Q1 2022 Overseas Shipholding Group Inc Earnings Call
Okay.
[music].
Hello, all under a warm welcome to the overseas Shipholding Group first quarter 2022 results Conference call. My name is Lydia and there'll be the operator today.
If you'd like to ask questions at the end of the prepared remarks, you may do so a question star followed by the number one on your telephone keypad.
It's my pleasure to know how would you like to try some notion president and Chief Executive Officer.
Go ahead, Ben your orebody.
Thank you very much lidia.
Good morning, Thank you all for joining <expletive> Trueblood.
Call for the presentation of our 2022 first quarter results.
For allowing us to offer additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead.
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, an important part of this presentation and I urge everyone to read and consider them carefully.
We will be offering you more than just the historical perspective on <unk> 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 those contemplated by our forward looking statements and could be affected by a variety of risk factors.
Cleaning factors beyond our control.
For a discussion of these factors we refer you to our Form 10-K for 2021 filed with the SEC and our form.
Form 10-Q for the first quarter of 2022, which we anticipate being filed later today.
Both are available at the SEC's Internet website, www dot FCC dot Gov as well as at our own website Www Dot <unk> 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 prayer.
<unk> today include certain non-GAAP financial measures, which we defined and reconciled to the most closely comparable GAAP measures in our earnings release, which is posted on our website.
The continuing impact of Russia's invasion of Ukraine.
Hardship being borne by the people of both countries as a result of decisions and actions as directed by the Russian leadership for them.
And our thoughts as we speak with you today.
As has been the case since the onset of the complex.
We are hopeful for a swift and the ongoing violence disruption there.
At the same time, the persistence of COVID-19, its toll on human life, and especially outside of the United States. Its impact on economic output serves to remind us how far are we still need to progress to return to normality.
All indications of improving business conditions in our core businesses are encouraging for OSU.
Conflict independently continue to loyal global energy markets, which remain disjointed volatile difficult to forecast with any degree of confidence.
While our core businesses have remained largely insulated from the direct impact of events on the ground in Ukraine indirect effects have nonetheless been very visible.
U S product exports to Europe , and Central and South America have increased resulting in domestic production failing to keep pace with growing domestic and international fuel demand.
Current need to restock depleted inventories.
Formal sciences, an informal boycotts of nearly all things, Russia alternate energy flows and created a highly unusual set of market conditions within which energy products are trading today.
New trading routes have emerged to meet shifting supply patterns, resulting in almost universally increase ton mile demand.
This is good news for most ship owners, including our ESG, we've seen freight rates rise in response.
While the full impact of falling Russia crude volumes has likely yet to be felt.
It's fair to say that what was initially looked like a global crude oil supply problem has morphed into a product supply problem middle distillate in particular.
In an attempt to settle crude oil prices U S made and historically large and internationally coordinated release of its strategic petroleum reserves.
Production has increased and there were prospects with a return on Venezuela, and potentially even Iranian crude exports to the markets.
All of these actions have served to east concerns on the emerging shortage of crude oil supply.
Firstly, the easing of Covid restrictions around much of the world has seen a sharp rise in travel and transport activity.
And for jet fuel deal has increased coincident with the curtailment of Russian product exports into European and North American markets.
U S refinery exports of petroleum products exceeded 6 million barrels per day for much of the past months historically high figure.
Present circumstances resulted in falling inventory levels in the U S and the increase in prices for jet diesel and gasoline.
U S refiners and become the marginal supply source of Banco product for nearly all of Europe , and South and Central America U.
U S refining margins absorbed with the 321 crack spread and at extraordinarily high $55 per barrel last week.
The U S continues to enjoy natural gas price competitive advantage over the rest of the work. These conditions in many respects caused the reversal of forces the delayed recovery in our core shipping markets last summer.
Then the insufficient demand for jet fuel ballooned middle distillate inventories of depressed middle good solid margins.
Now refineries are maximizing the output of jet fuel at the expense of diesel which has seen inventory shrink rapidly. Despite what one analyst is described as Biblically high diesel refining margins.
Slide six and our.
Deck provides a graphical depiction of the energy information agency data on domestic product inventory movements since early 2020.
Load, yet and dealer inventories have been especially observable U S East coast locations, most notably New York Harbor market, where recent diesel inventory levels have dropped below 25 million barrels more than 30% below historical averages.
Price spreads between New York Harbor, and U S Gulf Coast for both diesel and jet that's far exceeded $1 per barrel multiple times the transport costs, maybe the arbitrage these differentials.
And even more acute shortage of jet fuels in the area has pushed spot jet fuel prices to $6 71 last Friday.
71 cents per gallon last Friday.
Most analysts concur that these market conditions are not sustainable.
While high prices could impact demand in the medium term. The general consensus is that demand will be relatively resilient.
Increases in global refinery output in the months ahead are expected to satisfy demand gradually rebuilding depleted inventories.
Higher refinery output means more product to be shipped.
Which should sustain elevated demand for Jones Act shipping.
What does this mean for LNG the <unk>.
Strong demand I have just described has allowed us to achieve better sequential PCE and EBITDA performance for the fourth consecutive quarter.
Operating activities during the just completed quarter generated positive free cash flow after debt service and capital expenditures with a quarter to quarter change in cash balances attributable solely to changes in working capital.
These results give us a heightened confidence in our belief that ended during a recovery in our core markets to solidify.
As we have communicated in recent months, we consider the Jones Act market is to be progressively healing from a demand shock imposed by the rise and fall of multiple areas of COVID-19.
All of our laid up vessels are now operating or in the process of reactivation.
For the end of June our full fleet of vessels will be in service.
This leads us to anticipate continued improvement in all important financial metrics and a gradual build available cash balances over the next several quarters as higher utilization and stronger time charter rates, it's realized by substantially all of our vessels.
These expectations and opportunities inherent in an improving market environment should set the stage for us to realize the latent potential of our long term business strategy.
Before turning things over to <expletive> to provide a deeper dive into the numbers I would like to mention a few important developments that occurred during the first quarter.
First the mix of tanker vessel operating days and time charter equivalent rates realized during the quarter stands in sharp contrast to what we were experiencing one year ago.
Our Jones Act tankers had 331 more vessel operating days in this year's first quarter.
Were attained during the same period in 2021.
Nearly 80% of these days were around freight and affirming spot market.
Resulting spot earnings improved more than $30000 per day as compared to last year.
A similar jump in time charter equivalent earnings of senior non internationally trading tomorrow tankers.
Clearly having spot vessel available availability in a tightening in rising market. There has been a good thing for <unk>.
It bears remembering that our model chartering strategy is to obtain longer term charters at profitable rates.
Now that market rates have risen to above breakeven levels. Our focus is gradually shifting to building some links in our charter book.
This objective remains a challenge as is volatile trading markets continued to EBIT into inhibit our charter counterparties.
Entering into longer term commitments.
Since the beginning of the year, we have succeeded in fixing for time charter contracts of between 90 and 120 days.
We recently concluded a number of contracts for six months duration that progressively firming rates.
We are optimistic the tightening market conditions and the emergence of incremental bad for shipping renewable diesel will lead to constructive negotiations in the future for charter periods of one year or longer allowing for more stability and forward visibility in our earnings streams.
A second notable development during the quarter was a short term charter book, one of our vessels to move liquid urea ammonium nitrate.
We are carefully watching the outcome of the commerce department's tariff it will indeed be finalized this summer.
Stand, whether or not domestic demand for UA and transport will be sustained.
As with renewable diesel this products move is incremental to conventional petroleum product demand and.
The Commerce Department ruling favorable domestic producers of UA and could result in increased ton mile demand for conventional Jones Act tankers and Atvs.
Third the by the administration's mandate for a historically unprecedented release of strategic Petroleum reserve barrels will continue at a rate of approximately 1 million barrels per day over the next four to six months.
While the SPR barrels move to date have largely been transported by pipeline or exported on foreign flag vessels.
There remains potential for these movements to generate incremental coast wide crude oil transport demand over the next several months.
Fourth I would like to highlight again the important implication of Congress is full appropriation of funds for the tanker security program.
This program allocated $60 million for stipends for 10 U S flag tankers.
Once the program is operational Osd's current MSP vessels the overseas mykonos in overseas Santorini will move over to participate in the tanker security program with the resulting step up in annual stipend amounts to be received.
OSB will also propose the overseas Sun coast to be entered into this program.
Moved the overseas Sun coast would be converted to U S flat.
Tableau seeing the tanker security program has been one of our key long term objectives in recent years. It is gratifying to see the project becoming reality.
Last but not least I want to again commend OSD personnel, who have continued to manage operations in the face of Covid with no disruption to service and have allowed us to meet our customers' needs and our safety and environmental Kpis, while maintaining operating cost discipline.
Everyone, who has a stake in OSB, we should pause and reflect on just how hard it has been to keep everything in our business whether it be afford without incident.
Im proud of and grateful for the work all of our employees have done to sustain this performance.
I will now turn the call over to <expletive> to provide you with further details on our first quarter results for 2022.
Thanks Sam.
Please turn to slide eight.
Our sequential increase in TCE revenues and adjusted EBITDA continued in the first quarter of 2022.
TCE revenues increased 17% from Q4, 2021, and adjusted EBITDA Rose $8 8 million or 53% from the prior quarter.
The year over year, TCE revenue increase was 43% or $28 4 million.
While adjusted EBITDA.
Grupo from 6 million to $25 4 million.
The market remains active in an increasing rate environment and market volatility has prompted traders to see shorter contract durations to maintain their flexibility.
First the durations have remained shorter than historical norms.
Recently, we've been successful in executing contracts of 46 months duration and we continue to work on extending durations to return to historical market works.
Please turn to slide nine.
We returned two vessels to service during the first quarter the overseas long beach in the overseas, Texas City, each providing additional revenue days from their reactivation points.
The three vessels returned to service.
2021 fourth quarter provided a full quarter of operations.
During Q1 this year.
Our Jones Act conventional tankers continues its sharp upward trend and employ days, we have almost doubled employed days from last years third quarter. When we began to return ships to service.
Correspondingly last days decreased from 415 in last year's third quarter to 75 in the current quarter, Our Jones Act conventional tankers.
Our employee base for this component of our fleet rose to 82% of total days from 45% employment in Q3 of 2021.
Unemployed days continued to decline during the quarter, we had 49 Drydock days.
We are returning the remaining two vessels currently in lay up to service during the second quarter and at that time, our fleet will be fully active.
The overseas Tampa will lead layout on Mark May 10.
And undergo over required dry dock period before commencing operations.
<unk> hundred 50 vision is expected to return to service later in May.
Please turn to slide 10.
Widening volumes continued to remain strong delivering continuing strong utilization levels in <unk>.
<unk> revenues consistent with 2021 fourth quarter.
Revenues from our <unk>, both of which are on time charter remains stable as the two units continue to operate as contracted.
The economics, the Santorini continue to participate in the Maritime security program and provide services to the government of Israel.
During the quarter, we performed one voyage and five voyages for the military Sealift command.
During the fourth quarter, we performed one MSC voyage in one Geo why voyage.
We recognized an increase in rates on our non U S flag tanker during the quarter as well.
As a result, non Jones act tanker revenues increased $2 $4 million from the previous quarter.
Jones Act handy size tanker revenues increased $12 million based on the previously described increase and employ days as well as a stronger rate environment.
Revenues from our Jones Act shuttle tankers, and Alaskan tankers were consistent with the fourth quarter.
Please turn to slide 11.
The niche businesses registered a $3 million increase in revenues driven by the increased non Jones Act product tanker revenues.
We perform voyages for the military Sealift command during the quarter.
Additionally, strong international MRO tanker rates resulted in.
Better performance for our Marshall Islands flagged vessel.
Lighting revenues remained consistent with the previous quarter, while shuttered shuttle tanker revenues increase due to no off hire repair days.
Please turn to slide 12.
Vessel operating contribution increased $12 million Q4, 2021 to $31 $1 million in the current quarter.
Jones Act handy size conventional tankers.
Reflecting the high degree of operating leverage in our business swung from an operating loss of $8 7 million in the fourth quarter to one 201 $5 million contribution in the current quarter.
Higher demand level general improvement in rates, all coupled with an increase in conventional tankers available for hire resulted in 228 more employed days.
Niche market activities increased from the fourth quarter as the MST activity increased coupled with a slight increase in shuttle tanker contribution as we experienced no off hire days.
The ATB contribution and Alaskan tanker contribution remained relatively constant between the quarters.
Yeah.
Combined vessel operating contribution of our niche market activities Atvs and the Alaskan crude tankers.
Continue to provide that vessel operating contribution that is consistent and growing.
In the current quarter of $29 6 million.
Paired with $27 7 million in the fourth quarter.
Turning to slide 13.
Adjusted EBITDA continued to sequentially improve pricing from $16 6 million in the fourth quarter to $25 4 million in the current quarter.
Compared to the first quarter 2021. This represents a $19 2 million dollar increase reflecting a continuing improvement in our business fundamentals.
Turning to slide 14 please.
Yeah.
The first quarter net loss was $5 million.
This results from the continuing improvement in operations, we have delivered since the first quarter of 2021.
As a reminder, 2021 third quarter included a $7 $9 million pretax loss.
Without refinancing, resulting from prepayment fees and the write off of previously deferred financing costs.
During that quarter, we recognized a $1 1 million a $1 million impairment charge related to the right of use assets.
With two of our bareboat charter tankers.
Please turn to slide 15.
At December 31, 2021, we had total cash of $83 million.
During the first quarter, we generated $25 million of adjusted EBITDA.
Working capital used $13 million of cash we.
We extended $5 billion, and dry dockings improve and improvements to our vessels and.
And we made $14 million in debt service payments as a result, we ended the quarter was $77 million of cash.
Please turn to slide 16.
Continuing our discussion of cash and liquidity as we mentioned on the previous slide we had $77 million of cash at March 31 2022.
Our total debt was 445 million, which represents a decrease of $5 million in outstanding indebtedness since December 21.
Scheduled loan amortization over the next three quarters is $17 $2 million.
With $338 million of equity our net debt to equity ratio is one one times.
This concludes my comments on the financial statements and I'd like to turn the call back to Sam.
Thanks, Nick.
Our first quarter results are evidence of gathering momentum towards a healthy and sustainable operating condition in our core markets.
<unk> fleet has been and remains well positioned to respond to the continuing recovery in domestic and international transportation fuel demand as well as the facilitate many of the emerging trading opportunities that resulted from geopolitical disruptions global energy markets.
As of today, 95% of our of our available vessel operating days have been covered for the balance of the second quarter and.
75% of available days during the third quarters.
<unk> also been fully fixed at improved rates.
Rates obtained for recent spot voyages have exceeded $65000 per day and current time charter period rates have been fixed and a range of 60 to $63 $5000 per day for periods of three to six months.
All of this activity gives us good visibility towards the results expected for the second and third quarters of 2022.
In the second quarter, we expect both TCE and EBITDA to increase sequentially over first quarter results with TCE results likely to approach or even exceed $100 million and adjusted EBITDA estimated to approach $30 million.
For the third quarter absent a change in the trajectory of current market trends healthy fundamentals up the prospect for continued quarter to quarter sequential improvement in TCE and strengthening cash flows.
Attaining these targets should result in 20% to $25 million of free cash flow before working capital changes over the next six months.
As always challenges remain.
In particular, our experience is that traders have remained reluctant to commit vessels on time charter for more than three to six months.
There remains considerable uncertainty around what would be the longer term impact of high commodity prices and rising inflationary pressures on broader economic activity and energy consumption patterns in particular.
Full effects of labor shortages in our industry have yet to be completely understood.
The conflict in Ukraine, and poses conditions brought on certainty at all levels.
Outside of the inherent volatility of the pure commodity trades that we participate in we see this stabilizing aspects of our niche businesses emerging even more fully as we plan for the future.
Renewable diesel trades improved prospects for increased Alaskan oil production and the important role that our subsidiary Alaskan tanker company will play in that trade and the implementation of the tanker security program offer a real catalyst for achieving revenue growth in the specialty markets.
Higher oil prices also bode well for our shuttle tankers in the future.
As we achieve more stability in our financial profile, we will realize positive cash flow in the quarters ahead and improvements in our balance sheet move.
Moving beyond recovery, our focus will be on using <unk> unique franchise to position ourselves for a better future.
Linear we can now open up the call to questions.
Thank you if you'd like to ask a question. Please press star followed by the number one on your kind of thank you Pat now.
Joe Your question Staphylococci.
Our first question today comes from Ryan Vaughan of Needham and company. Your line is open. Please go ahead.
Great. Thank you and Hi, Sam.
Nice job on the quarter.
The gaming market and being in a position to capitalize as demand has improved here.
Great to hear about Tampa and the vision I have a few questions, but the first one just on Tampa and vision can you just talk about early plans I think you said by the end of the month, both will be out, but what you plan on where there'll be position for.
So.
We will take that 350 vision first.
The likely use of that.
What was to reposition the vessels in the Gulf of Mexico to participate in crude oil movements within the Gulf of Mexico at least in the short term.
We see that is.
During the period of time when the strategic Petroleum reserve releases are continuing we think they are.
It was a pretty good prospect for <unk>.
Sustained demand for crude movements within the Gulf.
The Tampa, we are involved in a number of different discussions right now.
I can say that that generally demand for.
And Mr tankers in the Jones Act market is very healthy right now.
And we are working a.
A number of different opportunities to employ that vessel and as as we've touched on.
In my comments Dicks comments as well the issue for US right now is less than mattering.
Whether or not we can find business is trying to find business in the <unk>.
That we'd like to retain for longer periods.
And that's kind of been the dynamic of negotiations at the moment not not so much no business or spot business, but.
Who.
For what length.
A period charter can be fixed.
Thank you for that.
Sam you just touched on at the end there about the renewable diesel we've been hearing several corporate talk about.
Having more come online by the end of the year and certainly into the next couple of years, you've obviously had the key west you have some experience. There can you just talk about.
What that might look like and is that a is that a 2022.
Prospect or do you think thats something more for next year.
I think it's a little bit of both Brian .
From what we're looking at in terms of incremental tanker.
Tanker demand the Jones Act.
There are three projects that are significant.
Diamond Green Valero expansion project, which was slated to come on stream in the first quarter or second quarter of next year has been advanced and based on their recent.
Corporate disclosures seems to be ready to start producing fourth quarter of this year. So.
From memory, that's like another 25000 barrels per day of production coming out of Port Arthur.
And most of that.
<unk> is still.
<unk> for the West Coast for California decided to re Washington, Oregon. So we would expect some incremental demand for renewable diesel coming out of that.
Start up towards the end of the year.
And then next year you have at.
At least based on their.
Disclosures Pbf's ciao.
Child that refinery.
They said second quarter of next year. They expect production to begin at about 20000 barrels per day.
And then you have vertex energy they bought sales mobile refinery and they're converting that and.
And from what we understand that the first half of 2023 startup on that as well my understanding is thats also about 20000 barrels per day of production. So.
And a 15 day around sorry about 30, 30, plus day round voyage.
<unk> thousand barrels per day of production.
Is generating considerable new incremental demand for for MLR tankers, and where we're at.
Curves by that.
We still need to see all of that production come online of course.
No. There is an open question as to whether or not all of that production will go to the west coast.
As long as the low carbon fuel standards.
That are the.
Rules that a president in California at the moment.
But those remain as they are in the spreads that are offered by those.
By the by the subsidies of that program.
That's creating a major economic incentive to move any renewable diesel to California at this time.
Great.
And then you touched on at the end there as well about the expected sequential improvement in EBITDA.
And nice to see that 95% covered in 75% covered for the next two quarters. So good visibility there.
Maybe just a question for I guess for both of you guys. You mentioned the 20 to 25 million of free cash flow in the next six months just your thoughts being in a position.
Strength now.
Compared to the last couple of years, and then <expletive> just more specifically the $13 million of working capital use how does that what does working capital looks like for the rest of the year and can you just fill us in on.
I know theres $5 million of Drydock and other capex for the first quarter, what's the expectations for the rest of 'twenty, two and any sort of early look on capex for 'twenty three that's all for me. Thank you.
<expletive> you want to take those.
So working capital.
Part of it is really maybe two facets of the change.
There one is.
As we make it.
Install ballast water treatment systems on the vessels that we bareboat in from American shipping company.
We are in essence funding those costs to be reimbursed by American shipping and that.
<unk> contributed a large portion of the working capital change in the first quarter somewhere in the order of magnitude of $5 million of that change.
So we would expect that we'll recover that over the next few months.
The other aspect of it is there are a series of.
Items that we are thrilled for at the end of one fiscal year that we pay in the beginning of the next fiscal year, which.
Range from.
Insurance premiums that we pay for the succeeding year, we paid out in the first quarter.
Deferred compensation arrangements from our.
Alaska tanker.
City, Aerie and thanks to Daniel and that's that is another probably 40% of the.
Changes in working capital is the rest just.
Nominal timing differences, so those things don't really recur as the year progresses those insurers.
One and done for this year.
Well continue to have some ballast water treatment system.
Installation costs for instance for the Tampa.
As the year progresses, but we would expect that that number will begin to come down.
And we would reach probably a slightly higher level of ongoing pay.
Payables based on the fact that we'll have more shifts in service.
<unk> had in the last year.
So I would expect that we would start to trend back towards more of a neutral.
Neutral working capital change position.
From Capex I think our total budget for 2022 is about $24 million. So we've got about $19 million more.
That we will extend in the second through fourth quarters.
Uh huh.
And likely.
Sort of on a preview basis, but it's not finalized yet.
I would expect that 'twenty three would reflect a small.
An increase of over $24 million for the actual 'twenty three capex.
Yeah.
Yes, Ryan Im sorry, but the first question. The first part of your question I can't remember what you asked.
Just about you mentioned that you're going to generate $20 million to $25 million free cash flow over the next six months just planned.
The free cash flow.
Yeah.
Well I think that's kind of a.
Frame, we've talked about a number of times in the past.
At a higher at a hierarchy.
Of sort.
Sort of priorities.
We would always probably look.
At three <unk>.
To me three obvious uses of cash one would be to reinvest in businesses that we think are value generating over time, either in specific assets or businesses that we think are our.
Complementary to our existing businesses.
As we've said many times in the past in the Jones Act in particular.
Those opportunities don't come along every day, but they do come along from time to time as we saw with the Alaska tanker company acquisition.
And we think that we keep our eyes out for that sort of thing. So that's that's kind of the first priority and we want to keep enough cash around to allow ourselves to be able to look at those sorts of things.
Prudently and without stretching our balance sheet.
The second.
So the level of.
Our priority.
All likelihood be reducing.
The financial leverage of our business through one form or another.
Due to repay debt.
Another way to reduce the financial leverage.
Derivatives of one sort or another.
And then the third of course is always an option to be looking at share repurchases.
Somehow.
Looking at the bottom half of the right hand side of the balance sheet. So you've got you've got you've got the left side of the balance sheet, probably being the first priority.
Or have the right side of the balance sheet being second in the bottom at being the third.
That's the way, we kind of look at it.
Okay.
Thank you.
Next question comes from James <unk> of <unk> investment. Please go ahead.
Hey, good morning, gentlemen, congrats on finally, turning the corner it looks like a pretty good quarter here.
Thank you. Thank you.
Yes.
On the call a little bit late so apologies for that so if it's already been asked I feel free to brings over quickly, but I know youre at about $100 million EBITDA run rate and before the whole COVID-19 situation that you're pushing 120 or better on forward estimated EBITDA, what what do you think now is that realistic.
Normalized EBITDA once you get all the tankers working and if we get those spot rates EBIT back out a little bit or are we talking $120 million 25, what do you think reasonable range.
Well look.
The.
Through reactivation of vessels.
Clearly.
Improves our EBITDA rate.
And thats the operating leverage inherent in our business works both ways. It's now working in our favor.
As we said.
We think second quarter EBITDA.
$30 million adjusted EBITDA 30 million is achievable.
Thats really before we take into consideration contributions that we would expect to get from the reactivation of the Tampa, which really doesn't contribute much this quarter because.
It will.
It will be in dry dock pretty much through the middle of the second half of June so.
The contribution from Tampa will really only be visible in the third quarter to some extent. The same is true. The 350 vision will probably get a month's worth of contribution this quarter and then hopefully a full three months next quarter.
So that gives us.
And that we should see continuing sequential growth in EBITDA.
Adjusted EBITDA above that $30 million number.
Beyond that.
I'll remind you that.
At this time, we intend to redeliver three of the tankers.
That are on lease from MSC back to MSC.
In December .
At sort of current levels.
And those vessels probably generate order of magnitude.
$10 million to $12 million across the three of EBITDA. So.
You would need to adjust that out on a forward looking basis.
Awesome.
Sort of let's call it.
Third quarter or fourth quarter numbers.
And then of course, then we have to think about what are the rates rates environment, but.
I think that that.
Confident that under the current.
Market environment, where there is a relative balance in and vessels and we're seeing kind of time charter rates in the $60000, a day plus or minus right.
And he would have to get it back.
Three tankers next year.
Yes, 120 $530 million a year is something that we think is probably right.
Okay. Thank you that's really helpful to walk through that and see that 120 is already happening basically next quarter and that was kind of where you're capped out before this whole COVID-19 in that so it's really good to see you back there you segue to really not yes, I think just wanted to ask just to echo that.
Next quarter will be the first quarter in some time, where we have all of our vessels operating right.
No.
We've been suffering from idled capacity.
And that flows through into the results as you can see index charts.
Next quarter, let's see what next quarter looks like and then that will give us probably better visibility going forward as to what sort of run rate to expect after adjusting for getting back three shifts.
Yes, certainly we and investors have been we've been patiently waiting for this we're definitely looking forward to see in Q2 and backup you segue. It earlier nicely. When you mentioned given the strength anchors back to Ams senior because I'm just a little curious I know you gave those back because you wanted to bring down the leverage a little bit on how does the current market rate environment compare to.
Those legacy leases is there a potential to go back to <unk> and get those ships factories are cheaper or what do you think happens to those vessels because they have to trade in the U S market right. So when you think goes along with us.
Youre correct statement that they have to trade in the U S markets.
Uh huh.
We've always said that there probably is a set of circumstances.
Under which we would look at.
Trying to find a way to keep those ships within our fleet, but it's not a high priority for us because.
We see the let's call it the medium term five year horizon.
As.
Requiring us to be thinking about how we transitioned into other markets other than the commodity markets are moving transportation fuel around the United States.
And so at least from a capital allocation point of view.
We.
We consider it an important objective to want to have the resources available to allow us to pursue opportunities.
I've mentioned in the past, whether it's in wind or whether it's in.
Movement of other liquid bulk commodities, maybe its hydrogen maybe it's <unk> in liquid form.
Or in other areas that are less.
Directly tied to an expectation of continued use and growth of fossil fuels.
It just it strikes us that.
<unk> taken a little bit of.
Of our our leverage to those markets off the table and having the opportunity to maybe redirect them to things that have longer life spans.
And maybe more niche like activities, that's more consistent with a sustainable future for us.
Again, that's not to say that we wouldn't look at an opportunity certainly in the short run for.
Perhaps.
Sustaining those vessels within our fleet.
But longer term.
A reduction of our exposure to the commodity elements of our tanker business is probably something to two two.
To work into your base case assumptions.
Yes, certainly I think that makes sense in the longer term I mean, the challenge right now of course and I know you are more aware of this but anyone but the challenge right now is the market is giving you.
Such as heightened multiple on your current equity I mean, if you take $120 million to $125 million EBITDA run rate and apply even a halfway decent comp multiple year at $4 $55 50 per share if not higher.
And so it's really hard to talk about growth in.
Environment, where your equity trades, where it does I mean this will be my last question can I. Appreciate the time, you've given me, but I'm just curious on the trade off because I know the question are performing at what you wanted to do with capital allocation and kind of let's say the menu.
And we understand what those dividends repurchases growth, but I mean, how do you balance out that growth with the equity multiple you trade at because it just seems like repurchasing your own shares would have such a high implied IRR Roe or whatever you want to call. It.
Okay.
No.
I have said pretty much every time, we've spoken on the phone.
How the markets work in valuing our business.
Is a mystery to me I think there are a lot of other factors that go into valuation than just multiples.
A relatively thinly traded.
I have a lot of it we don't have any analyst coverage, we've tried to work on solving those issues, but some of them are difficult to solve.
I also think that.
Theres probably.
And a little bit of an attitude in the market about even though.
Been showing sequential progressive quarter to quarter.
Improvements.
The first quarter of this year, we still on an accounting basis GAAP accounting, we didn't make money so.
Maybe a little bit of wait and see still left in people that are looking at our stock.
Maybe we see some improvement.
Through the next couple of quarters is the sustainability of our cash flow generation becomes more and more apparent.
So maybe that helps our stock price and shifts that multiple.
Equation that you referred to looking a little bit more forward looking rather than backward looking.
Those are all things that.
We still think need a little bit of time to play out but.
I would state again that we are generating cash and we see.
We have we have we have the quality problem of now having more cash than we think is necessary to sustain our business.
We will look at those three different.
Categories of use of cash continuously.
Continuously and constructively to see how to use that cash and.
I used the word priority.
In terms of.
How we look at those opportunities, but that doesn't preclude one over the other.
So.
All things have to be considered and what's the best use of our cash and.
And we will continue to give that.
Focus.
When and if we start to see that cash.
Balanced begin to build.
Yes, it's certainly understandable you've been through a lot of rough quarters, we're looking forward to Q2 and to keep up the great work turn this thing around.
Thank you.
As a reminder, if you'd like to ask a question. Please.
Followed by the number one theyre kind of thank you Pat now.
We have no further questions in the queue at the moment.
Hand back to Sam Wilson for closing remarks.
Thank you Lydia and thanks again for everyone participating on today's call. We look forward to speaking again with you.
Knowing the conclusion of the current quarter.
Hopefully with continued good news about the development of our business.
Good day everyone.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Yeah.
Okay.
Yeah.