International Seaways Inc . (NYSE:INSW) reported a net income of nearly $100 million for the third quarter of 2023, contributing to a 12-month cumulative earning of over $640 million, according to their recent earnings call. The company also announced plans for fleet expansion with the acquisition of four LR1 newbuilding contracts, to be delivered between the second half of 2025 and the first quarter of 2026.
Key takeaways from the call include:
- The company's adjusted EBITDA stood at $151 million for Q3 and over $800 million for the past 12 months.
- A combined dividend of $1.25 per share was declared, with total liquidity exceeding $580 million at quarter-end.
- The company began Q3 with a total liquidity of $493 million and reported free cash flow of around $104 million for the quarter.
- Gross debt was reported at $855 million, with the company's vessels valued at approximately $2 billion.
- The company has already repaid $770 million of debt in Q3, reducing their cash breakeven levels by $3,700 per day compared to Q3 of last year.
- International Seaways expressed optimism regarding time charter opportunities for their 13- to 15-year-old MR vessels and plans to maintain exposure in the MR sector due to strong rates.
- The company's four new LR1 vessels will require additional capital expenditure to become LNG capable, with three VLCC vessels already running on LNG.
- The company expects the reduced draft at the Panama Canal to create temporary congestion and impact the tanker trade.
During the call, CEO Lois Zabrocky expressed her optimism about the company's recent activities and future plans, including the newbuilds serving as foundational units for their fleet. CFO Jeff Pribor highlighted a decrease in cash cost per vessel, primarily due to reduced interest costs and lower principal payments, and an increase in time charters.
The company also discussed its balanced capital allocation strategy and strong financial position, underlining the potential for higher payout ratios for supplemental dividends in strong upcoming quarters due to favorable cash flow and debt paydowns.
Despite the optimistic outlook, the company cautioned that the tanker market's future performance hinges on increasing oil demand and limited fleet replacement in the coming years. As such, older ships may need to stay in service to meet growing demand.
International Seaways (NYSE:INSW) concluded the call by expressing appreciation for the participants and providing an update from the ongoing Bahri Dubai International Tanker Week.
InvestingPro Insights
As we delve into the performance of International Seaways Inc., InvestingPro data and tips provide a comprehensive picture. The company boasts an impressive Piotroski Score of 9, indicating strong financial health. This is complemented by consistently increasing earnings per share and a high shareholder yield. Notably, International Seaways has raised its dividend for four consecutive years, a testament to its robust financial performance.
InvestingPro data further reveals that the company has a market capitalization of $2360M and a low P/E Ratio of 3.63, indicating that its shares could be undervalued. The revenue growth for the last twelve months as of Q2 2023 stands at a staggering 146.04%, and the company has been profitable over the same period.
InvestingPro offers a wealth of additional tips and insights for those interested in in-depth analysis and data. For instance, there are 12 more InvestingPro Tips and numerous other data points available for International Seaways Inc. on the InvestingPro platform.
These insights align with the company's promising Q3 2023 results and plans for fleet expansion, reinforcing the optimistic outlook expressed by the company's leadership. It's worth noting that while the company's stock generally trades with low price volatility, 4 analysts have revised their earnings downwards for the upcoming period. This is a reminder that while the company's prospects look bright, potential investors should always consider all aspects of a company's performance and market predictions.
Full transcript - INSW Q3 2023:
Operator: Hello everyone and welcome to the International Seaways Third Quarter 2023 Results Conference Call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question-and-answer at the end. [Operator Instructions] I would now like to turn the conference over to our host, James Small, General Counsel and Chief Administrative Officer. Please go ahead.
James Small: Thank you, Candice. Good morning, everyone, and welcome to International Seaways earnings call for the third quarter of 2023. Before we start, I would like to begin by advising everyone with us on the call today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics: outlooks for the crude and product tanker markets, changes in trading patterns; forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products; the effects of the ongoing conflicts around the globe; the company's strategy; our business prospects; expectations regarding revenues and expenses including vessel, charter hire, and G&A expenses; estimated bookings, TCE rates and/or capital expenditures during the fourth quarter of 2023, during 2024 or in any other period; projected scheduled drydock and off-hire days; purchases and sales of vessels, construction of newbuild vessels and other investments; the company's consideration of strategic alternatives; anticipated and recent financing transactions in any plans to issue dividends; the company's relationship with its stakeholders; the company's ability to achieve its financing and other objectives; and other economic, political, and regulatory developments globally. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience, perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control which could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks, and uncertainties that could cause International Seaways' actual results to differ, including those described in our annual report on Form 10-K for 2022, our quarterly reports on Form 10-Q for the first three quarters of 2023 and in other filings that we have made, or in the future may make, with the U.S. Securities and Exchange Commission. Now let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?
Lois Zabrocky: Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the third quarter of 2023. Following Slide 4 of the presentation, which you can find on the Investor Relations section of our website, International Seaways net income for the third quarter was almost $100 million, roughly $2 per diluted share, bringing our cumulative earnings over the last 12 months to over $640 million. Adjusted EBITDA was $151 million for the quarter and over $800 million in the last 12 months. Based on our strong results in the third quarter and the spot fixtures well above our breakeven level thus far in the fourth quarter, we declare a combined dividend of $1.25 per share. Following this dividend payment in December, actual last 12 months returns to shareholders will include a cumulative $6.29 per share in combined dividends as well as $14 million in buybacks equating to over $320 million, a 16% plus yield on our average market cap during this period. We continue to enhance our balance sheet with our balanced capital allocation approach. Total liquidity at the end of the quarter was over $580 million, comprised of $215 million in cash and an undrawn revolver capacity of over $365 million. We added $160 million of revolver capacity after executing this new credit facility during the quarter. This facility features a 20-year amortization profile, a margin of 190 basis points over SOFR, and a five and a half year term, all of which are critical key outcomes for Seaways. We drew about $50 million on the revolver during the quarter, which has been repaid. The final results on our major senior credit facility allowed us to repay $100 million. We now have a total undrawn revolving capacity of over $400 million and 30 unencumbered shifts. Our quarter's balance sheet highlights the success of our balanced capital allocation strategy over time. We have acquired assets. These assets are on the books for $2 billion, where the value of the fleet today is nearly $3.3 billion. Our net loan to value is 19%. Our cash breakeven for the next 12 months is under $15,000 today. This is an exceptionally low level and a key differentiator for International Seaways. This includes about $3,700 per day of our fixed contracted revenue that in aggregate amounts to over $344 million through the charter expiry. It excludes any profit sharing element on applicable time charters. This low breakeven level paves the way for enhanced free cash flow during 2024. We have exercised two optional LR1 new building contracts. We now have four LR1 new buildings with delivery schedule beginning in the second half of 2025 through to the first quarter of 2026. These four ships are designed to be scrubber fitted, and they are certified as dual fuel ready. The aggregate price is $231 million for the four vessels. Upon delivery, these ships will trade in a niche Panamax International joint venture, which has earned over $64,000 per day on average in the last 12 months. Turning to Slide 5. We updated our standard set of bullets on tanker demand drivers with the subtle green up arrow next to the bullet represented as positive for tankers and the black dash representing neutral impacts and a red down arrow meaning the factor is not positive for tanker demand. Pulling some highlights, oil demand increased in 2023 on average about 2 million barrels per day over 2022 and is projected to increase another 1.5 million barrels per day in 2024. Scheduled growth in oil supply is about 1.5 million barrels per day over the next two years, each of the two years, mostly coming from the west in the United States, Guyana, and Brazil. A relevant question for the tanker space is when will OPEC decide to turn some of the pumps back on and increase production? We believe this will bring positive sentiment and lift average time charter equivalents. On the flip side, during the duration with OPEC keeping production at bay, we are drawing inventory in the fourth quarter based upon present demand levels, which we believe benefits a longer term horizon on tankers. As the chart on the lower right shows, current levels of commercial inventory are well below their 15-year highs. Previously, key events caused big bills and draws such as COVID in 2020 and 2021. It took us time to draw these inventories down. We looked at the five-year average all the way from 2/10 [ph] since it predates events and have included the average of 2019 and 2022 separately as these two periods match better with oil demand. The bottom line is that inventories are historically low, especially when combining commercial and strategic reserves. Before moving on from this slide, there are a number of outstanding geopolitical events that are sadly affecting our current tanker environment. Over the last few years – over the last few months, the price cap imposed on the Russian oil had been effectively priced out due to rising crude oil costs from OPEC plus production cuts. We have seen an impact on the tanker market as many ships in the great fleet migrate into the commercial fleet. An upside over time is that we see the loosening of sanctions on 800,000 barrels per day of Venezuelan crude oil. Moving to Slide 6, the supply side continues to be compelling. This component is very strong for tanker fundamentals. On the lower left hand chart, we breakdown the order books by each step of class relative to the total fleet. More specifically, potential candidates in the next few years that will be at the very least removed from intensive commercial trading, which we categorize as becoming somewhat marginalized around 20 years of age or older. In aligning the dark bars on the graph, vessels on order do not meet the need to replace these existing fleets. On the lower right hand chart, the limited replacement of the fleet over the next few years is expected to increase the average fleet age to levels that we have not seen in 30 years. 15% of the tanker fleet today is over 18 years, and by 2027, we anticipate that figure to double to 30%. And the average age of the fleet, if this were the case, would be about 15 years old. We believe that in order to meet growing demand in the next few years that ships over 15 years old will need to stay in service beyond the next few years as we transition to a multi-fuel future. The candidate pool for recycling will then be very high. Overall, we expect a great run for tankers over the next few years. Regional imbalances of oil should continue to increase the need for tankers as the growth in oil production is coming from the West, and largely the growth in oil demand is driven by emerging markets in the East. At Seaways, we will continue to capture the strength of the tanker market today and tomorrow. With our balanced capital allocation approach, we continue to utilize all possible levers that builds upon our track record of returning to shareholders, maintaining a healthy balance sheet, and growing the company. I'm now going to turn it over to our CFO, Jeff Pribor, to provide our financial review. Jeff?
Jeff Pribor: Thanks, Lois, and good morning, everyone. Looking at Slide 8 on the upper left, net income for the second quarter was $98 million, or $1.99 per diluted share. On the upper right, you can see adjusted EBITDA for the third quarter of 2023 was $151 million. In the appendix, we provided a reconciliation from reported to adjusted earnings. While our expense guidance for the third quarter mostly fell within the range of expectations, I'd just like to point out a few items of note within our income statement. Vessel expenses were a bit higher than expected with the largest variance due to some repairs and maintenance on one VLCC and some increased spend for crew training on the new dual fuel VLCCs. G&A expenses were also higher due to increased costs for legal and regulatory matters. On the revenue side, our lightering business had another strong quarter, earning about $11 million in revenue. With $2 million in vessel expenses, $3 million in charter hire, and $1 million of G&A, the lightering business contributed about $5 million in EBITDA in the third quarter and has contributed $15 million in EBITDA year-to-date. Turning to our cash bridge on Slide 9, we began the quarter with total liquidity of $493 million, composed of $236 million in cash and $257 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we first add $151 million in adjusted EBITDA in the second quarter plus $54 million in debt service, composed of scheduled debt repayments and cash interest expense, plus our drydock and capital expenditures of about $15 million in the quarter, and a working capital benefit of about $22 million, this comprises our definition of free cash flow of about $104 million for the third quarter. The remaining bars moving to the right on the cash bridge show our capital allocation for the quarter. Incremental deleveraging reflects a net prepayment of $54 million in connection with executing our new revolving credit facility, or RCF, as I'll call it for short. $104 million was repaid on our $750 million facility to transfer collateral vessels, and $50 million was drawn on the new facility. With $160 million in overall capacity, we also added $110 million in undrawn RCF capacity as shown in the dotted line cash bridge. Also in the quarter, we paid $61 million in combined regular and supplemental dividends of $1.42 per share in September. These components then led us to ending liquidity of over $581 million, as you see on the far right, with $214 million in cash in short-term investments and $367 million in undrawn revolving capacity. Moving now to Slide 10, we have a strong financial position as detailed by the balance sheet you can see on the left hand side of the slide. Here are some key items. Cash remains strong at $214 million. Vessels on the books at cost are approximately $2 billion relative to the current market values of over $3 billion. And with about $855 million gross debt at September 30th, you can see that we brought net loan-to-value below 20% to just about 19%, also illustrated in the bottom right hand chart of the page. In the upper right hand table, our pro forma debt balances as of November 1 reflect our recent debt repayments of $71 million comprised of $21 million on the $750 million facility and $50 million pay down on the new RCF, which also increased our revolving capacity to $417 million. The new RCF, which we executed during the third quarter, was oversubscribed even as we increased the size of the overall facility. Now, because 85% of our debt portfolio is hedged or fixed, our weighted average all-in interest rate using current bank borrowing rates is about 6%, which is effectively a margin of just 50 basis points above today's benchmark SOFR rates. As we mentioned in our press release this morning, we expect to continue on this trajectory of a balanced capital allocation approach. We've already repaid $770 million of debt in this quarter. We've also announced our combined dividend of $1.25 per share, consisting of a regular dividend of $0.12 per share and a $1.13 of supplemental dividend, which represents approximately 60% of net income in Q3. These payments will be made in the fourth quarter as we continue to build our track record of executing our capital allocation strategy. As Lois mentioned earlier, including this combined dividend, our total dividend yield calendar 2023 would be approximately 16% based on average market cap year-to-date. On the last slide that I'll cover, Slide 11, reflects our forward-looking guidance and booked to date time charter equivalent, or TCE, aligned with our cash breakeven levels. Starting with TCE pictures for the fourth quarter of 2023, which I'll remind you as I always do, that the actual TCE on our next earnings call may be different than what you're seeing here, but we have a blended average of about $34,000 a day so far this quarter with the details provided on the upper left. On the right side of the slide, you can see our cash breakevens, which we've displayed for the next 12 months, reflective of the delivery of the last vessel in our current new building program of the dual fuel VLCCs and related payments on principal and interest, as well as the new fixed revenues before any profit share on our increased long-term time charters. Overall, we've reduced our breakevens by $3,700 per day. Let me just say that again, lowered them by $3,000 a day from the third quarter of last year. When you compare this to the breakeven to our fixtures today, compare this breakeven to our fixtures achieved today in the quarter, it certainly looks like International Seaways generates substantial cash flows during the fourth quarter again. On the bottom left hand chart for the modelers out there, we provided some updated guidance for expenses in the fourth quarter and our estimates for 2024. We also include in the appendix our quarterly expected off-hire and CapEx schedule for 2023 and 2024. I don't intend to read each item line by line, but encourage you to use these for modeling purposes. That concludes my remarks. I'd now like to turn the call back to Lois for her closing comments. Lois?
Lois Zabrocky: All right. Thanks so much, Jeff. On Slide 13, we provide you with Seaway Seaways investment highlights, which I summarize briefly. International Seaways has built a consistent track record of returning to shareholders, maintaining a healthy balance sheet, all the while growing our company. Our total shareholder return over this time is approaching 300%, surpassing many peers. Over the last 12 months, through regular quarterly dividends, supplemental dividends and opportunistic share repurchases, we've returned $316 million in cash returns on earnings of $658 million, representing a nearly 17% yield. We've improved our balance sheet over the time with 75 vessels in the crude and product tanker markets. We have $2 billion in assets on the books that are worth over $3 billion in the market today. We've prepaid $215 million in debt and unencumbered 30 ships. Our cash breakeven level is at $15,000 per day. We are strategically positioned for sustained, robust taker market with a growing need for seaborne transportation, created by regional imbalances. At Seaways our highest focus is always upon save, reliable transportation in an industry that will only become more transparent with evolving environmental regulations. We remain focused on being a leader in ESG. I want to thank everyone for joining us. And with that operator, we would like to open up the lines for questions.
Operator: Thank you, Lois. [Operator Instructions] So our first question comes from the line of Ben Nolan of Stifel. Your line is now open. Please go ahead.
Ben Nolan: Great thank you. So, really good quarter. I have just a couple of questions. First, just as I'm thinking about the fourth quarter, once again, things like LR1s look really good. However, the VLCC rates book-to-date were a little bit lower than what I was thinking, and I appreciate that several of them have time charter contracts on them. But can you maybe just talk through sort of how – the dynamics for the Vs in the fourth quarter thus far?
Lois Zabrocky: Well, I guess I’d say Ben that rates have definitely picked up, and the team at Tankers International is booking quite strong numbers for the remaining open dates in the fourth quarter. So overall, we're pretty happy with what it looks like there on the Vs.
Ben Nolan: Okay. So just timing kind of a thing, I guess.
James Small: Hey, Ben, the other thing is take a look at our guidance is – look at the percentage, it's actually pretty low percentage of the fourth quarter, which is every company is going to be a little different, but based on accounting and the particular voyages they are experiencing. But there is a lot of quarter left based on what we reported at this point.
Ben Nolan: Sure. Yes, I know, I appreciate that. And then I was going to ask, the MRs in particular did really well, which is maybe a little surprising to me, given that the average age is solidly in the teens at this point. I know you kind of continue to thin out that fleet a little bit, ones and twos here, but it sounds like most of those assets are unencumbered, the older ones are unencumbered at this point. Seems like you are still doing really well with them. And I know there is always a preference to have a little bit newer assets. But I mean, given the strength of the market here, how do you think about where you think the average useful life within International Seaways of those assets are? Do you think it's possible to sweat them out to 20 years or even longer, or is that just not part of the DNA for you guys?
Lois Zabrocky: Actually, we totally do think that that's part of our strategic plan there. And if you really look at the product part of our fleet and you think about what demand has been and how it has increased on the products at a higher ton-mile demand level than it has on the crude and I think the crude will catch up, but the products are just really earning. So we feel like these MRs are just a complete strength for us. And we certainly see that they are trading very competitively in the market. We've maintained them very well and they have really strong potential.
Ben Nolan: Okay. And then last for me, and I know it's just something that you don't like to and probably can't talk to, but with respect to the strategic investor kind of issues that have been going on over the last, I don't know, year and a half or so, just curious if there is any incremental dialogue or if things are relatively quiet on that front?
Lois Zabrocky: I guess what I would say is that we've been running and we'll continue to run International Seaways for all of our shareholders, all of our stakeholders, we've been posting extremely strong performance and very systematically engaging with our shareholders and we feel really good about the returns that we've been able to deliver to all of our shareholders.
Ben Nolan: Right. Well, there is no question about that. So I appreciate it. Thank you.
Lois Zabrocky: Thank you.
James Small: Thanks, Ben.
Operator: Thank you. Our next question comes from the line of Sherif Elmaghrabi of BTIG. Your line is now open, please go ahead.
Sherif Elmaghrabi: Hey, good morning. Thanks for taking my question.
James Small: Good morning.
Sherif Elmaghrabi: Good morning. So during the quarter you fixed the 2008 build MR, then you sold another MR last month. And I think Ben’s question touched on this, but looking at the fleet, there's still a handful of similar vessels or more than a handful. So I'm curious, what kind of time charter opportunities you're seeing for these 13- to 15-year-old MRs? And given where asset prices are, how do you balance that with the chance to recycle that capital elsewhere?
Lois Zabrocky: Well, I'll flip it to Derek, our Chief Commercial Officer in a second. And I'll just say that, again, I mean, we're really feeling the strength in this MR fleet that we are lucky enough to have at International Seaways and we've been executing time charters, we very carefully prune when we think it's opportunistic and we have a very strong base to operate from. And then Derek, do you want to chime in with any additional comments there?
Derek Solon: Sure. Thanks, Lois. Sherif, thanks for the question. I think you've kind of teed it up for us on the answer. We're going to continue our prudent asset allocation, especially in the MR sector. Because the rates have been so good on the MR side, we see increasing opportunities for charters. What we are looking for is multiyear charters for some of the shifts around the 2008, 2009 vintage. And like you said for us, we've prudently sort of pruned the fleet in terms of selling them slowly. But to your question and to Ben's question, we want to keep the exposure in that MR side because the rates have been so good for us and for our shareholders.
Sherif Elmaghrabi: All right, thank you. And then turning to the LNG newbuilds, the LR1s, will those be able to run on LNG as soon as they hit the water or is there some additional CapEx required to get them running on LNG? And then more broadly, just in terms of bunkering, how extensive do you expect LNG fueling capability to be by 2026, considering LR1, for example, can call a more diverse set of ports than, say, the LCC?
Lois Zabrocky: So I guess I would start with, we have at Seaways already on the water three fully, dual fuel LNG vessels, VLCCs that are using LNG on a common basis. And it is definitely for sure that they have a lower need for multiple bunkering ports, and that is going very well for us. The three LR1s are certified for, classified for dual fuel suitability to turn them to being fully capable for LNG. And we contemplate that in our future. Bill, our Chief Technical Officer, Bill, why don't you jump in a little bit and just share a little bit more on that.
Bill Nugent: Sure, Lois, thanks. Yes, those four LR1s will not be able to run an LNG from day one, but will require a CapEx down the road, as we see the fuel markets, the regulatory standards, the customer expectations all evolve over the next five plus years or so.
Sherif Elmaghrabi: Okay, that's helpful. I appreciate you guys taking my question.
Lois Zabrocky: Thank you, Bill.
Operator: Thank you. Our next question comes from the line of Christopher Robertson of Deutsche Bank (ETR:DBKGn). Your line is now open. Please go ahead.
Christopher Robertson: Thank you, operator. Good morning, Lois and Jeff. Thanks for taking my questions today. Just turning to the current demand landscape, we of course see the continued ton-mile demand expansion related to the dislocation of the Russian trade. But wondering if you could touch on anything else may be less known in the market that's impacting effective supply, including any congestion issues, bottlenecking. I guess in other words, are there any short-lived or temporary factors impacting rates currently that could unwind in the next few months?
Lois Zabrocky: Well, it's interesting. Short-term factors, I don't know how short-term, we are definitely seeing an impact with the reduced draft at the Panama Canal, and that's a true bottleneck out there in the market. I do think that will persist for a few months here, and it does impact the tanker trade because you are getting a lot of congestion there, and that does drive a little bit of a longer ton-mile situation. I would say that's something of a temporary factor. Definitely in Q4, from everything that we see, inventories are drying, and this is a really strong demand signal, which we appreciate on the tanker side.
Christopher Robertson: Yes, definitely. That makes sense. Turning to a little bit more esoteric question here on the balance sheet, Jeff, could you talk about the $75 million of short-term investments that sit there in terms of what those are, the duration, how liquid are those investments, and when they might be converted to cash?
Lois Zabrocky: Go ahead Jeff.
Jeff Pribor: Yes, hey, Chris, it's just our cash management. What we've been doing is, instead of just overnight money market funds, which are yielding quite well, but we flattered out some of the investments into time deposits with typically our facility banks, our relationship banks, and per gap, if you go out a little bit, it just doesn't get to be listed as cash. It comes out of the short-term investment, but it's a TD, and our longest is six months. It looks and quacks a lot like cash, but it's listed as a short-term investment.
Christopher Robertson: Okay.
Jeff Pribor: [Indiscernible] see it as cash. Yes go ahead.
Christopher Robertson: Definitely. Yes, just wondering, I guess, is that the continued strategy to kind of ladder those over time while the interest rates are attractive?
Jeff Pribor: Well, sure. I mean, I think you've heard Lois described we have a balance of cash and revolver. We think that's a good mix for security and optionality, but it's nice getting above 5% on our money market funds, and then when you extend that a little bit with CDs or lately moving at another 50 basis points in our balance. So we actually have a lot of our cash is earning more than a substantial part of the debt that we have that's either fixed or swapped. So that's kind of a nice situation to be in. So we're sort of happy with that extra interest income we're making these days, and the Treasury Department is working hard on that, and we'll keep sweating those assets like we do the ships.
Christopher Robertson: Yes, it makes sense. Last question for me is just turning back to the four LR1s. Can you talk a bit about the cadence related to the installment payments for those four vessels?
Lois Zabrocky: Yes, I'll take that just to start, Jeff. What I would say is that the installment payments are attractively weighted to the backside of the vessel's construction cycle toward their delivery. I don't know if you want to say anything more than that, Jeff?
Jeff Pribor: Maybe we'll find and make sure we can – may have an [indiscernible] safe way to explain that, but it's very typical back-end loaded where it's not too much up front, I would say. We probably only have the first two required deposits maybe in the coming quarter. So for near-term modeling, I think, I would go with that. And then the rest will be back-end loaded, and we'll fix that with confidentiality, we'll get more information out of that. But pretty typical newbuild scheduled, but of the back-end loaded variety, I'd say.
Christopher Robertson: Got it. All right. Appreciate it. Thank you.
Lois Zabrocky: Thank you.
Jeff Pribor: Thank you.
Derek Solon: Thanks, Chris.
Operator: [Operator Instructions] I would now like to open the line for Omar Nokta of Jefferies. Your line is now open. Please go ahead.
Omar Nokta: Thank you. Hi, Lois, and Jeff and Derek. I did want to – I had a couple questions, but then maybe just perhaps just a quick follow-up to the last one from Chris about the LR1s. I did notice, at least the way it reads on the balance sheet, that perhaps there wasn't a deposit made on those two initial LRM1s that were ordered last quarter. Is that right, or were those sort of accounted for differently?
Lois Zabrocky: No, no, you are correct, Omar. It's a very clever pickup there. We have received the refund guarantees, and those are fully in place. And, of course, that is the time at which you make your down payment, so that will be made in the fourth quarter.
Omar Nokta: Okay. Got it. Thanks, Lois. And then just sort of maybe talking about the capital returns, you've obviously generated a good amount of cash flow consistently now for the past several quarters. You've been paying out supplemental dividends, and Jeff, in your comments, you talked about how their ratio is basically 60% of quarterly earnings. That looks to be a bit higher than, say, 40% to maybe 50% in the past few quarters. I know, obviously, it's a board decision, but just in general, as we kind of think about future payouts, obviously subject to strong numbers coming from International Seaways, but in general, is 60% like a new threshold we should think about when we consider what the potential supplemental dividends will be like in strong upcoming quarters?
Lois Zabrocky: Go ahead, Jeff.
Jeff Pribor: Thanks, Lois. Hi, Omar. Yes, I would just review our history. To answer your question, our viewer history, we over the last four quarters, really wanted to balance incrementally deleveraging versus the scheduled amortization on the one hand to lower our costs and lower our breakeven and give out a good dividend yield, and it typically is examined or analyzed or, as you had by way of a payout ratio, but, at its lowest, and I both point out in our remarks, it's added up to $6.29 pro forma for the last dividend for the calendar year. So it's been a good yield. But also, towards answering your question, with the debt paydowns that we described from the last quarter's new facility and the payments already in Q4, and kind of where we are with a lot of this really what I call high-quality debt that's at rates that are either fixed or swapped at lower than we're earning on our interests, on our cash, it makes sense that we are sort of able to pay a little more in terms of the payout ratio this quarter, and, I think that that's kind of a situation or a healthy situation that will remain in. We've got a good amortization, a good healthy amount of amortization, still there in our schedule in our debt, so it will be naturally reducing quite a bit during the course of 2024. So, if the tanker market continues in the good place that it is, I think, you should expect dividend payouts to continue like we are doing them now. I hope that's responsive.
Omar Nokta: Yes, that's very good. I was actually surprised you were willing to actually answer the question.
Jeff Pribor: Come on, Omar, you know what.
Omar Nokta: Yeah, no, no, that was very good. Very good and constructive. I mean, clearly, the balance sheet is in much stronger shape and just seems to continue to go in that direction. Maybe just one kind of final one, just regarding the new building, you have the four LR1s now. You have the niche trade in South America where those trade and are expected to trade. Do you have options for more? Is there potential more to add to that fleet beyond just the four new buildings, or is this what you think?
Lois Zabrocky: Well, Omar, I think, what's really important for us was that we felt that, with this really strong base of cargo and relationship that we built over the years, that we wanted to have these four as our foundational units, and then, we consistently have had in-charters and different ways within the pool to optimize results, and we'll continue to do that.
Omar Nokta: Got it. Well, thank you, Lois. And thanks, Jeff. I'll turn it over.
Lois Zabrocky: Thank you.
Jeff Pribor: Thanks, Omar.
Operator: Thank you. Our final question comes from the line of Liam Burke of B. Riley. Your line is now open. Please go ahead.
Liam Burke: Thank you. Good morning, Lois, Jeff.
Lois Zabrocky: How are you, Liam?
Liam Burke: I am good. Thank you, Lois. For the fourth quarter, your partial fixtures on the Suezmax are on a daily rate basis or outdistancing the VLCCs. You mentioned earlier that the VLCCs have, moved up off of those partial fixtures. But are you seeing the same move with the Suezmaxes, and are they continuing to outdistance the VLCC rates?
Lois Zabrocky: Yes. So, what I would say is that, you've seen the whole crude space pick up, consistent with the last 18 months the middle part of the space, the Panamaxes, Aframaxes, and the Suezmaxes, that are kind of focused on delivering into Europe shorter-haul crudes, have really been superstars, and that continues. So, we've seen the Suezmaxes pick up, they are still very strong, and the whole crude space moved up after really the first cyclicality we saw this summer, in a long time.
Liam Burke: And, Jeff, you highlighted the $3,000 per day per vessel decline in cash cost per vessel. How much of that is operating savings, and how much of that is financial-related in terms of lower principal payments, interest, et cetera?
Jeff Pribor: Hi, Liam. It's mainly the latter. I think we gave guys that were working hard to keep expenses in a good place, but the achievements in terms of lower, break-evens are primarily from reducing interest costs in debt and also reducing amortization on debt when you lower the principal, and if it's due, the amortization goes down as well, and the new revolving credit facility shifting more to that from term it also does that. So, it's primarily the balance sheet.
Liam Burke: Great.
Jeff Pribor: But also the time charters, as you can tell from the chart – we were talking about break-evens on spot vessels, so it's also benefited from the commercial department putting on incrementally more time charters. So, it's those two factors.
Liam Burke: Okay, great. Thank you, Lois. Thank you, Jeff.
Derek Solon: Thank you.
Jeff Pribor: Thank you.
Operator: Thank you. As there are no additional questions waiting at this time, I would like to turn the conference call back over to Lois Zabrocky for closing remarks.
Lois Zabrocky: Thank you, Candice. I just want to thank everyone for joining International Seaways. And we are broadcasting here from Bahri Dubai International Tanker Week, where we're seeing customers. And we really appreciate your interest in International Seaways and wish everyone to stay well. Thank you very much.
Operator: Ladies and gentlemen, this concludes today's International Seaways’ third quarter 2023 results call. Have a great rest of your day. You may now disconnect your lines.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.