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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the International Seaways Inc. First Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. James Small, General Counsel. Please go ahead.
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 outlooks 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 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 expenditure for 2019 or other periods; projected scheduled drydock 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 and future developments and other factors management believes are appropriate to consider under 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 U.S. Securities and Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?
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 per share in the first quarter of 2018. Our Q1 results include a provision for a 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 newbuildings deliveries in the first quarter, decreased OPEC 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 U.S. 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 a 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 moved 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 U.S. 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 OPEC over 150% compliance with their agreed target. There has also been a steep decline in Venezuela 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 these supply challenges, the U.S. oil production continues to grow, increasing to 12.2 million barrels per day in April. Based on strong U.S. production, we continue to expect U.S. 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 newbuildings 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 onto Slide 6. In terms of supply, the VLCC order book has had 0 newbuilding 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 off hire 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 in 2020. At that point, these vessels become expensive to operate, with significant investment required to continue the trading at age 15 and every 2.5 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 fourth -- on the first quarter results.
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 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 the company executing sale-leaseback transactions for 2 Aframaxes in March 2018, and also an increase in 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 business segments, beginning with the Crude Tankers segment. TCE revenues for the Crude Tankers 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 is also attributable to increased revenue days in the VLCC sector and hire activity in the company's Crude Tankers Lightering business in the first quarter of this year compared to last year. Now if we turn to the product tanker -- Product Carriers 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 raising -- 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 Carriers 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 is 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 our modern VLCCs and the VLCCs in our fleet over 15 years old. As I've mentioned on previous calls regarding spot rates for VLCCs at 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 modern VLCCs at an average of approximately $24,700 a day, 41% of available VLCC days for 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 9 months ended March 31, 2019, were $23,300 per day for VLCCs, $22,800 per day for Suezmaxes, and $17,400 per day for Afras, $14,500 for Panamaxes, and $14,400 for MRs. International Seaways' overall breakeven rate was $21,600 for the 9 months ended March 31, 2019. To reiterate as we have in the past, these rates are all in daily rates of our owned vessels -- that our owned vessels need to cover operating costs -- need to earn to cover operating costs, drydock, G&A, debt service, which means all scheduled principal amortization 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 our strong position for optimizing cash flow in diverse market conditions. I'd also like at this time to take an opportunity to just 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 drydock and CapEx expense and off hire days broken down by quarter, we've given that to you this time in detail in the appendix on Slide 18, so please refer to that. Now continuing with flip 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 the noncash portion for deferred financing fees of about $1.8 million, but the total is $17.6 million. Additionally, our debt calls for $44.8 million in principal repayments scheduled for the remainder of 2019. For G&A in the second quarter, we expect it to be at $6.3 million all-in, which includes the noncash 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's relatively small, but very important part of our business, especially given the growth of our reverse lightering for exports in the U.S. Gulf. So on Page 22 of the deck, we've given you additional information that I'd like to expand upon now. You can see that lightering generated $2.5 million of EBITDA in Q1, and that figure reflects a $1.3 million charge related to a credit loss provision for 1 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 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 U.S. refinery maintenance. So we would not suggest annualizing 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 million annual EBITDA. Now bear with me for just a minute while I give you this opportunity to -- for those of 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 2 Aframax vessels on hire along with 5 workboats, and therefore, quarterly charter hire, the baseline will be $6.1 million per quarter, of which $1.19 million relates to an intercompany charter. That intercompany charter is our 2002-built Aframax, the Seaways Portland that was chartered to lightering for 9 months at $21,000 a day commencing in March. This intercompany charter is eliminated in consolidation for gas. But I would suggest that the easiest way to model it is, from a consolidated perspective, is to consider that the Aframax is being time chartered out at $21,000 a day. So 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 expense 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 2019, of the $11 million of charter hire expense, $6.6 million was from spot chartering 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. The $0.4 million 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 $2.2 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 the lightering, which I know many of you are, is to look at the sum 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 wanted to get all that information out there to be helpful with those of you building models. So now if we can 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 noncash, and so we therefore deduct it to reach a cash figure, but then add back the cash distributions from the 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 noncash items were a 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 on the Term Loan B, otherwise due at the quarter end, was paid on the first business day of April. Now if you could 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 have 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've also noted book values for our 2 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 per share. On the bottom of the slide, we've outlined our debt facilities, all of which, importantly, mature in 2022 or later. 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 that the impact of a rising rate environment relative to 2018 lows. As we did last quarter, we've given you 3 specific scenarios to the right. So the first is, what we call, midcycle, by which we mean the 15-year average rate; the second scenario is a recent peak represented by 2015 average rates; and last are the historical peak rates from 2008. You can see therefore that based on the midcycle average rates, our fleet or our 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 the super cycle levels of rates again, we'd generate nearly $700 million of EBITDA. Regardless of how the rate environment develops, our success implementing our fleet growth and modernization strategy has significantly enhanced our upside potential for capitalizing on the market recovery in both crude and product sectors that Lois has talked about. As a reminder, every $1,000 increase in spot rates in vessel -- every vessel class would result in an increase of $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.
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 in providing safe, reliable service to energy customers across multiple sectors, including crude, products, gas and lightering. As a U.S.-based international tanker company, we also demonstrate a commitment to the transparency and ESG principles, and are proud to be rated #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 U.S. 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?
[Operator Instructions] The first question comes from Ben Nolan of Stifel.
So a couple 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 this something that happens often or what was the situation around that?
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.
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 it, 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's, what, 74% at 15/6, which means that you made like $7,000 for the balance. Was there any like out-of-service time or something else that might have contributed to the net coming off as it did?
Ben, in particular on the MRs, it was an adjustment to past performance from quarters. So that's one of the things, as we continue to give increasing transparency, we'll work to refine those numbers as we release them.
I was just elaborating on that. That's -- you do your best, you give the guidance where we are, that's the best thing we can do to help you with your modeling. But you're going to get some quarters like that where you look back where to make an adjustment, it's just the nature, it's particularly the way pools work. So we'll just keep doing our best to give you the numbers when we have them.
No, and I appreciate that. And then just to that end, looking at, say the MRs, the fleet of 10 ships, including the charter ends at this point, does seem like it was 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 a deal, and it's just some quarters are good, some quarters aren't? Like obviously, the Panamaxes are fantastic. So just curious how you feel about scale and your ability to compete?
So I guess, Ben, one of the things I would comment, in particular on the Suez, the Afra, the Panamax, I feel like both 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...
Sure. I mean it's the same thing Lois and I were -- we're in pools 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.
Right.
So that's [indiscernible].
Right.
The next question comes from Randy Giveans of Jefferies.
A few quick questions from me. So there's been reports of significant pooling storage in the Malacca Straits and elsewhere. So looking at your 3 older VLCCs that won't have scrubbers, will you look to use those for floating storage as well, or do you plan on operating them as pure kind of crude carriers like the rest of your Vs?
So one of them, we have in the drydock 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, 6 to 9 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. I mean 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.
Got it. Okay. And then talking about pulling forward some dry docking, looking at your scrubber CapEx, timings for your retrofits, is there a way to pull forward some more of those scrubber retrofits so you can have them completed by 4Q 2019 instead of kind of doing them in 4Q 2019?
Well, I mean we are on track for the installations, but we want to make sure that all that engineering, 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 slot. 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.
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 cargoes from the Middle East to Asia, let's call it next month?
Well, it's interesting, I mean definitely, we are constantly talking to the Tankers International guys, and every time the Vs are coming down to Singapore, they're having a really active debate and 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 VLCCs loading out of the Western Hemisphere.
Our next question comes from Noah Parquette of JP Morgan.
I wanted to ask -- I've asked this in the past, and I think it's still being determined, but I just want to see if there's an update, on how the TI Pool is going to kind of determine the scrubber economics on the VLCCs come 2020? If that's -- there's been a formula in place or something that's just to kind of understand how that will be determined?
Yes, 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 as well as low sulfur fuel and really beefing up the depth 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.
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 on your ships? I mean some are saying it will be September or October, just wanted to kind of hear what you're going to -- plan on doing?
The short answer would be the third quarter, but I have the head of operations here, and he's really looking at it vessel by vessel, tank by tank, go ahead, Bill.
Yes. We're 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.
Okay. And then just 1 just follow-up on Ben's question on the rates. I think 2 of your MRs, I think are going to hit 15 in the next month or 2. Do those ships -- I mean do they have problems or will they have problems kind of trading CPP and if so like what kind of -- just so we understand, like what kind of discounts would they earn to your younger ships?
So they won't really earn discounts. It's simply, I think the factor that Derek was referencing earlier, where they are '04 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 6 of those, we had sold 4 of those. So we opportunistically look at whether or not we want to put them through drydock 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.
[Operator Instructions] The next question comes from Liam Burke of B. Riley FBR.
Lois, you had a nice step up in year-over-year operating cash flow. Your liquidity is improving. You do have a buyback in place. You do have your debt termed out. Do you have a sense of if there's any change in your capital allocation priorities here?
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've had the 2 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 let Jeff jump in there, if you want to add any color.
Yes, sure. So as Lois said, we've got a really good liquidity position but we're going to hang onto it for the moment to plan for this CapEx for ballast water treatment and we'll 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 and next year, additional cash, then we'll 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 just to use that money for these -- the CapEx we've got. But you raised another point. You mentioned liquidity. It's something that I wanted to raise, it's liquidity in terms of shares. And 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 -- increase in trading liquidity which we think is very positive. And if you look at the 13-D filings, you can see 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 April. It's just based on again, 13-Ds were by 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 wanted to get across as a positive development. But I hope that answers your question, Liam, do you have another one?
Yes, 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 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? Understanding you've got a pretty heavy capital program this year.
I don't think I'd put a timeframe on it, like this year, next year, but I'd just go back to what Lois and I both said, is that at this moment in time, we use 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 onto that cash for that. But you can see from the quarter by quarter how much cash -- the operating leverage that we've talked about, how much cash can we generate, so that can change very quickly. So again, let's talk about it quarter by quarter. But right now, at this moment, liquidity will be used for CapEx. But we do have the buyback program in place, so we're ready to do it.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Small for closing remarks.
Yes. 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.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.