International Seaways, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with Q1 2023. International Seaways transports crude oil and refined petroleum products through its Crude Tankers and Product Carriers segments. Its operating fleet had 73 vessels at quarter-end, with six LR1 newbuilds scheduled for delivery from the second half of 2025 through Q3 2026.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Shipping revenue | $274.4 million | $287.1 million | Down 4% |
| TCE revenue (non-GAAP) | $270.9 million | $283.3 million | Down 4% |
| Income from vessel operations | $154.4 million | $185.3 million | Down $30.9 million |
| Net income | $144.5 million | $172.6 million | Down 16% |
| Diluted EPS | $2.92 | $3.47 | Down 16% |
| Operating cash flow | $156.4 million | $220.8 million | Down 29% |
| Adjusted EBITDA (non-GAAP) | $191.5 million | $209.0 million | Down 8% |
Operating margin was approximately 56% of shipping revenue, versus 65% in Q1 2023; net margin was approximately 53%, versus 60%. Interest expense declined to $12.9 million from $16.9 million, mainly due to lower average debt and repayment of COSCO lease financing. No income tax expense was recorded in Q1 2024.
Liquidity, debt and capital allocation
- At March 31, cash and cash equivalents were $139.5 million, short-term investments $75.0 million, and reported total liquidity $625.9 million, including $411.4 million of undrawn revolver capacity. Working capital was $310.0 million.
- Total debt, net of discounts and financing costs, was $691.7 million, including $127.5 million current and $564.2 million long-term. Net debt to total capitalization was 21.0%, down from 23.8% at December 31, 2023. The company reported compliance with debt covenants.
- Cash increased $12.7 million during the quarter. Financing outflows included $64.7 million of dividends and $19.5 million of debt repayments; investing included $26.4 million of vessel and property expenditures and a $15.0 million net increase in short-term investments.
- The February dividend of $0.12 per share regular and $1.20 supplemental was paid in March. On May 7, the Board declared $0.12 regular and $1.63 supplemental per share, payable in June.
Material changes and business developments
- TCE revenue fell $12.4 million. Lower average rates across most crude tanker sectors and fewer LR1/MR revenue days were partly offset by additional VLCC days from three LNG dual-fuel newbuilds and stronger lightering activity. Product-carrier MR and LR2 rates improved, while lower LR1 chartered-in days and MR vessel sales reduced revenue days.
- Q1 2023 included a $10.7 million net gain on vessel and asset disposals, compared with $0.1 million in Q1 2024. Current-quarter vessel expenses and depreciation also rose, principally following delivery of the three VLCC newbuilds in 2023.
- In February, the company agreed to acquire six MR product carriers for approximately $232 million, funded 85% in cash and 15% in shares. Three were delivered in April and early May; the remainder were expected by the end of Q2. A $23.2 million deposit was paid in February.
- In March, the company exercised options for two additional LR1 newbuilds. Six LR1s now have aggregate expected cost of approximately $347 million; remaining construction commitments at quarter-end were $335.5 million.
- After quarter-end, one MR was delivered to a buyer for approximately $23 million net proceeds. The company also entered into three time charters expected to generate approximately $86 million of minimum contracted revenue, and prepaid the $20.3 million ING facility.
- On April 26, the company amended and extended its $750 million facility into a $500 million revolving credit facility maturing in January 2030. At closing, $94.6 million was drawn and $405.4 million remained undrawn on the new facility; total undrawn revolver capacity increased to $559.4 million. Management said the transaction extended maturity, reduced mandatory repayments and lowered financing costs. These are post-quarter events, not quarter-end liquidity figures.
Outlook, risks and contingencies
Management gave no numerical earnings or rate guidance. It described crude tanker rates as strong and above 10-year averages and cash breakeven levels during Q1, and clean product tanker rates as stronger during the quarter; rates had softened somewhat after quarter-end. Management cited a strong balance sheet, 30 unencumbered vessels and diversified financing as support for operations and its plans for fleet renewal, debt reduction and shareholder returns. Approximately 89% of Q1 TCE revenue came from the spot market, leaving results exposed to market-rate volatility.
- Shipping markets are cyclical and sensitive to vessel supply, oil demand, charter rates, geopolitical disruptions, weather and canal constraints, fuel prices, and operating costs. The company also identifies regulatory and environmental requirements, including emissions rules, as risks.
- A commercial dispute involving a vessel arrested in July 2023 remains in English arbitration. The vessel was released, but claimants continue to seek approximately $25 million in security. The company cannot predict the outcome and has accrued no liability.
- For unconsolidated commercial-pool VIEs, the company reports $34.0 million of pool working-capital deposits as maximum exposure to loss, excluding approximately $232 million of pool trade receivables. Management does not believe a loss is probable.
- The company recorded a $0.3 million reserve for one UK multi-employer pension plan; possible further contributions to another plan cannot be reasonably estimated, and no reserve was recorded for it.
- Section 883 tax exemption eligibility for 2024 depends on shareholder ownership conditions. The filing notes that loss of the exemption in a future year could result in U.S. tax on U.S.-source shipping income. The EU Emissions Trading System began applying to covered voyages in 2024; Q1 EUA-related revenue and expense were each $0.5 million.
- Contractual obligations totaled approximately $1.48 billion, including debt service, leases and vessel-related commitments. This includes significant commitments for the MR acquisitions, LR1 construction and vessel betterments.
Most important facts for investors to verify
- Whether tanker charter rates and spot-market conditions remain supportive, given the company’s high spot exposure and post-quarter rate softening.
- Completion, financing and share issuance for the six MR acquisitions, and the schedule and funding of the six LR1 newbuilds.
- Availability and terms of the amended revolving facility, future debt amortization, and liquidity after capital commitments and dividends.
- Developments in the $25 million security demand and arbitration, and any resulting liability or operational impact.
- Section 883 tax qualification, pool receivable recoverability, and the effects of emissions and other regulatory costs.