Q3 2020 International Seaways Inc Earnings Call
Good morning, and welcome to the International Seaways third quarter 2020, <unk> earnings Conference call, all participants will be in a listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to James Small General Counsel. Please go ahead.
Thank you good morning, everyone and welcome to International Seaways Springs Conference call the third quarter 42.
Before we begin I would like to start off by advising everyone on the call with us today as well.
During this call management may make forward looking statements regarding international Seaways for the tanker industry, which may address without limitation the following topics.
Outlooks for the crude and product tanker markets.
Using oil trading patterns.
Forecasts of World and regional economic activity.
Demand for and production of oil and other petroleum products.
The effects of the ongoing COVID-19 pandemic.
Company strategy.
<unk> sales of vessels and other investments.
It's a spread to financing transactions expected.
Expectations regarding.
Oh revenues and expenses, including vessel charter hire and <unk> expenses.
Estimated bookings and Tc rates in the fourth quarter of 2020 or other periods.
I mean, its capital expenditures of 2020 or other periods.
Projected scheduled dry docking off hire days.
The company's consideration of strategic alternatives.
Companys ability to achieve its financing other objectives and.
Other economic political and regulatory developments around the world.
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.
Future developments and other factors that management believes are appropriate considering the circumstances.
Forward looking statements are subject to risks uncertainties and assumptions many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements.
Factors risks and uncertainties that could cause international Seaways <unk> actual results to differ from expectations include those described in the company's end report on form 10-K.
Its quarterly reports on form 10-Q.
Other filings the company has made or may in the future make what the U.S. Securities Exchange Commission.
With that out of the way I would like to turn the call over to our President <unk>, Chief Executive Officer, Ms. lowest brucie most.
Thank you very much James.
Good morning, everyone. Thank you for joining international Seaways earnings call to discuss our third quarter Twentytwenty results.
Before we turn to our slide.
Want to take a minute and I want to thank her seafarers.
We rely on or de beers to ensure safe reliable and efficient transportation of energy cargoes for our customers.
Admit this global pandemic.
She EPS crews are doing a remarkable job adhering to the highest level of not only safety but.
National standards.
We're grateful that see ways and we're proud of the service or keep fares.
Our highest priority remains keeping her seafarer C and getting them home to their families safely in Ontario discuss.
This continues to be a challenge with shifting national and local quarantine restriction.
And now increasing coal would teach us numbers worldwide.
This dynamic situation, we've taken important steps to repatriate or cruise.
Such as deviating shift to more convenient ports for seafarers implementing extra measures to prevent the spread of the virus.
Keep it off our docile.
Arranging for private charter flights when necessary.
Indeed, unchartered waters, we have made good strides in reducing the numbers of overdue crew and.
And we will continue to look for every opportunity to get these men and women back to their families.
Now going to our prepared remarks, if you'll turn to slide four.
We take a look at our third quarter highlights.
In a recent accomplishments starting with the first bullet.
Following two consecutive quarters of record as a public company.
Again in the third quarter, we generated strong resort shops strong result in a weakening rate environment.
Notably <unk> third quarter results reflect the strong performance of our sizable sweet crude and product tankers.
As well as the board favorable time chart executed earlier in this year at very strong rates.
For the quarter, we burned a net income of $20 million.
Excluding one time items related to asset sales and debt.
Or 98 cents per share.
Our third quarter adjusted EBITDA was 55 million.
This represents a year over year increase $31 million.
Turning to the second bullet.
We highlight our strong period coverage and our favorable position to optimize revenue during the current period.
<unk> inventory de stocking.
This week, we announced that are episode joint ventures signed a 10 year contract extension for the EPS, So Asia and the episode Africa, North oil company.
We look forward to continuing to support the north oil companies operation in the Al Shaheen field.
Who shareholders, our cats, our petroleum and total.
These 10 year extension.
Drew 2032.
Lock in the commercial value contributed by our joint ventures.
These high specification custom built episode allow international Seaways, both generate significant contracted revenues.
And lock in the value of these important assets.
Based on our 50% ownership in the joint ventures, we expect to generate in excess of $322 million a contract revenues over the 10 year term lease extensions.
In addition to the joint venture contract extensions.
Or be LTC time charters that we signed earlier in the year every $63700 per day during the fourth quarter and create further earnings support and visibility during the current challenging rate environment.
If you move to the third bullet.
We continue to implement our disciplined and accretive capital allocation strategy.
Following our success.
Significantly de levering, our balance sheet and strengthening our capital structure.
Starting in the first quarter of 2020.
We returned capital to shareholders in the form of both dividends and share buybacks.
Since the beginning of the year, we repurchased nearly 5% of our outstanding shares.
18 cents per share in quarterly dividends.
We have further strengthened our balance sheet and our cash generation potential with our recent agreements to sell three older vessels, which are expected to deliver to buyers between November and January 2021.
Generating 62 million in cash for I. enough W.
This combined with our success extending the epicel contracts.
Our board has authorized the increase of our share buyback program did $50 million.
We intend to continue to act opportunistically for the benefit of shareholders and finder shares to provide attractive values.
In terms of the dividend.
Following the payment of our regular quarterly dividend of six cents in September.
Board has approved another regular quarterly six cents dividend to be paid in December.
We also continued to de lever.
We repaid the full $40 million outstanding under our transition term loan facility during the third quarter.
This lowered interest expense by $1.7 million.
Importantly, we have reduced our breakeven rate going forward to approximately $17500 per day, which takes into consideration. The VLCC time charter rate that I mentioned earlier as well as the contribution from our episode joint venture and our debt repayment.
Turning to the last bullet.
We have continued to increase our financial strength.
This bodes well for effectively operating through the tanker side and creating value for shareholders.
With net loan to values at 39%, we continue to have one of the lowest leverage profiles among our tankers peers and this excludes the value of the episodes.
We ended the quarter with $194 million in total liquidity.
Including cash and a $40 million undrawn revolver.
This is an increase of about $10 million from the prior quarter end.
We have 11 unencumbered older vessels remain after the sale of the three older vessels that were also unencumbered.
Turning to slide five.
We provide an update on oil supply and demand.
Yeah. He has increased their demand forecast and 96 million barrels for the fourth quarter of 2020, and 99 million barrels by the end of 2021.
With demand recovering and rising in the fourth quarter. The I.E. anticipate eight 4 million barrel per day dr. all throughout the quarter, helping to decrease the surplus inventories that had been built up during the second quarter.
When the economic impacts of COVID-19 dramatically reduced the demand for oil as you can see in the chart.
We believe that stock draw downs are needed to set the stage for tanker market recovery.
On the supply side okay.
Okay. Currently intends to produce an additional 2 million barrels per day during the first quarter 20, Twond when do you want.
Which we expect should increase tanker demand.
Although OPEC discussions.
Ongoing.
The I.E. also expects diesel and gasoline demand to be 98% of 2019 levels by the end of the year.
Combining the inventory de stocking process in Opex increase supply needs more normalized levels of demand are supportive of stronger rate.
<unk>.
Turning to slide six we.
We provide an update.
On ships supply.
The overall tanker order book has continued to decline to historical lows as can be seen in the chart at the top right hand, the flight [noise].
Only 16 deals he had been confirmed ordered in Twentytwenty today.
Although we understand the handful of additional orders are currently under discussion.
This follows.
2019.
Only 31.
Be ltcs water.
We believe uncertainty.
Regarding the market as well as de Carbonization regulation, it's suitable propulsion systems question to meet de carbonization goals continue to limit new ordering.
Moving to the bottom half of the slide we highlight the potential for vessel recycling.
With over a quarter of the existing DLC heap Leach now over 15 years old.
As shown in the chart at the bottom right of the slide.
It's worth noting.
An additional 20 to be reached 20 years old during 2021.
As we have stated consistently once deciles reached 15 and 20 years of age they are more expensive to operate with significant investments required to continue to trade.
These shifts will reach ballast water treatment deadline.
And even greater capital expenditures required.
Due to the strong rate environment early this year.
Twentytwenty there have been no be lccs recycled thus far.
However.
Given the fleet continues to age recycling is likely to increase the.
Particularly given the low rate environment, we are presently in.
I'll now turn the call over to Jeff and Jeff will provide additional details on our third quarter results.
Yeah.
Thanks, Todd and good morning, everyone let's.
Let's move directly to reviewing the third quarter results in more detail.
Before turning to the deck, let me quickly summarize our consolidated results.
The third quarter, we achieved EBITDA of $54.6 million.
Net income for the third quarter was $14 million or 50 cents per diluted share compared to a loss of 11.1 billion or 38 cents per diluted share in third quarter 2019, however, excluding the impact of $12.8 million impairment charges and loss on sale of vessels and a zero point $7 million write off of deferred financing costs.
Some fees associated with the extinguishment of debt.
Net income was 27.6 million or 98 cents per diluted share no.
No if you could turn to slide eight.
I'll first discuss the results of our business segments, beginning with the crude tanker segment.
He see east of the crude tanker segment were $18 million for the quarter compared to $49 million in the third quarter of last year. This.
This increase primarily resulted from the impact of higher average blended rates in the VLCC suezmax and panamax sectors.
Turning to the product carrier segment, Tc revenues were $14 million for the quarter compared to 16 million in the third quarter of last year.
Higher period over period average daily Bloody rates earned by our two anymore fleets were offset by a decrease in EMR revenue days in the third quarter, primarily as a result of the Redelivery of four time chartered in M. ours to their owners between the third quarter of 2019 and July 2020.
Overall as reflected in the chart top left consolidated TC revenues for the third quarter 2020 were $94 million compared to $66 million in the third quarter of 2019.
The increase was principally driven by substantially higher average daily rates starting to cross the crude fleet this quarter compared to last years third quarter.
Looking at the chart at the top right of the page adjusted EBITDA was $55 million for the quarter compared to $24 million in the same period in 2019.
And again, the increase was principally driven by higher daily crude rates.
The bottom half of the page, we look at results sequentially quarter to quarter.
Consolidated Tc revenues and adjusted EBITDA in the third quarter were down from the second quarter EPS decreased by $41 million.
Right. The decline it's important to highlight that our latest 12 month adjusted EBITDA shown on the right hand side of the page was $297 million.
Now turning to slide nine we provide a third quarter review the fourth quarter earnings update as of this point.
That's where bookings in Q4. This thus far we have 50, you booked 59% of our available Q4 spot days for Vlccs.
On an average of approximately $19600 per day.
The 8% of available Suezmax spot days at an average of 14400 per day, 38% of available Aframax and Lrtwo spot days in an average of approximately 9400 per day and 37% of available Panamax spot days at an average of approximately $19000 today.
On the EMR side, we have booked 29% of our third quarter spot days, averaging approximately $11000 a day.
As long as mentioned previously our strong period coverage for favorable time charters, we executed earlier this year.
Revealed Ccs were very strong rates and as well the new 10 year extension them, yet that's old contracts provide earnings visibility a level of stability, even during a challenging rate environment.
As a concrete example, if you look at a number in the top right hand side of the page you'll see that a the combined spot and time charter rates for Vlccs were 38006 or $30600 for Q4 was 72% of days accounted for.
Now if you turn to slide 10.
The cash cost cash cost PC breakevens for the 12 months ended September Thirtyth 2020 are illustrated on this slide.
International Seaways overall breakeven rate was $19600 per day for the 12 months ended September Thirtyth 2020.
These rates are the all in daily rates, our own vessels must earn to cover that so operating cost drydocking costs cast DNA expenses that service.
Cost, which means a sketch.
Scheduled principal amortization as well as interest expenses that figure.
Of note taking into consideration distributions from our EPS, So JV and that takes time tried revenue.
Overall overall breakeven rate for the last 12 months for our spot revenue days drops to $60500.
On the far right side of the Bar chart. We've included the all in daily breakeven rates for the forward 12 months ending September Thirtyth 2021.
Taking into consideration could contracted revenue from the episode JV and the poor time charters or the overall breakeven made did $17600 per day for the spot revenue days during the next 12 months.
[noise] also at this time as I normally do I'd like to reaffirm our cost guidance for the year for modeling purposes for the fourth quarter, we expenses I know daily Opex, which includes all running costs insurance management fees and other similar and related expenses for various classes to be as follows for.
For Vlccs 8400 per day for Suezmax 7700 for Aframax 8100, Panamax 7900, M. Ars $7500 per day, each case, excluding any impacts.
That's it should go to Colby. Thanks.
For details on projected dry dock capex and off hire days by quarter, you can refer to slide 15 Vicksburg uptick.
Continuing with cost guidance for your modeling fourth quarter cash interest expense is expected to be $7 million.
Taking into consideration the pay off of the transition, which reduced our scheduled quarterly principal payments also because our principal payments from $20 million per quarter to $15 million per quarter beginning in this most recent quarter.
For the fourth quarter, we expect cash DNA to be in the region of $5 million and finally, we expect a $6 million in equity income and about $18 million for depreciation and amortization in the quarter.
Now if I could ask you to turn to page slide 11 for a cash bridge.
Moving from left to right.
We began the third quarter with total cash and liquidity of $185 million during during the quarter, we generated $55 million of adjusted EBITDA.
Non includes $5 million in equity income from the JV, which is non cash. So therefore, we deducted <unk> cash figure, but then add back the cash distributions from the Jvs, which were $300 when the EPS of JV This last quarter.
Expanded $900 Drydocking in Capex cash interest and scheduled principal payments on our debt was $22 million.
Finally, taking into account the b.
$40 million optional repayment other traditional long transition low the quarterly dividend and the positive impact of working capital and other.
Changes are $29 million. The net result was that we ended the quarter with approximately $154 million of cash and a $40 million undrawn revolver, yielding total liquidity of $194 million.
Now turning to slide 12, I'd like to briefly talk about our balance sheet.
As of September Thirtyth, we had $1.7 billion of that that's compared to $489 million long term debt.
Addition, matching we got a $40 million revolving credit facilities remain undrawn as of September thirtyth.
As you can see on the right side of the slide our net debt to total cap stands at 27% or not loan to value of our conventional fleet stands at 39%.
No. One tells you that is not taking account the diabetes and so so if you exclude the impact so its book value that that did I never drops to 34%.
Further our last 12 month EBITDA was a very strong $297 million and therefore, our net debt to LTM EBITDA was just 1.3 times.
Importantly, the 10 year FX had a joint venture contract extensions, which are expected to generate in excess of $322 million of contract revenues for the company lock in value of these assets provide us with significant optionality going forward.
Before turning the call back over to Lois I'd like to discuss our success in implementing our disciplined and accretive capital allocation strategy. This year.
We've continued to significantly de lever, our balance sheet and strengthen our capital structure, which positioned us to begin to return capital to shareholders first putting in place a regular quarterly dividend and then executing share buybacks.
Notably, we have repurchased nearly 5% of our outstanding shares in 2020, well paying 18 cents per share dividends so far.
As long as mentioned.
In light of the extension of our EPS, So JV contracts and the sales of three older vessels, which further strengthened our balance sheet and cash generation visibility. Our board has authorized a renewal of our share buyback program for a further $50 million.
Simply say that we find that that said these valuations altogether and a d., we find our share price would be very attractive.
Yeah.
That concludes my financial remarks, I'd now like to turn the call back the lowest for her closing comments.
Well it.
Thanks, a lot Jeff.
We want to wrap up the call leading you.
On slide 13.
Reiterating some of our highlights for the third quarter.
With our side, mostly of crude and product tankers.
As well as our substantial contracted revenue.
Favorable time charters executed earlier this year during the strong rate environment.
First it solid quarter, despite challenging rate environment.
Notably our third quarter EBITDA.
$55 million was more than doubled.
That will be generated during the same period last year.
In addition to the poor time charters that we signed earlier this year, averaging $63700 per day for the fourth quarter.
10 year contract extension on our EPS. So joint ventures provides a strong period coverage in a challenging market in.
In addition to locking in the value of these important assets, we expect to generate in excess of $322 million of contracted revenues during the extension period.
It strengthens our position to continue to optimize revenue throughout the tanker cycle.
And provides us with significant optionality.
During the third quarter.
We continued to deliberately execute on our disciplined and balanced capital allocation strategy.
Creating value in providing returns to shareholders.
The board has authorized the increase of our existing share buyback program from $30 million to a total of $50 million.
We continue to.
To act Opportunistically for the benefit of shareholders.
And we find ourselves to present, an attractive opportunity.
During the time, when we have continued to de lever and reduce our break even level to $17600 per day.
Our overall financial strength has improved this.
This is highlighted by net loan to value of 39%.
This represents one of the lowest leverage profile among our tanker peers and we have $194 million in total liquidity.
Going forward, we remain in a position.
To return capital to shareholders and to take advantage of strategic opportunities as they arise.
Thank you very much and we would now like to open it to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're anything because please pick up your handset before pressing the keys so.
Well its hard question. Please press star two.
The first question comes from Randy given of Jefferies. Please go ahead.
Oh, the lowest Geoff and David how are you all.
Good good thanks.
Great excellent Yeah first you know obviously congrats on the EPS. So contract extension you know based on our math I think the new EBITDA contribution for your 50% is more than $20 million per year for 10 years. So clearly that is a you know I'm a noncore asset for I NSW. So what are the thoughts on EPS.
Either you know selling your portion of the joint venture or maybe even the opposite right buying the other 50% some of your UNEV.
Well Indeed, you know this the conclusion of this contract really represents a you know years of hard work and I think exemplifies how these particular assets you know being on the steel from 2010, Randy and having absolutely zero off hire time odd. We're so pleased to have secured.
Renewal, especially when the offshore markets are are.
You know it certainly not stellar at the moment. So for US. This is a huge huge conclusion and really makes this project shine for the joint venture.
So having concluded it you know we do have options. We do consider these assets to be noncore and you know with our JV partner, we will explore how to to maximize.
You know the in my monetize these assets going forward.
Okay and.
And I guess segue in with that monetizing assets you know can you provide us with a little.
Maybe additional details on the decision to sell the three older vessels you know what the aggregate sales proceeds are in the debt repayment associated with just trying to get the impact on liquidity from this.
Yeah, the the beautiful on the beautiful thing.
You know just keen to pay down the $40 million.
Loan that was our transition loan on the older vessels. So these three doxil sale, our unencumbered and.
They will bring in $62 million in cash into international Seaways.
If you're asking why did we sell those particular vessel. We felt that we were able to realize a you know a healthy sales level and bring that money into the company and then utilize that for capital allocation in a better way.
Wow, all right well, it's a meaningful number I guess just following up on that you know you're increasing the share repurchase authorization, even without you know using in the third quarter is that the top use of cash or is it kind of debt repayments still the top priority here.
Oh, Jeff do you want to take that.
Sure Yeah, Yeah, we yeah, we had a lot going on in the third quarter. So sure. We were the guard business, but [laughter] I I've been asked that question before about the de leveraging <unk>, yeah, we and lowest mentioned that we have done all four types of capital allocation. This year and we bought it shipped very early on but that was kind of unique.
But dividends share repurchase and de leveraging we de Levered $79 based on regular scheduled interest payments or will have fighting every year, but any additional $70 million or.
Voluntary oh or on schedule additional debt pay downs, including the $40 million of that traditionally pay down in August. So yeah, we think that a that that's a pretty healthy.
Healthy amount.
It certainly it's kinda like saving money because you don't make a lot on your cash so paying down debt you you see how it gets it's like putting money to piggy back again.
You can get it back out again, when you sell a vessel have all you know all the proceeds available to her or whatever cap allocation. So I think you know when you heard me comment final last thing I'll say Randy is it you know it.
Less than one and a half times net debt to trailing 12 month EBITDA.
We're at a pretty good level, so you know I.
Yeah, I don't think we need to prioritize for de leveraging so I think well it's not at all so we we at these prices. We we look at our share price as being a pretty attractive value for use of cash.
I concur alright, that's it for me thanks, so much.
The next question comes from Ben Nolan Stifel.
Oh Please go.
I got it right <unk>, the Oh, Hey, guys. Good morning, Yeah, I have a couple of number one is and I apologize. If this is the way that it was but I'd like to think.
I think that it was that there it looks like there's an awful lot of panamax or L.R., one dry docking in the fourth quarter was curious.
Ah yes, some of that was brought forward or or in general and I know that it came up on a on a different call a yesterday I think that that.
No one else does bring a cord drydocking to the extent that they started that something you guys are doing in this kind of a trough market here.
You know then the these DASL many of them were due to Drydock earlier in the year there were significant can.
Congestion and very difficult for many of the repair yards to to actually affect the dry docks and because the COVID-19, and we were able to know, though the market was earning beautifully we were able to push some of those dry docks and indeed, we are pulling a few so Q4 to Q4 is a very happy.
Hi dock period time for us and.
That is a combination of implications from coal that having pushed them, but also from pulling and doing it at the time when the market is the lowest.
Okay very helpful and that's another thing that I'm.
I'm curious about you guys are in a relatively unique position on is.
Again you are.
Really just hearing crushing it really on your Panamaxes, which is hard to really differentiate and shipping in a commodity business, but you seem to be able to do that there are.
Although there than there has been or a west coast refinery, that's close there's talk of others.
Is there any risk that.
That maybe some of that.
Pacific Coast.
Trade it really fits in well with your Panamax and Panamax International business.
Is that at risk at all or is it more function of.
Where the crude is being sourced rather than where it's ending up.
Well you know Ben I would say its a combination and you know we're definitely following various refinery closures and.
You know there have been some on the west coast, but we have to watch very carefully because some of these refineries are trying to turn themselves into bio diesel facilities and.
You know you you may see continued movement you know in the marketplace I don't think that we're going to see.
An asymmetrical an inordinate amount of closure, particularly on the U.S. West Coast I think we're going to see a smattering of close their closings like convent you know down in the U.S. goal.
Some of the refineries in Europe, you know so we're watching to see what the impact is but presently we don't see that too, particularly disadvantaged see panamaxes.
Okay. That's helpful and that comment what's come out guard this morning, [laughter] not expecting that but yes.
The well and in General you know I think I'm just curious is it your view that.
Your.
Maybe a little bit more out of the product tanker guys I hate this though.
Fantastic for they these refinery closures are fantastic for the long term outlook for.
Oh, you know, especially larger product tankers.
You guys kind of play both right you're right a little bit more heavily oriented towards crude but how do you think without sort of necessarily having.
A bias towards one or the other I. How do you think all of this is playing out and what are you doing.
To position yourself for that.
You know we're watching everything it isn't happening obviously you know you you see that China has brought on over 2 million barrels a day over the last couple of years and still have more coming that's clearly a very ideal for the crude carriers on that.
On that once they put the refinery then they are going to run them, whether they have enough demand or not and then you see a lot of product exports out of China. So a lot of the <unk>.
<unk>.
Certainly in the Middle East you know, we see that there are going to be refineries coming online that should be quite good for L.R.
Remembering now that there's a significant number of l. or one or two that triggered the dirty market that we'd be perfectly happy.
To see them clean up and that should.
Mr. The mid size of the fleet, whether your Queen or your Dirty So you.
You know we're watching all of this with great interest and making sure that we're following the trend so that the next dollars, we send or in the sectors that we think are going to have the most robust dynamic.
Okay, but but you don't have <unk> or at least you're not willing to say that you have a kind of light on line of sight as to what exactly that.
I mean right now.
No I think we're pretty you know we are pretty opportunistic and you know we're going to be looking for as we go forward here into it through this down cycle, where the opportunities are.
Okay.
Right I appreciate it nice quarter guys.
Thank you thanks again.
The next question comes from Omar Nokta from card Clarksons Platou Securities. Please go ahead.
Yes, hi, thank you.
Yes, and Jeff you guys made it pretty clear that you find the stock pretty attractive at today's prices and a.
Seem to be hitting that buying back pretty quickly.
Curiosity does the does the board authorization com sort of hand in hand with the vessels you have agreed to sell.
In other words would you be buying back the stock irrespective of whether you decided to sell ships or not.
Well Omar I'm not sure if that's a such.
Such a simple question because you know in today's world, where you are in the middle of Corona virus and rates are.
Rates are not stellar levels I think as a.
Judicious company you need to look at your whole picture and what is your liquidity what are your what's the best use of your capital and you know make sure that which we feel we're quite comfortable with the financial strength of the company.
So you know we are taking what we believe to be the right moves selling some of these older vessels. When we can capture extra value above water recycle lots of <unk> level would be pretty significantly and I think that you know then you look at where is the entire company and then you're comfortable with.
Yeah, the $50 million buyback program. So you know.
You know if it's in boats I think will lead them aside as to what would have happened.
If we were in a position where we have the type of liquidity we do.
Okay can I just ask can I can I, just add Lois and how are you.
Another aspect that goes into it for example is the time truckers right. So the time cars, we entered into as well as the episode we have of course would be extended that's later, but the contracted revenue brings down the breakeven so.
When you look at the Breakevens, we highlighted in our deck, which include debt amortization right. So that's not before debt amortization. Its you know inclusive in that number of debt amortization. So that gives you a number.
You know, it's a bit of a window into what you think you can do in terms of generating cash.
Oh I get it in a weak market. So that's part of it as well you know so it's like I said, it's not any one thing. It's it's got all the pieces as you look at your capital allocation choices.
Yes. Thank you that's pretty clear I I, just and it's it's good to hear you know that definitely bigger picture holistic view.
I was just wondering if what I call about as Hey, our stock is cheap okay, let's sell some shifts to buy some stock and that's clearly not that not that no. No. No. You know what's interesting is that some of these you know how many sales you know, particularly on vessels that are 15 plus years old. These are many many months in the development.
So we try to do what we believe is the right you know take the right moves for the right time in the cycle and then it just kind of Serendipitously works out that debt it happens to be in an amount similar to to what we're able to buy back where we believe we may.
Maybe able to yes.
Yes.
Hello, Little verbal clue, Oh bar, the what we call that part of our loan facility, which we did in January that secured the older vessels, a transition well because you know with a lower amount of the older vessels. It's it's the job of these older vessels to at the right time.
You know exit stage left right. There and then you know that's that's their best use at some point is that get get a good last act as far as revenue goes and then leave the stage and that's that's for the benefit of the company entirely. So that's that would be happening are normal course.
Yeah, I know that it looks like that definitely had a very nice you know closing act yeah. They contribute nicely in Q1 and Q2, just yeah very strong.
Yep.
And then just maybe on the Jvs I mean really if we look over the past year. It seems that you know the jbs had been sort of like this consistent nice positive surprise and of course, the tanker market itself at least for most of the past year had had a nice run when you think about further investing do you see yourself and Moshe.
Mentioned this as you guys are evaluating opportunities now that the markets come in do you guys see yourselves, making outright purchases at the company level or are you thinking more about partnering with other companies to acquire maybe specific you know certain project type assets or are doing some sort of project level and.
Estimates on a joint venture basis, any sort of color you can give us on that type of thinking.
Well I guess the first part of the answer there would be speaking specifically about the episode and we've had you know a wonderful joint venture partner on that and and contract partners. However, we will not be looking to expand in the offshore space. I mean that is that is something that you should not expect from it.
International Seaways and when you look at on the tanker side I think when you start talking about on joint ventures, and things I do believe that there's going to be a higher level of innovation required from all of US ship owners and you know when you start talking about joint ventures to me there there could be a place for that in research and.
Development and trying to figure out what does what does a d. carbonite a future look like and what will be the most effective technology, because that's going to take a lot of really bright minds to achieve that.
Yeah great.
Thanks, a lot for that and thanks, Jeff and thank you.
Thanks, a lot.
Our next question comes from Greg Lewis of BTI King. Please go ahead.
Yes, Thank you and good morning, I'm, I guess I'm going to ask it a little differently clearly over the last year you guys have done everything you've said you've strengthened the balance sheet you.
Started to return cash to shareholders, you know the balance sheets, probably where you want it to be at.
At what point or.
I should I ask Lois how are you thinking about yeah.
Yeah.
And as you look at the market and see how the market is developing at what point do you use the fact that you're really strengthen the balance sheet too.
To maybe get a little bit aggressive and start buying ships because it does seem like assets prices have kind of come down I mean, I guess, they can always a law, where clearly you guys have a bullish outlook in the market you know maybe not in the next six months, but maybe longer term has been waiting so I'm just kind of curious.
Hi, how is there anything years, how are you thinking about that 'cause it because it does seem like you guys are in a great position to kind of.
You know really load up a little bit here.
You know.
I would agree and you know as we look at the market. Obviously, we're constantly following and looking at where are the opportunities you know it seems to us that de stocking will probably continue safe for you know maybe about a six month period and.
You know you never can call the perfect Meteor the bottom of the market, but we think that that will be coming in and then we'll be looking at opportunities accordingly.
And so just to tie it in I mean, clearly your stocks trading below any they so obviously the best use of the dollar is to buy the stock, but when you think about the fact that you can you know you're probably not going to use your balance sheet a box stock where you can use your balance sheet. The box ships. So I'm just kind of curious is.
It you know it.
Is there a level of discount to anybody that just you know or like are you I mean, I guess, how as you think about the stock price and we can all agree that it's.
At at at a too much of a discount to any day.
As you think about that is that does that come into the discussion about whether or not you think about it.
Going after and adding to the fleet.
You know, we're not you're not going to get a formula out of it but you definitely onshore wind with yeah, no. It's okay, but as we look at everything you know we look at you.
What does.
Our share price represent as a ship purchase price right, which I think is you know what a lot of people do and it's just always says you know were never we never Gonna do one thing and I you know I think that a little bit about Alan is wise and then I'll, let just come in and talk a little bit about that.
[noise] well sure I mean, I think source I mean, Greg balance is the keyword. That's that's how we see it in Q should be any company with good capital allocation strategy should be looking at a mix of things and evaluating them.
Continue so that's how we do it and there isn't a formula that's low said, yes.
Yeah, I definitely agree with something you said, it's not borrowing to to quite yet.
To.
Just to do sort of financial engineering, Yeah, that's kind of.
That would be cap capital speculation as opposed to capital allocation. So I like the term capital allocation allocating amongst a few different areas. So so that's that's that's how we look at it but I think the only thing that it's always in the equation is when you're valuing your stock versus and maybe you want to.
Look forward and make sure that you know if as is the case now where values maybe follow Moore's law. We said a minute ago. You know you could see yet that could have an effect, but you know again.
Yeah without getting a form that where we are as sort of got to be safely below any estimate or both.
[noise] current or forward anything you know.
Okay, Yes, sure perfect and then just one more for me I'm just looking at.
Now looking at at the October you know pack volumes, you know not a big increase and we know that they're still really you know ever thought on the brakes well, but.
<unk> production did go up half a million barrels a day.
Versus September that did that have I mean, just I mean looking at rates. It didn't look like it does but it did that what what the was that noticed in the market at all and really what I'm trying to get out as you know I think we can all agree that at a certain point in time OPEC is going to ramp production and I'm just trying to understand.
And you.
As that ramp happens like how should we be thinking about that in terms of.
You know really starting to tighten the mark.
You know there was a brief moment there from maybe a couple of weeks where rates did did pick up a little bit, but I think that a lot of that increased volume is being taken on vessels that are coming off storage, which is a piece of what needs to happen for for the market to.
To become healthy so I think we're just seeing this painful period, where that the de stocking I mean, if I use right and you're coming down 4 million barrels a day in Q4. That's powerful you know that's that's 360 million barrels you see in the U.S.
True commercial crude stocks are now somewhere around 490 million barrels they were at 550, they got to to touch the five year average are coming close you know the you want to see him around four six either they're heading in that direction. So you know I think.
We continue to see the draw downs on and demand picking up.
And the unwinding of the storage. So you have all these factors coming together so to US you know, we we think that there'll be a few months of a pain, while the de stocking happens and then you're going to see you.
You know increased demand and you know the market will pick up but we need you know as shift have unwound, they've absorbed that those additional barrels that came out.
Okay, perfect guys, Hey, everybody. So thank you for the time and have a great weekend. Thank.
Thank you so much.
Thanks, Greg.
The next question comes from Liam Burke of B. Riley FBR <unk> [laughter].
Thank you good morning, lowest Geoff and David.
Good morning, I guess [laughter].
Louis accrued deployment has been both an operational and cost challenge for you.
How much of that influenced your cash costs and how quickly do you see anything now that youve sort of gotten the deployment a challenge and why [noise].
You know what's interesting is what we're what we're really I'll answer the second part of the question first we're really glad that that weve taken no.
Measures, we would not in a normal in a normal cycle to repatriate people. Because this just continues cobot has not been resolved. So you know the idea of waiting for things to get easier.
It would not bear fruit. So we continue to do that so it's an ongoing challenge I would say you know.
Operationally you know what has what has that cost us you.
Yeah.
You had the fact that people weren't being able to be repatriated <unk> had no flight cost now very often the flight cost is more extreme but you know it hasn't had.
Two extreme of an impact on our EBITDA or on our on our net income at this point, but you should continue to expect US you know, we do some occasional deviations to Manila, which would cost a couple of days certainly at this point in the cycle that is much less painful.
Then then when rates were really high when we're sending these vessels for dry dock you know, we're we're doing crew changes. So we're doing everything that we can.
When there is a moment to meet these crude changes happened I don't have an exact costco broken out of what it has cost us but.
But it how you know it.
<unk>, we have de eat it by we don't.
Have an exact number on what how that would've had impacted things to date I don't know, Jeff if you want to add anything to that or bill.
No I think that's that's all.
Good good recap those.
Okay, No that's right sorry go ahead.
No no I think the lowest you you you captured it perfectly I mean it. It has we've been really fortunate to to manage the crew changes that we have and we see some you know associated costs as you mentioned, but we're really on track so.
[laughter], Jeff I hate to keep bringing up the capital structure, but you are operating in a high fixed cost business. Your debt to last 12 months EBITDA was 1.3 times your loan to value is almost 40% [laughter] you just content to just keep lowering those ratios or is there any better.
Once you see on the debt side to maintain capital efficiency yet in your business.
Well don't say, hey, they bring up Brad flying or happy just always talk about it I think I hit on this a little earlier that you.
You know what that these levels in it and I call. It maybe 35% loan to value to include the yeah, Yeah could sell at book value. So you know your mid Thirtys and your you know as you said 1.3 times.
Net net debt to trailing 12, EBITDA, but anything you want to kind of mid cycle EBITDA based on certain examples we put out there before if you look at our.
Our decks that are on the website you know.
Looking at maybe two times net debt to EBITDA. So you know, where it's a little higher than that but it seemed like a good level right I feel like we achieved our objectives in terms of de leveraging so you know it can you can see the benefit of that concretely not it's not just about averages or percentages are multiples it's about having.
You know if it becomes a right time to sell three older ships for $62 million like we did you know.
You get all the proceeds right. So you know it's it it I I think we I think we like where we are and I think that you know we've sized they the.
Share repurchase and dividends, so dividends six cents a share, but it's you know close to 2% right now, it's a pretty nice little no dividend yield that you.
If you pro forma that the 50, a share repurchase with the 30 that the millions that we've already done you know you look you know that's an over 20% return to shareholders.
And ill close to 70% of last 12 months and I think up. So you know what gives you all the factors you take into place to balance. It you know are kinda talk question that was asked before there isn't any one thing or one for me are you just try to strike a balance and that makes me feel makes management. The board feel makes the most that's.
Correct.
Thank you Laura Thank you Jeff.
You bet. Thank you Liam.
This concludes our question and answer session I would like to turn the conference back over to Louis is so brosky.
I'm sorry, the rocky for closing remark.
Either way works. Thank you very much everyone for joining us today see ways is well positioned to not only weather this downturn, but to actually add to shareholder value.
We believe we can find that even at this point in the cycle. So thank you very much and everyone take care they say.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.