International Seaways, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company transports crude oil and refined petroleum products. Its 75-vessel operating fleet comprised Crude Tankers and Product Carriers; three dual-fuel LNG-powered VLCCs were under construction.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Shipping revenue | $236.8m | $84.8m | $526.5m | $177.9m |
| TCE revenue, non-GAAP | $234.5m | $73.0m | $518.1m | $162.9m |
| Operating income/(loss) | $128.4m | $(57.1)m | $210.6m | $(75.5)m |
| Net income/(loss) attributable to company | $113.4m | $(67.4)m | $169.5m | $(99.5)m |
| Diluted EPS | $2.28 | $(1.44) | $3.40 | $(2.90) |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $106.2m | $(49.0)m |
Q3 operating and net margins were approximately 54% and 48%, respectively, versus negative margins in Q3 2021. For the nine-month periods, those margins were approximately 40% and 32%, respectively, versus losses in 2021. Margins are calculated from reported shipping revenue and are not company-presented measures.
- Q3 TCE revenue rose 221% year over year, principally reflecting higher average daily rates across fleet sectors. Product Carriers generated $159.4m of TCE revenue and Crude Tankers $75.2m.
- Nine-month TCE revenue rose 218%; management attributed the increase to higher rates across sectors and, particularly for MRs and Suezmaxes, additional revenue days from the Diamond S merger.
- Interest expense increased to $15.3m in Q3 and $40.6m for nine months, versus $10.6m and $24.9m, respectively, reflecting higher debt balances and floating rates.
Liquidity, debt and capital allocation
- At September 30, 2022, cash and cash equivalents were $174.5m, short-term investments $80.0m, restricted cash $1.1m, and undrawn revolver capacity $220.0m; reported total liquidity was $475.5m. Working capital was positive $288.7m, compared with negative $10.1m at year-end 2021.
- Total debt, net of discounts and financing costs, was $1.067bn; net debt to total capitalization was 37.9%, versus 46.2% at December 31, 2021. The company reported compliance with financing covenants.
- Operating cash flow of $106.2m and proceeds from vessel and FSO joint venture sales supported liquidity. Investing cash flow was $52.0m; financing cash outflow was $81.6m. Cash, cash equivalents and restricted cash ended the period at $175.5m.
- In May, the company refinanced debt with a $530m term loan and a $220m revolving facility, drawing $70m of the revolver initially and repaying that draw in June. The term loan matures in 2027; approximately $30.6m of quarterly amortization began in November 2022. The company repaid its $25m 8.5% senior notes in August.
- It spent $20.0m repurchasing shares in Q3, with $40.0m remaining under the $60m authorization. It paid $14.8m of dividends during the first nine months. Subsequent to quarter-end, the board declared a $0.12 regular and $1.00 special dividend per share, payable in December.
Changes, outlook and risks
- The strong improvement reflected tanker-market rate recovery as well as fleet scale and mix. Comparability is affected by the July 2021 Diamond S merger and $47.1m of merger and integration costs in Q3 2021; 2022 also included higher vessel expenses and depreciation from the larger fleet.
- Management described all segments as benefiting from improved Q3 markets and cited disrupted oil and product flows following Russia’s invasion of Ukraine as supportive of rates. It cautioned that announced OPEC+ production cuts could weigh on tanker earnings, although the realized reduction might be smaller.
- No quantified earnings or rate guidance was provided. Management said liquidity and diversified financing position the company to support operations over the next 12 months and pursue its capital allocation strategy. Tanker rates remain cyclical and sensitive to oil demand, vessel supply, trade flows and charter rates.
- Three LNG-powered VLCCs, costing approximately $290m in total, were scheduled for delivery in Q1–Q2 2023 and contracted to Shell on seven-year time charters. Remaining construction commitments were $192.2m, expected to be funded through BoComm lease financing.
- Floating-rate debt exposes the company to interest-rate changes; swaps fixed the rate on $475m of the $750m term loan at 2.84% through February 2027. LIBOR-based agreements were expected to transition to SOFR. The company also cited risks including fuel and operating costs, weather, insurance, regulatory requirements, COVID-19, geopolitical events, and debt-service and covenant obligations.
- Voyage receivables were $230.1m, including $225.9m of unbilled receivables; pools accounted for 96% of receivables. The company disclosed $36.7m maximum exposure to loss from unconsolidated pool VIE investments, excluding pool trade receivables, and did not consider a loss probable. Pension-plan contribution calls were possible but not reasonably estimable; no reserves were recorded. Ordinary-course legal claims were not expected by management to be material.
Investor verification priorities
- Assess whether elevated spot-market TCE rates and the improvement in tanker markets are sustainable, including the effect of OPEC+ cuts and changing trade flows.
- Review collection and timing of the substantial unbilled and pool-related receivables, and the company’s stated VIE exposure.
- Confirm delivery timing, remaining funding and charter commencement for the three VLCC newbuilds.
- Evaluate debt amortization, floating-rate exposure, covenant headroom and planned capital returns against operating cash generation.
- Check the status of the 2022 Section 883 U.S. tax exemption, which the company said was not assured beyond calendar 2022.