Executive Summary / Key Takeaways

• International Seaways is strategically positioned to capitalize on a multi-year tanker upcycle, driven by a structurally undersupplied global fleet and favorable demand dynamics.
• The company's disciplined capital allocation balances fleet modernization, a robust balance sheet, and consistent shareholder returns, with a stated minimum 75% adjusted net income payout ratio.
• Recent financial performance, while showing some year-over-year declines in Q2 2025 due to specific market and operational factors, remains significantly above cash breakeven, generating substantial free cash flow.
• INSW's investment in dual-fuel ready LR1 newbuilds and scrubber-fitted VLCCs provides a technological edge, enhancing efficiency, environmental compliance, and long-term competitive positioning.
• A strong liquidity position of over $700 million and a low net loan-to-value ratio underpin the company's financial flexibility, enabling strategic growth and debt management.

Setting the Stage: A Global Energy Lifeline Poised for Growth

International Seaways, Inc. ($INSW) stands as a critical conduit in the global energy supply chain, providing essential ocean transportation services for crude oil and refined petroleum products. Operating predominantly in the International Flag market, INSW's business is segmented into Crude Tankers and Product Carriers, a diversified approach that allows it to capture opportunities across the full spectrum of liquid energy transport. The company's overarching strategy is defined by a balanced capital allocation framework: prioritizing opportunistic fleet renewal, maintaining a fortified balance sheet, and consistently returning value to shareholders. This long-term vision, honed since its incorporation in 1999 and rebranding in 2016, has shaped its current robust market position.

The industry backdrop for INSW is particularly compelling. The global tanker fleet is aging rapidly, with nearly 50% of vessels expected to be over 20 years old by 2029, an age at which many are likely to be excluded from commercial trade. Concurrently, the newbuild order book remains historically low, representing only 14-15% of the existing fleet and spread over the next four to five years. This structural supply imbalance creates a powerful tailwind for tanker rates, as there are simply not enough new ships on order to replace the aging tonnage. Management consistently highlights this dynamic, asserting that it should translate into a "combined up cycle over the next few years" for the industry.

INSW's strategic response to this environment is underpinned by its commitment to technological differentiation and innovation. A prime example is its investment in six dual-fuel ready LNG 73,600 dwt LR1 Product Carriers, scheduled for delivery between Q3 2025 and Q3 2026. These "dual-fuel ready" vessels offer significant benefits, future-proofing the fleet against evolving environmental regulations and providing operational flexibility through the ability to run on conventional fuels or cleaner-burning LNG. This proactive approach enhances the company's long-term sustainability and marketability. Furthermore, the recent acquisition of a 2020-built, scrubber-fitted VLCC demonstrates a commitment to immediate environmental compliance and operational efficiency. Scrubber technology allows vessels to continue using cheaper high-sulfur fuel oil while meeting emissions standards, offering a tangible cost advantage and competitive edge. These technological investments are not merely about compliance; they are strategic moves designed to enhance INSW's competitive moat, improve operational economics, and secure its position as a preferred carrier in a market increasingly valuing efficiency and environmental responsibility.

Competitive Landscape and Strategic Positioning

INSW operates in a fragmented yet highly competitive global tanker market, vying with major players such as Euronav NV (EURN), Teekay Tankers Ltd. (TNK), Scorpio Tankers Inc. (STNG), and DHT Holdings, Inc. (DHT). Each competitor brings distinct strengths, shaping INSW's strategic responses.

INSW's primary competitive advantages stem from its extensive global fleet and diversified asset classes, which include VLCCs, Suezmaxes, Aframaxes, LR2s, LR1s, and MRs. This diversity provides flexibility in serving a wide range of customers, from independent and state-owned oil companies to traders and refinery operators. This broad market access, coupled with its strategy of operating in market-leading commercial pools, allows INSW to optimize asset utilization and revenue generation. For instance, while Euronav may exhibit strong operational efficiency in its focused crude tanker segment, INSW's broader fleet mix allows for greater adaptability to shifting trade patterns and demand across different product types.

In comparison to Teekay Tankers, which emphasizes cost leadership and spot market agility, INSW's established network and regulatory expertise in international flag trade offer a qualitative edge in reliability and customer loyalty. However, Teekay's lean operations could translate to superior profitability in highly efficient segments. Scorpio Tankers, with its focus on modern, eco-efficient vessels, highlights the industry's drive towards innovation. INSW's dual-fuel ready newbuilds and scrubber-fitted vessels directly address this, ensuring it remains competitive in terms of efficiency and environmental performance, though Scorpio's innovation speed might be a factor to watch. DHT Holdings, primarily a crude oil tanker operator focused on long-term charters for stability, contrasts with INSW's more balanced approach to spot and time charters. While DHT's model offers strong cash flow stability, INSW's greater strategic adaptability through its diversified operations allows it to capture upside in volatile spot markets.

INSW's vulnerabilities include its exposure to the inherent cyclicality of the oil market and the potential for inefficiencies in its older vessels. However, its continuous fleet renewal strategy directly mitigates the latter, as evidenced by its recent "vessel swap" transactions. The company's proactive stance on environmental regulations, such as the EU ETS, and its investment in modern, efficient tonnage, positions it favorably against competitors who may face higher costs or limited trading options with older, less compliant fleets. The company's participation in commercial pools, which accounted for 96% of consolidated voyage receivables as of June 30, 2025, further enhances its market reach and operational efficiency by leveraging collective scale.

Financial Performance and Operational Strength

International Seaways' financial performance in the first half of 2025 reflects a dynamic market, with the company demonstrating resilience and strategic execution despite some year-over-year moderation in earnings. For the second quarter of 2025, INSW reported net income of $62 million, or $1.25 per diluted share. Excluding gains on vessel sales, adjusted net income was $50 million, or $1.02 per diluted share, with adjusted EBITDA reaching $102 million. This compares to a net income of $144.7 million and adjusted EBITDA of $167 million in Q2 2024.

The decrease in Q2 2025 income from vessel operations by $85.4 million was primarily driven by a $63.0 million (25%) decline in Time Charter Equivalent (TCE) revenues. This reduction was largely attributed to a $72.8 million rates-based decline across all fleet sectors and a $5.3 million days-based decline in the VLCC fleet due to the sale of two vessels in Q1 2025. However, these declines were partially offset by a $16.4 million days-based increase in the MR and LR1 sectors, benefiting from the net addition of four MRs and increased LR1 chartered-in days. The Crude Tankers Lightering business, while contributing $2.8 million in operating income in Q2 2025, saw a decrease from $7.2 million in Q2 2024 due to lower activity levels.

For the six months ended June 30, 2025, net income stood at $111.2 million, down from $289.2 million in the prior year. TCE revenues for the first half of 2025 decreased by $155.6 million (30%) to $367.2 million, primarily due to lower average daily rates across the fleet.

Despite these shifts, the company's overall operational effectiveness is evident in its ability to generate significant cash flow. Operating cash flow for the six months ended June 30, 2025, was $155.7 million. The company's forward spot breakeven rate is approximately $13,000 per day, significantly below its Q3 2025 blended average spot TCE of about $28,000 per day, indicating strong profitability even in a moderating rate environment.

INSW's balance sheet remains a cornerstone of its investment thesis. As of June 30, 2025, total liquidity was a robust $709.2 million, comprising $148.8 million in cash and $560.4 million in undrawn revolving credit facility capacity. Gross debt stood at $553 million, resulting in a net loan-to-value comfortably under 15%. While working capital showed a temporary deficit of $17.9 million due to the accounting reclassification of the $268 million Ocean Yield Lease Financing as current debt, management has explicitly stated that this does not impact financial covenants or the ability to fund liabilities, with plans to refinance this obligation in November 2025, potentially lowering breakeven costs further. This strong financial position, coupled with no significant debt maturities until the next decade and 32 unencumbered vessels, provides substantial flexibility for future growth and capital allocation.

Strategic Initiatives and Outlook

INSW's strategic initiatives are tightly integrated with its capital allocation framework, focusing on fleet modernization, balance sheet strength, and shareholder returns. The company has actively engaged in fleet optimization, selling six older vessels (average age 17.5 years) for combined proceeds of $85 million in Q2 and Q3 2025, while simultaneously agreeing to purchase a 2020-built, scrubber-fitted VLCC for $119 million. These actions collectively reduced the fleet's average age by half a year, aligning with the goal of maintaining an average age of around 10 years.

A significant development is the financing for the six dual-fuel ready LR1 newbuilds. INSW has secured commitments for export agency financing of up to $240 million from K-SURE and DNB. This agreement features a 20-year amortization profile and an attractive interest rate of SOFR plus 125 basis points over a 12-year maturity, with funds drawn upon delivery of each vessel from Q3 2025 through Q3 2026. This favorable financing underscores the company's ability to invest in modern, efficient tonnage while managing its debt profile effectively.

The outlook for INSW is constructive, underpinned by solid demand fundamentals and a favorable supply side. The International Energy Agency (IEA) projects global oil consumption to increase by 0.7% in 2025 to 103.7 million barrels per day. Non-OECD demand is expected to grow by 1.4%, while refining capacity shifts towards East of Suez are anticipated to boost refined product ton-mile demand. Geopolitical tensions, while fluid, have historically supported tanker demand through longer trade routes, and management believes sanctions can benefit the "legitimate commercial fleet."

For the third quarter of 2025, INSW has booked a blended average spot TCE of approximately $28,000 per day fleet-wide, covering 40% of its expected revenue days. This strong booking rate, significantly above the $13,000 per day spot breakeven, indicates continued robust free cash flow generation. Management's commitment to returning cash to shareholders is unwavering, with a consistent payout ratio of at least 75% of adjusted net income. Since Q4 2022, INSW has paid combined dividends of $15.25 per share, representing an annualized dividend yield of about 14% on its average market cap. Share repurchases remain an opportunistic tool to supplement these returns.

Risks and Challenges

Despite the positive outlook, INSW faces inherent risks. The highly cyclical nature of the tanker industry means that fluctuations in global oil demand, supply, and charter rates can significantly impact financial performance. Geopolitical instability, such as ongoing conflicts in the Red Sea and Gulf of Aden, or potential shifts in trade policies (e.g., USPR legislation on Chinese vessels), can introduce volatility and uncertainty, though they can also create opportunities for longer ton-miles.

Operational risks include the potential for unexpected drydock costs, maritime accidents, and the availability and cost of third-party service providers. While the company actively manages its fleet age, older vessels may incur higher maintenance expenses. Regulatory changes, particularly environmental laws like the EU ETS and the OECD's Pillar Two Model Rules, could impose additional costs or compliance burdens, although INSW is proactively addressing these through its fleet modernization and monitoring efforts. The company also faces counterparty risk on its contracts and the potential for litigation, as evidenced by a recent commercial dispute, though it successfully resolved this in its favor.

Conclusion

International Seaways stands as a compelling investment proposition, strategically positioned to leverage a fundamentally strong tanker market. The company's disciplined capital allocation, marked by continuous fleet modernization through dual-fuel ready newbuilds and scrubber-fitted acquisitions, ensures operational efficiency and environmental compliance. This technological edge, combined with a robust balance sheet featuring ample liquidity and low net debt, provides the financial flexibility to navigate market dynamics and pursue growth.

While short-term market fluctuations and geopolitical uncertainties present ongoing challenges, INSW's consistent generation of significant free cash flow, coupled with its commitment to a minimum 75% adjusted net income payout ratio, underscores its dedication to shareholder value. The structural imbalance between an aging global fleet and a limited newbuild order book points to a sustained period of strong tanker earnings. INSW's strategic foresight and operational execution position it not merely to participate in this upcycle, but to lead, offering investors a compelling blend of growth, stability, and attractive returns.