Q1 2021 Overseas Shipholding Group Inc Earnings Call
Thank you very much Kate.
Morning, everyone and thank you all for joining <expletive> and be on this call from the presentation of our 2021 first quarter results.
And for allowing us to provide additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead.
As usual and Molly RCA and Princeton Mcfarland are participating with us on this presentation.
Start I would like to direct everyone to the narrative on pages, two and three of the Powerpoint presentation available on our website regarding forward looking statements estimates and other information that may be provided during the course of this call.
The contents of that narrative and important part of this presentation and I urge everyone to read and consider them carefully.
We will be offering you more than just and historical perspective on all of Us G. Today and our presentation includes forward looking statements and statements about anticipated future results.
These statements are subject to uncertainties and risks.
Actual results may differ materially from projections could be affected by a variety of risk factors, including factors beyond our control.
For a discussion of those risk factors, we refer you specifically to our annual report on form 10-K from fiscal year ended December 31, and 2020 and our other filings with the SEC, which are available at the SEC's Internet site Www Dot FCC dot Gov as.
As well as on our own website Www Dot O S T dot com.
Forward looking statements in this presentation speak only as of the date of these materials and we do not assume any obligation to update any forward looking statements, except as may be legally required.
In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile and most closely comparable GAAP measures and.
And our first quarter earnings release, which is posted on our website.
The ongoing correct Corona virus pandemic and associated Lockdowns business closures and travel restrictions continue to severely impact global and national energy markets and by extension and demand for crude oil and refined products Marine transportation.
And this very difficult operating environment and the results announced this morning and met our expectations and point to the continuing benefit of having a diversified asset portfolio.
Although our conventional Jones act tankers experience losses this quarter, our other operating assets performed largely in line with historical norms.
Nick will take you through those details shortly.
As it has been only a short months since the last time, we spoke publicly about the state of our business.
I will add only brief comments and the way of and updates to our last presentation.
The pace and trajectory of demand recovery continues to be influenced by many factors, including importantly progress resolving the pandemic outside the United States.
Near term uncertainty will continue to define wide spectrum of possible vessel reactivation and outcomes.
As we move through the current quarter.
Domestically the trends that we have identified and our last presentation and continue to show improvement provide.
Provided and the slide deck on pages numbered five to eight our charts updating the datasets that we presented on our last call.
And will not repeat the explanation and logic chain as to why we see these trends depicted and these slides is supportive of our recovery ceases.
And you want to watch more details and this may refer back to my comments keep it on our April call.
Suffice it to say that we remain encouraged by the underlying trends.
I would however highlight the data on refinery utilization rates.
<unk> data indicated and $86 five utilization 86, 5% utilization rate nationally and importantly for our trades, a 97% utilization rate and pad III. The first time since the onset of the pandemic and utilization rates and the reason it exceeded 90%.
Inventory levels for both gasoline and diesel remained below five year averages and high frequency data points continue to indicate demand for these products on and Oprah upwardly sloping trend.
Even with these improving trends public commentary from refiners and distributors characterize the emerging emerging recovery is a grind with progress being slower than hoped for and sensitize to local pandemic conditions.
Domestic gasoline consumption remains about 5% below pre pandemic norms.
Net fuel consumption is 25% to 30% below historically comparable levels.
Cautious commentary from our customer base confirms our view that they remain relatively risky for us while awaiting for clearer signals of a sustained demand recovery.
It is clear to us that we remain and the early stages of emerging recovery, which we anticipate will become more fully apparent as the year progresses.
We believe that as our customers and visibility and confidence and the future returns more typical customer behavior and time charter activity will be about <unk>.
Leading to improved financial performance for <unk>.
Market conditions that have led us to lay up six tankers and one of our lighter and Atvs has been showing signs of improvement domestically, but as noted heightened uncertainty remains a concern for many if not most of our customers and.
In particular, the surge of recent virus spread outside of the United States and the resulting drag on economic activity internationally.
And that good to inhibit a rebound and international tanker markets.
Weakened demand for refined products overseas.
And with very low freight rates and the.
The international market have combined to induce meaningful increase and petroleum product imports in recent weeks.
Last week gasoline imports topped 1 million barrels per day nationally for the third week in a row and for the fourth time and the last five weeks.
These elevated import levels have dampened demand for domestic refined product and a corresponding impact.
Refinery utilization rates.
While EIA data continues to show improving run rates and domestic refineries the slope of recovery has flattened somewhat in recent weeks and the sharp recovery seen following winter storm jewelry.
As we've progressed in the months ahead, a continued increase and refinery utilization rates and improving demand for refined product outside the United States should have the effect of reversing the import trends seen recently and act stimulate demand for domestic maritime transportation.
Since the end of the first quarter, we have seen encouraging signs of slowly increasing demand for card and moments on available vessels spot.
Spot cargo fixtures for tankers emerged in April for the first time and nearly a year. This.
And this activity has allowed us to keep the overseas Houston working and the spot market since Youre re delivery from time charter at the end of March we.
We are also maintaining the availability of the overseas Boston on the West coast at this time.
As vaccine distribute distribution continues to expand and there was a continued lifting of the COVID-19 restrictions mobility and related U S consumption of transportation fuels are expected to normalize to fuel demand patterns consistent with historical levels.
With product inventories below average levels at this time of year, the normalization of consumption patterns should stimulate war marine transportation demand, leading us to reactivate our vessels from lab.
Our near term focus is squarely on sustaining sufficient liquidity to ensure a pathway for our long term future.
And this context, we ended the quarter with $45 million and cash on hand.
We have us well contracted to sell the overseas Gulf coast with delivery schedule and near the end of this month.
Proceeds from the sale of the overseas Gulf Coast, which is debt free.
Approximately $32 million and the digital cash to our balance sheet at month end and position OSP to and the second quarter with about $60 million of cash on hand.
We have taken steps to defer capital expenses, where appropriate and to reduce vessel operating and shore based overhead spend in ways that will not compromise our commitment to safe and reliable transportation.
Incremental gains achieved through these efforts, we will remain important and the months ahead and acknowledgment should be given to all who have worked hard to bring about these results.
Our conviction remains that a recovery of normalized chartering and demand as a question and not appear but wet from.
Lack of committed employment for such a large percentage of the available Jones Act fleet is a function of missing demand and not as in years past a reflection of a fundamental excess of supply.
The steep backwardation in crude oil future March markets is it pricing signal that the market wants and needs more oil and.
Demands transport this oil should follow.
Our short term forward planning anticipates, a return of demand for our time charter transportation capacity.
During the second half of this year.
And are waiting this development, we will continue to regularly assess the prospects for our <unk> Jones Act tankers and one later and we ATB currently in lay up.
Availability of acceptable vessels and the Jones Act remained static at worst and most likely will tighten in the years ahead and.
Incremental demand from emerging product flows of renewable diesel and potentially other alternative fuels.
Should add the domestic baseload transport needs for crude oil and refined products.
Sentiment is and will remain an important factor and the decision trees that affect our businesses and.
Analogous to Yogi Berra us observation that baseball success is 90% physical and the other half mental.
I think it's fair to conclude my comments and summing up by saying that my senses for the tanker market, especially at this time.
The market is 90% fundamentals and the other half second.
With that I'll turn it over to <unk> to provide further details of our first quarter results for 2021. Thanks Sam.
Our first quarter results as Sam mentioned were consistent with our expectation.
The market continued to be depressed as COVID-19, lockdowns and reduced economic activity persisted in the face of higher disease levels.
Elevated inventory levels depressed refinery operations and reduced mobility and characterize the quarter.
And our storm euro effectively shut down many Gulf coast refineries.
Additionally, international Petroleum markets continued to be unsettled and international transportation rates were at historic lows.
And the circumstances resulted in our customers' continued willingness to make transportation commitments.
Spot market activity for the first two months of the quarter was virtually nonexistent and those moves that did occur were small and accommodated on atvs.
March saw an increase and spot market activity, but again over accommodated on atvs.
We continued to manage our costs by maintaining ships in layup for which there is no current demand the day.
Daily per vessel operating cost reduction is approximately $15000.
As we indicated during our last call our expectation was for breakeven adjusted EBITDA and the first quarter with a modest increase and the second quarter.
Overall, we continue to expect approximately the same level of combined first half EBITDA.
As we look ahead.
Vaxstation vaccinations and declining disease levels, resulting in wider reopening of society.
Airlines and reactivated and their fleets and jet fuel consumption is beginning to rise.
<unk> are predicting that kind of travel demand will result in a spike this summer.
One of our vessels currently in the spot market has been performing a series of voyage charters all in direct continuation subsequent to the end of the first quarter.
We have another vessel currently available in the spot market on the West coast.
We continue and our firm belief that the recovery and our market is a question of time not one we.
We expect to see demand return during the second half of 2021.
The expectation of significant operating improvement coupled with substantial strengthening of adjusted EBITDA. If you take a look at slide 11. Please.
TCE revenues declined 32, 5% when compared to the first quarter of 2020 and sequentially declined by 23, 9% from 2000 Twenty's fourth quarter.
The decreases result, six vessels in lay up at the end of the fourth quarter, one additional vessel placed and lay up at the beginning of the first quarter of 2021 and.
And one vessel trading in the spot market collectively, causing a reduction in vessel utilization.
Currently we have seven vessels in lay up.
During the quarter, we had two additional vessels redelivered to us.
One vessel post re delivery operated on a short term time charter through mid April and is now currently available and the spot market.
The other vessel and has operated under a series of voyage charters and direct continuation of one another.
Additionally, the overseas Martinez, which had been available in the spot market without employment since October.
Entered into a six month time charter with two to three month extension options.
Adjusted EBITDA and the first quarter of 2021 declined significantly from the year ago quarter, which included a $19 $2 million gain related to our acquisition of the Alaska tanker company.
Drydock days decreased to 43 from 74 and the fourth quarter of 2020.
Please turn to slide 12.
The TCE revenue change was most pronounced and our Jones Act tankers, where you experienced a year over year, a 50% decline and revenues.
Sequentially the decline was 39%.
We had six Jones act tankers and lay up during the quarter.
And the overseas Martinez again, and what's available and the spot market, but not employed prior to entering into the previously discussed time charter.
The MLR tankers represent six of the seven vessels currently laid up.
Lighter and revenues were flat compared to the fourth quarter of 2020 and declined 45% from the year ago period, when we had both lighter and barge is operating.
<unk> $3 50 has been and lay up during the fourth quarter of 2020, and the first quarter of 2021.
Wider and volumes have decreased reflecting our customers reduced demand for crude oil, resulting from the pandemic induced decline and our refinery operations.
The first quarter of 2021 is the first quarter and which both of our new go to Atvs were in operation for a complete quarter.
We have previously sold for recycling all of our rebuilt atb's. The two newly Adb's will operate under time charters throughout 2021.
We also operate for non Jones Act tankers, the overseas Gulf Coast and overseas Suncoast and.
And completed their one year time charters at the end of the third quarter of 2020 and <unk>.
Since then they have operated and in international MLR pool on a time charter arrangement realized rates of decline due to the international market conditions.
<unk> notes and Santa <unk> continue to perform and the Maritime security program and provide services to the government of Israel.
During the quarter, we performed one voyage.
Our Alaskan tankers acquired in March 2020.
And all operate on long term time charters and continued to perform in line with expectations.
It was the first quarter of 2021, and the fourth quarter of 2020.
And one months each of the two month dry dock period for the Alaskan navigator.
The resulting off hire period accounted for the decline in revenues for these vessels.
Please turn to slide 13.
Conventional tanker spot market TCE revenues continued at the diminished de minimis level seen since the second quarter of 2020.
The decrease and fixed revenues during the quarter were as previously discussed driven principally by the number of vessels and.
And lay up.
Write off hire days continued to negatively impact revenue, but to a lesser extent, but during the fourth quarter.
Please turn to slide 14.
Revenues from our niche businesses declined compared to both the same quarter last year, and Q4 2020 due to reduced customer demand for wider and services, resulting from the pandemic.
Coupled with the lay up from one lighter and barge and one shuttle tanker that had been operating as a conventional tanker.
Lighter and revenues were flat compared to the fourth quarter of 2020.
And decrease from the first quarter of 2020.
Due to the lay up of the OSB $3 50 during the fourth quarter.
Non Jones Act tanker revenue decreased compared to both the prior quarter and last year due to lower international rates as well as a reduction in demand.
Revenues from shuttle tanker and providing shuttle tanker services were essentially flat from the prior quarter and year.
Please turn to slide 15.
Vessel operating contribution which is defined as TCE revenues less vessel operating expenses charter hire expenses declined 71% from Q1, 2022, 11 4 million and the current quarter.
The Jones Act tanker swung from a contribution of $12 4 million to a loss of $12 3 million.
This $24 $7 million swing results from the six tankers currently laid out due to the lack of demand.
The combined vessel operating contribution of our niche market activities Atvs and the Alaska crude oil tankers provided and vessel operating contribution and the current quarter of $23 6 million compared to $26 4 million and last year's comparative quarter.
And each market contribution decreased $8 6 million from last year. It gives us the.
Klein and lighting lighter and revenues lower international rates and the lay up the OSB and $3 50.
The increases and the Alaska tanker vessel operating contribution.
Reflects a full quarter of operations and the first quarter of 2021, partially offset by one month of dry dock off hire from the Alaskan navigator.
Compared to a partial month of cooperations and the year ago quarter.
As mentioned previously our new ATB, both operated for the first time and this quarter.
Quarter.
Sequentially.
Operating contribution decreased $12 8 million from Q4 or 2020.
$9 $8 million of this decrease resulted from the six tankers and lay up during the first quarter and one tanker that was available and employment for two months of the quarter.
The reduction in demand by.
And by our Delaware Bay, lighter and customers and reductions and international rates and demand contributed to the remaining decrease.
Please turn to slide 16.
First quarter, adjusted EBITDA decreased $46 6 million $52 8 million and Q1, and 2020 to six 2 million and the current quarter.
We recognized a $19 2 million dollar gain related to our acquisition of Alaska tanker company and the first quarter of 2020.
The operating decrease resulted from lower utilization levels in Q1 2021 for our MRI tankers.
<unk> from the vessels in lay up virtually no spot market activity for tankers during the first quarter.
Decreased demand for wire and services due to pandemic reduced demand and lower international tanker rates.
The impact of this was partially offset by our Alaska tanker operations.
Essentially adjusted EBITDA declined $43 million from the prior 2020 quarter.
And the quarterly decrease was driven by the previously discussed factors.
Please turn to slide 17.
And early April 2021, we entered into a contract so the overseas Gulf Coast, which is unencumbered for $32 $5 million and an all cash transaction.
Completion of the sale is expected to occur in late May 2021.
This transaction will provide approximately $32 million of additional liquidity to the company.
And our balance sheet, we have classified as assets held for sale at March 31, and 2021 and the first quarter reflects the estimated loss on the sale of $5 $4 million.
Net loss for the first quarter of 2021 was $15 9 million compared to net income of $25 million and the first quarter of 2020, which again included the 19 to $1 $2 million pre tax gain.
Gets to the ATC acquisition.
The change was driven by the loss associated with the Gulf Coast sale lower vessel utilization decreased lighter and demand.
A reduction and international rates.
With all of which were partially offset by our Alaska tanker acquisition.
Please turn to slide 18.
Our capital expenditures will be well below 2020 levels, which were elevated due to the number of vessels required to go through their normal drydock cycle and the installation of ballast water treatment systems.
2020 capital expenditures were $43 $8 million.
Write offs and ballast water treatment systems investment 2021 is estimated at $27 million.
Approximately 80% of this effort will occur and the first half of the year.
Vessels are in drydock or otherwise unavailable for us they are off hire even if otherwise employed on a time charter.
We lost $2 5 billion.
And revenue is due to off hire during the first quarter.
Turning to slide 19.
At the end of 2020, we had total cash of $70 million, which included $100000 and restricted cash.
During the first quarter, we generated $6 million of adjusted EBITDA and.
Working capital consumed $4 million of cash.
We expended $8 million on dry docking and improvements to our vessels.
And we invested $3 million and vessel and other capex.
Additionally, we incurred $6 million and interest expense and repaid $10 million and debt.
The result was we ended the quarter with $45 million of cash, including a 100000 of restricted cash.
Please turn to slide 20.
Continuing our discussion of cash and liquidity as we mentioned on the previous slide the at 45 million and cash at March 31, 2021, including a 100000 and that was restricted.
Our total debt was 426 million this free.
Represents a decrease of $10 million and outstanding indebtedness since December 2020.
We will amortize and additional $29 million of our loans over the remainder of 2021.
With $364 million of equity our net debt to equity ratio is one time.
This includes concludes my comments and the financial statements and I would like to turn the call back to Sam.
Thank you Nick.
Largely speaking we consider the financial results achieved during the first quarter of 2021 to be satisfactory given the continuing pandemic environment.
While our forward planning contemplates the continued lay up and several vessels from the immediate future.
We consider the prospects for demand recovery during the second half of this year to be a reasonable expectation spurred by a return of a healthy gasoline and diesel demand and the United States increased fiscal stimulus and a return to more normalized levels and mobility.
As seen from the results of the just completed quarter, we expect continuing strong contributions from the ATC vessels on charter as well as the expected revenue streams from our other niche businesses and <unk>.
Particular, our two active seven and tankers and our existing MSP vessels. And addition during 2021, we have committed revenue streams for the full year from both of our two new barges the OSC tool for <unk> hundred five.
These cash flow stabilizes provide confidence that we will ride out the market weakness and carry smoothed, what we believe to be fundamentally promising medium and long term future.
Challenges remain as new opportunities are renewed fleet provides us a profile of assets with a reduced average age.
Continue to achieve lower costs and material improvements and our key safety and operational performance measures we.
We are focused on achieving high health and safety performance and the continuing COVID-19 environment.
And we remain confident and our long term success of our business model and <unk> ability to maintain its position as the leading U S flag tank vessel, operator, and the years to come.
We can now open up the call for questions.
We will now begin the question and answer session.
To ask a question you and press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question is from Ryan Vaughan from Needham and go ahead.
Hi, Sam and <expletive> and good to hear from you guys and thanks for taking my questions.
I have two if you don't mind. The first one is just listening to your call peer calls and even some of the consumer U S consumer travel companies and it really sounds like business travel is coming back nicely and without the Texas freeze and let's say the.
So in ports.
It sounds like you're a lot of your vessels would probably have some charters now or be back in business and he is running on the spot market. So clearly the taxes event was a onetime event, but just Sam you touched on it briefly in your remarks, just on the international imports being quite high do you think theres been a permanent shift there.
Or do you think it's more just some of the European countries have just been slower to reopen so.
If it is that any sort of best guess on timing early summer late summer or anything you can add on that and then number two <expletive>.
Liquidity at $45 million at the end of the year I think you said 60 at the end of Q can you just update I know you told us last month.
And you felt comfortable but just one month later, just youre going to bring and the Gulf Coast cash just how youre feeling going into two Q3 Q.
As business.
And probably comes back at some point in time, whether it's late <unk> or some time and <unk>, just how youre feeling about liquidity over the next couple of quarters. Thank you.
Yes.
Alright, Okay, so I'll try and deal with your first question.
No.
We have frequently.
Pointed in response to questions and the past that although the United States and the Jones Act.
From time to time characterize as being insulated or isolated marketplaces.
They really are not.
<unk> energy the energy markets are global markets price differentials and other factors.
And that can influence.
Price differentials.
Can be arbitrage through transportation capacity and through through traders that are moving commodities around the world too.
Two to arbitrage those differences.
My view right now is what Youre seeing and the international markets is a very weak.
International tanker market.
Reflection of the fact that outside of the United States with possibly the exception and China.
Most countries are still suffering badly from the pandemic and many countries are have either been and are currently entering into increased lockdown conditions.
Conditions.
Which obviously has an impact on mobility and.
Transportation fuel demand.
Demand you'll.
You'll see that and Europe, you see that now and South Asia.
Latin America also having spikes and the pandemic.
Spread.
And that creates weak markets for international product.
Okay.
So for the time being.
You couple that weak demand for product with weak demand for transportation and and international MRO rates hovering in the sort of single digits, six seven and $5000 per day.
And that opens up the opportunity to take excess production out of Europe in particular and moving into the United States and that's been.
And then what we have been witnessing for the last 456 weeks is a large surplus gasoline production and Europe is finding its way into the east coast, the United States, even as far South as Florida.
You look at.
That picture and again logic dictates that that's not sustainable and international tanker rates from $45 $6000, a day or below operating costs for international operators.
It can be sustained for a period of time, but not for a long period of time, eventually leading to either a culling out of capacity or.
And for vessels that would have the impact of shortening up supply.
I think the international market commentary.
Also believes that.
And <unk>.
Fuel consumption and transportation and fuel consumption globally will rebound and the second half of this year. So I think a lot of that capacity is being.
Held available and anticipating that recovery and.
You know rates can move quickly based on short term.
<unk> and demand so.
And I said and our last call we need to see the international MRO tanker rates move back up to above $10000 a day that.
And that would be certainly a big help and trying to.
Remove that transportation and arbitrage that currently exists and bringing product from us from Europe.
The other thing is just to see European economies begin to get back on their feet.
Because some of that excess production would then be absorbed and locally and Europe.
And then we'd be less incentive to be able to push to basically dumped that excess product and the United States.
What I find encouraging and I addressed in my remarks is notwithstanding all of this increase.
Increased import activity and refining rates and the U S continue to inch up.
And ultimately.
The principal driver of tanker demand and the Gulf Coast.
Gulf Coast region.
Is that movement of transportation fuel from pad III and to Florida.
And what are the chart sites were up there.
It was.
And the continuation of the presentation, we made in April.
You can see that mobility, and Florida has regained its pre pandemic.
Levels now.
And that's not necessarily a true.
Ride and proven.
Data said, it's a Google data set that people are looking at us.
As a high frequency data set but it certainly indicates.
Improved conditions and I can tell you <expletive> and I talk about this all the time, there's plenty of traffic year and Florida. There is no indication anecdotally as you look around and and Miami and Tampa and and.
Orlando and places that I visited in recent weeks.
Florida is full on.
And we and we feel that every day, we see the inventory levels you can see.
The pad three one and see inventory levels.
We continue to be at reduced levels eventually product needs to move in to fill those inventory.
And drawdowns and.
And we think thats coming timing.
I've said 100 times.
The skill set that we have and our toolbox predicting the future was a high level of accuracy is probably the least developed that we have.
But we look at the logic and we look at the.
When we look at the fundamentals that are there.
We feel.
It's all pointing in the right direction and.
Our job right now is not to call that turn but to make sure that we're ready to be able to participate and that turn.
And with sufficient levels of liquidity and ensure that we have the runway to get there.
So to go on to the second part of your question Ryan.
<unk>.
Entered into the sale of the Gulf Coast.
Sort of provide some additional insurance that we had adequate liquidity to get where we need to go to realize the recovery that we see coming and the second half of the year.
We will by the time.
Second quarter ends as I indicated we will have.
And that most of our capital dollars for the year and so the remaining capital commitments will be.
Relatively minor in nature.
And the shifts that.
And all of those are on time charter that are on charter will be fully in service. So they will generate their normal levels of cash flow and net.
And on that basis.
And we think we have.
And the kind of runway that we need to get to the other side of this really demand dislocation that we're experiencing right now.
We.
For all the reasons that sounds has gone through we see business coming back and the second half of the year.
Much of our business generates positive cash flow today.
Part of it consumes cash today and that we need to get past that and.
And the part that is.
<unk> cash consumer today, we've taken all the steps that are prudent and reasonable to take to minimize the daily cost of those ships and operating them or at least maintaining them and layout.
And.
The rebound as you put one of these ships back and service.
We'll be dramatic I mean, youre talking somewhere.
Incremental cash flow on it.
Annualized basis per vessel somewhere on the order of $17 billion per vessel.
No.
We believe we're on the cusp, we have those kind of resources, we need to get to that point and time and.
We expect to start realizing that and the second half of this year.
And then if you have a question. Please press Star then one.
Our next question is from JA Mitsui.
And from value investors right go ahead.
Hi, Good morning, Sam Good morning, Jake.
Hey, good morning, Tim it.
It seems like we are we just talked a few weeks ago. It's a quick turnaround here and I'm glad that we did if you wanted to at that time.
So Q1 was a difficult quarter theres a lot of stuff going on and you had the COVID-19 overhang, we had the Texas free is obviously a trough quarter, we're starting to see green shoots as you mentioned, but I know theres, a little bit of a lag effect and in the way of vessel revenues are recognized and lay up cost come in and that sort of thing is Q1 going to be the trough.
The bottom here in terms of reporting EBITDA and earnings or is Q2, what's kind of the and factor on this next quarter.
I think.
Without making real solid predictions I mean, I think what I said was.
And the last call that we'd be the kind of breakeven EBITDA for the first half of the year and I don't think thats.
My opinion hasn't changed there that we will be about breakeven for the first half of the year.
There is a lag and our customers need to get to a point, where they're willing to make commitments again.
And we need to bring them when they do that we need to bring shifts back into service there will be a little lag.
Because we'll need several weeks to accomplish and getting them prepared to operate again.
So and so you've got the sort of the cycle has entered into a contract which will consume.
A certain amount of time.
All by itself and then follow on that with the restoration of the shift to service and the preparation of that ship for service.
I think the likelihood is you would see.
The performance really start to change and Q3 and thereafter.
Yes, Thank you and I think that makes sense and it's just important to have realistic expectations on this sort of thing and it's looking really nice for Q3. So we're excited there can you give us an update on the related debt to your second international tanker. The Suncoast I know you've repaid the debt associated with Gulf Coast, just sold that one how much is left directly against us on cash.
Yeah.
Yes.
And in round numbers about $23 million.
$23 million, okay, good and hopefully you'll be able to operate that one and look at that tanker security program expansion next year, but if not it's good to see that there's a pretty nice equity cushion there. The MSR values have improved nicely and I'm looking at your second half of this year. It's obvious that you are spending almost all your dry dock costs frontload.
And all of the ballast water upgrades are frontloaded, where and the biggest trough and the market right. Now Q3 is looking like we could shift to strong free cash flow mode.
If your shares remain at these ridiculous valuations obviously today, it's all about playing defense, but if these shares remain at these very low valuations and Q3 or Q4 and the free cash flow is very positive are there any mechanisms you can pull to start to correct that is there any appetite for share repurchase or something of that manner.
Yes.
We've been asked this question frequently and the past.
And my General.
My General opinion, and this is my opinion and everybody has different opinions, but my general opinion is.
Dividends in the shipping market or shipping companies that pay dividends and don't get much value for that because the market looks historically and says that shipping companies.
Capacity to maintain a sustained dividend and what is historically, a pretty volatile and cyclical market US question. So you don't really get much value for paying and dividend, although large shareholders would probably like to get the ceded that money.
It's also tax and efficient to do that.
Share buybacks.
Yes.
That's something that could be and the two <unk>.
And through box.
But again the volumes are.
Our share on a daily basis the trade.
And the limitations that we have in terms of regulation in terms of how much shares we can actually buy and a buyback program.
Given those sort of daily averages.
That takes a long time to kind of moving the needle to be able to actually acquire significant numbers of shares so I'm not certain that that really works for us as well.
So that leads me to believe that.
The.
If the pretty picture that you paint that we return into a healthy surplus cash flow environment.
If that materializes.
And the near term.
The bias would probably be the direct money towards.
The reduction of debt.
As a first order of priority.
In theory, if you're a business like ours is valued as an enterprise value than reducing debt has the same impact us.
As.
And whatever it is.
Buying back shares.
Your equity value is going up on that calculation.
And it's delevering, the business and reducing the risk level of the business and some extent and also generates more earnings for the company because we pay less interest expense and so.
As I said, I'm, one voice and arena and people that have an opinion on that but.
The conversations that we've had in the past.
Lead us and the short run to probably look at.
And focus on trying to delever, the business, a little bit more and the near term.
I would say that.
We still believe that there are opportunities for us to deploy capital.
In assets that would generate incremental revenue and incremental cash flow. So.
The first priority and would always be to try and look for opportunities to do that.
And.
And those opportunities are episodic.
And we really don't have much control over the timing more than that.
Emergence of those but.
There are opportunities to acquire like assets.
In our sector.
And there are opportunities.
And my view.
To start looking at sort of the evolution of shipping into whatever comes next and how we're going to be able to how we're going to be able to participate and that evolution and I'm talking about and.
And over the next 20 years.
Changes and propulsive systems changes and the carbon footprint that our industry.
Leaves and these are all larger issues that we're going to have to start dealing with and the next five years or so.
And and opportunities even that exist and adjacent spaces.
And maybe that has to do with renewable energy or or new ideas about how energy would be produced and transported around the United States and so those are.
Those questions.
Do come up and they exist on our longer term agenda.
So.
If there are opportunities to profitably deploy capital and those kind of areas something that we would give regular consideration too.
Okay.
Thanks, Sam I appreciate the rundown, there yet, but definitely a lot of different things you can look at for free cash and first off we just have to get there. So we're looking forward to Q3 and looking forward to that the only frustrating thing here is that you guys trade. If you normalize the EBITDA you guys trade at about five times say five five times enterprise value to EBITDA every single one of your peer comps U S. Trans.
<unk> and U S energy logistics, whatever you want to slice and dice it and they're all at eight 910 11 times right and you guys are at 5%. So that's the only reason I really kind of harp on repurchases I know, we're kind of and the defensive spot right now and I do like hearing about debt reduction so keep up the good work and we're looking forward to a much better second half.
Thanks, Jay Thank you Jay.
And again, if you have a question.
And then one.
As we have no more questions. This concludes our question and answer session I would like to turn to cash from the.
Conference back over to Sam Norton for closing remarks.
Thank you Kate and thanks again to everyone for participating on today's call and we look forward to speaking with you again in August.
And we.
We expect to be able to have better news to share with you and until then wishing you all well. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.