International Seaways, Inc. (INSW) Earnings Call Transcript & Summary

Good afternoon, and welcome to International Seaways Fourth Annual Shareholder Meeting. I'm Lois Zabrocky, I'm President and Chief Executive Officer of the company and a director. I will be serving as chairman of the meeting. We're excited to be hosting our first virtual meeting and to offer stockholders the opportunity to attend the meeting through the web portal today. As you can see on our agenda, we will conduct the business portion of our meeting first and then answer questions. Although we may not be able to answer every question today, we will do our best to provide a response to as many as possible, bearing in mind that some matters may be outside the scope of today's meeting. [Operator Instructions] Please note that we are recording this meeting to enable later playback, but no one else who is attending today's webcast is permitted to record it. The time is now shortly after 2:00 p.m. Eastern Daylight Savings Time on June 22, 2020, and I am officially calling this meeting to order. At this time, I would like to introduce the other directors and executive officers who are attending today. First, the directors: Mr. Douglas D. Wheat, our Chairman of the Board of Directors; Mr. Timothy J. Bernlohr; Captain Ian T. Blackley; Ms. Randee E. Day; Mr. David I. Greenberg. Mr. Joseph I. Kronsberg; Mr. Gregory A. Wright; Mr. Ty E. Wallach. And now I turn to our management team: Mr. Jeffrey D. Pribor, Senior Vice President, Chief Financial Officer and Treasurer of our company; Mr. James D. Small III; Chief Administrative Officer, Senior Vice President, General Counsel and Secretary of our company; Mr. Derek G. Solon, Vice President of our company and Chief Commercial Officer; Mr. William F. Nugent, Vice President of our company and Head of Fleet Operations; Mr. Adewale O. Oshodi, Vice President and Controller of our company; Mr. Steven A. Stulbaum, Head of Human Resources of our company; Mr. David Siever, Head of Investor Relations at the company. I would also like to recognize the following individuals who are in attendance at the meeting today. Mr. Thomas A. Ferrari of American Election Services, LLC, who will serve as inspector of election for this meeting; Ms. Patty Janicek of Ernst & Young LLP, independent registered public accounting firm of our company for 2019. The time and place of this meeting have been fixed by resolution of the Board of Directors. Stockholders of record at the close of business on April 23, 2020, are entitled to vote at this meeting. I hereby appoint Thomas A. Ferrari to act as inspector of election at this meeting. Will the inspector please take and file his oath with the secretary?

My oath has been taken and filed.

The affidavit of Joanne Vogel of Broadridge Financial Services, Inc., attesting to the due distribution of notice of this meeting to each stockholder entitled to vote has been delivered and filed with the records of the company. A copy of the notice of meeting, the proxy and proxy statement has also been delivered and filed with the records of the company. The inspector of election has complete list showing all of the holders of record of common stock of the company at the close of business on April 23, 2020, duly certified by Computershare Investor Services, our company's transfer agent and registrar. Proxies received prior to the meeting represent the majority of the shares outstanding and entitled to vote. Accordingly, a quorum is present.

Thank you, James. Since a quorum is present, I declare that the meeting may now proceed with the transaction of the business stated in the notice of meeting. The polls for each matter on which the stockholders will vote at this meeting are open as of now and will close immediately prior to the inspector's report of the results later in the meeting. I will now present the 5 proposals to be voted upon. Please note that any stockholder who wishes to comment on the proposals may do so through the web portal during the presentation of all 5 proposals or immediately thereafter. The first proposal is the election of directors. On behalf of the Proxy Committee, I nominate for directors to hold office until the annual meeting of stockholders in 2021 and until their respective successors are elected and qualified the following: Douglas D. Wheat; Timothy J. Bernlohr; Captain Ian T. Blackley; Randee E. Day; David I. Greenberg; Joseph I. Kronsberg; Ty E. Wallach; Gregory A. Wright; Lois K. Zabrocky. The second proposal concerns the appointment by the Audit Committee of the Board of Directors of Ernst & Young LLP as the company's independent registered public accounting firm for the year 2020, subject to stockholder approval. Ernst & Young LLP served as the independent registered public accounting firm of the company for 2019. On behalf of the Audit Committee, I move for the adoption of the following resolution by the stockholders of the company: resolved that the action of the Audit Committee of the Board of Directors of this company in appointing Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020, be and it is here -- and it hereby is ratified and approved. The third proposal concerns an advisory vote of stockholders of the company on the compensation paid to the named executive officers for 2019 as described in the company's proxy statement. On behalf of the Proxy Committee, I move for the adoption of the following resolution by the stockholders of the company: resolved that the stockholders of the company hereby approve in an advisory vote compensation of the named executive officers for 2019 as described in the compensation discussion and analysis section, in the accompanying compensation table and narrative in the company's proxy statement for the 2020 annual meeting of stockholders. The fourth proposal concerns the ratification and approval by the stockholders of the company of the International Seaways, Inc. 2020 nonemployee director incentive compensation plan as described in the company's proxy statement. On behalf of the Human Resources and the Compensation Committee, I move for the adoption of the following resolution by the stockholders of the company: resolved that the stockholders of the company hereby ratify and approve the International Seaways, Inc. 2020 nonemployee director incentive compensation plan as described in the company's proxy statement for the 2020 annual meeting of stockholders. The fifth and final proposal concerns the ratification and approval by the stockholders of the company of the International Seaways, Inc. 2020 management incentive compensation plan as described in the company's proxy statement. On behalf of the Human Resources and Compensation Committee, I move for the adoption of the following resolution by the stockholders of the company: resolved that the stockholders of the company hereby ratify and approve the International Seaways, Inc. 2020 management incentive plan as described in the company's proxy statement for the 2020 annual meeting of stockholders. If any stockholder would like to make a comment regarding any of these proposals and has not already done so, please submit your comments through the web portal at this time. The polls remain open. Any stockholder who has not yet voted or who wishes to change his vote, may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies or voted by telephone or internet and do not want to change their vote, do not need to take any further action. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls for the International Seaways 2020 Annual Meeting closed. I now recognize the inspector of elections to please report the results.

In my capacity as an inspector of election, I report that the company had 28,843,761 shares of common stock outstanding and entitled to vote at the close of business on April 23, 2020, the record date of this meeting, that the majority of the outstanding shares are represented by holders present at this meeting in person or by proxy, and that each of the nominees set forth in the company's proxy statement for election as directors of the company were elected directors of the company. I also report that a majority of the outstanding shares were voted in favor of the resolution to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the year 2020. To approve, in an advisory vote, the compensation of the named executive officers for 2019 as described in the compensation discussion and analysis section and in the accompanying compensation tables and narrative in the company's proxy statement for this meeting. And to ratify and approve each of the International Seaways, Inc. 2020 nonemployee director incentive compensation plan and the International Seaways, Inc. 2020 management incentive compensation plan as each is described in the company's proxy statement for this meeting.

In conformity with the report of the inspector of elections, I declare that each of the nominees has been elected as director for the ensuing year and until his or her successor is elected and qualified. In addition, resolutions have been adopted: approving the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2020; number two, approving in an advisory vote of the compensation of the named executive officers for 2019 as described in the company's proxy statement for this meeting; number three, ratifying and approving the International Seaways, Inc. 2020 nonemployee Director incentive compensation plan as described in the company's proxy statement for this meeting; and number four, ratifying and approving the International Seaways, Inc. 2020 management incentive compensation plan as described in the company's proxy statement for this meeting. I direct the secretary to file with the records of the company the following documents: the oath and report of the inspector of election; ballots cast at this meeting; the list of stockholders entitled to vote at the meeting; proxies from stockholders presented to the meeting. There being no further business to come before this meeting, I declare the meeting adjourned. I will now give a brief update on the company's performance and how we have responded to the current COVID environment. Before I begin, please turn to Slide 2, where we include safe harbor language. My comments may include forward-looking statements and certain non-GAAP financial measures, which are addressed in this disclaimer. If you would turn to Slide 3, we review our corporate and financial highlights and our recent accomplishments. Seaway's disciplined and balanced approach to allocating capital, combined with our success, capitalizing on the current robust tanker markets, served us well in the first quarter, as we continue to focus on creating lasting value for our shareholders. Turning to the first bullet, we highlight our success, executing our proven capital allocation strategy during the first quarter. In January, we successfully completed the refinancing of $380 million of high-cost debt, which, when combined with retirement of $110 million of debt in the fourth quarter of 2019, reduced annual interest expense by $25 million and transformed our capital structure. At a time, when we have maintained one of the lowest leverage profiles in the public company shipping sector, our balance sheet strength and our strong cash position enables us to shift our capital allocation priorities and begin to return capital to shareholders. During the quarter, we initiated a $0.06 per share quarterly cash dividend, and we repurchased $10 million of shares, which, based on the stock's valuation relative to our NAV, we believe represented an attractive opportunity for International Seaways to further unlock value. Our priority is to optimize how we allocate capital throughout the cycle. In addition to our regular quarterly dividend, we will continue to consider all of our options to unlock value for shareholders as we did during the first quarter. We also repaid the outstanding balance on our revolver, which now provides $40 million of additional liquidity. This is important for both opportunistically taking advantage of accretive opportunities and to effectively operate in periods of high volatility. Consistent with our focus on strengthening our earnings power and further modernizing our fleet, we purchased an LR1, the Seaways Guayaquil, which will trade in our Panamax International joint venture. This JV has consistently outperformed the marketplace. We also sold an older Aframax during the quarter, further improving our age profile. Moving to the next bullet. The rate environment continued to strengthen in the first part of the second quarter. And with our sizable fleet of crude and product tankers as well as our significant exposure on the VLCC market, we have captured this market strength, which will positively impact our earnings going forward. In addition to strong second quarter spot bookings, we capitalized on the high rate environment, and we entered into a number of very favorable time charters for periods ranging from 7 to 36 months with major oil-producing and trading companies. Specifically, in April, we executed a 3-year VLCC time charter for $45,000 per day, another charter for an 18-year-old VLCC for 1 year at $53,000 per day. We also executed 2 7-month VLCC time charters at an average rate of $100,000 per day. All 4 of these VLCCs have delivered on their time charters and are performing. We are pleased to lock in these attractive rates. Together with our joint venture income, these time charters reduced the fleet-wide breakeven on our spot revenue days to $16,000 per day over the next 12 months. Moving to the last bullet. Our substantial operating leverage was evident during the first quarter, and we posted the strongest quarter since inception over 3 years ago. We earned net income of $44 million. This excludes the items related to asset sales and debt refinancing. We created $1.49 per share, our highest quarterly earnings per share as a public company. Our first quarter adjusted EBITDA was $74 million, representing a year-over-year increase of $27 million. In terms of our strong liquidity position, as of March 31, we had $150 million in total liquidity, including $40 million undrawn revolver. Now turning to Slide 4, we provide an update on oil supply and demand. Due to the abrupt halt to large segments of the global economy in response to the COVID-19 virus, we have seen a significant decline in oil demand. The IEA has cut its projections of global oil demand to 18 million barrels per day loss in the second quarter, and overall, for 2020, a loss of demand of 8 million barrels per day. On the supply side, after OPEC and Russia failed to agree on cuts, and Saudi Arabia announced an increase in production in March, OPEC+ reached an agreement in April and may curb production by approximately 11 million barrels per day beginning in May. Nevertheless, we've limited global oil demand. Oil prices dropped significantly in April. Oil storage facilities on land filled up quickly, and this left the tanker market to bridge the gap. Tanker owners benefited greatly from the shortage of storage and historically low oil prices. First, our vessels had delay at discharge ports, where there is an inadequate storage space to accept discharging cargoes, and this created a ship supply storage at low port. This supported the elevated rate environment. At this time, some 75 VLCCs are still waiting to discharge in China. Next, a strong oil contango developed, very low prompt oil prices and higher prices further out, and this made it profitable for traders to store oil and created demand for tankers to serve as floating storage. This had the effect of further reducing ship supply as seen in the chart on the right-hand side of the slide, pushing rates higher. According to Reuters, there are currently about 160 million barrels total of both crude and products being stored on ships. Moving to Slide 5, we have an update on tanker supply. You can see on the chart in the top right-hand corner of the slide, the overall tanker order book remains historically low. Only 10 VLCCs have been ordered in 2020 and 31 in the full year 2019. Uncertainty regarding the current market as well as decarbonization and suitable propulsion systems to meet decarbonization goals has tempered ordering this year. Ship supply also continues to be limited by no longer -- by longer installation times for scrubbers and delayed Chinese newbuilding deliveries due to understaffing at the yards. Moving to the lower half of the slide, we note that the global VLCC fleet continues to age as evidenced by the chart at the bottom right. Out of 822 VLCCs, nearly 200 ships are over 15 years old, the age at which vessels become significantly more expensive to operate with substantial investments required to continue to trade. Additionally, as ships reach ballast water installation treatment deadlines, even greater capital expenditure is necessary to keep those vessels running. Based on these dynamics and the limited scrapping activity last year and into 2020 due to the market recovery, the potential for scrapping has been building. While there have been no vessels scrapped this year-to-date, if rates moderate, scrapping is likely to increase based on the aging fleet. Slide 6, I highlight some of the environmental, social and governance efforts and achievements of International Seaways. On the environmental front, we were recognized as being the very first shipping company to not only publish our carbon dioxide emissions, but to also disclose how those emissions are in relation to the IMO 2050 decarbonization trajectory. On the social front, we have gone to extraordinary lengths to manage the well-being of our crew. We have implemented strict measures on all of our ships to keep our seafarers safe and healthy, and we have provided COVID testing kits to all of our ships. While global travel restrictions are making crew changes difficult, we have been making some progress on this front. We continue to support industry efforts to designate our seafarers as key workers and to prep for additional international flights to repatriate our crew. Finally, on Slide 7, we have once again been recognized as the #1 tanker company on the Webber Research's 2020 governance scorecard. This is the third year in a row that we've been achieved this honor, and it is a testament to the transparency with which we run International Seaway. This concludes my remarks. Thank you very much for listening to the presentation. We can now turn to address stockholder questions and comments. As of this time, we do not have any questions, therefore, since there are no questions or comments, this comment period is now concluded, and we are finished. Thank you so much for your attendance.

This now concludes the meeting. Thank you for joining, and have a pleasant day.