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International Seaways, Inc. (NYSE:INSW)
Q1 2019 Earnings Call
May. 9, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the International Seaways Incorporated First Quarter 2019 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded.

I'd now like to turn the conference over to Mr. James Small, General Counsel. Please go ahead.

James Small -- General Counsel

Thank you. Good morning everyone and welcome to International Seaways earnings release conference call for the first quarter of 2019.

Before we begin, I would like to start off by advising everyone on the call with us today of the following. During this conference call management may make forward-looking statements regarding the Company or the industry in which it operates, which could include, without limitation, statements about the outlook for the crude tanker and product carrier markets, changing oil trading patterns, forecasts of world and regional economic activity, forecasts of demand for and production of oil and petroleum products, the Company's strategy, purchases and sales of vessels, anticipated financing transactions, expectations regarding revenues and expenses, including vessel expenses, charter hire expenses and G&A expenses, estimated bookings and TCE rates for the second quarter, first half and other periods in 2019, estimated capital expenditures for 2019 or other periods, projected scheduled dry dock and off-hire days, the Company's consideration of strategic alternatives, its ability to achieve its financing and other objectives, and economic, political and regulatory developments around the world.

Any such forward-looking statements take into account various assumptions made by management based on various factors, including its experience and perception of trends current conditions, expected future developments and other factors management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the Company's control, which could cause actual results to differ materially from those implied or expressed by those statements. Factors, risks and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in its annual report on Form 10-K for 2018, its quarterly report on Form 10-Q for the first quarter of 2019 and in other filings that we have made or in the future may make with the US Securities and Exchange Commission.

With that out of the way, I'd like to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Lois Zabrocky -- President & Chief Executive Officer

Thank you very much, James. Good morning everyone. Thank you for joining International Seaways earnings call as we discuss our first quarter 2019 results. If you'll turn to slide 4, we review our first quarter 2019 highlights and our recent accomplishments. We're pleased to have taken advantage of continued strength in the tanker market, which persisted for the majority of the first quarter. We generated strong cash flow and earnings.

For the quarter, net income was $10.9 million or $0.37 per share. This compares to a net loss of $29 million or $1.00 per share in the first quarter of 2018. Our Q1 results include a provision for credit loss of $1.3 million or $0.04 per share. TCE revenues for the quarter increased to $94 million and adjusted EBITDA increased to $47.3 million.

Our second quarter bookings are lower than the first quarter, but we note that our fixtures are at significantly higher levels year on year. The big ship markets are in what we believe to be a temporary pullback in rates from the levels reached in the fourth and first quarters, primarily driven by a combination of accelerated new billing deliveries in the first quarter, decreased OpEx production and Far East refinery maintenance. Jeff will provide a more detailed second quarter earnings update based on the current market conditions later in the call.

If you move to the second bullet, we maintained significant operating leverage in the first quarter. Our cash flow and our earnings continued to reflect the strong market. This displays our success in growing and modernizing the fleet, which enhanced our earnings power. We generated our second consecutive positive net income quarter and increased both net income and adjusted EBITDA in the first quarter. We are optimistic on the intermediate and the long-term outlook for the tanker market. This is based on robust oil demand, a manageable order book and increasing US and Brazilian exports.

As we plan for the upcoming IMO 2020 regulations to go into effect, we continue to expect to benefit from incremental demand for both crude and product tankers, which we believe will begin to impact the market in the second half of the year. Specifically, we continue to expect IMO 2020 to boost demand for both crude and product tankers as refinery margins and utilization increases. Refiners will produce more very low sulfur fuel oils and middle distillates. This will increase overall crude volumes and likely the seaborne transportation of petroleum products as trading patterns change and adapt to the new regulatory environment.

With our sizable fleet comprised of 42 crude and product tankers, we remain well positioned to capitalize on the favorable outlook for the tanker market. Every $1,000 per day increase in tanker rates for international Seaways corresponds to a $15 million increase in our EBITDA and $0.52 in earnings per share.

Moving to the third bullet, we further strengthened our balance sheet and our liquidity position in the first quarter. We increased our cash by nearly $20 million and our cash is $46 million higher year on year. At the end of the first quarter we had $137 million in cash and a total liquidity of $187 million. This includes our $50 million undrawn revolver. We maintain one of the lowest leverage profiles in the sector with our net loan-to-value at 50%. In addition, the earliest maturity on our debt is 2022.

If you turn to slide 5 please. We update you on the tanker market. In the fourth quarter of 2018, oil demand reached over 100 million barrels per day. The IEA projects strong growth in 2019 of 1.4 million barrels per day. While overall oil demand remains strong, factors such as extended Far East refinery maintenance highlighted by Chinese refinery utilization coming in at 81% for April has affected demand due to maintenance schedules being move forward in preparation for IMO 2020 and in anticipation of future demand.

In the United States, refineries are coming back online which we expect to have a positive effect on the product tanker market as the US remains the largest exporter of refined product. In the second bullet, oil supply is in flux with Saudi Arabian production approximately 500,000 barrels per day below their target in March and OpEx over 150% compliance with their agreed target. There has also been a steep decline in Venezuelan production to below 900,000 barrels per day. Iranian supply is also being pressured with the expiration of waivers in May.

Serving to partially offset the supply challenges, the US oil production continues to grow, increasing to 12.2 million barrels per day in April. Based on strong US production we continue to expect US crude exports to continue to grow throughout the year. Despite the factors that have limited the upside of the tanker market through the first half of the year, we expect a rising rate environment going forward based on the slowing pace of new billing deliveries, the impact of refineries coming back online after temporary maintenance and Saudi Arabia may increase their production and the Iranian fleet may be pushed into partial storage. Underscoring the positive prospects for the tanker market, asset values continue to rise. International Seaways fleet increased in value by over $43 million during the first quarter.

Moving on to slide 6. In terms of supply, the VLCC order book has had zero new billing orders since the 10 orders that were placed in January. At this point any new orders will not be delivered until at least 2021. While the total VLCC order book currently stands at 12.9%, we continue to expect it to be tempered as highlighted in the top right chart. This is coming from offhire for scrubber installations, bunker tank cleaning prior to IMO 2020 and further scrapping. Overall, the order book remains manageable and declining.

Turning to the potential for increased scrapping, I should again point out as we've done in the recent quarters that the VLCC fleet is aging. This is evidenced by the bottom right chart which shows nearly 30% of the existing V-fleet will reach 15 by age 2020. At that point these vessels become expensive to operate with significant investment required to continue the trading, at age 15 and every two-and-a-half years thereafter. Additionally, as ships reach ballast water treatment deadlines, even greater capital expenditure is required to keep them going.

I'll now turn the call over to Jeff and he'll provide additional details on the first quarter results.

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

Thanks, Lois, and good morning everyone. Let's move directly to reviewing the first quarter results in more detail. Before we go to slide 8, let me just summarize our consolidated results. As Lois said, this is our second consecutive positive net income quarter with net income of $10.9 million or $0.37 per diluted share compared with a net loss of $29.3 million or $1.01 per diluted share in the first quarter of last year. Adjusted EBITDA for the first quarter was $47.3 million compared with $6.5 million in the first quarter of last year.

Our continued strong results through the first quarter were driven by International Seaways' significant operating leverage and its success in growing and modernizing our fleet. Reflected in the net income were increase in TCE revenues of $45.2 million, lower vessel expenses of $6.6 million, decrease in loss of disposal of vessels and other property compared with the first quarter 2018. These factors were partially offset by increases in charter hire expenses, principally as a result of Company executing sale leaseback transactions for two Aframaxes in March 2018 and also an increase in the Company's lightering business and I'll go over that in a little while.

Now if you could turn to slide 8. I'll first discuss the results of our our business segments beginning with the Crude Tanker segment. TCE revenues for the Crude Tanker segment were $72.6 million for the quarter compared to $29.2 million in the first quarter of last year. This increase reflects our success improving the age profile and increasing the capacity of the fleet and also primarily resulted from the impact of higher average blended rates in the VLCC, Suezmax, Aframax and Panamax sectors where rates climbed to approximately $32,000, $28,900, $20,900 and $17,600 per day, respectively. The increase was also attributable to increased revenue days in the VLCC sector and higher activity in the Company's Crude Tanker Lightering business in the first quarter of this year compared to last year.

Now if we turn to that product tanker -- Product Carrier segment. TCE revenues were $21.4 million for the quarter compared to $19.6 million in the first quarter of last year. This increase resulted from the impact of higher average daily blended rates earned by our LR2, LR1 and MR fleets, with spot rates rising to approximately $22,100, $24,000, and $13,500 per day, respectively.

Overall, as reflected in the chart top left of the page, consolidated TCE revenues for the first quarter of 2019 were $94 million compared to $48.8 million in the first quarter of last year and this increase was principally driven by higher average daily rates across the crude and product carrier fleets, as well as increased revenue days in the VLCC sector.

Looking at the chart on the top right of the page, adjusted EBITDA was $47.3 million for the quarter compared to $6.5 million in the same period of last year. And again, this increase was driven primarily by higher daily rates. On the bottom half of the page, we look at results sequentially quarter-to-quarter. So, consolidated TCE revenues and EBITDA for the first quarter were up slightly from the fourth quarter, increasing $1.0 million and $1.1 million, respectively.

Now if we turn to slide 9, we give a fourth quarter review and first -- Q1 update and Q2 look. Spot rates are broken out for a modern VLCCs and VLCCs in our fleet over 15 years old. As I've mentioned on previous calls regarding spot rates for VLCC is a low points in the cycle. Modern VLCCs earn higher rates. As the market recovers, the gap will narrow specifically and rates for modern VLCCs will more closely reflect those of the overall group. We've seen evidence of this in recent quarters.

I'll now discuss our bookings for Q2 thus far which are lower than Q1, but still significantly higher than Q2 of 2018. We've booked 58% of available Q2 spot days for our moderate VLCCs at an average of approximately $24,700 a day, 41% of available VLCC days are vessels that are over 15 years old at an average of approximately $22,100 a day, 51% of our available Suezmax spot days have been booked at approximately $21,300 a day, 77% of Aframax and LR2 spot days at approximately $14,600 per day and 36% of available Panamax/LR1 spot days at an average of approximately $16,800 per day. On the MR side, 37% of our days have been booked at approximately $15,400 per day.

Now if we could turn to slide 10, talking about breakevens. The cash cost TCE breakevens for the nine months ended March 31, 2019 were $23,300 per day for VLCCs, $22,800 per day for Suezmax, $17,400 per day for Aframax, $14,500 for Panamax and $14,400 for MRs. International Seaways overall breakeven rate was $21,600 for the nine months ended March 31, 2019. To reiterate, as we had in the past, these rates are all-in daily rates of our own vessels that our own vessels need to cover operating costs -- need to earn to cover operating costs, dry dock, G&A, debt service which means all scheduled principal memorization as well as interest. And of note, taking into consideration distributions from our JV, the overall breakeven rate for the Company drops down to $19,200 which highlights a strong position for optimizing cash flow in diverse market conditions.

I'd also like at this time to take the opportunity to reaffirm cost guidance for the year for modeling purposes. We expect regular daily OpEx, which includes all running costs, insurance, management fees and other similar and related expenses for various classes to be as follows. For Vs $8,300 a day, for Suezmax $7,900 per day, for Aframax $8,400 per day, Panamax $8,100 per day and MRs $7,800 per day.

For details on projected dry dock and CapEx expense and offhire days broken down by quarter, we have given that to you this time in detail in the appendix on slide 18, so please refer to that. Now continuing with cost guidance for your modeling, I would also note that for second quarter interest expense will be expected at about $17.6 million which includes a non-cash portion for deferred fees (ph) of about $1.8 million but the total $17.6 million. Additionally, our debt calls for $44.8 million in principal repayment schedules for the remainder of 2019.

For G&A in the second quarter, we expect it to be $6.3 million, all-in, which includes a non-cash portion of about $900,000 and finally, we would expect about $8.6 million in equity income and $19.2 million for depreciation and amortization in the second quarter.

Now let me provide a little bit of an update on Lightering. As we have often pointed out in these calls, it is relatively small but a very important part of our business especially given the growth of reverse lightering for exports from the US Gulf. So on page 22 of the deck, we've given you additional information that I'd like to expand upon now. As you can see, lightering generated $2.5 million in EBITDA in Q1 and that figure reflects a $1.3 million charge related to a credit loss provision for one 2018 customer that Lois mentioned earlier on.

And to assist in modeling, let me point out a few things. First, as you can see, revenue, charter hire, EBITDA, it can vary significantly quarter by quarter. And secondly, lightering is not a separate segment in our financials and it rolls up into -- for reporting purposes, it rolls up into consolidated International Seaways figures. So to make sure your models line up with our reported figures, revenue, charter hire and OpEx estimates for lightering need to be included.

In terms of guidance, looking forward, second quarter lightering activity is a little bit lower than the first quarter primarily due to US refinery maintenance. So we would not suggest analyzing the first quarter 2019 results, but we would still expect that we're well on track for 2019 to be ahead of 2018 which as you'll recall was a $6.5 dollar annual EBITDA. Now bear with me for just a minute while I give you this opportunity to -- for those you that do detailed modeling of the Company to give you some more guidance on the way to model lightering.

So on the expense side, at the beginning of the second quarter lightering had two Aframax vessels on hire along with five workboats and therefore quarterly charter hire, the baseline will be $6.1 million per quarter, of which $1.9 million relates to an inter-company charter. That inter-company charter is our 2002 built Aframaxes Seaways Portland that was chartered to lightering for nine months at $21,000 a day commencing in March. This inter-company charter is eliminated in consolidations for GAAP. But I would suggest that the easiest way to model it is from a consolidated perspective is to consider that the Aframaxes is being time chartered out at $21,000 a day. That's the best way to do that.

We also expect that lightering will have other Aframaxes chartered in during the quarter to meet -- service new business and therefore charter hire expenses will be above this baseline, but of course that'll be accompanied by additional revenue. As an example, as you see on that page, in the first quarter of 2019, of the $11 million of charter hire expense, $6.6 million was from the spot charter rate to meet such additional revenue requirements.

So continuing with detailed modeling and I promise I'm almost done with this here, let me just give a couple more points. That $0.4 million of G&A for lightering in the first quarter of 2019 is a consistent quarterly run rate, but please note this is included in the overall guidance for G&A which I previously gave you. Also, the $1.8 million to $2 million of OpEx is a good reasonable quarterly estimate for lightering and should be added to your estimates of OpEx from the daily per vessel rates I gave you a minute ago. So in summary, summing it all up, the best way if you're doing a detailed model of lightering which is -- which I know many of you are, is to look at the sum of of G&A, OpEx, charter hire expense plus your estimate of EBITDA for the period adds up to lightering revenue. So thanks for bearing with me on that, but I want to get all the information out there to be helpful with those of you building model.

So now, if we move on to slide 11. It's our cash bridge and moving from left to right, we began the quarter with total cash of $118 million. During the quarter we generated $47 million of adjusted EBITDA, which includes $9 million in equity income from JVs which is non-cash, so we therefore deduct it to reach a cash figure, but then add back the cash distributions of JVs which were $8 million. In addition in the quarter we spent $8 million on dry docking and maintenance CapEx. Cash interest and principal paydown on debt was $18 million. Finally, changes in working capital and other non-cash items were modest negative $1.1 million in impact. And so the net result was that we ended the quarter with approximately $137 million of cash and $50 million of undrawn revolver, yielding total liquidity of $187 million. I would just note, the quarterly installment of $6.1 million in a term loan B, otherwise due at the quarter end, was paid on the first business day of April.

Now if we turn to slide 12, let me just talk for a minute about the balance sheet. As of March 31, 2019, we had $1.9 billion of assets compared to $748 million of long term debt. And in addition, as I mentioned, we had a $50 million revolving credit facility that is undrawn. As you can see on the right hand column on the slide, our total debt-to-capital stood at 44% while our net loan-to-value is at 50%. On the right hand side, we also noted book values for our two joint ventures. At the end of the first quarter, the FSO and LNG JVs had net book values of $134 million and $115 million, respectively, representing a combined $8.52 (ph) per share. On the bottom of the slide, we outline our debt facilities all of which importantly mature in 2022.

Now turning to slide 13, on the far left we show 2018 spot rates earned by Seaways vessels which we view as a trough for the tanker market. But the importance of this slide is to demonstrate the impact of a rising rate environment relative 2018 lows. As we did last quarter, we've given you three specific scenarios to the right. So, the first is what we call mid cycle by which we mean the 15 year average rate. The second scenario is recent peak, represented by 2015 average rates and last are the historical peak rates from 2008.

You can see therefore that based on the mid cycle average rates, our fleet -- Company would generate annualized adjusted EBITDA of $287 million or $4.70 a share. If the rates return to 2015 levels, that would represent $443 million of adjusted EBITDA or over $10 a share of earnings. And of course should we be fortunate enough to experience a super cycle levels of rates again, we'd generate nearly $700 million of EBITDA. Regardless of how the rate environment develops, our success of implementing our fleet growth and modernization strategy has significantly enhanced our upside potential for capitalizing on the market recovery in both approved and product sectors that Lois has talked about. As a reminder, every $1,000 increase in spot rates in every vessel class would result in an increase of about $15 million in cash flow and $0.52 earnings per share.

Now that concludes my comments. I'd like therefore to turn the call back to Lois for her closing remarks.

Lois Zabrocky -- President & Chief Executive Officer

Thanks, Jeff. As we wrap it up, at Seaways we're pleased to have started off 2019 further strengthening our financial position. Our balance sheet remains strong and we ended the first quarter with total liquidity of $187 million. This represents nearly $20 million of an increase since December 31 and a $46 million increase year on year. We have also maintained a low loan-to-value which stands at 50% and our earliest debt maturity is not until 2022. At International Seaways, we remain in a strong position to unlock shareholder value and further capitalize on our core differentiators in addition to our proven track record of being disciplined allocator of capital.

We have a leading reputation providing safe, reliable service to energy customers across multiple sectors, including crude, products, gas and lightering. As a US based international tanker company, we also demonstrate a commitment to the transparency and ESG principles and are proud to be rated Number 1 tanker company for corporate governance again this year.

We have taken advantage of the improved rate environment in both the fourth and first quarters, and we remain optimistic about the intermediate and long-term outlook for the tanker markets. Increasing US exports and the upcoming IMO 2020 regulation should provide benefits to International Seaways sizable fleet of crude and product tankers. We have significant operating leverage in a rising rate environment with $1,000 per day increase in rates creating an additional $15 million in EBITDA and $0.52 per share.

We thank you very much for listening and we'll now open up the call to questions. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Ben Nolan of Stifel. Please go ahead.

Ben Noland -- Stifel -- Analyst

Yes, thanks. So, I had a couple of questions. Number one, maybe if you could just give a little bit more light on the lightering credit event, just maybe a little bit more color, is it something that happens often or what was the situation around it?

Lois Zabrocky -- President & Chief Executive Officer

Yes, Ben, I'll take that. I mean this is a highly unusual situation and -- in our businesses overall, it's incredibly rare to have an event like this. And the counterparty is experiencing financial difficulty and therefore we took a reserve on that amount.

Ben Noland -- Stifel -- Analyst

Okay. And then moving over to the fleet a little bit. We were a little bit surprised given how much of your spot revenue had already been booked as of the last time you reported that some of the numbers moved as much as they did, specifically VLCCs and the MRs. As it relates to the MRs, I think it was 74% at 15.6 which means that you made like 7,000 for the balance. Was there anything like out of service time or something else that might have contributed to the net coming off this as it did?

Lois Zabrocky -- President & Chief Executive Officer

You know Ben, in particular, on the MRs, it was an adjustment for past performance from quarters. So you know, that's one of the things as we continue to give increasing transparency, we'll work to refine those numbers as we release them.

Ben Noland -- Stifel -- Analyst

Okay, go ahead, I'm sorry to cut you off.

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

Just elaborating on that, that's you know you're doing your best to give the guidance where we are. That's the best thing to do to help with your modeling. But you're going to get some quarters like that where you look backward and make an adjustment, it's just the nature particularly the way pools work. So we'll just keep doing our best to keep using the numbers that we have.

Ben Noland -- Stifel -- Analyst

No, I appreciate that. And then just to that end looking at MRs fleet of 10 ships including the charter ends at this point, it does seem like there's a little bit lower than maybe some of the other peers with larger fleets may have earned. Is there any impact that you can think of in any of your segments where maybe having a little bit more scale would help to -- help the earnings a bit or do you kind of feel like that's not as big of a deal and it's just some quarters are good, some quarters aren't obviously the Panamax are fantastic. So just curious what how you feel about scale on your ability to compete?

Lois Zabrocky -- President & Chief Executive Officer

So I guess, Ben, one of the things I would comment you know in particular on the Suez, the Afra, the Panamax, I feel like those sectors are all very strong for the quarter. We do participate in pools in every one of the sectors that we're in. So we do participate with scale. And then on the MRs in particular, Derek was just going to add a little bit of comment on --

Derek Solon -- Vice President & Chief Commercial Officer

Sure. I mean it's the same thing though is that where we're in pool so we have some of the scale in that capacity. But when we look at some of the competitors, it's just an age profile thing versus where a lot of our competitors are more heavily on the eco side and we are not.

Lois Zabrocky -- President & Chief Executive Officer

Right.

Ben Noland -- Stifel -- Analyst

Okay. Very helpful. All right. I appreciate. Thanks guys.

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

Thanks, Ben.

Operator

The next question comes from Randy Giveans with Jefferies. Please go ahead.

Randy Giveans -- Jefferies -- Analyst

Hey, how're Lois, Jeff, David, how are you?

Lois Zabrocky -- President & Chief Executive Officer

Good. How are you?

Randy Giveans -- Jefferies -- Analyst

All as well. Few quick questions from me. So there have been reports of significant floating storage in the Malacca Strait (ph) and elsewhere. So looking at your three older VLCCs that won't have scrubbers, will you look to use those for floating storage as well or do you plan on offering them as this pure kind of crude carriers like the rest of your Vs?

Lois Zabrocky -- President & Chief Executive Officer

So, one of them we have in the dry dock right now which we pulled forward a little bit, we thought it was a good time to go ahead and take advantage of that. So she'll be ready for the uptick in earnings. We do understand that there's been upwards of somewhere six to nine VLCCs that have been taken on 60, 90 days short-term storage in and around Singapore. And as that market comes into itself we will definitely look to take advantage as best possible on those ships. Those rates right now on those charters that have been taken off Singapore are below $20,000 per day, but it's still pretty strong relative to where the absolute spot market is.

Randy Giveans -- Jefferies -- Analyst

Got it. Okay. And then talking about pulling forward some dry docking, looking at your scrubber CapEx, timing for your retrofits, is there a way to pull forward some more of those scrubber retrofit so you can have them completed by 4Q 2019 instead of kind of doing them in 4Q 2019?

Lois Zabrocky -- President & Chief Executive Officer

Well, we're on track for the installations but we want to make sure that all that engineering, you know, we're working with Hyundai Global Services. They are strong partner. We want to make sure all that engineering and front-end work is done properly, well laid out. We've got our yard slots. If we have the potential to move them forward, we would do that. But I wouldn't necessarily count on that with how busy I think the yards are going to be.

Randy Giveans -- Jefferies -- Analyst

Okay. And then a short-term positioning question. Saudi Arabia is expected to increase output sales to Asia in June. How are you able to kind of position your fleet for this increase in cargos from the Middle East to Asia, let's call it next month?

Lois Zabrocky -- President & Chief Executive Officer

Well, it's interesting. I mean definitely we are constantly talking to the tankers international guys and every time these are coming down to Singapore, they're having a really active debate in conversation around how many to send West, how many to send to the Middle East, and that's all based upon their latest input, positioning these ships where they need to go. Interestingly, there's been an increase of volume out of Brazil in the last month and that has provided some underlying floor there on the VLCC loading out of the Western Hemisphere.

Randy Giveans -- Jefferies -- Analyst

Fair. Okay. I'll turn it over. Thanks so much for the time.

Lois Zabrocky -- President & Chief Executive Officer

Thank you, Randy.

Operator

Next question comes from Noah Parquette of JPMorgan. Please go ahead.

Noah Parquette -- J.P. Morgan -- Analyst

Thanks. Good morning. I want to ask -- I guess it's in the past I think it still being determined but I just want to see if there's an update on how the TI polls going to kind of determine the scrubber economics on the VLCCs come 2020 that there's a bit of a formula in place or something. I just can't understand how that will be determined.

Lois Zabrocky -- President & Chief Executive Officer

Yeah. We've been working on that with tankers international over the last few months and I think the key determinants are that they are dedicated to making sure that they're going to be able to procure heavy sulfur fuel oil, as well as the low sulfur fuel and really beefing up the desk to make sure that we can take advantage of all of that. So we feel like they are doing a good job, getting ready to maximize our scrubber investment. And as we finalize things, we will share that.

Noah Parquette -- J.P. Morgan -- Analyst

Okay. And then operationally, are you guys -- we're just starting to hear from some owners. When do you plan on loading LSFO into your bunker tanks and your ships, I mean some are saying as early as September, October? Just wanted to hear what you're going to kind of planning to do.

Lois Zabrocky -- President & Chief Executive Officer

The short answer would be the third quarter. But I have the Head of Operations here and he is really looking at it, vessel by vessel, tank by tank. Go ahead, Bill.

William Nugent -- Vice President and Head of Ship Operations

Yes. I am working closely with our pools to make sure that we're optimizing that transition along with the chartering opportunities so that we have the absolute minimum

downtime and are maximizing both the use of HSFO this year and then low sulfur fuel at the end of the year and into 2020.

Noah Parquette -- J.P. Morgan -- Analyst

Okay. And then just one follow-up on Ben's question on the rates, I think two of your MRs I think are going to hit 15 next month or two. Do those ships, I mean do they have problems or will they have problems kind of trading CPP, and if so what kind of -- so we understand what kind of discounts would they earn to your younger ships?

Lois Zabrocky -- President & Chief Executive Officer

So, they won't really earn discounts. It's simply I think the factor that Derek was referencing earlier where they are for 04 (ph) built so they won't have eco consumptions but they're also assets that are -- you're carrying at a much lower market value, and therefore, will provide a decent return. But we are looking at as we have, we had six of those. We have sold four of those, so we opportunistically look at whether or not we want to put them through dry dock or not. And that's something that we're in discussions on. But they really -- they still can load CPP and they would still obtain a proper market rate.

Noah Parquette -- J.P. Morgan -- Analyst

Okay. All right. That's great. That's all I had. Thank you.

Operator

(Operator Instructions) The next question comes from Liam Burke of B. Riley FBR. Please go ahead.

Liam Burke -- B. Riley FBR -- Analyst

Thank you. Good morning, Lois. Good morning, Jeff.

Lois Zabrocky -- President & Chief Executive Officer

Good morning.

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

Hi.

Liam Burke -- B. Riley FBR -- Analyst

Lois, you had a nice step up year-over-year operating cash flow. Your liquidity is improving. You do have a buyback in place. You do have your debt termed out. Can you give us a sense of if there is any change in your capital allocation priorities?

Lois Zabrocky -- President & Chief Executive Officer

No, absolutely, I mean, I'll take the first half of that and then I'll let Jeff jump in. But one of the things I want to kind of point out is that we do have in the appendix our CapEx schedule for the year and both our ballast water and our scrubber program at present neither have we issued any equity or secured any debt against that. So that is a use of our liquidity in 2019 and we think we're pretty well-positioned with that.

I would say that we had the two quarters of positive net income, which has been very strong for us. We're in a pretty, I don't want to use the word comfortable position, but I also would say that we'd like to see some steady stronger earnings, which we anticipate in 2019 and then I'd like Jeff jump in there if you want to add any color.

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

Yeah, sure. Hi, Liam. So as Lois said, we've got really good liquidity position but we're going to hang on to it for the moment to plan for this CapEx for ballast water treatment and we will use the cash for that and the scrubbers, right. But if we generate -- and as we generate, which we expect in the rate environment that we see the second half of this year, next year, additional cash, then will move into capital allocation mode, which means a combination of deleveraging and returning cash to shareholders. So that's probably a question we should address every quarter. But right now we're in a good shape to still use that money for these CapEx we've got.

But you raised another point, you mentioned liquidity. It's something that I want to raise is, liquidity in terms of the shares. One of the interesting things that's happened with us in the first quarter is that the trading has gone up, the first couple months of the year we're looking at about 2 million shares a month trading but in March and in April it's up to over 4 million shares.

So a significant impact -- increases in trading liquidity, which we think is very positive and if you look at the 13-D filings, you can see that that 2.5 million shares in this period were traded by institutions that were formerly insiders. So that's about 25% of all the shares that traded through to April, just based on again 13-Ds were very former insiders, so that's really good news because that's increasing our liquidity and the stock as well as decreasing the overhang. So that's a point that I want to get across as a positive development.

But I hope that answers your question, Liam, do you have another one?

Liam Burke -- B. Riley FBR -- Analyst

Yeah. Just as a follow on to that, I mean you have a pretty concrete CapEx schedule this year as laid out in the appendix as you mentioned. But would you be opportunistic on the buyback side, and if there are institutions wanting to get rid of, would you look at buybacks during this year or is it something that you're essentially going to hold off till next year, to understanding you've got a pretty heavy capital program this year?

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

I don't think I'd put a timeframe on it like this year or next year, but I'd just go back to with Lois and I both said is that at this moment in time we view liquidity while it's ample as being primarily earmarked for the CapEx. So we don't -- we think that's the priority for us is to hold on to that cash for that. But you can see from the quarter by quarter, how much cash is the operating leverage that we've talked about, how much cash can be generated, so that can change very quickly. So again let's talk about a quarter by quarter, but right now this moment, liquidity will be used for CapEx. But we do have the buyback program in place. So we're ready to do it.

Liam Burke -- B. Riley FBR -- Analyst

Great. Thank you, Jeff. Thank you, Lois.

Lois Zabrocky -- President & Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Small for closing remarks.

Lois Zabrocky -- President & Chief Executive Officer

This is Lois. I'm just going to conclude. INSW is positioned for the tanker cycle and our ships are already giving a hint of what their earnings capability will be in the second half of the year and going into the cycle in 2020. We want to thank everybody for joining our call and I hope you have a great rest of the week.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 43 minutes

Call participants:

James Small -- General Counsel

Lois Zabrocky -- President & Chief Executive Officer

Jeffrey D. Pribor -- Senior Vice President & Chief Financial Officer

Derek Solon -- Vice President & Chief Commercial Officer

William Nugent -- Vice President and Head of Ship Operations

Ben Noland -- Stifel -- Analyst

Randy Giveans -- Jefferies -- Analyst

Noah Parquette -- J.P. Morgan -- Analyst

Liam Burke -- B. Riley FBR -- Analyst

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