Q1 2020 Earnings Call
Good morning, welcome to the Kirby Corporation, 2021st quarter earnings Conference call.
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I would now like to turn the conference over to Mr. Eric.
Kirby's Vice President of Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining us with me today or David Grzebinski, Kirbys, President and Chief Executive Officer, Endo, Harvey Kirby's Executive Vice President and Chief Financial Officer.
Slide presentation for today's conference call as well as the earnings release that was issued earlier today can be found on our website at Kirby Corp Dot com.
During this conference call, we may refer to certain non-GAAP or adjusted financial measures reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section under financials.
As a reminder statements contained in this conference call with respect to the future are forward looking statements.
These statements reflect management's reasonable judgment with respect to future events forward looking statements involve risks and uncertainties and our actual results could differ materially from those anticipated as a result of various factors, including the impact of cobot of the cobot 19 pandemic and the related responsibility.
Permits.
On global and regional market conditions, and the company's business.
A list of these risk factors can be found in Kirbys form 10-K for the year ended December 31st 2019, and subsequent quarterly filings on form 10-Q, I will now turn the call over to David.
Thank you, Eric and good morning, everyone.
Earlier today, we announced 2021st quarter adjusted earnings of 59 cents per share, which excludes several onetime items totaling $4.74 per share on a GAAP basis, we reported a net loss of $4.15 per share for the first quarter.
Well talk more about the first quarter and the onetime items in a few moments.
First and most importantly, I'd like to express my sincere sympathy to all of those that have been affected by the president pandemic and I Hope all of you and your families are safe and well.
My deepest gratitude goes out to all of the healthcare workers and first responders, we're dealing with this crisis on the front lines.
I'd like to start today by discussing our response to the virus and the impact it is having on our businesses.
All of Kirbys businesses have been deemed central therefore, our boats barges distribution and service operations have continued to fulfill their roles transporting and providing essential goods and services.
Kirby had in place the pandemic response plan designed to ensure business continuity uninterrupted customer service and and for the safety of our employees.
We activated our plan in early March and through the dedication and commitment of our employees all of our businesses have continued to operate despite the challenging circumstances.
During this crisis, we have implemented many safeguards to protect our employees, including working remotely where possible enhance P. P and medical protocols limited Mariner Mariner interaction with shore side personnel.
Modified crude change timing and modified procedures.
We also immediately quarantine employees as a precaution whenever risks of potential exposure were identified.
Further in an effort to support the fight against the virus a team of engineers from our Stewart and Stevenson subsidiary or have worked together with Rice University did or two to design a prototype low cost then a later.
This project is moved with rapid speed going from design to prototype in a manner weeks and we are currently awaiting emergency use approval from the FDA.
In summary, I'm extremely proud and humbled by the dedicated Kirby employees, who have stepped up during these challenging times to ensure continuous operations without compromising safety or customer service.
Looking at our segments and Marine transportation, although the first quarter was impacted by near record delay days in inland and planned shipyard maintenance in coastal the year started strong with high barge utilization robust customer demand and improved pricing.
Throughout March and the first part of April activity remained very tight and our inland barge utilization surpassed the mid 90% range as many of our customers readied their supply chains reallocated project products and secured storage however, as the national shut down and stay.
At home orders slowed the economy, many refineries and some chemical plants have cut production and our barge utilization has declined in recent weeks.
And distribution and services first quarter activity was stable with a slight improvement in transmission sales and service to oil and gas customers and in manufacturing, we constructed some new pressure pumping units.
However, as oil prices collapsed in March our customers responded by cutting their 2020 capital spending budgets dramatically and activity levels in our businesses were reduced.
And commercial industrial activity levels were good in the first quarter, particularly for our marine repair business, which benefited from a very active barge market.
Since the onset of cobot 19 in the U.S.
Nationwide stay at home borders have curtailed demand, especially in our power generation business, which has significant operations and some of the major metropolitan areas hardest hit by the pandemic.
We also experienced activity reductions in our on highway business, particularly related to bus transportation.
However, our third thermo King refrigeration business has continued to see steady activity levels supporting grocery supply chain distribution systems.
In response to the expectations that oil and gas markets will not rebound anytime soon we've made some tough but necessary decisions to further realign. This segment's cost structure. Recent actions include workforce <unk> workforce reductions furloughs and reduced work schedules.
We are limiting discretionary spending reducing capital expenditures and consolidating facilities.
And a few more months I will talk more about how we think cobot 19 could impact our businesses for the balance of the year, but before I do I'll turn the call over to build to discuss our first quarter results, our liquidity and the balance sheet.
Thank you David and good morning, everyone before I review our segment results I want to problem provide a little more detail on the first quarters onetime items.
As a result of a sharp decline in oil prices during the first quarter uncertainty surrounding cold with 19, and a week longer term demand outlook for the oil field, we recorded a 433.3 million before tax or $5 from 59 cents per share after tax non cash and.
Chairman of goodwill intangible assets long lived assets and inventory related to our distribution and services segment.
We also realized a tax benefit benefit of 50.8 million or 85 cents per share.
Under the recent us care Sac legislation Kirby can carry back net operating losses generated in 2018, 2019, and 2022 offset against taxable income generated in the higher tax rate years of 2013 through 2017.
The 85 cents benefit relates to the carry back of net operating losses from the 2018 and 2019 tax years.
In 2020, this will also lower our effective tax rate to approximately 15%.
Turning to our segment results in the 2021st quarter Marine Transportation revenues were 403.3 million within operating income of 50.7 million in a margin of 12.6%.
Compared to the same coronary quarter in 2019. This represents a 10% increase in revenue and a 43% increase in operating income.
The improvements are primarily due to a 13% increase in inland revenue driven by the snack acquisition and higher pricing.
Compared to 2019 fourth quarter revenues were stable with increased inland barge utilization being offset by increased shipyard activity.
Operating income decreased by 3.8 million sequentially, primarily due to the record delay days in inland and the impact of shipyards on coastal revenues.
During the quarter the inland business contributed approximately 79% of segment segment revenue and had an average barge utilization in the low to mid 90% range.
Long term inland marine transportation contracts or those contracts with the term of one year or longer contributed approximately 60% of revenue with 65% from time charters and 35% from contracts of affreightment.
Current contracts that renewed during the first quarter were higher in the low single digits spot market rates increased in the mid single digit range sequentially and year on year.
During the first quarter the operating margin in the inland business was in the mid teens and was adversely impacted by poor weather conditions high water and significant lock outages.
In the coastal business market conditions were good resulting in a barge utilization the low to mid 80% range with respect to pricing average spot market and term contract rates improved approximately 10% to 15% year on year. During the first first quarter the percentage of coastal revenues under term contracts.
Was approximately 85% of which approximately 90% were taught time charters.
Coastal's operating margin in the first quarter was in the low single digits and was impacted by planned shipyard activity.
With respect to our tank barge fleet, a reconciliation of the changes in the first quarter and full year 2020, as well as projections for 2020 are included in our earnings call presentation posted on our website.
Moving to distribution services revenues for the 2021st quarter with 240.7 million with operating income of 3.7 million.
Compared to the 2019 first quarter revenues declined approximately 36% with a 33.9 million reduction in operating income.
This was primarily due to lower activity in our oil and gas related businesses.
In commercial and industrial.
The contribution from the recent convoy Thermo King acquisition was parse partially offset by coal with 19 related demand reductions in the power generation in on highway markets.
Sequentially revenues declined 5% with reduced oil and gas manufacturing deliver deliveries and cold with 19 related demand reductions in commercial and industrial being partially offset by the revenue contribution from the combo Thermo King acquisition.
Despite the revenue decline segment operating income improved 6.4 million.
As a result of improved sales mix and lower costs.
During the first quarter, the oil and gas business businesses represented approximately 33% of SEC segment revenue and had an operating margin in the negative mid single digits, the commercial and industrial businesses represented approximately 67% of segment revenue and had an operating margin in the mid single digits.
Turning to the balance sheet.
As of March 30, Onest total debt was 1.7 billion and our debt to cap was 35%. We also had cash totaling 323 million a portion of which we used to fund the 278 million Savage inland Marine acquisition, which closed on April 1st.
Ending we'll trend down significantly for the balance of the year as the first quarter had significant regulatory shipyards expenditures in coastal.
As of this week, we had available liquidity in cache of approximately 435 million.
Our balance sheet is sound and we have good liquidity that we expect will significantly increase the balance of the year, we do not have debt maturities due until 2023, and we have substantial room available under a debt covenants. We also planning to reduce capital expenditures to a level at or below the lower end of our previous guide.
This range of 155 million to 175 million for the full year.
As well during the or we will carry back Anna wells to obtain tax refunds of approximately 125 million.
I'll now turn the call back over to David to discuss our outlook for the remainder of 2020.
Thank you Bill.
Press release. This morning, we announced that we are withdrawing are 2020 full year guidance.
There are many unknown surrounding covert 19, including the duration or possible recurrence of stay at home orders the magnitude of the U.S. and global recession, and the depth of demand destruction for our products and services.
This is an unprecedented situation that changes by the day.
You can be assured our management team is focused on taking the actions necessary to manage this situation and to protect the wellbeing of our employees our customers are suppliers and our shareholders.
Looking at our segments and marine transportation declining consumer demand for refined products has resulted in many refineries reducing or in some cases idling production.
As of this week refining utilization has declined into the 60% range, which compares to rates in the 90% range earlier in the year.
We have also seen a modest decline and <unk> chemical plant utilization.
Albeit the most significant reductions have incurred in other parts of the world.
These developing trends are barge utilization levels have declined and we expect this will likely continue as economic activity remains at reduced levels.
Despite these challenging circumstances, we believe that are marine transportation business as well positioned to deal with its environment.
And then one marine there are a number of factors that should help to mitigate the reduction in our activity levels first looking at the industry Barging is an essential service and provides considerable flexibility to the industrial supplied chin.
For example, we are currently seeing a significant number of opportunities for crude and refined products storage and some of our customers are also seeking to use barges to relocate various products to different geography.
Further upcoming locked maintenance projects, including the full closure of the Illinois River. This summer will create some additional demand for barges.
On the supply front.
We believe new barge construction for 2020 is limited with approximately 130 barges believe to be on order or under construction throughout the industry. This is very different from the last downturn, which saw more than 260 barges in or the market and 2015.
With the industry typically retiring 75 to 150 barges each year, we expect minimal net <unk> for 2020.
Within curvy, the long term nature of our customer relationships in our term contracts will help to protect our revenue stream as well many of our spot contracts are multi month in length, and often six months or more.
With respect to costs, we are aggressively implementing cost saving measures across the business, including managing our horse power to align with demand and ensure our book utilization is maximized.
Lastly, as you are aware, we closed on the acquisition of Savage at the beginning of April.
To date this integration is going extremely well despite some challenges being presented by covert 19, and social distancing, we are aggressively pursuing costs synergies integrating our fleets together and I expect that Savage, we'll have a favorable contribution to earnings this year.
Overall for <unk>.
Currently many unknowns in circumstances are changing by the day. If this downturn is similar to the 28 20, Oh 820 on nine downturn, we can see it decline and barge utilization of a proxy 10% from the levels seen in the first quarter.
And that downturn and 20, <unk> 20, onein the utilization decline negatively impacted or in the Marge is inland margins by approximately three percentage points, but it did take a period of time for margins to fall as we benefitted benefitted from the cost savings as our charter boat count decline.
Took time for the term contract portfolio to roll.
And the coastal market, we do expect revenues and barge utilization decline in the coming quarters. However, approximately 85% of postal revenue is under a long-term contract, which will help to insulate the business from material reductions in revenue.
Since the end of March reduce demand for refined products has resulted in an increase of available barges in the industry. As a result, curvy spot barge utilization has declined slightly Additionally, labor constraints in the shipyard industry as a result of covert 19.
Have resulted in some delays and extended shipyard periods for some of Kirbys larger capacity vessels.
As previously announced Kirbys retirement for aging coastal barges, which is planned to occurs starting in the second quarter as well as anticipated activity reductions in coast and cold transportation.
We'll have an adverse impact on the full year for coastal.
And distribution and services, we expect that activity in the oil and gas market will be extremely challenged for the duration of 2020 unlikely through most of 2021 with many of our customers cutting their capital spending 50% or more as compared to 2019.
With oil inventories rapidly growing.
And increasing calls for well shutdowns across the U.S. analysts have predicted that onshore rig count could declined to as few as 250 to 300 rigs representing a 65% reduction from 2900 levels.
In this environment the active frack fleets working in the <unk> could declined to as little as 50 to 75 fleets.
Which corresponds to a reduction of 75% or more as compared to 2019 average.
With this backdrop, we expect our oil and gas distribution in manufacturing businesses will see minimal activity levels in 2020.
And commercial and industrial we expect that our businesses, we'll see some reduce demand as a result of the recessionary environment. However, the commercial marine and trucking repair markets as well as the term looking refrigeration businesses are expected to remain relatively stable for the near term.
The most significant impacts in this market are expected to be on the in the on highway sector with reduce demand for bus repair, particularly in our markets in the northeast and at major tourist destinations in Florida.
We also expect that power generation will be impacted as customers to for spending for these large capital intensive projects.
Kirby is actively managing the distribution and services cost structure, and we continue to make adjustments to reduce the financial impact of covert 19, and lower oil prices in the near term. We expect the second quarter will be the most impacted as it will take some time to fully implement our cost savings.
Restructuring plans for the full year, we will endeavour to maintain segment margin at a small loss to break even levels.
But it will be dependent on the state of the economy and the magnitude of activity reductions in commercial and industrial.
However, it's important to remember that the D.N.S. business requires very little capital.
Despite reduced earnings expectations as a result.
As a result of our actions we believe the D.N.S. segment will not be a cash train for the year.
In summary, Kirby as well positioned to managed through the impact of Corona virus are pandemic preparedness and history of handling emergency situations like hurricanes in waterway emergencies allowed us to quickly implement business continuity plants throughout our operations and focus on the safety of our.
Employees.
We have a strong marine transportation business with solid term contracts and a cost structure that can be quickly adjusted to changing mark market conditions.
Although activity is decline in recent weeks customer to man remained sound for now with storage needs and an upcoming major lock outage on the Illinois River, helping.
And DNS, we have taken.
We have and are taking swift and aggressive actions to adjust our costs structure for low oil prices and falling demand.
We will continue to manage our costs to counter the impact of any further activity in revenue reductions.
From a cash flow perspective, we are in a very strong position with ample liquidity.
Kirby has a proven history of generating free cash flow throughout the cycle. We believe we have.
Cleared a line of sight to 250 to 350 million and free cash flow generation. This year, which we will use to enhance liquidity and reduce our bank debt.
Operator. This concludes our prepared remarks, we're now ready to take questions.
Ladies and gentlemen.
We will now became the question and answer session.
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Our first question or comment comes from a line of <unk> extra from Bank of America. Your line is okay.
Great can morning, they fill in Eric all the best in these trying times.
Maybe I could jump in to the inland.
First quarter is typically your low margin for the year and and so you're talking about being in the mid teens up from the low to mid teens a year ago can you talked about your thoughts on on scale of impact given utilization falling to the low nineties may be giving your historical experience Dave on on your thoughts on how you know what what kind of margin impact this could have.
Yeah sure well good morning can hope you and your family are all well.
And these crazy surreal times.
Yeah. So we had a pretty good first quarter and inland given.
Given the weather and delay days, we had if he if you look at the number of delay days it was pretty close to the what we had in 2019, which was was a record. So we're we're we're a very very pleased with the first core.
<unk> can in the mid nineties, and you know a couple of days and spiked up above to 97% or so.
We've seen a little pulled back maybe 5% or so and utilization, but pricing spend holding.
Here in in in April, which is pretty good and there's one or two deals that maybe didn't did declined a little bit, but mostly it's held firm.
Part of what's helping there is storage can we're we're seeing some storage opportunities.
And you know with all the dislocations, there's just a lot of supply chain moving around so.
You know if things were to hold right now.
If this was the bottom to say it another way.
We may not see any margin decline at all and in fact is the weather gets better could see margins improve some from this point, but that's that's a big if and you know you saw us.
Pull our guidance because we just don't know how long this is going to go on how deep it'll go.
You know if you used oh wait or O. nine as as.
Of.
Want one proxy for this.
As I said my prepared comments volume decline of about 10% and it took about a year, but we lost about three percentage points in margins.
Margin now, we just don't know.
You know if if it goes goes deeper.
You know it could it could be like the Oviedo nine.
You know if it goes.
You know through the end of the year it could even go further than that but Conversely, if if this is the bottom you know maybe maybe we don't see much decline at all in terms of margin.
It's just hard to say you know one encouraging piece of news. We did here that I think we're fiery utilization bumped up about 2% this week.
Which you know at least is going in the opposite direction and just just looking at Houston traffic, we're starting to see a pickup so it it's just really hard to say can but.
You know, we kind of like where we're at right now given given the circumstances.
But we just don't know how long this is going to last and how deep it'll go.
Well that's true we can say the same for traffic up here in the first thing everybody knew was getting their car because.
They're not going to get them on general computation. Thanks for that day, but maybe I could follow up I don't know for you were built just from I follow up question on on the right down looking at the scale of what you paid for for S. Ness in kind of that same range as the the 433 million dollar write down. It is there is that a mix of acid.
That's in the United is it all one or the other are you closing ops, maybe you can kind of I know you wrote down some inventory maybe you can detail a little bit about what you're doing with the with the the non cash right down.
No. That's the whole segment can so includes or United in S.N.S. and we did the normal way you start with fixed asset schools go through intangibles event goodwill. So it really is a combination of everything.
We determine there was a triggering event has you looked around the world. This is within C. oil prices a negative for a period and you see the oil field as well as it wasn't as it is it was the right thing to do to look at the end we bought in three or a third party, but to look at the segment and and write down the assets.
Yeah, Yeah, I mean, when you look at the outlook for for the oil fields sector for the next well certainly for 2020 and probably well through 21.
We just felt that it was prudent to to to look at that carrying value.
Yeah, I would say that our product parts of the business of course kinda that had no impact.
Yes, the engine systems as it stands alone in a thermal King for instance is a business that no impact on the oil fields with none of those nothing was done in those areas of course.
Alright <unk>. Thank thank.
Thanks.
Fake you are next question or comment cultural line of John Chappelle from <unk>. Your line is open.
Thank you for morning, everybody.
Hey, good morning, John.
David that 60% term.
Isn't that there's a little bit lower and historical range and think about going for walks or.
Think that it continues to kind of food lower as customers will be reluctant to sign a term contracts and the current environment and if that would it be the case, if you're gonna get around 50 per cent term 50 per cent spot, while with that pricing next to to the marked in that that business.
Yeah, well typically in it and a healthy market.
Spot prices above term and in in that's that's the case right now but to your point, we're about 60, 60% term that's a little lower than historically, we would've been about 75 per cent term, but you know I'll be honest a lot of our spot deals are.
You know 369 months deals. So there there there were a little longer what happened as you as you're aware has that the accounting changed in anything a year or longer people have any lease or contract a year or longer.
You have to put it on your balance sheet. So.
Many many people now now try and get under a year in terms of of what they contract for so there's a little bit of artificial.
Artificial things going on in terms of what what's actually term versus spot.
Many of those spot deals are a little longer.
But but to your question you know typically spot spots above term and and an a decent marking or in a stable market and and that's the case right now.
So you know, we're we're actually feel pretty good about where we are.
<unk>.
With our contract portfolio right now.
Right and then go the follow up you mentioned the slight upticking in her flattering utilization, which we've noted as well and and go on it <unk>.
That's the chemicals are obviously is a much bigger part of your neck. So have you heard anything similar or or inside of optimism from your petrochemical customers, obviously millionaire Cardinal can shut down but it seems like there's more and more momentum behind a reopening so just any commentary for the big petrochemical guys are.
And I picked <unk> honor system.
Yeah in you know, it's a mixed bag as we talk to our chemical customers you know anything with consumer packaging, just because everybody's buying individual wrap things nowadays.
Consumer packaging and all the chemicals that go into that are very strong.
Easily anything that goes into disinfectants or alcohol type things are are pretty strong what's what's been very very weak is anything related to the auto sector.
As you would expect a.
Basically nobody's ordering so it's a mixed bag we've seen some some chemical.
<unk> pull back.
You know they they they want to run as as much as is we want them to run right to you know the more they wrote the higher utilization the more efficient they are yeah.
They just need demand to come back.
But yeah that you know real antidotes to share, but that it's just a mixed bag, we have seen a little pulled back and chemical volumes, but by the same token there's a lot.
<unk>.
And that's causing some some moves and some storage opportunities as well.
It's <unk> you know, it's literally a day to day thing as we watch things change.
But like you you prefaced yeah, we are starting to see signs of things coming back to life, but yeah. I think it's just too too soon to call to call that.
Yeah.
Thank you David Euro.
They take care of junk.
Fake you pardon X. question or comment comes from a line of Jack Atkins, What Stevens Your line is open.
Hey, guys. Your morning, Thanks, very much you're taking my questions.
Good morning, Jack.
So so so David I guess, maybe quickie just start with with the inland business for a moment you know if we can kind of go back to that 90 per cent utilization rate, which I think is probably much better than folks feared for in terms of what you've been saying over the last couple of weeks you know to what degree is that maybe being played it a bit by.
You know the fact that you got larger business under contract or you know I guess I'm just trying to think about how how is that number were reflecting sort of what's happening in terms of underlying demand for services.
Quite a bit of storage activity that.
Taking place as well so just trying to cut up put all the the.
Bits and pieces together to come to understand you know what's happening in the underlying business today.
Yeah.
You know it's bouncing around is the way I would say the if you know we were kind of mid mid nineties and dropped you know sometimes high eighties low nineties bouncing around.
Every day's a little different.
You'll you'll get.
Inbound inquiries for for true moves you get inbound inquiries for some storage and it it's.
You know in some of those storage deals will come and go be based on contango or or or whether they're storing it for future use or or just as a financial play and and it just it it literally bounces a week by.
But you know the base load is is still pretty good and part of that as as you mention is is our contract construct you know we've we've got.
Decent contract support through there.
No. It's it's.
Jack I wish I had more more to tell you. It's it's day to day as I.
Said earlier, if if if this was the bottom we'd feel pretty darn good right now because you know we we wouldn't see any margin degradation. If this was the bottom. We just don't know if it is right and and how long. This will last you worry about.
You know, we owe start opening up and then we get a spike back up a number of cases and then we go back to lock down.
You know I'm hearing this called instead of the great recession, they're calling that the great Lockdown and we just don't know, but there are signs of life here, we were seeing it in Texas you know some states are opening up and and others are still locked down so it's really hard to say what.
What the underlying volume demand will do from from this point.
No that that that makes sense and I appreciate that additional contacts there I guess for my fault question, maybe we can shift gears to D.N.S. for a moment you know.
I think it's encouraging that you guys were talking about.
They around a break even still there despite all the.
All the challenges that you're facing really crossed that does as maybe a slight loss, we'll see but you know I guess, if we can kind of for a moment step back and talk about you know the <unk>, how you view the future for the D.N.S. segment, you know what's left in terms of <unk>, you know you're capabilities on the oil and gas side after.
Or after a these things cost reduction actions and you know I guess is <unk> you know David is you're sort of think about the segment moving forward. There's only guys have a place within D.N.S. in the future or you know the plan to kind of pick about this being a smaller but you know profitable and less cyclical industrial and commercial EBRD.
A business you know, we think about 2021 it'd be.
Yeah, I would say it was it's more the ladder what you just said a smaller but.
More.
Perhaps more profitable business.
Well, let me backed up a bit and and and put D.N.S. and some more context here you know commercial and industrial we had thought would be about 65% of revenue. This year, it's with 35% oil and gas I mean, clearly oil and gas is gonna be rough Ah.
You know with the with the rig count dropping 65, 70% and and we've heard estimates that the number of working frack.
Spreads will go from about 250 to 275 down too.
You know maybe 50 to 100 working practice bread. So you know, it's very clear, there's not going to be a lot of new manufacturing frack equipment, and and probably very little maintenance is is some of these pressured pumping companies fight for survival.
So you you know we're we're very.
Intellectually honest about the outlook for the oil and gas sector and and you know that's why we did the impairment to be honest.
You know what we're our goal is for all of D.N.S. During this is very.
Trying year will be to be kind of.
Slight lost to break even on piano standpoint, and cash flow positive.
Slightly cash flow positive so.
You might expect that you know, they're small loss on the oil and gas side, but commercial industrial should have should have some operating profit.
We are seeing prior to Cove, and we had seen a commercial industrial growing.
You know, it's been it's been doing well.
Are you know our thermal king business theirs is growing we had as a small acquisition.
Yeah power generation was doing okay, and we've seen a little pulled back on that right now because people are differing major capital projects.
But the marine repair business the old K.E.S. businesses is doing very well right now given the activity in the barge been so.
As we put it all together, yeah commercial and industrial slide profit offsetting.
Some losses in that all and gas business.
And.
Yeah, we're going to just run it as tightly as we can and it's painful because we've had to lay off a number of people and we are consolidating some facilities and doing some furloughs that that part's painful, but you know that that we've got to do that to to get.
Get this to where it needs to be you no longer term do do we exit the oil and gas part of it or you know do we do something with K.D.S. in in General I I don't know, but you know clearly given you know are carrying value now we've got more optionality.
Okay. Thank you get for the time.
<unk>.
Thank you are next question or comment comes from the line of Michael Weber from wherever research. Your line is open.
Good morning, guys or it will get more Michael.
David I wanted it.
Touched based on the coffee to out from you know looking at a wait no nine. That's that's you know you've got to start out to that in the past kind of to the recent recent draw some pretty good yeah a year.
If I look it if I look at what happened in England, or <unk>, rather know eight or nine.
<unk> slide that was off of I'll have a higher base.
And on that point.
But it goes kind of a broader mixed services, if I, if why that where we're at.
At the most recent Psycho, we're talking about yeah, something in the very low single digits on a margin basis. So <unk> how realistic you think that it's over the next 69 months and then I'll I'll follow up Yeah, I'm not sure sure I have followed you on that Mike.
If I take 10% off of your most recent you know take margins you're talking about something in the low single denotes <unk>, Yeah, let me be clear 10%.
10% revenue.
Right or volumes.
Only three reached it only 3% decline in margin.
Sorry, if I wasn't clear on that.
Yeah.
<unk> if I look at you know the 14 to 16 cycle you know they actually works out to about a little bit more than 10%.
13% when you get there early seventies and you look at 29.
A little bit more resilient there.
Different business mixed so they 10 per cent on a margin basis scenes.
<unk> seems seems appropriate I'm just curious what they think that that's an play here and I guess I can I can layer. My follow up you know I know that yeah. These cycles are all different but you know it's the the initial impacts right what could we kind of so I lack border kind of a lack of Texas border right, where we tested flowing.
To date, you Wanna results are actually pretty strong I'm just curious how about you know maybe the early any have it feels relative to the but Oh wait no nine and then yeah. The 14, 15 cop, which again looks like it's probably the most.
Comparable.
Yeah, I I would say you know how there's this feel from <unk> nine I would say the refinery cutbacks were faster. This this year than they were in at O. nine period, which actually may be healthier for for the overall.
Situation, but.
You know, but but bright now we're we're seeing things like storage that are kind of helping put a floor on on how far utilization wood is is going down.
You know, that's helping the whole industry to be to be fair.
You know ultimately that.
Stuff in storage is going to have to move again. So it's just really hard to say you know how.
How parallel <unk> no nine is this you know Oh nine came back pretty strong.
Towards the end yeah I.
Don't know how strong.
We'll come back from this because I worry about just kind of rolling.
Rolling locked down.
Dirt.
Yeah. He you know.
Probably the big difference in the 2015 time that cycle. When we pulled back there was a bunch a new barges coming in you know that's when crude prices collapsed and 2015 and all the pipelines came on but they're also 260 barges brand new coming in here.
It's half that in terms of number barges and I would think the retirements would be a little higher. This this this time so.
A lot of moving parts I'm, sorry, I'm not not being more helpful here, Michael but yeah.
There.
<unk>.
Did want to ask about the stored straight and you know we we've seen.
Collaborators offering barges on stories and I, just curious <unk> pricing is like on that kind of business. My understanding is it. It's it's happening on a single park basis, you're talking about pricing and you know thousand dollars as opposed to 7500 you'd be looking at Burger King margin systematic so I'm just I, just Jerry <unk>, what kind of quality. It kind of you know the quality of that story.
Business versus just simply kind of soaking at the bass any on like a last resort basis.
Yeah, well I think it.
Not appropriate for me to discuss pricing directly but I would say you know that storage businesses is as good as our normal business in terms of margin.
Okay.
Altering ever.
Thank you.
Thank you Oh next question or comment comes from a line of Greg Lewis from V.T.I.G. Your wine is.
Yeah say, thank you and good morning, everybody everybody to us staying safe thing, saying, Yeah data just just following up on on on the storage question you know clearly.
It's something that is happening you know what not not talking about pricing, but is there any way to quantify I guess I have a couple questions around that and and it's that one is what it is is there any way to think about that <unk> storage contracts like in in in the in some Mark you hear three d. three month transactions six.
Transactions are these are these like how would you kind of classify them in terms of duration and then I don't even have this information, but is there any way to hell what type of Cargills are like any kind of thoughts around the car goes on these barges and then.
Something where there's there's options two weeks, then those kind of contracts and and it's it's just one winter we've seen some opportunities and coastal as well.
Yeah, but let me take your last question first it's been all inland so far it's been some inquiries and coastal but it's been more inland focused a and I think it's because the increments and capacity are are pretty low in and you know you you just got a lot more flexibility you.
Given the given the fungibility of the barges and whatnot.
But to your question, we're seeing storage opportunities across products. You know crude is certainly one of them.
Those are really contango plays.
And those can be three months to six months long.
You know some of the product storage ones, whether it's chemical or other refined products. You know they can be a short is one month going out to six to nine months.
It runs the gamut and and you might imagine that some of these have options to extend because if if they don't have places to go at the end of those you know shorter duration things, but I I would say they range anywhere from one to six months on average.
And you know I think that's pretty good it'll it'll help.
With his period of suppressed demand.
Yeah, I mean that sounds like it and you're kind of locking it needs to know fleet <unk> at least some of the fleet get kind of gay kind of soft touch and then and then just kind of following up on that train of thought I mean, yes, I mean, I'm assuming that a lot just schedule lock closures offer rubber are still happening.
Lists of covert 19 arms to any kind of update there and then have we started to see barges beat positions.
In regards to that lock closures. That's it you any kind of thought update on that should have an impact this summer.
Yeah, No we come to my knowledge that luck that log maintenance is still on schedule and still going to occur and we're starting to position.
You know some moves for that that that outage just starting.
<unk> okay.
Okay.
But that's something that we should see kind of happened throughout the quarter.
Yeah, probably towards the end of the quarter, you'll see more of it.
Yeah, We we think you got to be it could absorb up to 100 or so barges.
<unk> it's meaningful.
Yeah, absolutely Okay, guys say, thank you very much in time.
Daycare agree.
Thank you are next question or comment goes from the line of Randy Givens from Jeffrey's you line is open.
A gentleman how's it going.
Right right.
Good good alright, yeah. We're we're hearing obviously multiple kind of Jones hunker fixes for hurting storms and even some international boring.
So how is that unpacking the coastal market.
<unk> <unk> four kind of coastal <unk>.
Upcoming quarters.
Yeah. Good good question, Randy you know our utilization is dipped in in coastal you, you'll recall that about 50% of of our volumes are refined products and coastal so we've seen we've seen our spot utilization drop a bit and and the coastal business.
<unk>, you'll recall whereabout, 85% <unk> term contract and 15% spot you know in the last week or so we've seen our spot utilization dip as as those refined product moves have slowed down.
We are not seeing storage opportunities there as of yet again, it's yeah. They inland has more fungibility and it it's easier to get prior prior cargo compatibility et cetera. So we haven't really seen the storage opportunities now do your question about <unk>.
Makers I think the busy or they are it typically helps R.A.T.B. market because the M.R. tankers don't drop drop down into our our size area and compete against us. So the busier <unk>, it's generally better for for our coastwise business.
Sure.
Alright, and then switching over to kind of D.N.S. <unk> regressivity, reducing costs. There hmm quantify this recording corneum, what kind of <unk> revenue assumptions and you're assuming rooms are targeting that full year D.N.S. operating margin, but <unk> Nichols.
Yeah.
Well, it's hard for me to get to specific there and and not not because I'm trying to avoid it. It's just it's so dynamic right now, but we had <unk>, we we thought our oil oil and gas revenue for D.N.S. would've been about 35% of total revenue clearly that's going to.
<unk> <unk>.
Significantly from there.
When you look at 19 versus 20.
Yeah I could.
Could be you know, 75% lower versus 19 levels. So you know maybe you can play with the numbers, they're Eric and follow up with you on that.
You know oil and gas is is just going to be hammered.
You can imagine you know if you are an M.P. company and you got nowhere to put the crude why why you'd go ahead and complete will so we're we're being sober about you know the the oil and gas.
Opportunities there that said again as a as I said earlier commercial and industrial but for the <unk>. Yeah was was marching up nicely.
And we're we're pretty excited about the diversification benefits of.
<unk>.
Expanding but <unk>, but we'll see.
Follow up with Eric and and maybe you can give you some more detail on.
Alright, how to frame those those costs and revenue opportunities.
Okay No problem, we'll do censor attack.
Thanks, Randy Thanks.
Thank you are next question or comment comes from the line of been Nolan from <unk>, Yeah mine is open.
Mr. Knowing your many down mute your phone.
Hi, This is Frank Oh, I can't prevent thanks for taking my question.
Wanted to follow up on the D.N.S. business impairments, where those.
Kitchen sink type write downs, it kind of safe to expect AD and muscle gets kinda materially worse than than what you laid out.
It'd be no more write downs in the D.N.S. business.
Lots of <unk>, I don't paraphrasing kitchen sink it sort of pretty rigorous exercise with the right with the right people involved. So we will go through the whole fair value exercises a third party in that we're very comfortable before we ended up were very comfortable that the the write downs or the right amount for the present circumstances and.
But it's definitely not kitchen sink, it's just everything I don't want to make it look like where I don't want anybody to believe that we would do kitchen sink type or write downs.
Oh no.
<unk>.
Representative, but but the fact that then kind of moving on.
One to ask about the bar supply.
See you had mentioned in the call and prepared marks that.
It should be supplied coming on should be lower than the last barge recession has it has there been any changes with the current week marking conditions.
Around barge ordering or any changes in expectations departure supply.
Yeah, I don't have real current data you know our last kind of survey and thinking about the number bores. We we think they're 130 barges scheduled for delivery and 2020.
We do know that barge pricing has has has declined you know because of of.
The.
What's going on in the world's steel prices are declining et cetera. So we know new barge pricing is down but you know I think you you can look at the large public barge.
Barge manufacturing company and and I think they sit on their call that you know new barge orders and Q2 or or are going to be minimal you would expect that in this environment every companies trying to preserve cash because they just don't know what's in front of them.
So I would imagine capital expenditures at least for the for the near term in the second quarter are gonna be minimal so.
As we look at at 130 for delivery this year 75 to 150 retirements.
We we feel pretty good about the supply picture on on barging.
Yeah, great. Thanks, very much at all I had.
<unk>, we'll we'll take one more one more call.
Yes, Sir our next question of calm it goes from the line of build Baldwin from Baldwin asked me security. She got mine is open.
Thank you very shake you set me up here.
What did to ask Dave when you.
<unk> say that acquisition already acquisition for that matter you have I'm sure. Some efficiencies. It serves the integrated horse power into your existing plate.
Oh, it's just going to try to get a feel do you take the integration the Savage.
Fleet into the curved basically as far as integrated horse power is going about as good as a c. that better than or or slower than you know how how would you.
I've described it.
I would say it's going.
As good if not better than than.
The snack integration.
You know you know, they're they're horse power to barge ratio is <unk>, a little lower than our average horse more horse power to barge ratio. So we're already picking that up you know they <unk>.
It's working well I would say, it's it's similar to snack but.
Maybe a little better you know every acquisition, we learned a little more about how to do it better right right.
It's and we've been very very pleased with.
With both both acquisitions to be honest.
Then the fit really well and our our equipment and and Gray Mariners and gray people across the board from shore sure side on.
And you know the horse power synergies, our our to your point some of the best synergies, we get in and we're really excited about where where that is was savage right now.
How long does it.
I mean, let's say give a normal quote normal device <unk>, but.
You know how long it or if they take days or yeah, we get it relies february it or <unk>.
The court guitar into your plate.
Yeah, we did that separate realized right up factors that take place or <unk>.
It takes you know I'm just to throw a number out there six six to nine months.
You know I'd say, we're a little in front of that even given was social designing seem right now.
Know our teams are are it's amazing how how well they're performing given this environment them and it's just incredible.
So I you know I'd say, we're a little faster than that that's six to nine month normal.
Integration process.
It just one quick follow Dave.
I know some companies due to the virus have had some staffing issues absenteeism and so forth <unk> Hey, that's affected your.
<unk> personnel, you know vessel staffing.
You know not at all not at all our <unk> stepped up they've been working with US you know crew changes we stretched out crew changes a little bit. We've we've asked people to write a little longer.
And and are we we've had no apps absenteeism and you know just.
The way, it's all worked out we'd been very fortunate we've only had a handful of covert cases in the company.
That's with 6000 employees. So you know we've been very fortunate and but that's a credit to our entire team both on the vessels ensures deaf and making sure we keep social distancing use masks, we use quarantine very effectively if we have any day.
Out at all somebody has a fever or whatnot, we quarantine people and of course, we've continued to Pam.
Through that so we've we've had no crewing issues, but you know <unk> I want to just credit the team for that because it's truly remarkable.
Well.
<unk>, yeah to the team and.
To manage but that's that spending.
Here that.
Well think thanks.
<unk> alright, so they so.
Alright think still thinks Howard and I think everyone for your interesting Caribbean for participating in the call. Today. If you have any questions or comments feel free to reach me today 713435154, or five thanks, everyone to stay well.
Ladies and gentlemen, <unk> now concluded. Thank you for attending today's presentation you may now disconnect.
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