International Seaways, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unless noted, financial amounts below are in U.S. dollars. International Seaways transports crude oil and refined petroleum products; its 75-vessel operating fleet is reported in Crude Tankers and Product Carriers segments.
Financial performance
- Q3 revenue: Shipping revenue was $241.7 million, up 2% from $236.8 million a year earlier. TCE revenue, a non-GAAP measure, was $236.0 million, up 1%.
- Q3 earnings: Income from vessel operations was $114.2 million, down from $128.4 million; net income was $97.9 million versus $113.4 million. Diluted EPS was $1.99 versus $2.28. Net margin was approximately 40.5%, compared with 47.9%.
- Nine-month results: Shipping revenue was $821.0 million, up 56%; TCE revenue was $807.6 million, also up 56%. Income from vessel operations increased to $468.1 million from $210.2 million, while net income rose to $424.3 million from $169.5 million. Diluted EPS was $8.58 versus $3.40.
- Cash flow: Operating cash flow for the first nine months was $562.9 million, compared with $106.2 million in 2022. Investing used $169.6 million and financing used $498.1 million. Cash and cash equivalents ended the period at $139.0 million, down $104.8 million from year-end 2022.
- Liquidity and debt: Reported liquidity was $581.4 million: $139.0 million cash, $75.0 million short-term investments and $367.4 million undrawn revolver capacity. Working capital was $286.5 million, versus $385.2 million at December 31, 2022. Debt, net of discounts and financing costs, was $841.7 million, down from $1,023.4 million; net debt to total capitalization was 27.6%, versus 33.3%. The company reported covenant compliance at September 30.
- Capital returns: The company paid $247.0 million in dividends and spent $13.9 million on open-market share repurchases during the first nine months.
Changes and operating drivers
- Q3 TCE revenue was nearly flat overall as higher rates in VLCC, LR1 and Suezmax sectors and increased lightering revenue were largely offset by weaker MR earnings. Product Carrier TCE revenue fell 21% year over year, primarily due to lower MR rates and fewer revenue days; Crude Tanker TCE revenue rose 47%.
- For the first nine months, stronger average rates across fleet sectors drove the sharp increase in TCE revenue. Crude Tanker TCE revenue rose 127%; Product Carrier TCE revenue rose 21%.
- Q3 vessel-operation income declined as vessel expenses, depreciation and charter hire increased. Nine-month interest expense also rose, reflecting higher floating rates and new lease financing, partly offset by interest-rate hedges.
- The company took delivery of three dual-fuel LNG VLCCs in March–May 2023; each entered a seven-year time charter. It also purchased two Aframaxes and purchased an Aframax and LR2 previously under bareboat leases.
Outlook, financing and risks
- Management said Q3 crude tanker rates eased from the first half, principally following OPEC cuts, but remained above 10-year averages and cash breakeven levels. Clean product tanker rates remained strong; management said Q4 began strongly, with improvement across sectors. No specific financial guidance was provided.
- Management cited liquidity, 30 unencumbered vessels and debt maturities spread from 2026 to 2031 as supporting operations and its capital-allocation plans. These plans include fleet renewal, debt reduction and shareholder returns.
- The company contracted for two dual-fuel-ready LR1 newbuilds costing approximately $115 million, scheduled for delivery in the second half of 2025. It exercised an option in October 2023 for two more, at approximately $115 million, for first-quarter 2026 delivery.
- A new $160 million revolving facility was entered into in September. A $50 million draw was repaid in full on October 30, restoring that facility’s undrawn capacity to $160 million. The company also made further term-loan prepayments after quarter-end.
- A vessel has been under arrest since late July in a commercial dispute; claimants are seeking approximately $25 million in security. The matter is in English arbitration, the company is defending itself, and no liability was accrued because the outcome could not be predicted.
- Other risks include cyclical tanker rates and vessel values, fuel and interest-rate exposure, debt and capital requirements, regulatory and environmental obligations, and dependence on pools and counterparties. The company qualified for the U.S. Section 883 tax exemption for 2023 but gave no assurance of qualifying after that year; loss of the exemption could subject U.S.-source shipping income to tax.
- For the seven commercial pools treated as unconsolidated VIEs, the company disclosed $33.5 million of pool working-capital deposits and approximately $208.4 million in pool trade receivables. The receivables were excluded from its stated maximum-loss calculation; management did not consider a loss probable.
Key facts for investors to verify
- Whether tanker rates and product-carrier/MR earnings sustain or reverse the Q3 segment divergence.
- Cash generation, required debt amortization and covenant headroom as the company funds newbuilds and shareholder distributions.
- Execution, financing and delivery timing for the four LR1 newbuilds, including the October option exercise.
- Developments and potential financial exposure in the vessel-arrest dispute and pool-related receivables.
- Whether the company retains its Section 883 tax exemption beyond 2023 and the effect of evolving international tax rules.