International Seaways, Inc. (INSW) Q3 2026 Earnings Call Transcript

Operator: Hello everyone. Thank you for joining us and welcome to the International Series Third Quarter 26 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. To withdraw your question, press 1 again. I will now hand the conference over to James D. Small, General Counsel. James, please go ahead.

James D. Small: Thank you, and good morning, everyone. Welcome to International Seaways' earnings call covering the third quarter of 26. Before we begin, I would like to start off by advising everyone with us today of the following. During this call, in the accompanying presentation, management may make forward looking statements regarding the company or the industry in which it operates, which may address, without limitation, the following topics: Outlooks for the crude tanker and product tanker markets, changing trading patterns, forecasts of world and regional economic activity, forecasts covering the production of and demand for, oil and petroleum products, the effects of ongoing and threatened conflicts around the world, in particular, in The Middle East, the company's strategy and business prospects, expectations around revenues and expenses, including vessel charter hire, and G&A expenses, estimated future bookings, TCE rates, and capital expenditures, projected dry dock and off hire days, new build vessel construction, vessel sales and purchases, anticipated and recent financing transactions and plans to issue dividends, economic, regulatory, and political developments in The United States and globally the company's ability to achieve its financing and other objectives, its consideration of strategic alternatives, and the company's relationships with its stakeholders. Such statements take into account assumptions made based on various factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward looking statements are subject to risks and uncertainties many of which are beyond the company's control. That could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause the company's actual results to differ from expectations include those described in our annual report on Form 10 k for 2025, our forms 10 Q for the first 3 quarters of 26, as well as in other filings that we have made or in the future may make with the US Securities and Exchange Commission. Now let me turn the call over to Lois K. Zabrocky, our president and chief executive officer. Lois?

Lois K. Zabrocky: Thank you, James. Good morning, everyone, and thank you for joining Seaways today As we celebrate our 10th anniversary as a public company. We have posted a slide presentation on our website, under investor relations. Which you can follow along with during our call today. I will refer to a few of those slides as we go. Before getting into our quarterly results, I want to spend a few minutes talking about our recently announced transaction. Because I think it says a great deal about how we execute on opportunity at Seaway. Over the past 2 years, we have sold 4 older VLCCs as part of our ongoing fleet renewal strategy. This transaction brings 4 new building VLCCs into our fleet high grading our core Seaways' vessel class. What makes this transaction particularly attractive to us is how we are paying for it, by using our shares as a primary currency we are able to acquire modern vessels while preserving financial resources and the flexibility to pursue other opportunities. For us, that is what disciplined capital allocation is about: not simply adding ships, but continually improving the fleet and positioning Seaways for the years ahead. As we work toward completing the remaining steps of the transaction, I would also like to welcome our newest shareholders. We are excited to have you join us for the next chapter of Seaways. We finished the third quarter with $345 million in adjusted EBITDA, and $290 million in net income. Delivering results comparable to our solid second quarter. Accordingly, we also declared another dividend of $5.05 per share. Matching the record we established last quarter. Importantly, our commitment to returning at least an 85% payout ratio remains in place. Allowing our shareholders to continue participating directly in the strength of our tanker market. With tanker rates reaching remarkable levels, as we enter the fourth quarter, our shareholders will participate in the upside. Let's move ahead to slides 5 and 6. For an update on that market. Starting with demand, Geopolitics continue to dominate our headlines and influence our tanker markets. As you can see in the chart on the lower left, we are experiencing truly remarkable conditions We have had to change the scale of this chart to accommodate current VLCC rates. Which have reached nearly 4x the previous peak levels that we have seen over the past 35 years. Even in these unprecedented times, we do not lose sight of the underlying fundamentals Crude oil production growth continues to come primarily from the West, particularly The Americas. While oil consumption growth is driven largely by the East. This dynamic should continue to support healthy tanker demand in the years ahead. Importantly, we believe a peaceful resolution to the current conflict could also be constructive for tanker demand. As the chart on the lower right shows, OECD oil inventories are at the lowest levels in roughly 20 years. Having declined by approximately 250 million barrels since the start of the conflict. Rebuilding those inventories will require significant volumes of oil to move around the world. Providing an additional source of tanker demand even as geopolitical disruptions ease. Turning to ship supply on slide 6. We have all watched the order book grow With tanker rates at these levels, and capital available to finance new ships, it is only natural to see increased investment in capacity. that is true in shipping just as it is in any cyclical industry. there is another side to that story. As you can see in the chart on the lower left, the number of older vessels still operating in today's market is more than double the number of the vessels that are on order. it is important to remember that we are effectively operating 2 different tanker fleets. A mainstream commercial fleet and an aging fleet serving illegal, sanctioned trade. As geopolitical tensions ease, we expect a significant portion of that older tonnage to exit the trading fleet. Particularly given the age and condition of many of those vessels. Looking at the chart on the right, even during what we consider relatively heavy delivery years ahead, the number of vessels reaching 20 years of age is nearly as large as the number of new vessels entering the fleet. So while the order book is growing, we should not lose sight of the fleet. That it is replacing. The question is not simply how many ships are built, but how much effective capacity will actually be added. I am now going to turn it over to our CFO, Jeffrey D. Pribor, to provide the financial review. Jeffrey?

Jeffrey D. Pribor: Thanks, Lois, and good morning, everyone. Turning to slide 8, we delivered another quarter of record financial performance. Net income for the third quarter was a record $344 million or $6.90 per share. Adjusted net income for the third quarter was approximately $291 million or $5.84 per diluted share. While adjusted EBITDA for the third quarter was $345 million On the lower half of the page, blended spot TCEs weighted by revenue days were $67.7 thousand per day compared to $29.4 thousand per day a year ago for the same period. Crude tanker revenues generated a record $321 million including about $77 million of profit sharing from our dual fuel VLCCs. Together, those profit sharing arrangements increased our blended VLCC earnings across both our spot and time charter vessels to more than $200 thousand per day. While our underlying operating performance was largely in line with expectations, I would like to highlight a few items that may not be immediately apparent from the financial statements. The lightering business contributed about $2 million of EBITDA with $9 million in revenue, $3 million of both charter hire and vessel expenses, and $1 million of G&A. On Slide 9, the bridge illustrates how we converted another quarter of strong operating performance into free cash flow. We began the quarter with total liquidity of $935 million composed of $409 million in cash and $526 million in undrawn revolving capacity. Following the bridge from left to right, we generated $345 million in adjusted EBITDA, funded $17 million in debt service, paid another $30 million in capital expenditures, and used about $64 million of working capital. The combination of these highlights represents free cash flow generation of about $234 million for the third quarter. We generated proceeds of $74 million for the sale of a 2012 built Suezmax. Beyond our free cash flow composition, essentially the capital allocation spend during the quarter. We used about $4 million in cash from solid payments, and our financing, the original 6 Auto-1 new builds. And we paid about $250 million in dividends to shareholders. Representing a record quarterly dividend of $5.05 per share. The remaining $9 million in payments reflected the EBIT flow of our TI borrowing base facility, which repaid a drawdown the second quarter. We ended the quarter with $54 million of cash, $510 million in undrawn revolving credit capacity. Bringing total liquidity to about $964 million. Moving now 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 on the right. Liquidity remains strong at close to $1 billion We have invested about $2 billion in vessels at cost on the books, and are currently valued at nearly $5 billion And with approximately $250 million in net debt, combined with rising asset values, our net loan to value is below 6% at the end of the third quarter. The table on the lower right summarizes our debt portfolio. Gross debt at quarter-end was $716 million. Our debt is almost entirely fixed or hedged. Which contributes to our total cost of debt around a very low 5.6%. Next year, we expect to make about $44 million in mandatory debt repayments. Including the newly acquired Frotun vessels. Taken together, these metrics demonstrate the strength of our balance sheet. With 26 uncovered vessels substantial undrawn revolving credit capacity, and 1 of the lowest leverage profiles in our sector. We believe Seaways remains exceptionally well positioned to pursue attractive growth opportunities. While continuing to return meaningful capital to shareholders. On slide 11, we have provided our customary forward looking guidance. Including booked-to-date spot TCE rates and our spot cash breakeven. As a reminder, these figures represent rates booked as of today and our reported TCE for the fourth quarter may differ as additional voyages are fixed. Throughout the rest of the quarter. To date, we have booked more than half our expected fourth quarter revenue days at a blended spot TCE of over $172 thousand per day Across the entire fleet. that is a number worth pausing on when you consider it is more than double the record quarter we just reported. While fixture levels will continue to evolve throughout the quarter, we are obviously extremely encouraged by the strength of rates secured so far. When you view them alongside our fleet wide spot cash breakeven, they will clearly continue to provide an exceptional margin for cash generation in Q4. On the bottom left hand chart, we provide some updated expense guidance for the rest of 2026 and looking ahead throughout 2027. This guidance also includes the acquisition of the Frotun vessels. We have also included in the appendix our quarterly expected off hire and CapEx. I do not plan to read each item line by line. But encourage you to use them for modeling purposes. That concludes my remarks. I would like to now turn the call back to Lois for her closing comments.

Lois K. Zabrocky: Thank you, Jeffrey. As we celebrate, fantastic results, and our 10th anniversary as a public company, I thought it would be appropriate to take a moment to reflect on what we have accomplished over the past 10 years. The chart at the top shows just how active we have been in renewing and growing our fleet. We consistently look for opportunities to invest in modern tonnage, while selling older vessels. Adapting our fleet as markets and opportunities present themselves, And here's something we are particularly proud of. When Seaways became a public company 10 years ago, our fleet had an average age of approximately 12 years. Following our recent announced transaction, the average age of our fleet has declined to less than 9 years. We have done all of this while strengthening our financial position. As you can see in the lower left, our liquidity today is nearly 10x what it was when we first became a public company. This gives us the financial strength to continue investing in our fleet pursuing opportunities. Ultimately, we have done all this to create value for our shareholders. We have worked to build a stronger company, return substantial capital through dividends, and create lasting value through share price appreciation. The chart on the right speaks for itself. Since Seaways began trading on 12/1/2016, we have delivered a compounded annual total shareholder return of 30%. that is more than 15x our starting value. And puts us well ahead of our combined peer group. Seaways team is very proud of what we have accomplished over these first 10 years and we are excited about the next. Thank you. And with that said, operator, we would like to open the lines for questions.

Operator: Thank you. We will now begin the question and answer session. To withdraw your question, press 1 again. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Liam Burke with B. Riley. Your line is open. Please go ahead.

Liam Burke: Lois, good morning. Jeffrey.

Lois K. Zabrocky: Hi, Liam. Hi, Liam. Lois, the MR rates are continuing to run into the fourth quarter on the partial fixed. You have got, obviously, seasonal strength But is it the same in terms of refinery capacity, high utilization in margins? Or is there anything else in there that is driving up rates? Great question. We are really seeing that strength. The US has continued at very high utilization. And most of those exports coming out of The US Gulf are MR preferred. And we are also seeing something like half of the refineries in Russia are still offline. So even though there was the titular, okay, some diesel exports, They really cannot put a lot of barrels out, and then you have got some of the states rights over here where they are rerouting those MRs. So I think the U.S. remains a really key supplier of barrels, and that is pretty MR preferred. So, yeah, that number of close to $56 thousand per day, I mean, that. that is just super strong on those MRs. Yeah. It is.

Liam Burke: In terms of capital allocation, no change. Your 85% payout You are amortizing your debt, and you are keeping your powder dry for fleet optimization. On the other side of the coin, is there any interest in selling older vessels?

Lois K. Zabrocky: Well, first, Liam, let me say that was a terrific summary of our capital allocation. Strategy and practice. So thank you for that. What was the latest? Yeah. Absolutely. We. Yeah. We have got Derek Solon here, and maybe just touch on the S&P. And, you know, the fact that we have been reaping I think we sold and delivered 6 older vessels this year.

Derek G. Solon: that is right. Lois, thanks. Good morning, Liam. So, Lois, you are exactly right. We sold 6 ships so far this year. Most recently, we sold a 2012 Suezmax for a lot more than she was awarded for. Back in 2010. And, Liam, I think we will continue to look at selling some of the older tonnage into this really firm market.

Liam Burke: Great. Thank you.

Operator: Your next question comes from the line of Omar Nokta with Clarkson Securities. Line is open. Please go ahead.

Omar Nokta: Thank you. Hi, Lois and Jeffrey. Good morning. And congratulations on the Frotun deal and certainly the earnings that you have just reported. And, Lois, it was nice to get kind of like a bit of a history lesson over the past 10 years on where Seaways has evolved to. it is obviously, things have really transitioned very nicely. You have got the 4 VLCCs coming to you here via the Frotun transaction. And as you mentioned, very nice structure in terms of being able to use stock effectively. Especially at this point in the cycle. Know, with this deal, you have now scaled up your VLCC portfolio beyond your already-meaningful-enough footprint. You have got, obviously, the Suezmax as a scale, LR1-type scale, MRs certainly have scale. But you do not necessarily have that in the Aframax LR twos. When you kind of think about the direction going forward, is that a logical place to look at in terms of beefing up your exposure?

Lois K. Zabrocky: Thank you, Omar. You know what is interesting is just really our balanced fleet has proven to be very valuable throughout this entire upcycle. So you are you are absolutely right. Strategically, we just came off our strategy review, and we are looking at okay, opportunistically, as you say, we have got 6 of our new LR1s on the water. The Frotun deal really clicked all the boxes with prompt tonnage and strong customers. And then, you know, we kinda look at the fleet and say, it is not so much like, oh, we just want to target 1 area. We look at what we think the fundamentals of each of those is going forward. And then we can build upon that strength. So you know, I think what I would say is we are gonna continue to be opportunistic within. You see it. Like, we sold 4 older Vs. Now we have replenished and high graded the fleet. So I think that is the type of approach that we hope the market is getting used to seeing from us.

Omar Nokta: Yep. Thanks, Lois. And maybe just a second question. I will pass it back. You know, clearly, the fourth quarter, you know, based off of what we have seen with the spot market and certainly your guidance, it is gonna be enormous in terms of what you will be generating earnings wise, free cash flow wise. I guess you sort of hinted at this, I guess, or you mentioned it on the call in terms of the dividend payout. Know, given just the sheer amount of cash that you will be generating, do you still intend to. Or does the board perhaps intend to maintain that 85% payout? Or do you look to hold back some of the cash just given how much is actually coming in?

Jeffrey D. Pribor: Hi, Omar. You know, I think first of all, this quarter was the 4th consecutive quarter of paying out at least 85% of our adjusted net income. If we look back at the last 4 quarters, look at our share price development, and that clearly says to us the market and the shareholders, investors are appreciating that. So the market should expect that we will continue that practice. Okay. Okay. Thanks, Jeffrey. Well, thanks for that. And, Lois, thank you. I will turn it back over.

Operator: Thank you. And, again, everyone, if you would like to ask a question. There are no further questions at this time. I will now turn the call back over to Lois K. Zabrocky for any closing comments.

Lois K. Zabrocky: We just want to thank everyone for joining us today, and for coming on the journey as INSW shareholders. And we think that really, in these unprecedented times, it is fabulous to be in the tanker market. So thank you very much.

Operator: This concludes today's call. Thank you all for attending. You may now disconnect.