Business context and reporting period
International Seaways, Inc. (NYSE: INSW) filed this Form 10-K for the fiscal year ended December 31, 2022. The company transports crude oil and refined petroleum products through its Crude Tankers and Product Carriers segments. At year-end, it owned or operated 74 vessels totaling approximately 8.1 million deadweight tons, with three dual-fuel LNG VLCCs under construction.
Results are annual, not standalone fourth-quarter results. Comparisons with 2021 are affected by the July 2021 Diamond S merger, which enlarged the fleet and makes the periods less directly comparable.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Shipping revenues | $864.7 million | $272.5 million |
| Time charter equivalent (TCE) revenues | $853.7 million | $255.9 million |
| Income (loss) from vessel operations | $442.7 million | $(112.1) million |
| Net income (loss) | $387.9 million | $(134.7) million |
| Diluted earnings (loss) per share | $7.77 | $(3.48) |
| Adjusted EBITDA (non-GAAP) | $549.1 million | $40.4 million |
| Cash provided by (used in) operating activities | $287.8 million | $(76.2) million |
| Interest expense | $57.7 million | $36.8 million |
Management attributed the $597.9 million increase in TCE revenue chiefly to higher average rates across fleet sectors, with additional contribution from increased Suezmax and MR revenue days. Product Carriers contributed 62% of 2022 TCE revenue; Crude Tankers contributed 38%. The company reported 2022 vessel impairment charges of $1.7 million. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
At December 31, 2022, cash and cash equivalents were $243.7 million, short-term investments were $80.0 million, and undrawn revolver capacity was $217.4 million, for total liquidity of $541.1 million. Working capital was $385.2 million, compared with negative $10.0 million a year earlier. Debt and finance lease obligations, net of discounts and deferred financing costs, totaled $1.065 billion; net debt to total capitalization was 33.3%, down from 46.2% in 2021. The company said it was in compliance with financing covenants.
Material changes versus the prior comparable period
- Spot and voyage charters generated 96% of TCE revenues in 2022, up from 81% in 2021; time charters accounted for the remaining 4%, versus 19%.
- Average daily TCE rates rose across the fleet, driving most of the year-over-year TCE revenue increase. Fourth-quarter tanker earnings were the strongest of 2022 and significantly above 10-year average rates, according to management.
- Operating cash flow turned positive. Cash increased by $144.8 million during 2022, supported by operating cash generation, vessel sales, the sale of the FSO joint venture interest, and financing proceeds.
- The company refinanced several facilities with a new $750 million secured facility, repaid the $25 million 8.5% senior notes and the $17.8 million Macquarie facility, and sold its 50% FSO joint venture interest for approximately $140 million net proceeds.
- Shareholder returns increased: 2022 dividends totaled $69.8 million and share repurchases totaled $20.0 million. The company also sold older vessels and continued fleet optimization.
Outlook, commentary, risks and unusual items
Management said tanker-market fundamentals should remain strong for the next few years but expected volatility in 2023 amid macroeconomic uncertainty. It cited balance-sheet flexibility to support fleet renewal, incremental debt reduction, shareholder returns and potential strategic opportunities. Three LNG dual-fuel VLCCs were expected in the first half of 2023 and are contracted to Shell on seven-year time charters. In February 2023, the company declared a regular $0.12-per-share dividend and a supplemental $1.88-per-share dividend, payable in March.
- Market exposure: Heavy spot-market reliance exposes earnings and cash flow to volatile charter rates, vessel values, fuel prices, and changes in oil supply, demand and trade routes. Management linked 2022 market strength in part to trade-flow changes following Russia’s invasion of Ukraine.
- Leverage and interest rates: A substantial portion of debt is floating-rate. Interest-rate swaps covered $447.6 million of the $750 million term loan at year-end; higher rates could still affect borrowing costs and cash flow.
- Regulation and environment: Emissions, ballast-water, and other maritime requirements may require material capital or operating spending. The EU agreed to phase shipping into its emissions trading system beginning with 2024 emissions.
- Insurance and operations: Marine accidents, pollution, piracy, sanctions, cyber incidents, drydocking, and reliance on third-party technical and commercial managers could disrupt operations or create losses. The company carries $1 billion per-vessel pollution coverage but warns a catastrophic spill could exceed insurance.
- Tax: INSW qualified for the Section 883 U.S. shipping-income tax exemption in 2022, but future qualification is not assured; loss of exemption could subject U.S.-source shipping income to a 4% gross-basis tax.
- Unusual transactions and judgments: The FSO interest sale generated a $9.5 million loss; vessel and asset disposals contributed a net $19.6 million gain, net of impairments. Vessel impairment estimates depend on highly judgmental forecasts of rates, operating costs, utilization and residual values. Ernst & Young issued unqualified opinions on the financial statements and internal control; vessel impairment was identified as a critical audit matter.
Most important facts for investors to verify
- Whether spot tanker rates and operating cash flow remain strong, given 96% spot-market TCE exposure and the exceptional rate recovery in 2022.
- Debt maturities, floating-rate exposure, covenant headroom and actual availability of the $217.4 million undrawn revolver.
- Delivery timing, construction costs and commencement of the seven-year Shell charters for the three LNG VLCCs.
- Whether 2023 dividends and buybacks are sustainable under market conditions, debt restrictions and capital commitments.
- Potential vessel impairments, regulatory compliance costs, and continued qualification for the Section 883 tax exemption.