Business Overview

International Seaways Inc (NYSE:INSW) is one of the largest independent tanker companies globally, providing energy transportation services for crude oil and refined petroleum products. With a diversified fleet of 78 vessels as of December 31, 2024, the company has established itself as a key player in the tanker industry, weathering market volatility and regulatory changes through its disciplined operational and financial management.

International Seaways was incorporated in 1999 and spun off from Overseas Shipholding Group, Inc. as a separate publicly traded company in 2016. Since its inception, the company has built up a diverse fleet of vessels including VLCCs, Suezmaxes, Aframaxes, LR2s, LR1s, and MRs. To optimize the employment of its vessels in the spot market, International Seaways has participated in various commercial pools while also selectively utilizing time charters to provide more predictable cash flows.

The company faced significant challenges in the years following its spin-off, particularly in 2021 when it reported a net loss of $134 million due to a severe tanker market downturn, exacerbated by the COVID-19 pandemic's disruption of global trade and energy demand. However, International Seaways demonstrated its resilience by focusing on maintaining a strong balance sheet, reducing debt, and carefully managing its fleet composition. This strategy paid off in 2022 when the company returned to profitability, reporting net income of $388 million, driven by a recovery in tanker rates as the global economy rebounded from the pandemic.

Today, International Seaways' fleet consists of Very Large Crude Carriers (VLCCs), Suezmaxes, Aframaxes, Long-Range 2 (LR2), Long-Range 1 (LR1), and Medium-Range (MR) product carriers. This diversified asset base allows the company to capitalize on market opportunities across various tanker segments. Additionally, the company has six dual-fuel ready LR1 newbuilds scheduled for delivery between the second half of 2025 and the third quarter of 2026, further enhancing its fleet composition.

Financial Performance and Ratios

In the fiscal year ended December 31, 2024, International Seaways reported net income of $416.72 million, or $8.38 per diluted share. The company's total revenue for the year was $951.61 million, with operating cash flow of $547.14 million and free cash flow of $261.96 million.

Key financial ratios as of December 31, 2024, include:

• Debt-to-Equity Ratio: 0.38
• Current Ratio: 2.87
• Quick Ratio: 2.86
• Cash Ratio: 1.20
• Dividend Yield: 17.66%
• Payout Ratio: 68.25%

These ratios demonstrate International Seaways' strong financial position, with low leverage, ample liquidity, and a shareholder-friendly capital allocation strategy. The company's robust cash flow generation has enabled it to consistently return capital to shareholders through dividends and share repurchases.

In the most recent quarter, International Seaways reported revenue of $194.61 million and net income of $35.82 million. The company's revenue decreased by 29.1% compared to Q4 2023, reflecting the cyclical nature of the tanker industry. Despite this, International Seaways maintained a strong liquidity position with $157.51 million in cash and a $475 million revolving credit facility as of December 31, 2024.

Business Segments

International Seaways operates two reportable business segments: Crude Tankers and Product Carriers.

The Crude Tankers segment includes the company's fleet of VLCC, Suezmax, and Aframax crude oil tankers. In 2024, this segment generated $437.10 million in TCE (time charter equivalent) revenues, accounting for 47% of the company's total TCE revenues. The segment's adjusted income from vessel operations was $211.68 million. Notable developments in this segment included a 10.70 million days-based increase in TCE revenues for the VLCC fleet due to the delivery of three dual-fuel LNG VLCC newbuilds, partially offset by 80 more off-hire days.

The Product Carriers segment consists of the company's fleet of LR2, LR1, and MR product carriers engaged in the worldwide transportation of refined petroleum products. This segment generated $496.01 million in TCE revenues in 2024, accounting for 53% of the company's total TCE revenues. The segment's adjusted income from vessel operations was $266.49 million. The segment experienced a decrease in TCE revenues primarily due to a 31.60 million days-based decline in the LR1 fleet from a 419-day net decrease in time chartered-in days and 129 more off-hire days.

Overall, the company's diverse fleet of crude oil and refined product carriers generated strong financial results in 2024, with total TCE revenues of $933.10 million and adjusted income from vessel operations of $478.16 million.

Fleet Optimization and Sustainability Initiatives

International Seaways has been proactive in optimizing its fleet composition to enhance efficiency and competitiveness. In the fourth quarter of 2024, the company executed a vessel swap, selling two older VLCCs and acquiring three modern MR product carriers. This transaction aligns with the company's strategy of maintaining a young, fuel-efficient fleet capable of meeting evolving environmental regulations.

Furthermore, International Seaways has made significant investments in sustainability initiatives, including the installation of exhaust gas cleaning systems (scrubbers) on select vessels and the construction of six dual-fuel ready LR1 newbuilds. These efforts are designed to reduce the company's environmental footprint and position it for compliance with increasingly stringent emissions regulations, such as the International Maritime Organization's (IMO) 2050 greenhouse gas reduction targets.

Industry Trends and Outlook

The tanker industry has faced various challenges in recent years, including volatile oil prices, geopolitical tensions, and the COVID-19 pandemic. However, International Seaways has demonstrated its resilience by navigating these headwinds and capitalizing on market opportunities.

Looking ahead, the tanker industry is expected to benefit from a gradual recovery in global oil demand, which the International Energy Agency forecasts will increase by approximately 1% annually in the coming years. Additionally, the limited supply of new vessel deliveries, coupled with the aging of the global tanker fleet, is likely to support improved charter rates and utilization levels.

The global tanker market is estimated to grow at a compound annual growth rate (CAGR) of 3-5% over the next 5 years, providing a favorable backdrop for International Seaways' operations. The company's diversified fleet, strong financial position, and focus on operational excellence position it well to capitalize on these industry trends.

Guidance and Future Outlook

International Seaways has provided positive guidance for the upcoming quarters. For Q1 2025, the company currently has a blended average spot TCE of about $26,500 per day fleet-wide, with 70% of their first quarter expected revenues booked. With a spot breakeven rate of about $13,700 per day, composed of a fleet-wide breakeven of about $16,200 per day less nearly $2,500 per day in time charter revenue, International Seaways expects to continue generating significant free cash flow during Q1 2025.

The company has also increased its target payout ratio to around 75% going forward, up from the previous 50-60% range. This demonstrates International Seaways' commitment to returning value to shareholders. In 2024, the company returned over $300 million to shareholders through $5.77 in dividends and $25 million in share repurchases.

International Seaways' strong performance and positive outlook are further underscored by its Q4 2024 results, which exceeded previous guidance. The company reported adjusted net income of $45 million or $0.90 per diluted share, and adjusted EBITDA of $95 million for the quarter.

Risks and Challenges

While International Seaways has demonstrated its ability to navigate industry challenges, the company faces several risks that investors should consider:

1. Cyclical nature of the tanker industry: The tanker market is highly cyclical, with charter rates and asset values fluctuating based on supply and demand dynamics. This can create volatility in the company's financial performance, as evidenced by the 29.1% year-over-year decrease in revenue in the most recent quarter.

2. Regulatory changes: Evolving environmental regulations, such as the IMO's emissions reduction targets, require significant capital expenditures to ensure compliance, which could impact the company's profitability.

3. Geopolitical and macroeconomic risks: Factors such as trade disputes, sanctions, and global economic conditions can disrupt oil supply and demand, affecting the tanker industry's performance.

4. Competition: International Seaways operates in a highly competitive environment, with other large tanker companies and state-owned entities vying for market share.

5. Counterparty risk: The company's business relies on its ability to secure charter contracts with reputable customers, and the financial stability of these counterparties is crucial.

Despite these risks, International Seaways' strong balance sheet, diversified fleet, and focus on operational efficiency and sustainability provide a solid foundation to weather industry challenges and capitalize on future opportunities.

Conclusion

International Seaways is a well-established player in the global tanker industry, with a track record of resilience and adaptability. The company's disciplined approach to fleet management, financial discipline, and strategic investments in sustainability initiatives have positioned it as a compelling investment opportunity for investors seeking exposure to the tanker shipping sector. With a strong financial position, including a low debt-to-equity ratio of 0.38 and ample liquidity, International Seaways is well-equipped to navigate the cyclical nature of the industry.

The company's diverse fleet across both crude tankers and product carriers segments allows it to capitalize on various market opportunities. Its recent performance, including $951.61 million in revenue and $416.72 million in net income for fiscal year 2024, demonstrates its ability to generate strong financial results even in challenging market conditions.

As the industry navigates evolving market dynamics and regulatory changes, International Seaways' robust operational and financial foundations, combined with its positive guidance and increased shareholder returns, make it well-positioned to capitalize on future growth prospects in the global tanker market.