International Seaways(INSW) - 2019 Q1 - Quarterly Report

Part I - Financial Information Financial Statements Q1 2019 financial statements reflect a significant turnaround with $10.9 million net income and positive operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $1.891 billion, with liabilities rising to $873.1 million primarily due to new lease accounting standards Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $192,508 | $167,620 | | Total Assets | $1,891,070 | $1,848,601 | | Total Current Liabilities | $100,450 | $75,270 | | Total Liabilities | $873,083 | $838,746 | | Total Equity | $1,017,987 | $1,009,855 | - The adoption of new lease accounting standards (ASC 842) on January 1, 2019, resulted in the recognition of $30.6 million in Operating lease right-of-use assets and corresponding current ($8.3 million) and long-term ($19.5 million) operating lease liabilities[8][33] Condensed Consolidated Statements of Operations Q1 2019 saw a significant turnaround to $10.9 million net income, driven by nearly doubled shipping revenues of $101.9 million Q1 2019 vs Q1 2018 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Shipping Revenues | $101,874 | $51,978 | | Income/(loss) from vessel operations | $19,324 | $(26,706) | | Net income/(loss) | $10,897 | $(29,316) | | Basic and diluted net income/(loss) per share | $0.37 | $(1.01) | Condensed Consolidated Statements of Cash Flows Net cash from operations turned positive at $24.0 million in Q1 2019, contributing to a $19.5 million net increase in cash Q1 2019 vs Q1 2018 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $23,991 | $(4,454) | | Net cash provided by investing activities | $2,676 | $58,750 | | Net cash used in financing activities | $(7,156) | $(33,716) | | Net increase in cash, cash equivalents and restricted cash | $19,511 | $20,580 | | Cash, cash equivalents and restricted cash at end of period | $137,155 | $91,186 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, segment performance, debt structure, and new lease accounting standards, with Crude Tankers driving improved results Note 2 — Significant Accounting Policies Key accounting policies are outlined, highlighting the adoption of ASC 842 for leases, recognizing ROU assets and lease liabilities - The company adopted ASU 2016-02, Leases (ASC 842), on January 1, 2019, using the modified retrospective transition approach, requiring recognition of ROU assets and lease liabilities on the balance sheet with a zero cumulative effect adjustment to accumulated deficit[46] - For revenue recognition, the company elected the lessor practical expedient to aggregate non-lease components with lease components for its primary revenue streams, predominantly accounted for as lease revenue under ASC 842[36] Note 4 — Business and Segment Reporting Crude Tankers and Product Carriers segments both improved, with Crude Tankers driving profitability and total TCE revenues nearly doubling to $94.0 million Segment Performance for Three Months Ended March 31 (in thousands) | Segment | TCE Revenues 2019 | TCE Revenues 2018 | Adjusted Income/(Loss) from Vessel Operations 2019 | Adjusted Income/(Loss) from Vessel Operations 2018 | | :--- | :--- | :--- | :--- | :--- | | Crude Tankers | $72,586 | $29,220 | $23,362 | $(12,024) | | Product Carriers | $21,443 | $19,581 | $4,058 | $(2,411) | | Total | $94,029 | $48,801 | $27,377 | $(14,104) | Note 9 — Debt Total debt stood at $805.6 million as of March 31, 2019, with the company in compliance with all financial covenants Debt Composition as of March 31, 2019 (in thousands) | Debt Facility | Net Amount Outstanding | | :--- | :--- | | 2017 Term Loan Facility, due 2022 | $445,703 | | Sinosure Credit Facility, due 2027-2028 | $284,827 | | ABN Term Loan Facility, due 2023 | $25,071 | | 8.5% Senior Notes, due 2023 | $23,661 | | 10.75% Subordinated Notes, due 2023 | $26,373 | | Total Debt | $805,635 | - The company was in compliance with all financial covenants under its various debt facilities as of March 31, 2019[104] Note 15 — Leases Adoption of ASC 842 led to recognizing $30.6 million in ROU assets and $27.9 million in operating lease liabilities for chartered-in vessels Lease Balances as of March 31, 2019 (in thousands) | Lease Item | Amount | | :--- | :--- | | Operating lease right-of-use assets | $30,570 | | Current portion of operating lease liabilities | $(8,348) | | Long-term operating lease liabilities | $(19,512) | | Total operating lease liabilities | $(27,860) | - The company has commitments to charter-in four MR and two Aframax vessels, with Aframax bareboat charters expiring between December 2023 and March 2024, and MR time charters expiring between June and July 2019[142] Management's Discussion and Analysis of Financial Condition and Results of Operations Improved Q1 2019 results are attributed to stronger tanker markets, with TCE revenues up 93% and Adjusted EBITDA surging to $47.3 million Operations and Oil Tanker Markets Q1 2019 crude tanker rates, though down from Q4 2018, remained higher year-over-year, with the tanker fleet growing by 12.6 million dwt - Crude tanker rates in Q1 2019 were down from Q4 2018 but stronger than the prior year, impacted by newbuilding deliveries and OPEC cuts, though VLCC rates were supported by strong US exports[179] - The tanker fleet (vessels >10,000 dwt) increased by 12.6 million dwt in Q1 2019, while the orderbook decreased by 10.2 million dwt, indicating a high rate of new vessel deliveries[176][177] Results from Vessel Operations Vessel operations improved to $19.3 million income in Q1 2019, driven by a 93% increase in TCE revenues to $94.0 million - TCE revenues increased by $45.2 million (93%) in Q1 2019 compared to Q1 2018, driven by higher average daily rates ($35.9 million impact) and increased activity in the Crude Tankers Lightering business ($13.1 million impact)[183] Crude Tankers Segment Performance | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | TCE revenues | $72,586 | $29,220 | | Adjusted income/(loss) from vessel operations | $23,362 | $(12,024) | | Average daily TCE rate | $28,566 | $12,958 | Product Carriers Segment Performance | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | TCE revenues | $21,443 | $19,581 | | Adjusted income/(loss) from vessel operations | $4,058 | $(2,411) | | Average daily TCE rate | $16,257 | $10,771 | EBITDA and Adjusted EBITDA Adjusted EBITDA significantly increased to $47.3 million in Q1 2019, reflecting strong recovery in operating performance Reconciliation of Net Income/(Loss) to Adjusted EBITDA (in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net income/(loss) | $10,897 | $(29,316) | | EBITDA | $47,359 | $(63) | | Adjusted EBITDA | $47,341 | $6,510 | Liquidity and Capital Resources Total liquidity was $187.2 million, with $805.6 million in debt and $1.14 billion in contractual obligations, including fleet modernization investments - Total liquidity was $187.2 million as of March 31, 2019, comprising $137.2 million of cash and $50 million of undrawn revolver capacity[209] - The company has contractual commitments of approximately $47.9 million for the purchase and installation of marine exhaust gas cleaning systems (Scrubbers) on 10 VLCCs and ballast water treatment systems on 13 vessels[219] Summary of Long-Term Contractual Obligations as of March 31, 2019 (in thousands) | Obligation Category | Total Amount | | :--- | :--- | | Debt (Principal & Interest) | $1,061,084 | | Operating lease obligations | $34,353 | | Vessel betterment commitments | $47,922 | | Total | $1,143,359 | Part II – Other Information Item 1. Legal Proceedings Legal proceedings include matters related to pension plans and a 2017 industrial accident, with other suits not expected to be material - The company is involved in legal proceedings related to a 2017 industrial accident in Galveston, Texas, which resulted in two wrongful death lawsuits against a subsidiary, and the company is vigorously defending the lawsuits[154][156] Item 1A. Risk Factors No material changes to risk factors were reported from the 2018 Annual Report on Form 10-K - There have been no material changes in the company's risk factors from those disclosed in the 2018 Form 10-K[246] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The $30 million stock repurchase plan was renewed, but no repurchases or ATM sales occurred in Q1 2019 - The company's $30 million stock repurchase plan was renewed in March 2019, but no repurchases were made in Q1 2019[247]