Q3 2020 World Fuel Services Corp Earnings Call
Please continue to stand by your conference will begin momentarily should be about a minutes time and we thank you for your patience. It actually you. Please remain on the line.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the World fuel fuel services, 2023rd quarter Earnings Conference call. My name is Eric and I will be coordinating the call. This evening during the presentation, all participants will be in a listen only mode.
After the speakers remarks, there will be a question and answer session instructions on how to ask a question will be given at the beginning of the Q and a session. If at any time during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded.
I would now like to turn the conference over to Mr., Glenn Klevitz World Fuel's services, Vice President Treasurer, and Investor Relations Mr. Klevitz you may begin your conference.
Thank you Eric Good evening, everyone and welcome to the World fuel Services' third quarter 2020 earnings conference call I'm, Glenn Klevitz and I'll be doing the introductions on this evening's call alongside our live slide presentation.
This call is also available via webcast to access this webcast or future webcast. Please visit the world fuel services' website and click on the webcast icon.
With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer.
And IRA Birns executive Vice President and Chief Financial Officer.
By now you should have all received a copy of our earnings release.
If not you can access the release on our website.
Before we get started I would like to review World Fuel's Safe Harbor statement.
Certain statements made today, including comments about world Fuel's expectations regarding future plans and performance are forward looking statements that are subject to a range of uncertainties and risks that could cause world fuel's actual results to materially differ from the forward looking information at.
A description of these factors that could cause results to materially differ from these projections can be found in world Fuel's. Most recent form 10-K, and other reports filed with the Securities and Exchange Commission.
World fuel assumes no obligation to revise or publicly released the results of any release revisions to these forward looking statements in light of new information or future events.
This presentation also includes certain non-GAAP financial measures as defined in regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website.
We will begin with several minutes of prepared remarks, which will then be followed by a question and answer period.
As with prior conference calls, we asked that members of the media and individual private investors on the line participate in listen only mode.
At this time I would like to introduce our chairman and Chief Executive Officer, Michael Kasbar.
Thank you Glenn and good evening, everyone. Once again, our global team has continued to perform extremely well. We're fuel is truly blessed with a talented and committed group of professionals our employees around the world have continued to follow or safety procedures and protocols and we've been fortunate to have very few case.
As of Cove in 19.
Our global team continued to do a great job of managing cash risk and operating expenses with expenses down sequentially and driving strong operating cash flow supporting our healthy liquidity position.
Since we last spoke we closed on the sale of multi service further enhancing our strong liquidity position, we reshaped our workplace model and we continue to manage and grow business activity in our aviation Marine and land business. During this extended global health and economic crisis.
Despite the enduring nature of the pandemic related complexities in the world around US we delivered a very respectable result in the third quarter.
Marine and aviation business will continue to add value through their differentiated offerings and remain a strategic operating partner for airlines corporate aircraft operators in global shipping companies.
I'm happy to report that our land fuels natural gas power and sustainability businesses are breaking into stride operationally and moving from local businesses to national and global operations. Following the evolution of our marine and aviation segments with <unk>, which both started the same.
Okay.
We're very encouraged by the interest we have received an hour unique solution offerings and global reach.
Combined with an accelerated digital rollout we are confident that what we have been building for some time, it's starting to gain momentum to.
Today in some locations, we have zero touch order processing for our clients and suppliers with invoices being produced in one day and digital content simultaneously appearing in customized portals. We are building this type of capability throughout our land business and throughout the company.
As you will see in our sustainability report released yesterday, which I encourage you to read it shows that we have been focused on sustainability and actively involved in the energy transition for years, you will see that we made our global operations carbon neutral for 2019.
You will also gain a better appreciation for why we recently brought together our land fuels and connect energy management businesses to form World connect energy services. They.
This has enabled us to simplify energy management for our customers through our ability to provide sourcing and supply of conventional and renewable fuels electricity natural gas as well as the associated fulfillment logistics and risk management to help our clients on their own to low and zero carbon sustainability.
Dirty.
A last word on or Digitization journey.
As we are in the middle of an energy and digital transition I thought it would be useful for our investors to know where we are and what this can mean for our business just as the pandemic has made people reflect more on their impact on the environment. So has it underscored the importance of technology to modern living.
As I've mentioned previously we decided on Friday March 13th of this year to have a more than 5000 employees from 85 offices in 50 countries to work from home starting the following Monday, we were able to do that for a variety of reasons.
Prior to the pandemic, we had rolled out best of breed collaboration tools in the cloud to keep our team productive and make sure they were better connected than ever holding close to 15000 zoo meetings per month in January well before everyone work from home.
Did you ties the majority of our internal processes and we are now printing millions of fewer pages each year.
We became a cloud first company after migrating hundreds of applications to the public cloud.
We've been digitized and virtualize their video and voice systems, bypassing hardware requirements requirements, which better enable their employees to work remotely from day one.
The technology investments we've made in recent years have improved our performance and resilience, allowing us to quickly close our offices and seamlessly move to a remote workforce without issue.
As we have said before our diversified global business platform helps stabilize earnings as different sectors and geographies, often offset each other well the commonalities allow us to capture internal synergies.
In closing, we believe we are well positioned to weather this pandemic and advance our strategy for long term profitable sustainable growth.
I'd like to take a moment to once again, thank my colleagues all around the world and world fuel for their dedication and commitment to our customers suppliers stakeholders. Each and every day I also want to thank our shareholders for supporting US on our journey I will now turn over the call to IRA for a review of our financial details follow.
By Q today.
Thank you, Mike and good evening, ladies and gentleman before getting into the Companys results for the third quarter.
I would like to thank our employees have responded to the challenges of 2020 remaining focused on deepening relationships with our customers while supporting one another as well we remain grateful for employees resilience perseverance and dedication to our business and of course, we hope you and your families are healthy and well.
Onto the third quarter results.
As usual please note that the following figures exclude the impact of non operational items in the third quarter as highlighted in our earnings release.
The non operational income and expenses in the third quarter principally related to the gain on the sale of our multi service business, which was completed on September Thirtyth, but also included other acquisition and divestiture and restructuring related expenses to.
Increased volume across all segments and higher average fuel prices.
Our aviation volume was one point O 2 billion gallons in the third quarter, a significant rebounds sequentially, but still well below pre covid activity levels.
Cargo activity remains strong with commercial passenger in business aviation activity experiencing healthy rebalance from a low point in the second quarter.
With the Pandemics, the looming or in some areas surging, we do not assume meaningful incremental growth in the fourth quarter.
While statistics indicate that commercial passenger activity in the U S is slowly improving.
95% in April compared to 63% in recent weeks relative to the same prior year periods.
Volume in our Marine second for the third quarter was 4.4 million metric tonnes down approximately 21% year over year, but an increase of 9% sequentially.
His activity level modestly rebounded during the third quarter.
Our last segment volume was 1.2 billion gallon or Gallup equivalents during the third quarter, that's a decrease of 8% year over year, but an increase of 6% sequentially.
Your your Covid related volume declines were prevalent across a retail commercial and industrial and wholesale operations, partially offset by increases in our growing world connect power and natural gas platform.
Regardless the land team has done a solid job delivering volumes very close to the prior year. Despite the impacts of the pandemic.
Consolidated gross profit for the third quarter was $214 million, that's a decrease of 30% compared to the third quarter of 2019, but flat sequentially or.
The Asian segment contributed $98 million, a gross profit in the third quarter down 38% year over year, but up 6% sequentially.
While commercial passenger aviation activity increase sequentially related gross profit remained significantly below the prior year.
Continued troop withdrawals in Afghanistan also contributed to the year over year decline at aviation gross profit.
Although near term activity remains very difficult to forecast as we look to the fourth quarter. We do expect gross profit to decline sequentially related to a further reduction in government related activity in Afghanistan seasonal declines in our core business and the impact of renewed covid related travel restrictions.
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The Marine segment generated third third quarter gross profit of $32 million, that's a decline of 40% year over year and 14% sequentially.
Fear over your comparison is negatively impacted by the benefits we experienced during the third quarter of last year, leading up to the January 1st very low sulfur i'ma regulations compounded with the pandemic related decline in for resale activity, including the crew sector.
As we look ahead to the fourth quarter, we anticipate that marine gross profit will be similar to the amount generated in the third quarter.
Our last segment delivered gross profit of $84 million in the third quarter, that's down 12% year over year, but effectively flat sequentially grew.
Gross profit in the last segment was slightly better than expected during the quarter with volumes returning to over 90% of prior year levels.
The year over year gross profit declined principally related to the further reduction of government activity of Afghanistan, and a reduction in retail and commercial and industrial activity.
Third quarter land gross profit still included $19 million of gross profit for multi service, which again resolve on the last day of the third quarter.
Looking ahead to the fourth quarter, we expect land gross profit to decline principally related to the multi service sale offset in part by an increase in activity in the U K as we expect seasonal strengthened our eating all distribution activities driven in part by a student higher usage as a result of the pandemic.
Core operating expenses, which exclude bad that expense were $148 million in the third quarter, which was below the range that we provided a last quarter's call as we remained focused on driving cost efficiencies.
While our operating margins it clearly been negatively impacted by the pandemic our expense reductions to date and our continued focus on our cost structure should help accelerate the return the pre covid operating margins as business activity slowly returns to normal.
We expect core operating expenses to be in the range of 147, two $152 million in the fourth quarter.
Please note or people have always been and always will be our greatest asset.
While Covid is certainly created challenges for a business or global team has put forth a herculean effort year to date under unprecedented circumstances remotely managing the business with excellent day to day and exceptional working capital management, along with significant cost and Capex rich.
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Which resulted in a record level of liquidity.
We are also proud of the flawless execution on the divestiture of multi service amidst the pandemic, which resulted in $80 million pretax game.
Our employees have performed admirably and successfully managing our business by focusing in executing on the things within our control to navigate through the negative impacts of the pandemic.
Therefore, we plan to book, an additional approval for incentive compensation for our global team in the fourth quarter, which will allow us to provide them with at least a somewhat reasonable level of incentive compensation under present circumstances.
This additional compensation expense is included in the 147, two 152 million core operating expense estimate provided.
For the fourth quarter.
With a world remaining challenge due to the significant impacts of COVID-19 on the commercial passenger aviation market and parts of the marine market, particularly the crew sector bed that expense. Unfortunately remained elevated at $23.3 million in the third quarter the.
Despite our diligence and focus and the fact that our accounts receivable balance is just over 40% of 2019 levels with.
With the risk profile of our overall portfolio.
Improving risk remains elevated when compared to historical norms.
Underwriting has always been a significant core competency in our business and this year is no different we remain focus and diligent on managing our credit risks, including reducing credit lines wherever appropriate.
It just it income from operations for the third quarter was $42 million down significantly from the prior year of course, but an increase of 21% sequentially.
Third quarter interest expense was $9 million, which is down more than 50% year over year.
Total interest expense continues to benefit from lower average borrowings and significantly lower interest rates.
As a matter of fact at the end of the third quarter, we had no borrowings outstanding under a revolving credit facility.
Are adjusted effective tax rate was 32% in the third quarter up from 30% in the third quarter of 2019.
At this time, we expect our fourthquarter tax rate it would be similar to the third quarter.
Our accounts receivable balance declined to approximately $1.25 billion at the end of the third quarter down more than 50% or approximately $1.6 billion from your in driven principally by volume declines and lower fuel prices.
Our team continues to do a great job managing working capital as mentioned earlier, resulting in $246 million of operating cash flow with $491 million of operating cash flow generated during the first nine months of 2020.
We continue to benefit from relatively low fuel prices and lower working capital needs, which have enabled us to generate significant amounts of cash flow.
The proceeds received from the multi service sale combined with a strong operating cashflow enabled us to further reduce our debt balance by approximately $570 million at the end of the third quarter again, we were actually in a net cash position for the first time in nearly a decade.
In closing we experienced some modest improvement in the third quarter generated a significant amount of operating cash flow and successfully completed the sale of multi service, leaving us with a record level of liquidity at the end of the quarter.
We continue to manage costs carefully, but with significant available capital we had begun focusing more of our energies on organic growth and strategic investments in particular.
To provide some more color on specific investment opportunities I would like to highlight our world connect business.
This is a growing business in which we principally participate in the power in natural gas markets, but also solar wind carbon and renewables supporting commercial industrial and government customers globally.
As Mike mentioned earlier, we formally issued are 2019 sustainability report earlier this week, which amongst other important elements discusses our participation in these fast growing markets.
Well, you've been building or capabilities in this area over the past few years. This business activity still represents only a modest portion of our overall revenue and profitability.
With available liquidity at record levels, we intend to make significant strategic investments in this business over the next two to three years with a goal of turning this into a substantially larger business over this time period.
We will also continue to build out our commercial and industrial diesel and gasoline activities driving synergies in greater scale in both of these two important platforms.
All without losing sight of any additional niche opportunities in the aviation and marine markets and of course, we remain focus on other ways to drive additional value for our shareholders.
Thank you very much for your time, please be safe.
I would like that now I'd like to turn the call back over to Eric our operator for the Q&A session.
Alright. Thank you very much at this time I would like to remind everyone. If you would like to ask a question. Please press the number one followed by the number four on your telephone keypad, you'll hear a three tone pumped to acknowledge a request. If your question has been answered and you'd like to withdraw your registration. Please press the number one followed by the number three.
And if you were using the speaker phone. Please lift your handset before entering your request there'll be just one moment. Please for the first question.
And our first question comes from the line have been Nolan with Stifel. Please go ahead.
Hey, good afternoon, Yes, Uhm I bet.
Hey, I wanted to dig in a little bit on on the liquidity, obviously, good to see that that free and.
Benefit from the multi service L and also just the direction of working capital Uhm, but.
Where you are here you know, obviously, a wash effectively awash in cash.
And I know you like.
IRA you had mentioned looking to find ways to invest but I'm curious how you think about investing in your own stock via perhaps a buyback program.
You know I mean, you're trading at something like 35% discount to book, an and it doesn't seem like there should be any of that like your book value should be.
Yeah pretty transparent or for some auto service sale is a a good profit maybe even understated. So it seems like it seems like that's a pretty compelling investment opportunity I don't know it just made me could you talk through how you see that in.
Maybe the potential for buyback program.
Yeah. Thanks, Thanks, Ben look.
For starters, we had started repurchasing our shares early in the year. When we you know we thought they were undervalued and then the pandemic hits. So we wisely as many other companies did no cease that activity with the immediate golding preservation of capital and liquidity.
Taking on last quarter's call someone asked about buyback so like I said at the time that they.
Still worn a priority because it was still a lot of uncertainty is you know is there is today, but you know our liquidity position was arguably in very different spot then all of a sudden it is three months later, while we were pretty confident about getting multi service thought it wasn't completed yet and then.
Our team did an excellent job this quarter managing working capital and it's been many very smart ways to generate a lot of cash. So all of a sudden we now find herself as you say with in a very different position. So I would say are you know her disposition is clearly become more favorable.
To that idea you're right you know as of today were trading at 64% of book value, which.
<unk> will not complain about it will try to do something about it instead, but obviously that's hard to hard to understand and we therefore, you know think investing overstock you know it could be prudent. So that's something that we will strongly consider alongside you know keeping capital allocated for.
Some of the strategic investments that we also think are important you know over the next.
A couple of years, so certainly something that we will we will consider taking some action on quickly.
Alright, I I appreciate that and.
Like the answer I I know switching over a little bit to just thinking about this time of the year. It seems like it always comes out that your your annual government services contract was out for a new <unk> was wondering maybe if you could just maybe talk through that.
Obviously, an activity in Afghanistan, winding down or is becoming less and less meaningful and I was hoping maybe if you could.
If it's possible to say, okay, well of your $240 million of gross profit how much of that is attributable to the the government services, Afghanistan part or or you know how how much as there is a wind down how much should we think about that that potentially playing in too.
Kind of the garage probably gonna call.
Yeah get a great question you know again.
The the last number we you know public be reported in in 2019, we were in about 18% of total gross profit for that activity in the third quarter that number is just under 15% arguably a little higher than otherwise would be if it wasn't.
For the pandemic because our overall level of gross profit is down so significantly our contract has been renewed for another year, but that doesn't necessarily mean the level of activity remain the same and then as I mentioned in my prepared remarks, we you know we expect.
Additional declines next quarter and I would say that'll that'll continue into into next year, it's likely that that 15% will very soon drop into the single digits.
Side from that you know, we don't know a lot more than you you guys do there's a lot going on in the World next Tuesday in particular that may or may not have any impact on what what what will be you know transpiring in Afghanistan with the NATO forces over a longer period of time, but.
You know clearly many troops severity departed some of the bases are shrinking in size and you know and activity levels are declining. So you know that number will come down and we don't have a crystal ball as to you know you know where where wind up we expect that you know.
Some level of activity will continue and we can only monitor that very closely but you know getting one of the reasons. Why we're also focused on some of these investments I've talked about as to you know to to to rebuild or build new a reasonable growth and some of the areas that have have a lot of potential like like architect franchise.
Okay, and then lastly for me and I'll turn it over and actually as it relates to that connect franchise.
It's it's growing in importance and I'm I apologize. If this is not a a great question, but I honestly I don't know.
Could you maybe walk me through if I'm in the energy consumer what is the value add what's the elevator pitch that.
There you guys do through that can I program in and you know how how is it that you're you know where do you have value to people.
Mike is the king of elevator pitches, so I'm going to let them walk [laughter].
Then uhm. So you know the sustainability report is certainly going to be I think you know a great guide to a number of different things that we're doing but yeah natural gas is grow theory, it's a transitional fuel.
Power is going to double over the next 30 years Uhm. So uhm if it is you're looking at them energy efficiency. You know our team is a is an energy management companies, so they're helping companies by better.
Uhm able to put their arms around it use less uhm you know consume less so it's energy efficiency. It's bill reconciliation is pretty complicated I mean, most people don't understand their electric bill.
So we go in and we help companies with their efficiency audits look at all of their billing look at their rate intervention Uhm and we're actually day with the logistics some of their risk management some of their derivative activity. So is complementary it does have some differences from our liquid fuel and.
Marine Aviation land, but it's complimentary so you know, it's a common customer base and in many cases, and we're now offering carbon offsets and carbon reduction strategies looking at wind and power uhm dealing with on site.
Roller looking at Uhm renewable strategies, where individuals could take the other side of different sustainability projects. So it's a variety of different strategies, where companies need to procure gas and power and also.
<unk> look at creative ways to reduce their their carbon footprint.
So I wonder if there was such a great elevator speech, but.
It's a number of those different activities that I, probably should have been prepared to to give you that 25 words or less but you'll see it all on our website and you'll see some of the things that we're doing I'm not going to say that we're doing anything that a lot of other companies aren't doing but we.
We are doing it globally, we are blending it within our you know our core business or conventional fuels. So we're using our installed user base. If you will you know to help are you know loyal legacy customers figure out how to navigate through a fairly.
Complicated set of choices and we've got a lot of very smart people are energy management folks are knowledge workers a lot of intellectual capital Uhm. So it's a great business. It has fantastic financial profiles on it it has grown.
Wing, so weird grabbing the future. It's the way to go Uhm and we started this back in 2012 and really I could claim some brilliant strategy on it but we were really just looking to satisfy our marine and land customers who were looking for.
LNG and C N G as solutions, we'd like the business, we ended up putting about eight of them together, but we love it and we're going to continue to grow in that space.
Alright man I appreciate it and and our next guest.
Thanks Man.
I think <unk>. Our next question comes from the line of <unk> texture with Bank of America. Please go ahead.
Great Good afternoon, Michael in Iraq.
Maybe we could just kind of a follow up on on Bend last question. There. So if if of your California 8 billion of revenues you know most right now is is reselling.
Some sort of of carbon based fuel right oil too.
Or diesel two two marine Air Ocean, you you mentioned your future investments.
You could make are you are you talking about buying power generation like wind and solar.
Plants to be able to give that power to customers. If your your goal is to give power to customers I understand I just want to understand what kind of investments you were talking about making with pick your your liquidity. Thanks.
So these are.
I wouldn't we could potentially participate in production, but it is not it is not the first thing I mean that we would do you know that we do have some physical activity, but we're really doing three things. So you've got six different parts of the business.
Which is gas and power.
It's wind it's solar it is carbon and then it's renewable fuel. So those are the six you know sort of areas that we participate in terms of providing you know alternative energy and gas and power Uhm, we provide those services as an adviser.
For fees, so, we're providing advisory and consulting in going in and helping companies understand some of their complex you know areas in terms of energy, We will act as a broker and then will act as a merchant so we're participating in.
In the same three ways that we participate in our conventional fuels. If you will we're just involved in gas power wind solar carbon and renewable fuels. So it's so six areas. We've got three ways of engaging with the client and the marketplace you know for different reasons, we may.
<unk> participate in a different way, but you know it's an important part of the business and you know we were this is accelerating very quickly we've got a global business and as I said in my prepared remarks. The thing that is really exciting is.
When we started our marine in aviation businesses. They were local businesses. You know we acquired a couple of companies and they were still local and it took a long time for.
For them to be what they are today, so we've seen.
That journey, and it's accelerating within our liquid land business.
And it is accelerating within our energy business, putting the two of them together makes a hell of a lot of sense and we're actually you know blending our marine in aviation business within our energy management and carbon business. So it's you know it's something that we're excited about we want to do a lot more of it.
There was a good amount of organic opportunity, it's starting to happen and we'll be looking to acquire.
Acquire in that space as soon as we could find the right.
The right the right companies to bring into the fold.
But we're actively might that's actually what I. That's that's what I was asking not the organic things of the six different parts that you're providing and and and doing it was I remember some acquisitions are you mentioned acquisitions you could make in that sector I just want to understand what kinds of companies you would be buying is it the sourcing of that power or is it more of a consulting.
It is a source I think is the sourcing is a sourcing uhm a sustainability of renewable uhm business is uhm of advisory business is uhm. So it runs the full gamut there is a good amount of technology.
Offerings. There. So it's any business that is actively involved in managing their procurement of natural gas and power is providing advisory on wind and solar is playing a role within carbon in renewable certificates.
Uhm and renewable fuel, so any and all of those areas.
We are interested in and there's a lot going on in the market today. So that's that's where we plan to invest as well as our liquid.
<unk> land business, we're gonna be burning liquid fuel for quite some time. So the combination of the two is is a powerful cocktail because all of those folks that are burning conventional fuels uhm need to have a pathway to reduce their carbon impact. So the two go hand didn't.
Glover and it gives us.
The ability.
To provide to provide a complete solution to those clients and to embed. It. So it's very much in line with our overall operating strategy, where it is a a blended bundled tailored solution and.
And combined with the Digitization strategy that we have in the company. We feel like we are really seeing uhm some road to scalability.
Got a lot of automation in robotics, so, it's it's kind of exciting and.
Certainly the pandemic is it is what it is but we feel like this is a a great pivot for us to accelerated and that's what we're intending on doing.
Alright, let me read the only thing I would add quite unlike is that you know that can that remains of very fragmented market.
And obviously a growing market so.
There there are many opportunities in in the areas that might describe.
Okay. So I read you talked about incentive comp included in your in your targeted their a level included in that <unk> that you can provide.
I I would say, there's about $10 million incremental in the fourth quarter forecast is the way to look at it obviously are are expense run rate would've otherwise.
It does come down a bit because of the multi service sale.
So there's there's 10th is somewhere around $10 billion more and that 147 to 152 million number that you could you know.
Refer to as kind of one time.
And then I read your thoughts on on bad that expense going forward. I mean is this increasing bankruptcies because of Covid is it taking more reserves what what's your your thought on on the go forward on on the bed that side.
Okay, I guess I'll have to be careful what I say cause I made it a little too optimistic last quarter, because obviously, we're in uncharted territories in the in the World. We've been we've been living in so you know, it's it's tough to predict as I said last quarter and I want it to be and I was a little bit wrong, you know with lower levels of volume.
Which are which are continue even though we saw some increases aviation's quarter. The level of you know <unk>.
Larger credit lines, if you will that would be outstanding today, compared to where we would've been a year ago or dramatically a smaller. So we've we've had we've dealt with some bankruptcies you know one of the one of the stats always ended up providing a a call is there have been 19 restructurings in the aviation space.
This and unfortunately.
We only add significant exposure two of those one of which we probably we're probably gonna get outta without losing any money whatsoever, but you know what I'm, saying that there's still.
Lots of small and medium size customers that are struggling.
It really depends I guess the answer to your question depends a lot on how long the world, we live in drags on and and.
And airlines, how long is get taken airlines it really get back on its feet. None of them will have unlimited staying power. So we're watching it very carefully our credit lines are clearly well below where they were a year ago. Some cases zero in some cases, they're they're prepayment or.
Insurance now.
We have a few existing situations are still ongoing which we hope will result in a a positive conclusion, but you know there you know.
That's not certain yet so you know I I would hope that the.
The level of bed that expense will will begin normalizing, but you know I I can't tell you that with absolute certainty today, but we certainly striving for that and and watching the overall <unk> something we still look at every single day with the management team.
Any any meaningful credit, especially a scenario, where we're looking to ramp up again, because business activity started picking up and that's where we have to be very careful as well if there's.
The second wave and the third way have you seen the news out of you know out of Germany overnight and in a couple of other countries with shutdowns again, which doesn't help right. So where you know again, what our goal is to see that number normalize you know we're not completely out of the woods, yet, but we're a lot closer than.
We work two quarters ago, that's for sure.
<unk>.
A great job and getting the the the the.
That's pay down so well and and then to the net cash I. Appreciate your time. Thanks, Mike. Thanks, I can before you go I want to add a little bit of color to you know the the.
<unk> Sighed clearly you know the land space is kicking into gear aviation's done a phenomenal job I mean really just off the chart in terms of how well of a job they've done and our marine team. You know, we really are blessed with very talented organization a lot of people have a lot of passion.
So certainly are connect our world connect energy services, we think we've got a good run right runway and it's got great financial profile, but I would be remiss in not also talking about our government and military business activity. We've got a tremendous amount of capability there and you know the profile in terms of recurring revenue.
There is also you know very attractive so you know over the last several years, we looking to eliminate sort of a radick business activities and go for more predictable rateable recurring revenue uhm. So the combination of the tremendous amount of capability that we have in serving gover.
I'm in the military is something that we have in fact expanded that but that is an area that we like for the reasons stated and we've got a core competency there. So in any case. That's that's all something that's also something and it does dovetail. The government is very interested in sustainability is.
Well so all of these basically come to a confluence in a convergence where you weren't leveraging common capabilities uhm and it's very complimentary to our marine in aviation business. So it all fits.
I appreciate that thanks.
Thank you can't.
And Mister <unk> there are no further questions at this time I'll turn the call back to you for closing remarks, well. Thank you very much thanks to our shareholders for the support that you've given us and to our various vendors around the world and <unk>.
<unk> and colleagues stay safe and I look forward to we all look forward to talking to you next quarter take care.
Ladies and gentlemen that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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