Business context and reporting period
International Seaways, Inc. (INSW) filed this unaudited Form 10-Q for the three months ended March 31, 2022. The company transports crude oil and refined petroleum products through its Crude Tankers and Product Carriers segments. Its fleet comprised 84 operating vessels, with three dual-fuel LNG-powered VLCCs under construction for expected delivery in Q1 2023.
Comparisons with Q1 2021 are affected by the July 2021 Diamond S merger: Q1 2022 includes the expanded fleet, while Q1 2021 largely predates the merger. Fleet growth and market-rate changes both contributed to year-over-year results.
Financial performance and position
Amounts below are in millions of dollars except per-share data and where noted.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Shipping revenue | $101.5 | $46.8 |
| Time charter equivalent (TCE) revenue, non-GAAP | $98.0 | $45.2 |
| Loss from vessel operations | $(5.6) | $(11.8) |
| Operating loss | $(0.03) | $(6.4) |
| Interest expense | $12.7 | $7.3 |
| Net loss attributable to INSW | $(13.0) | $(13.4) |
| Basic and diluted loss per share | $(0.26) | $(0.48) |
| EBITDA / Adjusted EBITDA, non-GAAP | $26.7 / $26.0 | $10.7 / $10.7 |
| Net cash used in operating activities | $(19.8) | $(21.0) |
TCE revenue grew 117%, with $30.4 million of the increase attributed to additional vessel days, largely following the merger, and $22.3 million to higher rates across most fleet sectors. Product Carriers generated $61.5 million of TCE revenue and $9.2 million of adjusted vessel-operations income; Crude Tankers generated $36.5 million of TCE revenue and had a $5.8 million adjusted loss. The VLCC rate environment remained weak.
At March 31, 2022, cash and cash equivalents were $74.6 million, plus $1.1 million restricted cash. Total liquidity was $165.6 million, including $90.0 million of undrawn revolver capacity. Working capital was positive $1.2 million. Total debt, net of unamortized financing costs, was $1.121 billion; net debt to total capitalization was 47.3%, versus 46.2% at December 31, 2021. The company reported compliance with all financing covenants.
Cash decreased $23.3 million during the quarter. Investing cash outflow was $14.6 million, including $38.0 million of vessel and improvement expenditures, partly offset by $24.3 million in vessel-sale proceeds. Financing provided $11.1 million, including $50.0 million of revolver borrowings; debt payments, lease-financing payments, and dividends were significant uses of cash.
Material changes versus the prior comparable period
- Shipping revenue more than doubled, mainly reflecting the merger-expanded fleet, higher vessel utilization and stronger rates in many segments. The larger fleet also drove higher vessel expenses and depreciation.
- Product Carrier TCE revenue increased from $9.2 million to $61.5 million, reflecting merger-related fleet additions and improved MR and LR1 rates. Crude Tanker TCE revenue was nearly flat: higher Suezmax activity and rates were substantially offset by weaker VLCC rates and fewer Panamax and VLCC days.
- Interest expense increased $5.5 million, primarily due to higher average debt balances following the merger and subsequent financing activity, as well as higher LIBOR rates.
- Weighted-average shares increased to 49.6 million from 28.0 million, largely reflecting merger consideration shares; consequently, per-share loss improved more than the underlying net loss.
- Operating cash use improved modestly, while vessel and improvement expenditures rose substantially compared with Q1 2021.
Outlook, commentary, risks and unusual items
- Management said liquidity initiatives and diversified financing had strengthened its ability to navigate weaker tanker rates in 2022 and support operations over the next twelve months. The filing provides no quantified earnings or rate guidance.
- Management described crude tanker rates as pressured after a weak 2021. Russia’s invasion of Ukraine and related sanctions altered trade routes and market efficiency, contributing to some rate strengthening, but the effect on shipping demand, revenue and rates remained uncertain. China’s Q1 crude imports declined year over year, and low Chinese demand weighed on VLCCs.
- Key risks include tanker-market cyclicality, vessel supply and demand, oil demand and trade disruptions, fuel and interest-rate changes, debt service and covenant requirements, drydock and regulatory costs, COVID-19 impacts, and consequences of the Russia-Ukraine war, including sanctions, cybersecurity, crew availability and insurance risks.
- Q1 included vessel impairments totaling approximately $1.7 million, a $1.4 million net gain on vessel and other-asset disposals, and approximately $0.7 million of costs to terminate ballast-water-system contracts for vessels sold in 2021. The filing also reports $0.2 million of third-party debt modification fees.
- Three dual-fuel VLCCs have approximately $230.6 million of remaining construction commitments; the BoComm lease financing is expected to fund approximately $230.4 million. The company also disclosed aggregate contractual obligations of $1.635 billion, including debt and related estimated interest, leases and vessel commitments.
- INSW guarantees certain FSO joint-venture obligations; the maximum potential future payment disclosed for investee secured debt and swap obligations was $13.3 million, with no guarantee liability recorded. The company also reported maximum exposure to loss of $195.3 million for unconsolidated VIEs; associated trade receivables were excluded from that amount.
- After quarter-end, vessels were sold or contracted for sale, with seven vessel sales expected to generate approximately $49.9 million of net proceeds after associated debt prepayments. An April 2022 sale-and-leaseback generated $5.4 million of net proceeds. These are subsequent events, not Q1 cash flows.
Important facts for investors to verify
- How much of TCE growth reflects sustainable rate improvement versus merger-related fleet additions, and whether weak crude tanker and VLCC conditions persist.
- Whether liquidity remains adequate as debt amortization, vessel construction spending and other contractual obligations come due; review revolver availability and the 2023 senior-note maturity.
- Whether expected vessel-sale proceeds and the BoComm financing meet planned funding needs, and whether the newbuild vessels are delivered on schedule and enter their seven-year Shell charters as planned.
- How higher floating-rate borrowing costs and the planned transition from LIBOR affect interest expense and hedge protection.
- Developments in Russia-Ukraine-related sanctions, trade routes, insurance, fuel costs and seafarer availability, as well as any changes in disclosed contingent exposures.