Good morning, and welcome to the International Seaways First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would not like to turn conference over to James Small. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaways earnings release conference call for the first quarter of 2018. Before we begin, I would like to start off by advising everyone on the call with us today of the following: During this conference call, management may make forward-looking statements regarding the company or the industry in which it operates, which could include, without limitation, statements about the outlook for the crude tanker and product carrier markets; changing oil trading patterns; forecasts of world and regional economic activity; forecasts of demand for and production of oil and petroleum products; International Seaways' strategy; purchases and sales of vessels included in the previously announced anticipated acquisition of Chinese-built VLCCs; anticipated financing transactions; expectations regarding revenues and expenses, including both vessel expenses and G&A expenses; estimated bookings and TCE rates for the second quarter first half or other periods in 2018 or other years; estimated capital expenditures for 2018 or other periods; projected scheduled dry-dock and off-hire days; the company's consideration of strategic alternatives and its ability to achieve its financing and other objectives; and economic, political and regulatory developments around the world. Any such forward-looking statements take into account various assumptions made by management based on various factors, including its experience and perception of historical trends, current conditions, expected and future developments and other factors 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 those forward-looking statements. Factors, risks and uncertainties that could cause International Seaways actual results to differ from expectations, include those described in its annual report on Form 10-K for 2017, and its forthcoming quarterly report on Form 10-Q for the first quarter of 2018, as well as in other fillings that we have made, or in the future, may make with the U.S. Securities and Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call to discuss our first quarter 2018 results. During the first quarter, we achieved significant progress on executing our fleet growth and renewal strategy, and increasing our liquidity. Positioning the company for a market recovery. In the current difficult tanker environment, we also continue to draw upon of our lean and scalable model to operate effectively. Please turn to Slide 4. Here, we review the first quarter of 2018 highlights and our recent accomplishments. Looking at the first bullet, I will begin by providing an update on our pending VLCC transaction. Following the agreement, we entered into, in December of 2017, to acquire six modern VLCCs from Euronav in connection with the Gener8 Maritime acquisition. We have made considerable progress towards closing the transaction, and we remain on track to complete the acquisition in the current quarter. We look forward to adding these highly efficient, modern sister ships to our fleet, positioning the company to strengthen its fleet profile and operating leverage, while enhancing our upside potential for capitalizing on a market recovery. As we work towards completing the acquisition, we continue to expect to assume the $311 million Sinosure debt, which matures between 2027 and 2028 and carries an attractive annual interest rate of LIBOR plus 2%. We intend to fund the balance of the purchase with available liquidity. Let me explain how that works. Continuing to the second bullet, since announcing the transaction, we have taken important steps to maintain our strong balance sheet and significantly enhance our liquidity position, which was $141 million at the end of Q1, up from $91 million at the year-end. We are pleased to have put in place the necessary cash funding for the acquisition. In April,…

Thank you, Lois, and good morning, everyone. Let's move directly to reviewing the first quarter results in more detail. Before turning to Slide 9, let me quickly summarize our consolidated results. Net loss for the quarter was $29.3 million or a negative $1.01 per share compared to net income of $18.1 million or $0.62 per share in the first quarter of 2017. This net loss reflects a decline in TCE revenues compared with the first quarter of last year, a reduction in equity and income of affiliated companies of $5.3 million and a net loss on vessel disposals during the 2018 period of $6.6 million. As Lois mentioned, net loss excluding this loss in vessel sales was $22.7 million or $0.78 per share. Now please turn to Slide 9. In the chart on the top left of the page, right -- consolidated TCE revenues for the first quarter 2018 were $48.8 million, compared to $84.1 million in the first quarter of last year. This decrease was principally driven by lower daily rates this quarter compared to Q1 of last year as well as fewer net revenue days due principally to idle days on the company's ULCC and the sale of four older MRs between August 2017 and February 2018. Additionally, the costs associated with preparing vessels for sale had a negative impact on costs and revenues during the quarter. Let me now discuss the results of our business segments beginning with the Crude Tanker segment at the top far left. TCEs for the Crude Tanker segment were $29 million for the quarter compared to $56 million in the first quarter of last year. This decrease was primarily due to a lower average budget rates in all sectors, particularly the VLCC fleet sector, which accounted for $18 million of the overall…

Thank you very much, Jeff. If you could please turn to the summary page on Slide 16. During the first quarter of 2018, our strong financial position, our low leverage and our low crash breakeven enabled International Seaways to remain essentially cash flow breakeven at a challenging point in the tanker cycle. Maintaining a strong financial position remains a priority for us. And we are pleased that with the recent signing of credit facilities for our FSO joint ventures, we have enhanced our financial flexibility. We're receiving proceeds of $110 million. As noted earlier, overall liquidity increased by $50 million during the quarter to $141 million. Our ongoing success implementing our fleet growth and modernization strategy continues to provide tangible benefits. As we have proactively taken steps to decrease the age of our fleet by close to three years, and increased deadweight capacity by 23%. This strengthens our earnings potential ahead of a market recovery. The combination of our balanced fleet deployment strategy and moderate level of predictable cash flows from our joint ventures and our contracted fixed-rate charters has helped International Seaways to weather the weak points in the current tanker cycle and positions us to capitalize on a market recovery in both crude and product sectors. We are pleased that our ongoing success, growing and modernizing our fleet, combined with our lean and scalable model have further enhanced our operating leverage and our upside potential, while the additional liquidity and modern vessels also safeguard the company during this weak point in the cycle. Since our spin-off, we will have invested over $600 million in our fleet, including the six VLCCs. Importantly, based on the significant progress that we've made enhancing our liquidity position, we have now put in place the necessary cash funding for the acquisition and are progressing towards closing the transaction in the current quarter. Going forward, we will continue to maintain a disciplined capital allocation strategy, and note that following the VLCC acquisition, we will continue to have one of the lowest loan-to-value profiles in the sector. When we became an independent publicly traded company close to 1.5 years ago, we set out to further strengthen our fleet profile and our earnings power. Through our disciplined execution of our fleet growth and our modernization strategy, success maintaining a level of predictable cash flows and an intense focus on financial strength and liquidity, we are pleased to have further enhanced our upside potential and ability to create value for all of our stakeholders as we head towards a market recovery. That concludes my comments, and we will now open up the call for questions. Operator?

[Operator Instructions] Our first question comes from Magnus Fyhr with Seaport Global.

Just first question on capital allocation strategy. I mean, despite spending about $600 million on fleet renewal, looks like you're going to have about $135 million of liquidity after funding these VLCCs. And given the challenging outlook for tankers, would you be comfortable in deploying more capital? Or do you prefer to have some cushion here to see the market -- see a recovery in the market before you deploy further capital?

Yes, Magnus. We are a 100% focused on concluding our VLCC transaction. And we are very acutely watching the tanker market. And we will be a good steward of our capital and are not looking to deploy further cash in the market.

Yes, I'd just follow up. Your quick math is good on the cash. But actually when you add in undrawn revolver, the liquidity would be about $50 million higher than what you said, Magnus. But that said, exactly as Lois said, as we went through on the call, with this amount of renewal, 23% growth and 24% decrease in the age of the vessels, we feel, we will have accomplished -- substantially accomplish our goal of fleet renewal. So we think the right thing to do is just run a good company.

And if you were to deploy more capital. I mean, given the more challenging outlook for the crude tankers. I mean, do you believe that there are still opportunities in the product tanker space? Or given that people are getting more optimistic there, there would be further opportunities in crude tankers as far as acquisitions?

Yes, Magnus. So what you will see on the products side is that we have renewed our four in-chartered MRs with a lot of optionality and flexibility. So we are still committed to that sector. But we reiterate that we're focused on running a good company. And really focused on concluding our transaction.

And just one last question. Looking at -- on Page 10, what was going on with the Panamax LR1s, I mean, they were booked at significantly higher rate than the first quarter. Was it something -- can you kind of give a little color on that?

The -- our Panamax's are involved in a joint venture with [indiscernible] and Ultragas. And those vessels do consistently outperform certainly all other LR1s in Panamax markets. And so we've seen some strength in that sector ahead of the other crude sectors.

And just in general, I think that what should come out of our slides and our comments is, as that -- we -- far away from us they could be calling anything as far as the market goes. But you can certainly see it that while there is continuing weakness in the larger segments, the smaller segments have ticked up now, the MRs for two quarters in a row. And then as you saw the Panamax -- well not a product segment but the one again -- one of the smaller segment has significantly ticked up. So we'll continue to follow that closely. But that's a positive development.

Okay. And you -- I guess you renewed the chartered-in on four MRs, there's two bareboat charters too that are getting delivered in 2Q. What's the status of those two?

Those two vessels will redeliver. They are dry-dock due, and so though they will go back to the head owner at this time.

Our next question comes from Noah Parquette with JPMorgan.

You guys touched on, obviously, the really high scrapping rate for VLCCs in the first quarter. But in April, that's come down a bit. Can you talk about what do you think is driving that? Is that just regular volatility? Is there a change in sentiment? What are your expectations for the rest of the year?

Yes, we'll have Derek Solon, our sale and purchase expert take that question.

Noah, thanks for the question. I think we'll see -- as you pointed out, we've got a lot of scrapping to do in the first quarter. I mean, a lot of that had to do with the lower rates in the VLCCs and the high scrap prices. I think as we saw a lot of ships sail into the South Asian recyclers, you started to see prices come down from there. And now we're kind of heading into that upcoming monsoon season, so we might see a bit of a slow down because of the seasonality and the environmental factors in South Asia. But we would expect that to tick off post-monsoon come the autumn.

Okay, great. And I wanted to ask also, going down the route where you raised money at the JV, does that impact your expectations for distributions from the JVs going forward? And so what do you think the new number will be?

That's a great question, Noah, and it does impact, so we will still have strong cash flows coming from both of our joint ventures. So on the FSO, we still anticipate in calendar year 2018 to receive $18 million. And in 2019, we are projecting over $20 million in cash flows coming from the FSO. On the LNG, either in the second quarter or early in the third quarter, we anticipate close to $11 million distribution coming from that joint venture. So we're still looking at combined nearly $30 million cash flows coming from the joint ventures in 2018.

Okay, great. And then just one last one. I mean, just kind of a broader industry question. What do you expect the VLCC segment, how it's expected to react to the 2020 software regulations? And I guess, have you looked at putting scrubbers on any of your ships, particularly the new ones you're about to buy? Or how are you approaching that?

Yes, we are deep in the study of the scrubber question. And I do believe that this will be a true market disruptor on fuel oil movement, the bunker markets and the freight market. So we are in the midst of studying what our reaction would be to the scrubbers. And our likelihood, if we were to install scrubbers, it would be on the larger vessels where you get the bigger efficiency and saving.

[Operator Instructions] Our next question comes from Poe Fred [ph] with Noble Capital Markets.

Just a couple of questions about your sales activity. It looked like your total sales was about $19 million in the first quarter as far as actual sales. And then, the sale leasebacks, do they add about $40 million to that asset sale total in your cash flow bridge?

That's about right, yes.

Okay, got you. And then when I look at the additional sales that you might close from the second quarter, you quantified the $29 million. How about the -- any ballpark on the Aframax and the ULCC as far as numbers that -- once they close?

The ULCC is publicly disclosed, isn't it? Correct, James?

That's -- I believe that's right. Yes.

So that's $32.5 million on the ULCC. On the secondhand, Aframax, we'd rather not say at this time until we successfully deliver the vessel.

But you know, Paul, in all of our renewal we've been selling vessels right around where you would expect, right? The loss on sale vessels that we reported in this quarter was really related to those Aframaxes and it's kind of unique as when you do a sale leaseback, you can't really look at the sale price as the same as an outright sale because, you're leasing back. So it's the totality of the deal you have to look at, which as Lois mentioned, we had very nice purchase options on that. So really, you should expect to see us selling vessels at market.

And I think, Jeff, you said that the -- there was some costs as far as repositioning and preparing the vessel for sale in the first quarter. Would you care to quantify that?

I'd like to, except it's impossible, right? So we talked about a lot, but that -- the point behind the disclosure was to make it -- maybe I'll start and let Lois finish. Anecdotally, it could be on the cost side for extra bunkers for -- related to a transition. Or thinking of more like this, you have to dead -- kind of dead head a vessel from a place where its last voyage was for the place where the buyer is going to buy it. And you don't make any revenue on those days. So they're not like technical off-hire days but it just take the tract from revenue and -- but Lois, do you want to add to that?

Yes, no, no, I know you're looking for a quantification. But you know it's -- you know where you gas free, you got inspectors come on the shift. With the Raphael, it's the decision reacting real-time to where the market is and to pop up in the recycling market to where prices are at, right? So there's a lot of movement out of the fleet and that results in those extra expenses. But very difficult to give an exact number or math.

But clearly, millions of dollars. But that's a very acceptable trade-off for what's going on, which is, they generated the liquidity which we've talked about a number of times on this call. That puts us in position to close on the transaction and still have a lot of liquidity. So while it was a bit of a transitional quarter in that sense. We kind of look at it as an investment in the future since it's really those kind of things -- actions that cost a little bit -- put us in the place to close on this. Kind of an overused word but transformational acquisitions that we'll see done in the second quarter.

And just -- would there be any lingering impact, Jeff, into the second quarter as far as the additional sales activity or is something that you should -- we should see dissipate over time?

I mean, it will dissipate our time, but for example, the ULCC, the Laura Lynn, we'll only change hands upon the closing on the transaction, which we expect in the second quarter. So that vessel is presently idle. So that's an example of something that you should run in your analysis.

Yes, if you're building a model, you should do that. And as Lois said otherwise, that it will be some affect from that but gradually taper off.

This concludes our question-and-answer session. I would like to turn the conference back over to Lois Zabrocky for any closing remarks.

I just want to thank, everyone, for joining our call and taking time out of your day. And we're looking forward to the market's improvement. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.