International Seaways: Second consecutive quarter of record results

International Seaways

International Seaways, one of the largest tanker companies worldwide providing energy transportation services for crude oil and petroleum products in International Flag markets, reported results for the second quarter of 2020.

Highlights

  • Net income for the second quarter was $64.4 million, or $2.24 per diluted share, compared to a net loss of $16.5 million, or $0.57 per diluted share, in the second quarter of 2019. Net income for the quarter reflects the impact of a $4.1 million impairment charge and gain on sale of vessels. Net income excluding these items was $68.5 million, or $2.39 per diluted share.
  • Time charter equivalent (TCE) revenues(A) for the second quarter were $135.3 million, compared to $62.5 million for the second quarter of 2019.
  • Adjusted EBITDA(B) for the second quarter was $96.3 million, compared to $21.3 million for the same period of 2019.
  • Cash(C) was $144.5 million as of June 30, 2020; total liquidity was $184.5 million, including $40.0 million of undrawn revolver.
  • Repurchased 926,700 shares at an average price of $21.57 per share, for a total cost of $20 million, completing $30 million buyback authorization.
  • On August 4, 2020 renewed share buyback authorization program for a further $30 million.
  • Paid a regular quarterly cash dividend of $0.06 per share in June 2020 and announced a quarterly cash dividend of $0.06 per share payable in September 2020.
  • Subsequent to the end of the quarter, agreed to prepay the full $40.0 million outstanding under the Transition Term Loan Facility.

“During the second quarter, we generated our highest quarterly net income as a public company, marking our second consecutive quarter of record results,” said Lois K. Zabrocky, International Seaways’ President and CEO. “With significant operating leverage in the VLCC market and the midsized tanker sectors, we capitalized on the rate environment in the second quarter, driving our strong results and increasing our liquidity position. We also took advantage of the elevated market by entering into four favorable time charters for periods ranging from seven to 36 months, positioning International Seaways to optimize revenue during a time when rates have come off recent highs.”

Ms. Zabrocky continued, “We executed on our disciplined and balanced capital allocation strategy, which included paying a regular quarterly cash dividend and repurchasing $20 million of our shares in the second quarter, while also taking steps to further delever. Our ample liquidity has allowed the Company to take these steps, while maintaining balance sheet strength and the flexibility to continue to deploy capital to best serve shareholders. Going forward, we remain positive on the long-term outlook for the tanker market, and our priority is to provide safe, reliable service to our leading energy customers and ensure the safety of our onshore and at-sea professionals as we continue to operate in a COVID-19 environment.”

Jeff Pribor, the Company’s CFO, added, “We continue to successfully allocate capital to strengthen our balance sheet and capital structure and provide a return to shareholders. Combined with the savings from our successful refinancing earlier this year, the prepayment of our $40 million Transition Loan subsequent to the end of the quarter has enabled us to further reduce our cash breakevens to below $15,000 per day. Complementing our regular quarterly cash dividend of $0.06 paid to shareholders in June, we repurchased $20 million of shares during the quarter, creating additional value, and still ended the quarter with over $184 million in total liquidity.”

Second Quarter 2020 Results
Net income for the second quarter was $64.4 million, or $2.24 per diluted share, compared to a net loss of $16.5 million, or $0.57 per diluted share, in the second quarter of 2019. The increase in the second quarter of 2020 primarily reflects substantially higher TCE revenues and lower interest expense. Net income for the first half of 2020 was $97.4 million, or $3.35 per diluted share, compared to a net loss of $5.6 million, or $0.19 per share, for the first half of 2019.

Consolidated TCE revenues for the second quarter of 2020 were $135.3 million, compared to $62.5 million for the second quarter of 2019. Shipping revenues for the second quarter of 2020 were $139.7 million, compared to $69.0 million for the second quarter of 2019. Consolidated TCE revenues for the first half of 2020 were $255.0 million, compared to $156.5 million for the first half of last year. Shipping revenues for the first half of 2020 were $265.1 million compared to $170.9 million for the prior year period.

Strong TCE rates in the second quarter were driven initially by the breakdown of production cut agreements between OPEC and Russia, coupled with reduced demand due to COVID-19, creating an environment where excess oil production created a strong demand for oil tankers. Additionally, oil prices entered a strong contango market which drove traders to book oil tankers for storage. Record crude imports by China also had a positive impact on freight markets. As the quarter progressed, however, OPEC and Russia agreed to steep production cuts, oil markets recovered narrowing the contango, and accordingly, tanker freight markets subsequently declined, particularly on smaller ships. The larger ships, especially the VLCCs, have maintained healthier rates.

In the second quarter of 2020, the Company recorded an impairment charge of $5.5 million on one of its 2002-built VLCCs to write-down its carrying value to its estimated fair value at June 30, 2020. The decline in equity in income of affiliated companies for the second quarter of 2020 compared to the second quarter of 2019 reflects the Company’s sale of its interest in the LNG joint venture for net proceeds of approximately $123 million in October 2019. Interest expense decreased by $8.6 million for the second quarter of 2020 compared to the second quarter of 2019 as a result of lower average outstanding debt balances principally attributable to $110 million in principal prepayments on the 2017 Term Loan Facility during the second half of 2019 and the use of cash in the January 2020 refinancing, and substantially lower average margins and interest rates on the refinanced portion of debt entered into by the Company during the first quarter of 2020.

Adjusted EBITDA was $96.3 million for the quarter, compared to $21.3 million for the second quarter of 2019. Adjusted EBITDA was $170.5 million for the first half of 2020, compared to $68.6 million for the first half of 2019.

Crude Tankers
TCE revenues for the Crude Tankers segment were $105.9 million for the quarter compared to $45.7 million for the second quarter of 2019. This increase primarily resulted from the impact of higher average blended rates in the VLCC, Suezmax, Aframax and Panamax sectors, with average spot rates climbing to approximately $71,700, $49,000, $30,600 and $35,000 per day, respectively, aggregating approximately $64.4 million. Partially offsetting this increase was the impact of an 85-day reduction in VLCC revenue days aggregating $1.6 million. Lightering posted a strong second quarter EBITDA of $1.8 million even though revenue was down by $3.1 million. The quarter-over-quarter net decrease in VLCC revenue days reflects 104 drydock days during which VLCCs were out of service in the current quarter to have scrubbers installed and 89 days of offhire on the Seaways Mulan, which was held by Indonesian authorities from February 8, 2020 through June 8, 2020 and redelivered back to the Tankers International Pool on June 28, 2020. To date, the Company has completed the scrubber installations on seven of its modern VLCCs. Shipping revenues for the Crude Tankers segment were $110.4 million for second quarter of 2020 compared to $52.1 million for the second quarter of 2019. TCE revenues for the Crude Tankers segment were $194.7 million for the first half of 2020, compared to $118.2 million for the first half of 2019. Shipping revenues for the Crude Tankers segment were $204.1 million for the first half of 2020, compared to $132.5 million for the first half of 2019.

During the second quarter of 2020, four of our VLCCs commenced time charters with major oil producing and trading companies at high rates. Seaways Kilimanjaro fixed for 3 years at $45,000 per day, Seaways Tanabe (one of our older units) fixed for 1 year at $53,000 per day and Seaways McKinley and Seaways Tybee fixed for seven months at an average of $100,000 per day.

Product Carriers
TCE revenues for the Product Carriers segment were $29.4 million for the quarter, compared to $16.8 million for the second quarter of 2019. This increase primarily resulted from the impact of higher average daily blended rates earned by the LR1, LR2 and MR fleets, with average spot rates rising to approximately $30,900, $38,900 and $17,200 per day, respectively, increasing TCE revenues by approximately $13.3 million in the aggregate compared to the second quarter of 2019. This was partially offset by a $1.0 million decline in TCE revenue arising from the net effect of a 368-day decrease in MR revenue days, resulting primarily from vessel sales, charter-in redeliveries and terminations, mitigated by a 181-day increase in LR1 revenue days primarily driven by the commencement of a two-year time charter-in of a 2006-built LR1 in August 2019, and the purchase of a 2009-built LR1 that was delivered in February 2020. Shipping revenues for the Product Carriers segment were $29.3 million for the second quarter of 2020, compared to $16.9 million for the second quarter of 2019. TCE revenues for the Product Carriers segment were $60.3 million for the first half of 2020, compared to $38.3 million for the first half of 2019. Shipping revenues for the Product Carriers segment were $61.0 million for the first half of 2020, compared to $38.4 million for the first half of 2019.

Share Repurchases
During the second quarter of 2020, the Company repurchased and retired 926,700 shares of its common stock in open-market purchases at an average price of $21.57 per share, for a total cost of $20.0 million, bringing year to date purchases to $30 million representing nearly 5% of the Company’s outstanding shares. Additionally, on August 4, 2020 the Company’s Board of Directors authorized a renewal of the share repurchase program in the amount of $30 million.

Payment of Regular Cash Dividend
The Company’s Board of Directors declared a regular quarterly cash dividend of $0.06 per share of common stock on August 4, 2020. The dividend will be paid on September 23, 2020 to shareholders of record at the close of business on September 9, 2020.

Debt Prepayment
In August 2020, the Company agreed to prepay the $40.0 million outstanding principal balance under the Transition Term Loan Facility using available cash on hand, bringing forward looking cash breakevens for its spot fleet to under $15,000 per day and increasing the number of unencumbered ships in our fleet to 14. It is expected that the prepayment will be made on or around August 10.

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