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

In my capacity as the Inspector of Election, I report that the company had 28,087,011 shares of common stock outstanding and entitled to vote at this close of business on April 19, 2021, the record date of this meeting; that a majority of the outstanding shares are represented by holders present at this meeting in person or by proxy; and that the nominees for election as directors set forth in the company's proxy statement were elected directors of the company. I will 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 2021. And to approve in an advisory vote the compensation of the named executive officers for 2020, as described in the Compensation Discussion and Analysis section and then the accompanying compensation tables and narrative in the company's proxy statement for this meeting. And that is all.

Lois, you may be on mute.

Got it. Can you hear me? Yes. In conformity with the report of the Inspector of Election, I declare that each of the nominees has been elected as a director for the ensuing year and until his or her successor is elected and qualified. In addition, resolutions have been adopted. Number one, approving the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2021. And number two, approving, in an advisory vote, the compensation of the named executive officers for 2020, 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, the 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 this meeting adjourned. I will now give a brief update on the company's performance to date and how we are navigating through the COVID-19 crisis. Please turn to Slide 2. Here, we include safe harbor language. My comments may include forward-looking statements and certain non-GAAP financial measures, which are addressed by this disclaimer. In the first quarter, International Seaways was transformed as we took important steps to unlock significant value for our shareholders. This included our accretive merger agreement that will create an industry bellwether with enhanced scale and capabilities. During the quarter, we once again capitalized on an attractive opportunity to further renew our fleet at a cyclical low point for the benefit of shareholders. Turning to Slide 3. We review these compelling value-creating transactions and our first quarter financial results. Starting with the first bullet. We entered an all-stock merger agreement with Diamond S. By bringing together 2 leading U.S.-based diversified tanker owners with long-term customer relationships and deep cultures of achieving stringent safety and operational standards, we expect to deliver a number of compelling strategic and financial benefits to shareholders and to stakeholders of both companies. The combination of International Seaways and Diamond S will double our net asset value and triple the size of our fleet to 100 vessels. This will create the second largest U.S.-listed tanker company by vessel count and the third largest by deadweight. We expect to solidify our power alley in the larger crude segment, which is focused on these and now supplemented with Suezmaxes and create a power alley in the product carrier sector of MRs. Among other notable benefits, we expect the merger to be accretive to both earnings and cash flow per share with estimated annual cost synergies of $23 million and revenue synergies of $9 million. Additionally, we will increase our equity market capitalization and our liquidity, which we anticipate will provide an opportunity for the re-rating of our equity valuation. We will also preserve our significant financial strength and maintain one of the lowest net leverage ratios in global shipping. As part of this attractive transaction, we have continued to ensure the return of capital to shareholders. This is highlighted by the $31.5 million special dividend paid to shareholders immediately prior to completing the merger. We reaffirm our commitment to paying a quarterly dividend and opportunistically executing on our $50 million share repurchase program following the close. Moving to the second bullet, we highlight our agreement to contract to build 3 LNG fuel VLCCs from top-tier Korean shipyard DSME for delivery in early 2023. These vessels will further execute our balanced and accretive capital allocation strategy. Adding these state-of-the-art vessels, which will have 7-year time charters, to market-leading counterparty Shell provides us with strong, stable cash flows, the base rate protecting our downside and a profit sharing that allows for us to capture the upside. Importantly, these tankers are well suited to adhere to future environmental regulations throughout their lives. They are 40% more fuel efficient than a 10-year-old VLCC and 20% more efficient than a modern ECO VLCC. In line with Seaways ESG principles, these are highly efficient ships that surpass today's IMO Energy Efficiency Design Index and substantially outperformed the 2025 EEDI targets. Building on our signing of the first sustainability-linked refinancing in the industry in early 2020, we're proud to continue to be at the forefront of sustainability initiatives in the maritime sector. Lastly, we believe the addition of these vessels at attractive prices represents a compelling opportunity to once again renew our fleet at the bottom of the cycle. This is consistent with our track record of opportunistically deploying capital for growth since becoming an independent public company more than 4 years ago. Turning to the final bullet. Our first quarter net loss was $13 million or $0.48 per share. In a weakened rate environment where the COVID-19 virus dampened oil demand and where oil inventory destocking continued, rates were adversely impacted. We generated an adjusted EBITDA of $11 million. It's important to note that as of the end of the quarter, we had ample total liquidity of $212 million, including $172 million in cash, which is serving us well as we navigate through the trough of the tanker cycle. If you'll turn to Slide 4, we provide an update on oil supply and demand. OPEC+ has announced increased production and Saudi Arabia will roll back the voluntary cuts, amounting to an additional 600,000 barrels a day for May, 700,000 additional barrels per day of oil being produced in June and 800,000 barrels per day in July. Based on its April forecast, the IEA estimates 2021 oil demand to be up by 5.7 million barrels per day. This was an increase of 300,000 barrels per day from their February estimates, and the EIA 2021 demand forecast is even more optimistic. They expect demand to average 97.7 million barrels per day this year. Consistent with this recovery in demand, the EIA expects global inventories will have fallen by 1.8 million barrels per day in the first half of 2021. We continue to believe that stock drawdowns are needed to set the stage for tanker market recovery and combined with the OPEC+ production increases, a surge in demand for oil as the world opens up and vaccinations are administered globally signals improvements in the tanker market. Our positive view of the long-term outlook for crude and product tanker demand is one of the major reasons that we're very excited for our merger with Diamond S at this time. On Slide 5, we take a look at ship supply. We have mentioned that previously, and it continues to be the case, that the overall tanker order book remains at historic lows. This is reflected in the 31 VLCC ordered in 2019, same amount in 2020 and 27 ordered to date this year. We believe that uncertainty regarding the market as well as decarbonization regulations and higher steel input costs as well as increasing newbuild prices are tempering ordering, particularly for conventional vessels. On the bottom half of the slide, we take a look at the potential for recycling. There are number of candidates based on the aging global fleet. As you can see in the chart on the right-hand side of the slide, nearly 20% of the existing VLCC fleet is now at least 17.5 years old, with 8% at least 20 years or older. These vessels represent the majority of the VLCC order book. Another 9 VLCCs will reach 20 years of age in 2021. As discussed on prior calls, once the vessel reaches these ages, they are more expensive to operate. As ships reach their ballast water treatment deadlines, even greater capital investment is required to keep them trading. Based on all of these dynamics, the potential for recycling has been building. Only 4 VLCCs [indiscernible] the current low spot rate environment and the increasing steel prices for recycled vessels. Finally, on Slide 6, we discuss International Seaways ESG efforts. At Seaways, we're committed to responsible corporate citizenship with ESG principles at the forefront of our company culture. We continue to prioritize the safe and efficient transportation of energy through diligent and environmentally compliant operations while taking important steps to meet our sustainability goals and to minimize the risk of all forms of pollution. This commitment was highlighted when we became the first New York Stock Exchange-listed ship owner and operator to include a sustainability-linked pricing mechanism into our credit facilities last year. We also employ active compliance programs for IMO 2020 and won the NAMEPA Marine Environment Protection Award in 2019. It's important to underscore that we meet, and wherever possible, exceed compliance with all applicable rules and regulations governing the maritime industry. At the same time, we are continuously working to serve and protect our onshore and at-sea professionals. We are proud of the safe, healthy and secure working conditions we provide for all of our employees. In addition to being a member of the Marine Anti-core Corruption Network (sic) [ Maritime Anti-Corruption Network ], we recently signed the Gulf of Guinea declaration on suppression of piracy, a call to action through a wide range of collective efforts to end piracy urgently. Turning to the third series of bullets. Our corporate governance program is consistently recognized by both the capital markets and governance groups as best-in-class. We have been rated #1 among tanker companies for 3 consecutive years in the annual Webber Research ESG rankings. Six of our eight Board members are fully independent, and we have a split non-executive chairman and CEO structure. Lastly, in December of 2020, the company published our inaugural ESG report, of which we look forward to publishing updated version annually. And as we continue implementing our policies and our initiatives, we want to ensure a more sustainable and equitable future for all of our stakeholders. We can now address stockholder questions and comments. If you have not already done so, please enter your question or your comment on the web portal. Please note that only questions germane to our meeting will be addressed.

At this time, there are no questions.

Thank you, David. As there are no questions or comments, our Q&A period will now be finished. Thank you very much for your attendance at our shareholder meeting. Thank you.