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.

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?

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…

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…

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.

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.

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?

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.

Okay. So just timing kind of a thing, I guess.

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.

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?

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.

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?

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.

Right. Well, there is no question about that. So I appreciate it. Thank you.

Thank you.

Thanks, Ben.

Thank you. Our next question comes from the line of Sherif Elmaghrabi of BTIG. Your line is now open, please go ahead.

Hey, good morning. Thanks for taking my question.

Good morning.

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?

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?

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.

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?

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.

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.

Okay, that's helpful. I appreciate you guys taking my question.

Thank you, Bill.

Thank you. Our next question comes from the line of Christopher Robertson of Deutsche Bank. Your line is now open. Please go ahead.

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?

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.

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?

Go ahead Jeff.

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.

Okay.

[Indiscernible] see it as cash. Yes go ahead.

Definitely. Yes, just wondering, I guess, is that the continued strategy to kind of ladder those over time while the interest rates are attractive?

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.

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?

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?

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.

Got it. All right. Appreciate it. Thank you.

Thank you.

Thank you.

Thanks, Chris.

[Operator Instructions] I would now like to open the line for Omar Nokta of Jefferies. Your line is now open. Please go ahead.

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?

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.

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?

Go ahead, Jeff.

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.

Yes, that's very good. I was actually surprised you were willing to actually answer the question.

Come on, Omar, you know what.

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?

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.

Got it. Well, thank you, Lois. And thanks, Jeff. I'll turn it over.

Thank you.

Thanks, Omar.

Thank you. Our final question comes from the line of Liam Burke of B. Riley. Your line is now open. Please go ahead.

Thank you. Good morning, Lois, Jeff.

How are you, Liam?

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?

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.

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?

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.

Great.

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.

Okay, great. Thank you, Lois. Thank you, Jeff.

Thank you.

Thank you.

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.

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.

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.