International Seaways, Inc. (INSW) Earnings Call Transcript & Summary

Thank you so much, Jane. Good morning, everyone, and welcome to International Seaways Earnings Call for the Second Quarter of 2026. On Slide 4 of the presentation, which you can find in the Investor Relations section of our website. Our second quarter highlights reflect important milestones, Seaways has accomplished. We delivered record adjusted net income of $295 million or $5.91 per share. Record EBITDA of $345 million and record free cash flow for the quarter of $261 million. We are pleased to complement those achievements with another record, declaring our largest quarterly dividend of $5.05 per share. Our commitment to returning at least 85% of adjusted net income reflects the confidence that we have in the company we've built over the last decade. Today's market has certainly created an exceptional backdrop. Our ability to translate these conditions into record shareholder returns is the result of years of disciplined capital allocation, fleet renewal and balance sheet management. It took us nearly 5 years to return our first $1 billion to shareholders and just 6 months to return another $0.5 billion in 2026 alone. That same long-term approach continues to shape our fleet. We recently ordered 4 additional LR1 newbuildings for delivery in the second half of 2028, complementing the 6 vessels we ordered almost exactly 3 years ago, with 4 already on the water. Importantly, we secured these vessels at essentially the same price we paid 3 years ago, even as newbuildings prices across the industry increased by double digits. These 10 ships will trade in the Panamax International Pool, which has averaged more than $70,000 per day over the last 9 months. While today's market is attractive, these investments reflect our disciplined approach to fleet renewal, particularly around businesses where we have demonstrated a durable competitive advantage. These are exactly the company decisions that have shaped the company over the last decade. We're beginning to see the benefits of bringing Tankers International fully into the Seaways family, expanding into the Suezmax segment marks an important next step in the pools evolution, and we are excited by the opportunities to deepen customer relationships, attract additional partners and leverage the combined expertise of both organizations to continue strengthening the commercial unit. Finally, we continue to maintain nearly $1 billion of liquidity alongside low leverage providing us with significant financial flexibility. That flexibility allows us to continue investing in opportunities that strengthen our platform while maintaining our commitment to returning meaningful capital to shareholders. Combined, these highlights reflect many of the principles that have shaped Seaways over the past decade and continue to guide us today. Moving to Slide 5. We've updated our standard set of bullets on tanker demand drivers with the settled green up arrows next to the bullet represented as good for tankers, the black dash representing a neutral impact and a red down arrow meaning the topic is not good for tanker demand. Without reading these bullets individually, we believe demand fundamentals are solid and continue to support a constructive outlook or seaborne transportation. The conflict in the Strait of Hormuz has created one of the most significant disruptions to seaborne transportation that we have seen in decades. More recently, the Houthis attack added another layer of uncertainty by attempting to disrupt traffic through Bab-el-Mandeb. Together, these 2 waterways have historically handled nearly 25 million barrels per day of crude and oil petroleum products. The chart on the lower left illustrates just how dramatic that disruption has been. While these events have undoubtedly increased uncertainty, they will also create significant inefficiencies in global trade as cargoes seek alternative routes, increasing ton mile demand and supporting tanker markets. The chart on the right explains why oil demand has remained so resilient. Despite disruption, we've seen relatively stable commercial inventory at first glance that might suggest demand has held up remarkably well. But as the 2 charts illustrate strategic petroleum reserves have been doing much of the heavy lifting, helping offset supply disruptions and limiting the impact on commercial inventory. Looking ahead, we see 2 very different paths. If these disruptions begin to ease over the near term, we believe inventory replenishment could become an additional source of tanker demand as governments rebuild strategic reserves that have been substantially drawn down in the months of the conflict. Alternatively, if these disruptions persist for an extended period, the risk shifts to consumption. Sustained disruption of this magnitude could ultimately weigh on the global economy and oil demand, which we have broader implications for the tanker work in. For now, however, the market continues to benefit from the combination of elevated ton-mile demand and stable oil consumption. Turning to Slide 6. Let's shift from demand to supply. We're now entering the fifth year of this market up cycle. It is natural to see new orders continue to enter the market, particularly given the attractive financing environment available to many shipowners. While the order book has grown over the last several years, we believe that's equally important to view those deliveries in the context of engaging global fleet. As shown on the right, each year of scheduled delivery is accompanied by a comparable and in some years, even larger group of vessels reaching 20 years of age where they're increasingly viewed as candidates for removal from the commercial fleet. That dynamic becomes even more pronounced over time. Today, roughly 30% of the world's tanker fleet is over 20 years old. By 2030, that figure is expected to exceed 50%, highlighting the significant fleet renewal that will be required over the remainder of the decade. We continue to monitor ordering activity and newbuildings pricing very closely, our LR1 order is a great example of the discipline we apply to capital allocation. We were able to secure attractive pricing, securing construction slots at a quality shipyard that we know well, an increasingly important consideration in today's market. While we believe the industry still has capacity for additional ordering to support the aging fleet, we will continue to evaluate investment opportunities through the lens of long-term supply fundamentals, disciplined capital allocation and the future needs of seaborne oil transportation. Taken together, demand and supply fundamentals continue to support a constructive outlook for the tanker market. While market conditions will inevitably evolve the disciplined decisions we've made over the last decade have allowed Seaways to capitalize on opportunities across a range of market environments. We'll continue to execute our balanced capital allocation strategy, renew our fleet, preserving financial placability, and return meaningful capital to shareholders. I will now turn it over to our CFO, Jeff Pribor, to provide the financial review. Jeff?

Thanks, Lois, and good morning, everyone. Turning to Slide 8. We delivered another quarter of record financial performance. Adjusted net income for the second quarter was approximately $295 million or $5.91 per diluted share, while adjusted EBITDA for the second quarter was $345 million. On the lower half of the page, blended spot TCEs weighted by revenue days were $79,000 per day compared to $27,500 per day a year ago and 55,600 per day in the first quarter. Crude tanker revenues totaled $253 million, including $51 million of profit sharing from our time charters. Together, these profit-sharing arrangements increased our blended VLCC earnings across both our spot in time charter vessels to more than $150,000 per day. I'd like to highlight a few items that may not be immediately apparent from the financial statements. The lightering business contributed about $5 million of EBITDA with $13 million in revenue, vessel expenses of $3 million, $4 million of charter hire and $1 million of G&A. Also, following the launch of the Suezmax pool, we began consolidating the Tankers International Suez entity as we currently control a majority of the participating vessels in the pool. While this results in the gross consolidation of revenues and expenses attributable to the other pool participants, it has no meaningful impact on Seaway's underlying economics. Accordingly, we've excluded those third-party vessels from our reported TCE revenue per day metrics shown on this slide. On Slide 9, this bridge illustrates how we converted another quarter of strong operating performance into free cash flow. We began the quarter with total liquidity of $980 million, composed of $377 million in cash and $541 million in undrawn revolving capacity. Following the bridge from left to right, we generated $345 million in adjusted EBITDA, filed $50 million in debt service, hit another $20 million in dry dock and capital expenditures and used about $49 million of working capital. The combination of these highlights represents free cash flow generation of about $261 million for the second quarter, a record that eclipses the next closest by $100 million. Beyond our free cash flow composition is essentially the capital allocation spend during the quarter. We used about $10 million in cash for installment payments net of financing for the original 6 LR1 newbuilds. This was largely offset by the cash balance consolidated through Tankers International Suez. Finally, we paid about $225 million in dividends to shareholders, representing our then record quarterly dividend of $4.55 per share. We ended the quarter with $409 million of cash and $526 million in undrawn revolving credit capacity, bringing total liquidity to about $935 million. Moving to Slide 10. Our balance sheet continues to provide the financial flexibility that supports both disciplined growth and meaningful shareholder returns. The detailed balance sheet is shown on the left with several key metrics highlighted under right. Liquidity remains strong at close to $1 billion. We have invested about $2 billion in vessels at cost under books, which are currently valued at nearly $4 million. And with approximately $250 million in net debt combined with rising asset values, our net loan to value is about 6% at the end of the second quarter. The table on the lower right summarizes our debt portfolio. Gross debt at quarter end was $651 million which excludes consolidating the TI SUEZ borrowing base facility. Mandatory debt repayments for the second half of 2026 are about $15 million. Our debt is almost entirely fixed or hedged, which contributes to our total cost of debt of around 5.5%. Taken together, these metrics demonstrate the strength of our balance sheet. With 25 uncovered vessels, substantial undrawn revolving credit capacity and one of the lowest leverage profiles in our sector, we believe Seaways remains exceptionally well positioned to pursue attractive growth opportunities while contributing to return meaningful capital to shareholders. On Slide 11, we provided our customary forward-looking guidance, including book-to-date spot TCE rates and our spot cash breakeven. As a reminder, these fixtures represent rates booked as of today and our reported TCE for the third quarter may differ as additional buoys are fixed throughout the quarter. To date, we booked approximately 48% of our expected third quarter revenue days at a blended spot TCE of approximately $61,000 per day across the fleet. While fixture levels will continue to evolve throughout the quarter, we're encouraged by the strength of rates secured to date, particularly when viewed alongside our fleet-wide spot cash breakeven, this continues to provide a meaningful margin for cash generation. On the bottom left-hand chart, we provide some updated guidance for our expenses for the rest of 2026. We also include in the appendix our quarterly expected off-hire and CapEx. I don't plan to read each item line by line, but encourage you to use these remodeling purposes. That concludes my remarks. I'd like to now turn the call back to Lois for closing comments. Lois?

Thanks, Jeff. On Slide 12, we've included our investment highlights, which I encourage everyone to read in their entirety. I want to leave you today with a few thoughts about what we believe differentiates Seaways. Over the past decade, we've built a company that balances growth, financial strength and shareholder returns. These priorities reinforce each other. Since becoming a public company we've delivered a compounded annual total shareholder return of more than 30% and built one of the strongest balance sheets in our industry. We've also been delivering in how we built our fleet by investing across multiple tanker segments and enhancing our scale with leading commercial pools, we position Seaways to participate in a broad range of market opportunities while remaining flexible to adapt to the volatility of our industry. That same philosophy extends to our balance sheet. We have nearly $1 billion of liquidity. Net debt around 6% of our fleet's current value and 25 vessels that are unencumbered. These metrics aren't simply measures of financial strength, they provide the flexibility to invest when opportunities arise while remaining resilient through the market cycles. Just as importantly, our fleet-wide spot cash breakeven levels remain below $14,500 per day over the next year with spot earnings currently many times that level, we believe Seaways is very well positioned to continue generating meaningful free cash flow, supporting both our investment strategy and our commitment to returning capital to shareholders. As we look ahead, our priorities remain unchanged. We continue to allocate capital with discipline, renew our fleet thoughtfully, preserve financial flexibility and return meaningful capital to shareholders. These principles have shaped Seaways over the past decade and will continue to guide us as we create long-term value in the years ahead. Thank you very much. And with that said, operator, we'd like to open the lines for questions.

[Operator Instructions] Your first question comes from the line of Liam Burke with B. Riley Securities.

Lois, could you talk about more specifically, any changes that you'd anticipate in the Atlantic Basin, either reroutes or additional production out of the West Africa or Latin America? And how do you see that affecting long-term rates for the Suezmax or even the LR1s?

Yes, absolutely, Liam. So let's look at that, we'll sort of take it in pieces. One of the things that we're seeing very significantly now in the tanker market between the Vs, the Suezmaxes, particularly the Aframaxes is a lot of dislocation and substitution by charters between sizes so that you're really seeing a lot of overlap between the sectors. And you'll notice in the second quarter, our LR1s were just standout performers. And that, in particular, was due to this dislocation where a lot of the larger ships had been pulled east and LR1s really had their opportunity in the market. We see that the Americas is producing across the space, more barrels per day so that you have the United States increasing, Guyana increasing, Brazil increasing and Argentina, whether or not you'll see more increases than what we already have, it seems like you're going to have a lot of stability. And when you really drop back and take all the horrible war effects, all of the war in the world out of the equation, you see the fundamental West increasing the east demanding that crude.

Great. And then looking on the product tanker side, it looks like that the capacity is sort of rebalanced rates are still elevated, but coming back to normal. Are you as optimistic on the product side as you are on the crude?

When we look at this, we're really seeing so many daily impacts, Liam, on the product carriers because, I will view Ukrainians have been hitting a lot of the Russian refineries. So you see some of that. Those barrels taken off the market. The Middle East products are having a challenging time consistently getting exported. So what we're really seeing is the United States, exporting diesel at 1.5 million barrels a day, gasoline almost 1 million barrels a day. So the United States refinery system is going full out and that -- those exports are concentrated on MRs. So we see that fundamental basis there. And then for the first time, we've seen China come back in July with not 1 million barrels a day of product export but something on the order of around 8,000 barrels per day, 800,000. And that's an MR market. So you're seeing China start exporting, again, which we hadn't seen in a long time. So we're watching it all very carefully. We still see the MRs, particularly in the Western Hemisphere in the posting as we have in the quarter, almost $35,000 per day. So they continue to be products volume in short supply and demand is continuing strong.

Your next question comes from the line of Omar Nokta with Clarksons Securities.

Congrats on a very strong result and it looks like guidance is pretty solid as well. I have maybe 2 questions. Just first on the LR1s, you've added the 4 that -- I guess, you had 2 delivered last year for coming this year. You're adding another 4 new buildings. So that's going to give you a market footprint of 14 for that Panamax international pool. Is the plan to continue trading as time goes on, if the continued trading within that niche Latin America trade? Or is there a plan or anticipation of an expansion to that pool footprint?

So great question, and thank you, Omar. On those LR1s were able to obtain great pricing with a trusted counterpart, shipyard in Korea with K and the vessels that we place will deliver in 2028. So we will have a full series of sisters with the vessels on the water, the 2 coming in the third quarter and then those that will come in 2028. And that profile was aged in our fleet. So in due course, these vessels will -- these 10 full series will replace those older units as and when they need to age out. We have a very strong customer base in the Americas. We transit through the old box, and this combination has proven over time to be a very reliable niche trade. So we intend to continue.