Q1 2020 Earnings Call

Participants will be in listen only mode should you need assistance. Please signal conference specialist Christiana Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded and I want to turn the conference over to San <unk>, President and CEO. Please go ahead.

Thank you Jason good morning.

It's difficult to imagine a time filled with more certainty pure and there were living in today.

Circumstances affecting all of US as a result of the code at 19 pandemic, our exceptional in our lifetime.

We're all about all of you.

Learning to adapt to changes in challenges for almost by this virus.

Called nine, particularly appreciate it you are joining me on this call today.

As usual Dick to blood.

Yeah.

And the Carlin are joining me on this presentation.

Prior to beginning a review of the past quarter I would like to direct everyone to the narrative on pages to in three of the Powerpoint presentation available on our website regarding forward looking statement estimates and other information, which may be provided during the course of this call.

The contents of this narrative borrow an important part this presentation I'd urge everyone to read consider them carefully.

We will be offering you more than just historical perspective, I know, it's Jim today.

And our presentation.

Includes forward looking statements, including statements about anticipated future results.

These statements are subject to uncertainties and risks.

Actual results may differ materially from did you get projections and could be affected by a variety of risk factors, including factors beyond our control.

For a discussion of these factors do refer you specifically to our annual report on form 10-K put the fiscal year ended December 31st 2019.

Form 10-Q, the first quarter of 2020, which we anticipate being filed shortly.

And our other filings with the FCC, which are available at the Fccs Internet site Www Dot definition dotcom.

As well as our own website www dot Lifesci dotcom.

Forward looking statements in this presentation speak only as to the date of these materials and we do not assume any obligations to update any forward looking statements, except as maybe legally required.

In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile the most closely comparable GAAP measure and our first quarter earnings release, which is posted on our website.

As announced earlier this morning with GE delivered solid financial results in the quarter just completed.

Accomplishing several important objectives that in normal times would have been the principal feature of my remarks today.

[laughter].

But these are far from normal time.

More than ever the future inhabits our thoughts as questions about as to when and how we can move beyond locked animals, social dispensing and the economic chaos that has arisen weeks since my last remarks.

Celebrating the achievements the recent past feels distinctly discord.

'cause it landscape has changed our lives.

In some respects. These changes will be short lived and we can expect to see a return to normal in the foreseeable future.

Other respects our lives our work practices, our entire approach to how we interact with each other.

We fundamentally it permanently altered.

In the face this uncertainty.

Focusing our energies on those things over which we have direct control has become our most pressing day to day impaired.

The overall assessment.

Of these matters.

It seems that we have managed the aspects of our business well since the onset of coal that 19.

Both our Jones Act and internationally trading desk was able to load translate in discharge cargo without mature in interruption.

This outcome is a testimony to the courage and commitment the men and women working on our vessels with continued to provide essential service, it's critical to maintaining not only always cheese operations.

It also the functioning up our broader community.

It is important to remember that our business, it's not one that can be done remotely in all respects.

Hi, blind individuals make what we do possible with the support of those working from home.

Expressions of appreciation for what is being done in this respect cannot be made too frequently.

Keeping our employee safety remains our number one priority.

Recognizing them for the service they provide is our shared responsibility.

As Dick will detail more fully his remarks.

Deep book, what time charters, which were added into at the end of last year.

I didn't considerable installation from exposure to the current market Tal.

Followed not only be outbreak of coded 19, but as well the extraordinary dropping transportation fuel demand affecting both crude oil refined product pricing.

I wish to use of vessels were employed I don't see charter rates for close to 100% available days during the first quarter.

The only eight of a total of 1916 available days, saying deciles idle without employment.

Cost well managed to levels consistent with historical performance. That's a result cash flow from operations strong.

It is gratifying that the results that we have announced today give credence to the narrative strong potential of our businesses that we've been speaking to in recent quarters.

Given the high percentage of fixed revenue streams during the first quarter, which will continue for much of the rest of this year. Most important management challenges have become sustaining operational readiness at all times that containing the cost of adapting to developing logistical health and safety protocols.

Importantly, none of our current employees has yet tested positive for coated 19 today, you have incurred no loss of higher due to virus related matters.

Like other sectors of the economy, we have not found it necessary to lay off or furlough employees as a result than dependent.

All of our she going and shore based employees have continued to work full time for their normal salaries and benefits.

Nonetheless, we recognize that the systems within which we operate our under escalating stress.

Nothing new risks and vulnerabilities that had previously not affected our performance.

[laughter].

Include two our thinking first and foremost getting crew to from our vessels in a manner that both protect their personal safety in deference to assure with the highest level of confidence that joining crew member who is not bringing the virus onto a vessel or otherwise second the best its acceptability in service.

Second.

Working with all relevant constituencies to develop and implement policies and procedures that are consistent imports support.

Company the company facilitate a comment approach to coping with the very real very difficult problems presented by coded 19.

And finally planning for the new normal once this crisis period as Pat said.

So that we can achieve delivery of the critical services that we provide the least amount of disruption.

These are all difficult challenges, creating heightened risks in the current environment.

We expect increased cost developing and implementing policies and procedures deal with these challenges.

There's not possible at this time quantify these costs with precision.

Nonetheless, it would be imprudent to expect the past will be an accurate guide in this area.

Hi, good risks of all Hypure engine, resulting from managing buyers related delays as well as potential and yet a noble new costs for testing cleaning quarantine immunization and certifications are to be anticipated.

In addition difficulty easily access in critical supplies in particular face masks and other personal protective equipment as well as in some cases spare parts and the services a specialized technicians impose additional operational burdens on our Coors.

Reliability and effectiveness that testing methodology that PPD.

Clients with mandates and recommendations of various regulatory agencies as they seek to react continuously evolving information also pose significant risks.

Whether these systematic stressing ease with time and what caused the ultimately imposed on us will only be known with hindsight.

As these contingency it's become clearer we will seek in the future to release and provide you with better guidance on your long term financial impact.

As far as the effective recent legislative initiatives on our business, we're not expecting any material impact.

On either our liquidity position for our financial results rising out of the application of provisions and the cares Act.

Turning now to the impact of the virus. Our Jones Act trade note reduced cargo volumes and increased I think times addresses a derivative falling refinery runs an unprecedented demand destruction for transportation fuels rising how to stay at home policies in most populated regions.

The energy information Agency reports refinery runs in the U.S. in recent weeks at less than 70% of capacity.

Transportation fuel demand at levels, ranging from 15% to 60% below normal levels.

Over the past four weeks motor gasoline consumption has averaged 5.5 million barrels per day, 40% decline from year ago levels.

Jet fuel consumption declines and levels, 60% below year ago levels. That's pastor flights in the U.S. operated close to 96% below their normal capacity.

Clearly know forecast models I imagine the extent of demand destruction that we've witnessed in the wake up this helps emergency.

Survey of numerous new forecasts indicate that a V shaped recovery is not expected in transportation fuel demand.

Even in anticipated Swift recovery in gasoline consumption in United States.

Should leave yearend levels, and then expected 1.5 million barrels per day below normal.

Jet fuel will take many more box if not years through a couple to pre pandemic levels.

The shape and speed of jet fuel recovery could prove significant for one of our key customers Monroe Delta.

Currently three of our vessels are attracted to serve deltas trainer refinery.

Delta has stated in their recent earnings call that the trainer refinery remains an important part of their fuel strategy.

Nonetheless, protracted or permanent closure of this refinery would likely have a material impact on both domestic tanks vessel demand as well as I always expected poured revenue streams.

Importantly for always jeans business. However, the rebound of gasoline consumption and key states in particular in Florida offer some cause for optimism in the medium term.

Mobility data indicate that the bottom of the market was seen in second week of April and mobility and by implication gasoline consumption has begun to recover.

In contrast to the broader market expectations, Florida's gasoline consumption levels are forecast to recover to pre pandemic levels by the end of 2020.

Diesel consumption has held up relatively well <unk> is expected to regain near normal levels for the balance of this year.

Given the dominance of Florida his role in that the market for Jones Act vessels.

Moving trends the demand for marine transportation should just be expected.

International tanker rates continued to enjoy record setting levels as Carlos loaded remain onboard either voluntarily by traders playing the forward contango curve or in voluntarily by those with no place to put crude and product inventories.

That's those are being used for storage rather than transport, resulting in a significant reduction in vessel availability to be new cargo.

Right.

The strong international tanker market awkward support to rates for the domestic market.

In a highly unusual developing some Jones act vessels have completed recent has competed recently.

In the U.S. Gulf Coast East Coast, South American trade.

Our newly acquired subsidiary Alaska tanker company I've seen the odd impact of Sky High International rates.

Last week, a cargo of an S crude was sold to China and shipped on the Alaskan navigator, a highly unusual but one enabled by the fact that the TC rate on the navigator was $100000 per day lower.

Data than a quick whenever a national suezmax. Thanks.

Usually highway seen in recent international trades are not expected to laugh.

Declining crude oil production, coupled with the increase in today's release back into the market once products for these deliberate consumption will likely weigh on future rates.

It bears repeating that these developments act only indirectly domestic market conditions.

More significant will be the overall level of crude oil production cuts in the U.S. over the coming months and the impact of these cuts and the relative price differentials between domestic comparable international crude oil.

Three of the biggest oil explores in the United States, Exxon Mobil, Chevron and Conoco Phillips.

Announced plans to curb as much as 660000 barrels a day as combined American output by the end of June.

Across the country crude production by all companies has already tumbled about 1 million barrels per day since mid March and couldn't far more than 2 million barrels per day by the end of the.

Well, then fields with high cash production costs are particularly vulnerable to production cuts.

We are watching carefully for example, the offshore Gulf of Mexico field served by our shuttle tankers.

Time charter commitments on these vessels should the near term ensure consistent revenue streams to always see from these contracts.

However should either of these fields be shut in in response to persistently low oil prices. The result could be an increase in effect the available tanker supply as he settles would likely be redeployed its conventional tankers by our charters.

It's too early to know with much certainty how supply demand and pricing crude oil will unfold in the months ahead.

However, as always relative price remains a critical variable from our perspective.

Your respective up the overall quantity of domestic production cuts.

Should we continue to see domestic prices at a sustained discount to international prices as has been the case for most of the past several years coastwise transportation of crude oil should continue to be demand.

Oh, it's doing is well positioned to benefit from what we are anticipating to be improving trends in the markets within which we operate.

Oh, it's cheese 21 vessel U.S. flag fleet consists of three crude oil tankers operating the Alaskan crude oil trade one conventional ATP two lightering atps three shuttle tankers and EMR tankers and two non Jones Act tankers that participate in the U.S. maritime.

Security program.

Well. She also currently owns and operates two Marshall Islands, flagged EMR tankers, which trade internationally.

In addition to the currently operating fleet Oh, its GE has on order to Jones Act compliant barges scheduled for delivery in May in October of this year.

I will now turn the call over the deck to provide you with further details on our first quarter results well 2020, Nick.

Thanks, Dan.

Please turn to slide seven.

During the first quarter, we purchased three Alaskan bankers capable of carrying approximately 1.3 million barrel oil each.

There are engaged transporting crude oil from Alaska to the West coast refineries.

Additionally, we acquired 62.5% interest of our partners and Alaskan tanker company.

As a result, we now own 100% D.C., we financed these transactions with 54 million at all along.

Loan bears interest at a 4.43% fixed rate.

During in March 2025.

As a 12 year amortization schedule.

Please turn to slide eight.

In late March we also completed the financing of the Oh, its GQ or our barge currently under construction in Oregon.

We grew $28 million this loan closing.

This monetizes the excess equity.

Obviously invested during construction.

The remaining amounts will be drawn one while construction payments due.

We expect barge deliveries to occur during the last week.

This loan has a five year majority amortizes also over 12 years.

Please turn to slide nine.

First quarter continued to reflect the positive impact or leap principally operating over time charters.

Improve rebar.

We classify short term time charters contracts right minute spot market activities for presentation purposes.

During the first quarter the key west operated under short term Timecharter all the rest of our Jones Act Handysize tanker, Rob Walker time charters.

Our first quarter TC revenues grew 14.3 million or 17% when compared to the first quarter 2019.

We benefited from additions to our lead.

The Gulf Coast Suncoast key west for the quarter.

The three Alaskan tankers for March wall.

Offsetting this.

The continued reduction in our rebuilt 80 bps from last year this year.

After the quarter end, we did the sale for scrap of one ACB, reducing the operating rebuilt Easter while.

Sequentially GE revenues were up 3.3 million from the fourth quarter.

The fourth quarter included three government. It is real wages, while first quarter Didnt include any.

We experienced an increase in off hire days is just made it due to dry dock activities.

The last tankers yet it late quarter were responsible for the increase is all other changes offset one another.

Adjusted EBITDA was 52.8 million in the quarter 29.2 million dollar increase from the first quarter 2019.

As part of the transaction acquiring the remaining interest in eight easy three Alaskan bankers all prior time charter relationships were terminated.

This termination or pre existing relationship resulted in a 90.2 million dollar non cash gain.

We recognize this gain in the first quarter.

Excluding this gain we experienced almost 43% increase in adjusted EBITDA for the first quarter 2019.

We benefited from our increased time charter days.

And higher rates the operations of the Gulf Coast Suncoast Kiewit.

Well certainly we're redemption.

Alas bankers.

Excluding the $3.2 billion at the annual earnings which is recorded fourth quarter when the journey.

From a DC.

Our adjusted EBITDA sequentially increased by 3.2 million again, the fourth quarter of 2000, Nike included a concentration or three government of Israel voyages during the quarter well, we conducted no such or just for Israel first quarter.

Although the mix investor vessels changed.

We are already 21 vessels were 2020 2090.

Since first quarter 2019, we have reduced the number of offerings Regal eightv to do.

Added the key West Gulf Coast.

Yes.

And you know what late third quarter, the three Alaskan tankers.

Please turn to slide yeah.

Looking at our TC revenues on a more granular basis, our lightering business Tc revenues.

Well actually increased $2.3 million fourth quarter 2019.

He or she 350 operated under time charter the first quarter 2020 <unk>.

Sure primarily spot market activity during the fourth quarter.

Good day rates for both the O.S.G. 350, 351 increase due to higher utilization and increases and attracted rates.

It's easy revenues are rebuilt DBS increased 1.3 billion due to increases in the rate environment.

Our non Jones Act tankers recorded $2.7 million decrease in TC revenue during the quarter, but during the fourth quarter 2000 Nike.

This due to the reduction in the government of Israel wages.

We had from Q4.

We operated under international time charters for 182 days, maintaining the effective utilization of our vessels by reducing the number of days spot market exposure.

Our Jones Act tanker fleet.

CE revenues decreased <unk> million dollar order to 69.1 million first quarter 2020.

This resulted from an increase in <unk>.

Off hire days due to dry dock activities.

Uh huh spot market affected Tc rates increased significantly driven by increased rates.

Year over year changes lighter revenues were down $700000, Paris, <unk> first quarter 2019.

Eight TV revenues declined seven and a half 4.8 million compared to the first quarter decreased number of offering vessels.

Nine Jones Act tankers revenues decreased from 3.7 to 7.3 million.

And by the addition to the Gulf Coast in South Coast.

Conventional tanker GE revenues decreased $10.7 billion.

This was driven by reduced spot market presence higher rates higher utilization due to decreased time Turner activity.

Additionally, our three Alaskan tankers added on March 12 injured contributed $3.4 million D.C. revenues for the 90 days, we were in our fleet.

Please turn to slide 11.

We continue to see widening of the spread between fixed and spot earnings.

Portion of our fleet operating on time charters continues to increase.

With the addition of the Alaskan bankers all of which operate on time charters. We expected this trend will likely continue.

Please turn to slide 12.

Conventional tanker spot market GE revenues.

Continue to represent decreasing portion of our total tanker revenues.

We classified short term turns spot market activity.

Order 2020.

The spot activity resulted from a single short terms I'm sure.

Please turn to slide 30.

Our niche businesses continue to provide earnings stability, which served to underpin our overall operations.

This continues to be true as we've been successful in generating business for the oldest GE threefifty in the Gulf of Mexico.

Although not Jones Act tankers revenues decreased for the year ago quarter decreased from the fourth quarter due to the lack of geoeye wages and first quarter 2020.

Revenues for our shuttle tankers decreased during the quarter as planned due to the dry dock related off hire days.

Please turn to slide 40.

Vessel operating contribution which is defined as GE revenues less vessel operating expenses charter hire expenses.

Decreased 10.8 million or 39% from Q1 2019 to 38.8 million in the current quarter.

The largest contributor to the increase with the 10 million dollar contribution.

Vessel operating contribution from our conventional Jones Act tankers.

It reflects the increase time charter employment as well as fire rates.

The overall increase in operating contribution also reflects the addition of three bankers and the late quarter acquisition last anchors.

All partially offset by the reduction of our rebuild 80 days.

Our meeting he be provided a strong quarter due to our utilization increased rates.

You Alaskan tankers provided 1.9 million of operating contribution after they entered our lead.

Vessel operating contribution from our niche market activity decreased $900000, resulting.

From an increase in dry dock related off hire.

Sequentially vessel operating contribution increased 3.4 million Q4 2019.

The contributors to the increase were higher rates for Jones Act tankers and the inclusion of the Alaska anchors.

Each market activities decline fourth quarter, primarily due to increased all fire lost revenues.

Please turn to slide 50.

[noise] first quarter 2020 adjusted EBITDA.

Sorry for the dog, that's one of the.

Benefits I guess it worked all.

Anyway first quarter 2020, adjusted EBITDA of 52.8 million compared to fourth quarter adjusted EBITDA.

33.7 million.

The first quarter 2020 included the aforementioned gain associated with the acquisition anchors and eight DC.

The fourth quarter included Iran crop distribution of 3.2 million from 80 C.

[noise] first quarter adjusted EBITDA increased 29.2 million from 23.6 million.

In Q1 2019.

The increase resulted from the previously mentioned gain.

Brief rates across the fleet improve utilization due to the should time charters and do vessels that entered service after the first quarter 2019.

Please turn to slide 16 [noise].

Net income for the first quarter of 22, when he was $25.1 billion compared to net income of $3.2 billion first quarter 2019.

Operationally the received CE Jones Act tankers revenues net new jobs.

Non-GAAP and new non-GAAP, non Jones Act tankers as well as the addition of the last anchors drove the increase in net income.

Not operationally $50 million decreased earnings came from recognition.

As previously described game.

Please turn to slide 17.

During each year, we perform scheduled maintenance as required by regulation.

This slide provides information for scheduled maintenance and ballast water treatment system installations.

Does not include I'm glad repairs, which should they occur that impact the schedule.

Well vessels are in dry dock or otherwise on available for use their off hire even if otherwise weighed on chart.

The work to minimize the number of off hire days.

Reduce the revenue loss we sustain.

This year, because coated 19 estimating the timing of dry dock activities on a quarterly basis is particularly challenging.

Shipyards are deferring scheduled dry docks, because their staffing issues related to cope with 19 Mark Downs.

Technical personnel third party vendors necessary to accomplish certain.

Aspects of the maintenance process.

Yeah and are unable to travel to repair locations.

This is resulting in a series of backlogs throughout the industry.

Yes, it's an understanding through this time period.

It's likely that they will eat continue their flexibility.

This slide presents our best estimates of the timing of Drydocking activity for the remainder of the year.

It is possible, perhaps even lightly that these estimates what changes the timing.

We expect that although the timing may shift the annual goals will remain reasonable estimates.

2020 will be an active drydocked year for us we estimate which include three recently acquired Alaskan tankers.

And our investment will be $43.8 million Drydock expenses.

And $16.1 billion for ballast water treatment systems in 2020.

We will.

Experienced approximately $20 million and lost revenue for the full year, resulting from 377 off hire days.

Yeah in all cases, we endeavor to work through this process expeditiously to minimize the cost incurred a number of days so.

Plus higher off revenue.

Oh firewall rice.

Please turn to slide 18.

This slide presents the cumulative amount of progress payments made and for future progress payments. The estimated payments, we expect to make it each quarter.

The timing of actual payments will depend on the days when the shipyard achieves the required milestones.

At the end of the first quarter, we had $5.1 million or progress payments remaining on the west sheet dual core.

And $20.1 million or progress payments on the U.S.G. to worldwide.

As previously discussed we financed the O.S.G. to award during the quarter.

And all remaining payments will be funded this law.

Oh, Geez equities deal SG tool for will be approximately $17.7 million.

We anticipate obtaining similar financing the U.S.G. to apply.

Please turn to slide Nike.

There's been no change to our estimates as to the timing and future amounts of profit sharing that may occur the NFC shifts that we bareboat.

The chart provides information for 2023 2023.

As we've previously stated we do not anticipate any profit sharing obligation will be created 20 twond.

We look here or what the province, your mix your might be pursuing beverage Tc rate based on estimated future market rates.

2020, we were to achieve an average Tc rate of 62000 across the Gen am as the vessels there would be no profit sharing.

The minimum average rate required to result in a profit sharing obligation at 2020 69000 dollar per day.

This would create an aggregate payout approximately $300000.

Years beyond 2020, assuming that the radar prior year with the market right.

Based on assumptions portrayed here riskier profit sharing obligation would exist as 2022.

Given the assumptions used.

Sharing payout would be <unk> dollars.

Men in an average rate necessary to achieve any level of profit sharing 2022 would be $61000.

Again, using the assumptions here the profit sharing earned in 2023 would be $40 million.

Profit share is paid out the year subsequent to year or.

Finally, it's worth noting that a certain costs or recover minimum rate. It will result in profit sharing declines.

The calculations are complex than ever Ray factors involved.

This chart is meant to be indicative of possible outcomes based on assumptions made.

Please turn to slide 20.

We began 20.8 total cash $42 million $200000 restricted cash.

During the first quarter 2020, we generated $53 million with adjusted EBITDA.

During the quarter, we issued $81 million net of issuance costs, new debt financed the last and transaction and U.S.G. tool for.

We expect net of cash received $17 million for the acquisition.

The $19 million adjustment.

It's to remove defect the noncash gain we've discussed.

We expanded $3 million on dry fruit and improvements to our vessels.

We invested $21 million to do that for construction another capex.

We also incurred $6 million interest expense and may debt repayments of $8 million.

The result, we ended the quarter with 102 point $802 million cash.

80 $20.1 billion restricted cash.

Please turn to slide 21.

Continuing our discussion cash and liquidity.

We mentioned on the previous slightly up $102 million cash at March 31, 2020, including $20.1 million restricted cash.

Total debt was $450 million.

This represents an increase of $75 million outstanding indebtedness since December 2019.

325 million dollar term loan has an annual amortization requirement of $25 million or $6.25 million per quarter.

With $367 million of equity our net debt to equity ratio is one time.

This represents no change from December 31, 2019.

As we addressed our capital structure during the first quarter, we plan with one of our lenders for them to sell and interest one of our term loans.

It was expected that they would complete the transaction prior to the March 12 closing our best acquisition.

They were not able to completed in that timeframe.

The effort was then expected to be completed shortly after the htwo.

In order to support the sale process, we established a 20 million dollar escrow that could be used the prepay a portion of that law. If it were not so.

Days.

Oh, good 19 years to strike disrupted many financial activity, including the proposed transaction.

As a result arrest grow its still be no sale.

This concludes my comments in the financial statements and I'd like to turn the call back to Sam Yeah.

Thanks Dick.

Turning to the theme of my opening remarks, the future remains the topic of most interest a majority of those listening in on this call.

As noted earlier the level of uncertainty about the extend duration and ultimate impact of the forces that are currently unsettling our markets has never been greater.

Nonetheless, there are certain things that we can state with some confidence as regards to the immediate future.

Our time charter coverage remains substantial for the balance of this year.

We've contracted employment covering 95% of available operating days during the current quarter and 86% of available operating days for the balance of the year.

A key contributing element of this forward visibility of earnings contribution to be made by the Alaskan tanker company vessels purchased at the end of last quarter.

The benefits of the contracted employment for these three vessels obtained through this transaction will likely become more apparent as the year progresses.

Absent an increase in off hire days potentially caused by virus related events.

This contract coverage gives us a high degree of visibility into the expected time charter equivalent earnings for the rest of the year.

For the second quarter, we expect to achieve time charter equivalent earnings of $100 million small sequential gain income incremental gain over the first quarter results due primarily to the first full quarter of our ATP vessels contribution.

Taken together with our first quarter results should put us squarely on track to be within the range of 395 to 400 million.

There's a time charter equivalent earnings on an annualized basis. So the first half of this year.

Similarly, we expect consolidated adjusted EBITDA through the first half of the year, excluding the effects of this quarter's gain related to the ATM transaction accounting.

To reach $60 million.

Level, which again tracks closely with our full year expectations provided during our last call.

Including the ITC transaction accounting overall EBITDA for the first half of this year should exceed $80 million.

However, beyond the end of the second quarter, the picture becomes much less clear.

The extent of increased cost incurred in adapting to the new protocols demanded by operating in a coded 19 active environment is not and cannot be known at this time.

While we are hopeful that these costs can be contain there was simply no way of knowing the full extent what may be required in the coming month, nor what the ultimate financial impact maybe.

Similarly, while we're optimistic that with coupling trends forecasted by many analysts will serve to underpin continued strength.

Not in time charter rates <unk> second happened this year.

The range of possible outcomes is wide and the possibly impact on actual rates achieved unknowable at this time.

Again, a large percentage of fixed contractual day should serve to deliver solid operating cash flow and profitable results overall.

Great and utilization assumptions are those investments, which come open to the spot market in the coming months must cover a wide range of possible scenarios.

Providing helpful guides us under these conditions the good difficult.

Like many we prefer to stay silent on the topic unless and until we can understand with more certainty key factors that will shape our future.

Notwithstanding the heightened demand uncertainty we continue to consider that given the normalized demand environment. The fundamentals of our market remain in healthy equilibrium.

Barriers to entry for any prospective new entrants are high and with the exception of our two new barges to be liver. This year no new capacity is on order or will be delivered within the next several years.

Significantly surely shipyards, one of the few domestic yards capable building Jones Act tankers.

Let's take it on a government contract to build training vessels, a contract which could still the yards to use becomes an exclusion of other work.

Another domestic yard.

Amerinet Marine Corp was recently awarded a contract to designing produce the next generation of up to 10 guided missile frigates.

Detailed design the ship will start in May and construction on the first frigate for the class will start no later than April 2022.

With its delivery schedule to the Navy in 2026, tying up further construction capacity.

The supply side pictured thus remains very promising.

Especially in these difficult times always team's ability to sustain its good standing the community of our customers are appears in our regulators is a valuable asset.

Safety and consistent service quality remain above all the key focus of our operation.

While commercial success is one measurement of achieving our goals. We also placed paramount importance on maintaining our established culture of achieving the highest standards in both protecting the environment and ensuring that health and safety of all of our employees.

Our acquisition of the Alaska tanker company is harmonious with this culture and these standards.

Challenges remain as do opportunities.

But overall, we believe steps taken over the past several years to improve the promise of always seems future have positioned the company well to sustain its recent performance and to adapt well to the current environment.

We have strengthened our balance sheet invested in new assets.

Lengthened our contract cover at profitable rates reduced costs and achieved material improvements in our key safety and operational performance measures.

We are focused on achieving high health and safety performance in the covert 19 environment.

While we foresee greater uncertainty in immediate future. We remain confident no long term success of our business model and the lowest team's ability to maintained its position as the leading U.S. flag tank vessel operator in the years to come.

Operator, we can now open up the call for questions.

To ask a question you May proceed Star then one on your Touchtone phone.

If you use any speakerphone, please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

The first question comes from Jay.

Men spire.

From value investors edge. Please go ahead.

Hi, good morning, salmon debt congrats on a fantastic quarter.

Thank you.

Yes, so I understand your comments about being careful of long term EBITDA forecast, considering the cobot environment I just to drill down into that a little bit you reported Super high EBITDA this quarter, but that was because of the 19 million a one off gain rights I'm getting about 34 backed out and then you mentioned about 60 million for the first half.

Yes, so it looks like quarter over quarter. The EBITDA goes down even as time charter revenues go up and you get that for Alaska contribution I can you speak a little bit to that is there something we're missing there.

I think I'll take that one Dick.

There's a couple of things we have some dry dock days.

Days in the second quarter that would reduce the revenue.

That would have normally been expected to be cheap for vessels that were on time charter.

But we also have more vessels coming open to the spot market in the second quarter and we're anticipating some reduction in the lightering volumes that were seeing into Delaware day.

Oh, that's really a function of reduced throughput in the refineries there.

An example trainer the trainer refinery from Monroe Delta has been operating at about 50% of its capacity since the middle of March.

So just the volume of crude moving through to their refineries drop.

We do have a take or pay contract provisions.

With Monroe Delta on that Lightering contract that runs through the April of 2021.

But the way that we account for that is is only up at the <unk> kind of the makeup of the ended the year, we don't get to a crude via the minimal levels through the through the quarter to quarter performances. So we're looking at actual volumes of barrels moved from a revenue point of view for Q2, and there's probably gonna be some.

Reduction though.

Okay, that's understandable and he said here like some of that backup in Q4, just on the take or pay okay. I'm looking forward as for the rest of the year I understand you didn't want to give full guidance you mentioned some kobe 19 potential impacts is that just you being conservative and thank you. You know, we don't really know what's happening or are there direct financial impacts that are already.

Happy to your business.

So we have yet seen other than sort of.

Smaller.

Increased costs related to a personal protective equipment and a.

Difficulties and kind of logistics of moving people around Oh, which we we have seen increased cost, but those are not.

The broad contracts largely immaterial to the overall performance.

Our greater concern is really relate to how different ports are going to implement their procedures for it and what happens if a vessel or members onboard a vessel or test positive or evidence symptoms of coded 19.

There's lot of discussion in the industry about making sure that the that the operational readiness of vessels is sustained given the essential nature of services that they provide.

But there is no at this time there is no consistent.

Oh policy or agreed approach to how to deal with that.

Eventuality should it should have to us so.

[noise] there's a.

At the there was good day long winded as recent book, a that by John K and Mervyn King the former Governor.

Governor of bank of England coal or [laughter].

About uncertainty.

ER and they make a distinction between.

Ah risk and uncertainty and risks or measurable and.

And to be understood in the kind of systematic way uncertainty is by definition on certain I think I.

I think the answer to your question is that we we see a lot of uncertainty in the next to six to 12 month as the country. It evolves in the code at 19 environment.

And the spectra love outcome or that could unfold a given all of the speculation as to what May happen I really gives us a reason to be cautious and trying to provide a guidance or certainly on the second Appalachia.

Yeah, I think that certainly makes sense you know there's been a lot of commentary of course about floating storage there's tons of tankers piled up offshore, California Occidental Petroleum is contracted to Vlccs. I has has recently contracts to be lccs to store Bakken crude have you gotten any that floating storage action for Jones Act respect.

Dave or you just doing the regular logistics work.

We haven't seen any notwithstanding a press release as we haven't seen in Jones act vessels put into storage.

So no we have not we'd have fee income.

I've seen some activity not on our vessels, but on some other methods of Jones Act vessels moving into international trades, taking product out of the Gulf of Mexico into South America, but that that has been.

One or two voyages are the the base load of Jones Act the business continues to be at normal business.

Okay excellent and then final question for me and then I'll hop in the queue. If there's someone else behind me I saw some headlines in that we've been reading about somebody Alaskan tankers, perhaps heading over to Asia first time that trades happened in a while my understanding is BP operates ddos and you're just getting the bareboat charter on that was is that correct you profit in any.

Away from sort of extraneous activities or is that all BP.

Oh, we we time charter those vessels to BP, but your but your conclusion is correct. We haven't six day rate and irrespective of the rate that beeping there at all that voyage.

We get paid to fix day rate that we contracted for.

Okay makes sense, that's a great day rate underlying it's just it's maybe not the eye popping rates right that we see than the market recently I. Thank you gentlemen, ive a few more but I'll jump off a case someone else asked questions fine.

Okay. Thanks.

The next question comes from Ryan von from Needham. Please go ahead.

Hey, guys. Thanks for taking my call I'm glad to hear everyone, a state healthy and credit to the team for navigating that what I'm sure. It was very challenging it would logistics with the country shutdown.

Yeah, I guess, just jumping over to the balance sheet tight very very strong cash balance around 100 million Bucks I know you have 20 million of that.

Just did not escrow account, but I'll take you had mentioned that the two a five funding I'm just running some rough calculation completely understand the back half of the year. It's it's a little bit uncertain as you would say Sam but it looks like current ops really could <unk> more or less fund the dry dock in the water palace and even the remaining two if I payments.

<unk>.

Even the cash interest payments, so I'm curious, how you're thinking about.

Potentially doing a similar financings what you do a tool for but also just do you know 80 800 million dollar cash balance or thinking about that going forward.

Yeah, I think you know we look at this sort of Boston area.

Your observation is it reasonable in terms of.

With the cash requirements of the business are the second half the year and where we are liquidity wise today, plus what we expect to generate from.

Cash for the second half the year.

We would be somewhat remiss, if we get leased plan for something different.

Correct.

And so we'll proceed down the path.

To look at financing the two worldwide.

If the world looks much better than <unk>.

It looks today then.

We might go any different direction and not not with that kind of financing on you acquire would be.

The worst possible outcomes to.

That's a little less leverage or.

Vessel is unencumbered.

Absolutely so a lot and maybe I could that that'll color that you know you've asked this question numerous times in our previous calls [laughter] ER, we yeah, we see a trajectory that moves us towards the cash flow positive I mean, a true free cash flow positive.

Environment I'm based on our based on our base case projections at the beginning of year, we are we anticipated that.

That turn coming in the second half of this year and all the comments I made earlier, we have some some reason to be cautious about about data and therefore marshaling liquidity as many companies are doing.

Before we can get more clarity as to what the future looks like same sort to be a prudent prudent direction right now.

As Dick said, if we move through the second half of this year and things develop a in a positive way that I think you are.

You are correct in your conclusions that our liquidity position.

We'll remain robust and probably improved.

So that's all very positive, but again, we're cautious about.

The accounting chickens before their hatch.

Definitely I understand that that Sam you and your and your final comments there answered a couple of my question. So the rest of the year I think you see 6% its contract. It obviously that makes us feel a lot better but also maybe just talk a if you can how you're thinking about the remaining.

14% I know the prior.

Caller asked about like storage stuff, but are you thinking about taking the potential a valuable ships to increase your dry docking are you thinking about idling and in some of those scenarios, where they're just or.

Not needed right now just I guess, it's quite small, but just that 14%. How are you thinking about it where you sit today and not really nice thanks.

The the flexibility to move dry docks around around unfortunately has been inhibited by a lack of availability of shipyard or services.

In general up there are some services that can be a CAD can be made available.

But even the yards that are open as Dick mentioned in his comments.

Specialized technicians and service technicians and need to come to complete the automation equipment navigation equipment, and all kinds of other equipment that needs to be dealt with during the service technicians can't or will not travel so that makes completing thing.

Possible frankly, so we've we've been having to actually differ.

Scheduled dry docks with the.

The agreement of ABS I'm getting extensions on statutory dry dock days.

As we've tried to roll that business forward I'm waiting to see what's going to happen, but she got availability. So I mean ideally in periods of downtime, we would like to take a and utilize that downtime due to complete the maintenance.

Whether whether in all planned or unplanned maintenance I think realistically over the next at least over the next couple of months, that's probably going to be difficult to achieve.

The other thing I'd like to point out is knowing in.

In other circumstances.

If we if we could proceed forensic the summer months are usually slow.

The demand is usually seasonally low light in normal circumstances consider.

Laying up a vessel or two and sending crew home and trying to cut cut our cost of that in that in that context.

I was thinking right now that is is probably not to be looking to do that we think that.

In these times keeping our employees are working.

And providing the stability.

Through a short term period at least.

Continued salary and benefit to people that are highly skilled and.

We want to retain in the long run we think that's a good investment and so.

At least at this juncture, even if we see increased I'd times, where it becomes.

So at least as visibly clear that there's not a lot of the man in the market for the vessels.

I think lay up of vessels and the and reduction of who expense at this juncture is not in our playbook.

So what were those to those two comments are.

Our ability to find employment for these vessels is as it has always been we do we rely on.

You know transportation of fuel hopefully across the Gulf. There is some opportunity to maybe trade internationally as I said earlier international market is extremely volatile right now so.

Oh 10 days ago, the MSR Mark it was at $60000 today today on the below 30.

So I'll try to try to figure out whether that's a workable possibility you know, it's something that we keep an eye on.

There's also disruptions between you know there's arbitrage opportunities we took a cargo on the key west last week.

That arose directly because of because of an open our bond deal between the Gulf Coast in New York.

Those are the types of things that we're looking forward to spot market to help us out.

You know, we've just got to keep looking at that the rates are remained quite strong I'm you know the most recent fixtures that we did in the spot market would just under $70000 today our tankers.

And in excess of 30000 barrels a day on ATP.

So we're pretty hopeful that a that we'll be able to too.

The maximize the use of our vessel, but again.

The uncertainty overhangs everything.

To be mindful that.

Sounds good thanks, guys and again, great job navigating through all this and I know the best for Us.

Of course, thier, Thanks, and then do.

The next question is a follow up from Jae Min Smyre from value investors such please go ahead.

Thanks again for taking the questions I figured Ryan had some good ones in the Hopper there are not a whole lot left just a couple of questions. One on de fleet balance of Jones Act you've had several good slides showing how the fleet is very balanced when you take out some of those 30, plus right those aging vessels, but we haven't actually seen much demolition the last year.

Two and maybe that's just because rates have strengthened right, but what will it take to get those shifts to finally, we definitely would it would it take a drop in rates or do you think there's some sort of like special surveys and stuff coming up that will knock those out.

So I'll take a crack at that actually we contributed to the reduction in fleet significantly a as Dick alluded to we had initially eight.

The older ATP is a rebuilt atps or operating a we're now down to one or so over the last two years. We've Oh Gee itself is contributed to removing seven large atps from the market.

When you look at the when you look at the.

Other vessels that are nominally on the fleet list.

Couple of them jumps to mind there are I believe three older. ATP is a that are that are owned and operated by Bouchard.

Navigation.

Are those vessels have been in lay up for some time, so they have effectively already been removed from the market.

What their future is.

Is speculation as to what May happen, but the general consensus is those vessels are not likely ever to return to the market. So they're already out.

[noise] there've been a couple tankers that have been removed from the market last couple of years I think there's a there's one or two.

Tankers that are facing.

Survey in dry docking ballast water treatment decisions in the next 12 months.

And we're watching those vessels to to understand what their future maybe.

But I think they the right [noise] the right understanding is.

There's probably.

Three or four vessels or if you take the Bouchard 18 deals that are already left that's probably half a dozen vessels.

With that.

Oh, well not feature in the in the medium to long term.

Supply.

Sure for the Jones Act.

So we're getting toward the end of the reduction through obsolescence phase that we've been in in the midst of over the last two three years and this and the fleet as it is after you take a those or half a dozen or so vessels.

Off the table.

It's actually pretty young after that.

Most of the most of the 80 days are built a 2000 and later.

All of the tankers with exception of Ah two or three that are still aged or bill 2007 or later.

So unlike.

The comment perception of the Jones actually to be <unk>.

Replete with old Lady actually the does actually does its currently constituted is a pretty young fleet.

Yes, certainly makes sense outlets looking at slide 28, there and see that tight balance so it looks like it'll it'll work itself out a good to know that most of those are already dry docked a final question for me I look your valuations are compelling if we if you look out we don't even have to add pro forma cash, but look if we do and we back you out to the end of 2020.

Hey, you guys are trading around four times enterprise I'd, EBITDA somewhere around there plus or minus might even be under that.

Normal pure comps in this space and again, it you know pure comps and better times, but you know pure cost like C Corps, and such and they can or Morgan. How some tankers is anywhere from seven to maybe 10 times enterprise value EBITDA or that sort of multiples would get you into the range of anywhere from five to nine per share right. I mean, that's a big range.

But look I wish you trade that you know, it's trading a little bit better today, maybe 250 to 60, but in the past you guys are traded extremely unfairly right extremely cheap I understand that you know cash balances are important at this time, but is there any actions that you could take to help close some of that gap or any thoughts you maybe and Dallas.

We are launching a share repurchase program in the near future.

So that's usually Ryan's question [laughter] I'll answer the simply wish lists at Ryan the path.

No we consider the transition to be genuinely cash flow positive and in free cash flow positive is as an important.

As important hurdle for us to get over a and as I have said earlier and earlier calls we anticipate that we will.

That will reach that milestone in the second half of this year that that'll d. is a truly significant transition for us.

And.

With some assumption as to continued favorable health of our of our business looking beyond the second half of this year.

We can anticipate that that at that but the performance of generating free cash flow will improve and get better as 2021 and 2022 a unfold.

And.

Assuming that the view the case I am confident in stating that the the structure and disposition of our capital will become a topic of the board's conversation and I considerations as to if and if so how to either reduce debt or return cash.

Capital to shareholders will feature in conversations towards the end of this year and into next year.

Excellent Yeah, Ryan usually asking questions I figured I take the baton up or have a anyway sabotage and Dick you guys have done a fantastic work I really just a remarkable turnaround Herodotus GE and we're looking forward to the future. Thanks guys.

I appreciate that.

There are no more questions in the Q. This concludes your question answer session I'd like to turn the conference back over to Sam Norton for any closing remarks.

Thank you again and thanks, everyone for participating in today's call and we look forward as always to speaking with you later again and there have a good day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[noise].