International Seaways, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Dollar amounts are in millions unless stated otherwise. The company transports crude oil and refined petroleum products through its Crude Tankers and Product Carriers segments. Its operating fleet comprised 74 vessels at quarter-end; three dual-fuel LNG VLCC newbuilds were under delivery, with the first delivered in March.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Shipping revenue | $287.1 | $101.5 |
| Time charter equivalent (TCE) revenue | $283.3 | $98.0 |
| Income (loss) from vessel operations | $185.3 | $(5.6) |
| Net income (loss) | $172.6 | $(13.0) |
| Diluted earnings (loss) per share | $3.47 | $(0.26) |
| Operating cash flow | $220.8 | $(19.8) |
| Capital expenditures for vessels and improvements | $66.7 | $38.0 |
- TCE revenue increased 189%, primarily from higher average daily rates across fleet sectors. Average daily TCE rates rose to $54,390 for Crude Tankers from $15,429, and to $37,726 for Product Carriers from $14,362.
- Adjusted vessel-operation income was $84.5 for Crude Tankers and $101.7 for Product Carriers. Adjusted EBITDA was $209.0, versus $26.0 in Q1 2022; this non-GAAP measure is not a substitute for net income or operating cash flow.
- Net income included a $10.7 net gain on vessel and other asset disposals, including a $10.9 gain on sale of an MR vessel. Interest expense increased to $16.9 from $12.7, reflecting higher floating rates and additional lease financing.
- At March 31, cash and cash equivalents were $156.2, short-term investments $105.0, restricted cash $18.3, and undrawn revolving capacity $257.4. Management reported total liquidity of $518.6 and working capital of $335.1.
- Total debt and finance lease obligations, as reported by management, were $951.0; net debt to total capitalization was 30.1%, down from 33.3% at December 31, 2022. Debt carrying value was $932.7, including current and long-term portions. The company was in compliance with financing covenants.
Material changes and capital allocation
- The company amended its $750 Million Credit Facility, prepaid $97.0 of term-loan principal, released mortgages on 22 MR product carriers, and added $40.0 of revolving commitments. Available revolver capacity was $257.4, with none drawn at quarter-end.
- Cash declined $69.2 during the quarter. Operating cash flow was offset principally by $98.3 of dividends paid, debt repayments and prepayments, vessel investment, and purchases of short-term investments.
- The board declared Q1 regular and supplemental dividends totaling $2.00 per share. On May 4, 2023, it declared a further $1.62 per share, payable June 28, 2023.
- The first of three dual-fuel LNG VLCCs entered service in March under a seven-year time charter with an oil major. The second was delivered April 11, and the third was expected before the end of Q2 2023. Remaining construction commitments for two vessels were $115.2 at quarter-end, primarily expected to be funded by BoComm lease financing.
- The company completed the purchase of one bareboat-chartered Aframax in March and the second in early April. It sold a 2008-built MR in March, generating proceeds of approximately $20.2 and a mandatory term-loan prepayment.
Outlook, risks and contingencies
- Management said Q1 tanker rates were significantly above ten-year averages. Following OPEC production-cut announcements in April, markets weakened but remained historically strong. The filing provides no numerical earnings or revenue guidance.
- Management cited liquidity, 26 unencumbered vessels, and debt maturities spread from 2026 to 2031 as support for operations over the next 12 months. Its stated capital-allocation priorities include fleet renewal, debt reduction, and shareholder returns.
- Key risks include the highly cyclical tanker market, rate and vessel-value volatility, changes in oil demand and vessel supply, interest rates, geopolitical events including the Russia-Ukraine war, operating and regulatory costs, and the ability to service debt and maintain covenant compliance.
- The company expected to qualify for the U.S. Section 883 shipping-income tax exemption for 2023, subject to ownership conditions; qualification beyond 2023 is uncertain. Losing the exemption could result in U.S. tax on U.S.-source shipping income.
- Potential additional contributions to two UK multi-employer pension plans cannot be reasonably estimated; no reserves were recorded. The six commercial pools were identified as unconsolidated VIEs. The company reported $34.1 of pool working-capital deposits as maximum exposure to loss, excluding $236.6 of pool trade receivables; management did not consider a loss probable.
- On April 11, 2023, the board amended and extended its rights agreement through April 10, 2026, raising the acquiring-person threshold from 17.5% to 20% and adding a qualifying-offer provision. Management said it is intended to encourage negotiation with the board.
Important facts for investors to verify
- Whether tanker rates and earnings remain strong after the post-quarter market weakening, and the impact of further changes in oil flows, OPEC output, or vessel supply.
- Delivery, financing, and charter commencement for the remaining LNG VLCC newbuilds, and the related construction spending and debt obligations.
- Liquidity and debt repayment capacity after dividends, vessel investment, and scheduled amortization; also monitor floating-rate exposure and covenant compliance.
- Whether the company continues to meet the ownership requirements for the Section 883 tax exemption and how future tax-law changes may affect its tax position.
- Potential exposure to pool receivables and unquantified multi-employer pension assessments, as well as the implications of the amended rights agreement.