moderate or go up, you know, that income will go up and the payout ratio still works. You know, that 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 a minimum of 75%.
And that's the message okay that's clear appreciate that and um no that's really helpful and and maybe just second question uh you know the vlcc mr swap has certainly been innovative and we've been you know hearing about that for for a while at least in shipping circles as something else in the hopper um just in general as we think about that transaction uh how should we think about it in terms of what your plan has been? Is it de-emphasizing the VLCCs in favor of products or is it really de-emphasizing older tankers? And then that's one 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? Thank you.
Yeah, Omar, it would be the latter of your, you know, what you were opining, you know, 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 creative deal from the team, and execute that pretty flawlessly here. And, you know, our overall age on the fleet is right around 10 years, and, you know, selling ships that are, you know, 210 and then bringing in 215, you know, you just, you're buying yourself that long horizon to capture that upside. I think that would kind of do the summation, and then when you, we're not de-emphasizing 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 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 opportunity 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. So that'll be a focus as and when.
Very good. Thanks, Lois. And thanks, Jeff. I'll pass it back.
Operator
Our next question comes from Chris Robertson with Deutsche Bank.
Hey, good morning, Lois and Jeff. Thank you for taking my questions. Jeff, this might be a question for you. Just turning to the break even, just broadly speaking, and looking at what makes that up. As you look forward, and there's maybe a bit of a de-emphasis here on further de-levering, so maybe there's not more savings with regards to the break-even 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?
Chris, that's a good... How are you? Good, thank you. That's a good question. You know, I think that, you know, 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. We're always working on that to make sure it's on a per-shift basis, you know, that that's a good number, and 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 in the debt cost. I think there's a little bit that you can look forward to in the future without necessarily leveraging further, just as, you know, we have a little bit of debt that's higher price that will roll off. We have the ability to think about more as opposed to more advertising debt, you know, as we look out towards the end of this year and into next year. So it's kind of incremental. I think we feel good about our break-evens right now, right? So I think when you look at a suite that has everything from DLCCs down to MRs to have a break-even rate of $16,000 before or taking into account time charters of under $14,000 when taking into account time charters. I feel good about that, but we'll always like to find incremental ways to lower 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, and do you still have kind of a competitive advantage there?
You know, I'll leave that. It's Lois, and then I'll turn to Derek. You know, I think you can see when you stack up the LR1, Panamax sector against the competition in the fourth quarter, we continue to out-earn our competition, and that market continues to be a strong niche. Derek?
Thanks, Lois. Yeah, as you said, it continues to be a strong niche. And Chris, you know, 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, you know, like you said, Lois, there's still a good niche for a lot of the decrease in rates have to do with just overall market, but also a little bit from Ecuador. You know, we're seeing a little bit of Ecuador sending more of their barrels out to China, so that'll be in bigger shifts. When that dynamic shifts to come back to sort of the west coast of the Americas, we expect that market to pick up even – hope that answers your – Yes.
Thank you very much. I'll turn it over.
Operator
Jess, as a reminder, if you'd like to ask a question, please press star for the Y1 on your telephone keypad. Our next question comes from Liam Burke with B. Reilly.
Thank you. Good morning, Lois. Good morning, Japheth.
Lois, there's lots of puts and takes out there in terms of sanctions, redistribution of production, and most of the discussion has been on the effect on VLCCs. Specifically, how are you looking at the outlook for the Suez Maxis?
So, the Suez Maxis had, you know, prior to, I would say, the last three years had a very tight correlation pretty systematically with VLCCs with, you know, something along 85 to 90 percent correlation with the Vs. And I think that, you know, 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 Vs on the whole fact list, you know, as you see those components start to build and the Vs can, you know, hopefully get a little bit more of a ground swell here and continue to improve, you're going to see the Suez Maxes come along for that ride.
Jeff, 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 and cash to shareholders?
Liam, it's the simple answer not to be hewed in 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, shared purchases in the mix, in the sense that we have a $50 million dollar share of purchase program. We did $25 million of share of purchasing right after we sold the ship for roughly the same amount in last year, third quarter. So we have the ability to look at that again. But I'd say the primary plan is dividend, so focus on payout ratio, but we have the flexibility to do share a purchase as well.
Thank you, Lois. Thank you, Jeff.
Operator
Our next question comes from Sheriff El-Megravi with VTIG.
Hey, good morning. 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, do 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, you know, very well-maintained vessels, I think, could retain their, you know, ability to trade and their efficiency. On the other hand, you know, the OFAC list of 100Bs, belt vessels, it's a rare exception that there's one under, you know, a few there that are under 20 years old, right? So, you know, you do tend to see these ships that are on the water and, yeah, highly inefficient and really marginalized being, you know, older and certainly controlled by those that are not doing a high-level maintenance. So I think it'll be incremental from the charterers. It's never going to be wholesale.
And then on 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 transit 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. We don't talk about our 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 a de-escalation. So, to answer your question, you know, I'm not aware of any pressure or inquiries from charterers to go through, and, you know, grateful for their support and light thinking. Thank you.
Got it. Thanks, Lois, and thanks, Bill.
Operator
And that was our final question, so I will 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, Gordon. Thank you very much.
Operator
So, this concludes today's call. Thank you, everyone, for joining and for participating. Have a great day. You may not disconnect.
