Q1 2021 World Fuel Services Corp Earnings Call
We thank you for your patience and assets you. Please remain on the line.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the World fuel services first quarter 2021 earnings conference call. My name is joelle and I will be coordinating this call. This evening.
The presentation, all participants will be in a listen only mode. After the speakers' remarks, there'll be a question and answer session.
<unk> on how to ask a question will be given at the beginning of the Q&A session.
But 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 <unk> World feels Vice President Treasurer, and Investor Relations. Mr. Closet, you may begin your conference.
Thank you Joelle and good evening, everyone and welcome to the World fuel services first quarter 2021 earnings Conference call.
The other klemens and I'll be doing the introductions on this evenings call alongside.
On slide presentation.
This call is also available via webcast to access this webcast for future webcast. Please visit the world fuel services Corporation website and click on the webcast.
With us on the call today are Michael <unk>, Chairman, and Chief Executive Officer, and IRA Burns 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 Safe Harbor statement.
Certain statements made today, including comments about world fuel 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 actual results to materially differ from the forward looking information.
A description of the risk 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 release. The result of any revisions to these forward looking statements in light of new information for 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 fuels 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.
With prior conference calls, we ask 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 <unk>.
Thank you, Brian and good evening everyone.
Thank you for joining us I hope, you're all well and I hope you are as optimistic as I am that the medium and long term future market opportunities.
Opened the year with a strong first quarter once again, demonstrating the resiliency is a well diversified portfolio.
And considering current market conditions, all of our businesses performed well.
Our balance sheet and cash flow has never been stronger.
We believe we have a significant.
And long term opportunity to deploy capital in our North American.
Leading commercial and industrial liquid fuel business globally in fuel gas powered carbon and renewables to certain for aviation marine and land customers and drive the energy transition.
As I mentioned last quarter. The work we have done over the last few years and talent culture and leadership is having a positive income.
We are converging our organization and business solutions in line with the transitioning marketplace combining functions and the business itself is creating greater efficiencies and effectiveness as well as greater mobility and career opportunities for our global teams consolidating our <unk>.
Global origination fulfillment and support with our digital and sustainability competency.
Firstly forward ready business as the world emerge from emerges from this global health and economic crisis.
We are already a globally diverse group and the income.
Lucidness that convergence drives is accelerating value creation as our customers comprehensive solutions and pathways to a lower carbon footprint and supply chains.
We are maintaining the cost discipline achieved so far non operations as markets reopen.
We have grown market share in our global land business with higher quality renewable business activity, we see a long runway of growth opportunities in this space.
And now as we experienced the world's growing commitment to sustainability. We view this as an incredible opportunity to tap into our ability to create innovative solutions.
I am personally more excited and enthusiastic about our future prospects as a global team that I have been in the years, we have been through our most challenging stress test ever and our global teams performed flawlessly, we have never been tighter or more coordinated.
It will be a global diverse and increasingly digital energy and logistics solutions business is not easy but that is exactly what we have done and we are highly motivated to continue to build and leverage our platform.
It's not easy to have global share of anything we have achieved that in two businesses and we are well other ways to do that in our world Kinect Global land business simultaneously treating lower carbon synergies for our global Marine and aviation businesses, we are not only becoming more sustainable ourselves for.
Driving sustainability for the marketplace, we are truly helping to build a better tomorrow by celebrating the green and digital agenda wisdom for Hart partners around the world.
It is hard to find an energy related subject were problem anywhere in the world that we cannot address in one way or the other.
World Kinect is the emerging brand for comprehensive energy solutions.
And finally more of our teams are getting fully vaccinated and this is both raising optimism and providing opportunities for greater engagement with each other and the market.
I look forward to your questions. Let me first Angie will over to IRA for a review of our quarterly results.
Thank you Frank and good evening, ladies and gentlemen, and I hope, you're all doing well and finding ways to return to some sense of normalcy.
Although the pandemic continues to present significant challenges across businesses globally.
Certainly been some encouraging developments, which as many of us a bit more optimistic about the prospects of increased levels of business activity.
I am extremely proud of how well our team is warm in the space from a multitude of ongoing challenges in our results. This quarter are a testament to the value of our diversified business model our expertise in the markets, we serve and the dedication of our global team.
Before I walk through our first quarter results. Please note that the following figures exclude the impact of non operational items as highlighted in our earnings release and the comparison periods. Excluding the operating results for multi service that was sold at the end of the third quarter of last year.
The non operational items for the quarter, principally related to acquisition divestiture and restructuring related adjustments and expenses.
To assist you in reconciling results published in our earnings release, the breakdown of the non operational items can be found on our website and on the last slide of today's webcast presentation.
Now, let's begin with some of the first quarter highlights adjusted first quarter net income and earnings per share were $21 million 33 per share respectively.
Adjusted EBITDA for the first quarter was $62 million.
We generated another 103 million calls for operating cash flow during the first quarter and increased our net cash position to more than $210 million.
Consolidated revenue for the first quarter was $6 billion, an increase of $1 $3 billion or 27% for question.
But still well behind the free COVID-19 revenue levels, which is principally driven by the year over year decline in volume in our aviation and marine segments, when compared to 24 months.
Our aviation segment volume was $1 1 billion gallons in the first quarter, essentially flat sequentially, but still well below pre COVID-19 activity levels for <unk>.
Part of operations and business aviation activity remains strong.
For all the aviation volume remained significantly below prior year levels, driven by continued softness in global commercial passenger aviation activity.
Principally given slower vacs vaccine rollouts abroad.
In the U S. We have been experiencing increased activity with Esa daily throughput back to nearly 65% of pre pandemic levels, but despite some modest improvements in parts of Europe in the first quarter continue restrictions in most of Europe, and Asia will likely prolonged the broader recovery until vaccination rates.
Celebrate these regions.
Volume in our Marine segment for the first quarter was $4 2 million metric tonnes flat sequentially and down 13% from a strong prior year results, we generated for the new Idaho 2020 regulations were implemented last January.
Our land segment volume was one 3 billion gallons for gallon equivalents during the first quarter, that's down 6% year over year, but up 2% sequentially, principally driven by increases in our world connect natural gas operations as well as some seasonal improvement in the U K.
When volumes are now rebounded to 97% of first quarter 2019 pre pandemic levels.
Consolidated volume in the first quarter was $3 6 billion gallons up slightly on a sequential basis, but down year over year again related to the items already mentioned.
Consolidated gross profit for the first quarter was $192 million, that's a decrease of 18% compared to the first quarter of 2020 for an increase of $26 million or 16% sequentially.
Our aviation segment contributed $77 million of gross profit in the first quarter down 15% year over year.
Okay.
Year over year. In addition to the COVID-19 related profit deployments from depressed commercial passenger aviation activity. The decrease was also related to the decline in government related activity associated with the continued drawdown of troops in Afghanistan piece.
These declines were partially offset by higher average margins from a more profitable core business mix.
As we look ahead to the second quarter aviation gross profit should increase sequentially, principally driven by the continuing recovery in domestic commercial passenger activity, partially offset by a further decline in our government business in Afghanistan.
As I am sure you are aware earlier this month, the U S and <unk> announced the final withdrawal from Afghanistan by September and therefore, we expect further declines in this business activity over the balance for the year.
The Marine segment generated first quarter gross profit of $25 million, that's down 57% year over year up 12% sequentially.
In addition to the pandemic related impact the year over year declines were principally driven by the strong results. We saw in the first quarter of 2020 again related to the IMO transition to very low sulfur fuel oil.
But as we forecast non last quarter's call marine gross profit increased sequentially.
Relating to strong results more physical operations.
As we look ahead for the second quarter for Marine based on what we've experienced through the first few weeks of April we expect for REIT gross profit decreased sequentially driven by an improvement in our core resale business activity.
And as we looked at a lot of for the year. There is an increasing likelihood of cruise lines will begin sailing again, providing opportunities for additional improvement in the fourth quarter and into 2022.
Our land segment delivered gross profit of $89 million in the first quarter, a 5% year over year when excluding the profitability related to the multi service business from last year's results and actually up 24% sequentially.
As anticipated we experienced solid sequential improvement in our U K heating oil business driven in part by Lockheed for most of the quarter, but we also generate additional profitability during the quarter related to improved performance from our U S. Natural gas supply activities that was principally driven by the extremely cold weather in parts of the U S.
We're.
Looking ahead for the second quarter, we expect the traditional seasonal the quality land gross profit, which will be further impacted by the strong natural gas profit contribution in the first quarter.
We believe the land segment has many opportunities ahead from global sustainability initiatives for potential infrastructure spending, which would all benefit our commercial and industrial fuel business as well as our natural gas power and sustainability activities.
We continue to manage our operating expenses prudently.
For operating expenses, which exclude bad debt expense were $146 million from first quarter.
Around $29 million for 17% from the first quarter of last year.
Looking ahead for the second quarter operating expenses, excluding bad debt expense should be generally in line with the first quarter in the range of 140 for $248 million.
Bad debt expenses in the first quarter was $3 6 million down both sequentially and year over year and down materially from the elevated levels in the second and third quarter of 2020.
This is further evidence of the solid team effort in managing our receivables portfolio through this stage of the pandemic.
Adjusted income from operations for the first quarter was $42 million down 38% from last year, but up 68% sequentially related to this segment activity that I mentioned previously.
Adjusted EBITDA from $62 million in the first quarter down, 29% from 2020 and up 39% sequentially.
The year over year decline in income from operations and adjusted EBITDA was principally driven by the impact from the pandemic as well as benefits from supply imbalances and price volatility arising from the idle 2020 implementation in the first quarter of 2020 for our marine business first.
First quarter interest expense was $8 7 million, which is debt of 44% year over year and approximately 20% sequentially.
Total interest expense continue to continues to benefit from lower average borrowings and interest rates at the end of the first quarter. We again had no borrowings outstanding under our revolver and ended the quarter at a net cash position in excess of $200 million.
We expect interest expense in the second quarter to be approximately $9 million to $10 million.
Our adjusted tax rate for the first quarter was 35 from 8% compared to 36% in the first quarter of 2020.
At this time, we expect our effective tax rate to remain elevated in the near term primarily due to the current mix of U S. Foreign earnings as well as the continuing effects of guilty and valuation allowances on certain of our foreign entities.
Total accounts receivable balance increased significantly on a sequential basis to approximately $1 $7 billion.
At quarter end, principally related to the 37% rise in average fuel prices from the fourth quarter.
We remain focused on managing working capital requirements, which resulted in operating cash flow generation $103 million during the first quarter. Despite significant sequential increase in accounts receivable.
In closing despite continued weakness in the commercial passenger aviation market, we delivered a solid quarter driven principally by very strong results in our land segment and we again delivered strong operating cash flow.
With vaccination rates up significantly in the United States. We are encouraged by the recent trends we are seeing in domestic commercial passenger activity and are hopeful that other parts of the world will begin to catch up over the next several months.
While we were appropriately inwardly focused over the first 12 months of the pandemic during which time our team performed at a level of excellence for which they should all be very proud.
We can now more clearly see the light at the end of the zone and we're coming out of the pandemic with a strong balance sheet actually a stronger balance sheet than when we started pre COVID-19.
This strong balance sheet, including $735 million of cash provides us with capital to further grow our core business organically as well as the ability to capitalize for strategic investment opportunities, which should drive scale and efficiencies most specifically in our land and world connect business activities.
Our balance sheet liquidity and solid operating cash flow also provide us with capital to repurchase shares and fund dividends to further enhance shareholder value.
In demonstration of our commitment to enhancing shareholder value over the past few years, we've repurchased $134 million of our shares and we increased our cash dividend twice. Most recently, a 20% increase during the first quarter.
Thank you for your time I would now like to turn the call back over to our operator joelle for Q&A.
Thank you at this time I would like to remind everyone. If you would like to ask a question. Please press the star followed by the number one on your telephone keypad.
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We will pause for just a moment to compile the 10 day roster.
Our first question comes from the line of Ken next day with Bank of America. Please.
Please proceed with your question.
Hey, great Good afternoon, Michael IRA and Glenn and looking forward to this continued rebound just looking grades so far but.
You know on the on the cash flow typically a rising fuel environment negatively impacts free cash flow you mentioned that the robust free cash you're still seeing what are your thoughts on cash flow going forward and given the huge $700 million in cash.
Is there a likelihood you start the buyback sooner and what should we expect from that thanks.
Sure. Thanks, Ken So, yes, as I said on the call.
30, <unk> said as I said earlier, there was a 35% 36% increase in average prices in the first quarter.
We managed through that very well for that.
Is mix of business currently.
Part of it was our ability to sell some more receivables during the quarter under our receivables program. So when you put all together, we had a really significant increase and we had some recovery as well and our net working capital barely moves up.
I'm not sure we can continue to replicate that every single quarter.
But we're doing our best to manage working capital and our net trade cycle as effectively as possible. So depending upon the rate of recovery in volume depending on what happens from price.
That could have meaningful impact on what our cash flow would be over the next several quarters.
Moving to the cash.
735, I believe the Glen is a record.
For us for a given quarter.
We've repeatedly said the first priority for us is investing in our business.
Both organically and Inorganically is there for.
A lot of opportunities pipeline today, most specifically.
Our land and many parts of our land business, but will also always include a portion of our capital to.
Repurchase shares again, principally to offset the dilutive impact.
<unk> of equity awards.
So look at our dividend as well, which as I mentioned, we increased share.
I'd, just add Ken on price and I think.
This last time.
It does have.
Salutary effect on our.
Results the cash we're leveraging our underwriting most notably in aviation and marine So high prices obviously have.
Price so to speak but we do get.
Some return on that <unk> the value of our balance sheet.
Counterparty.
The increases were at lower prices and stable prices not so much so.
There is the other side of the coins.
Okay.
Great.
So good job on the land Marine was a bit soft for aviation was in line, maybe IRA or Mike If you could just walk us through on the gross profit per gallon the.
The impacts that marine was down 50%.
Why such a sharp drop in land down 10% is that now a good run rate, obviously up significantly sequentially is that because the U K and then aviation.
What's the impact is as commercial business rebounds.
Well once again.
These.
The credit equation.
A combination of different things.
In a higher quality credit lower prices.
A lot of volatility.
Not as much demand on.
Our credit.
For underwriting.
So.
That sort of dynamic.
Means that those value added services.
We're not getting price since the equation so to speak.
And that would.
Why.
Most notably to marine.
Also to some extent.
Aviation you have got a good amount of business mix.
Within with aviation.
So.
Yes.
Thank you Kevin very I mean, we're dealing with unusual time so.
Getting back to historic norms.
<unk>.
I think youre going to see a reversion to mean when business activity starts to normalize.
That's going to be in the meantime, it's a combination of the mix of business activity.
Notably within aviation as Youre, not seeing international passenger cargo will come back so strong.
So.
Take that.
I think that's the end of my comments on what you have we have recovered more after that.
Yes.
Couple of highlights from non repetitive on marine from every year over year Youre comparing to the extraordinary Q1, which is when the IMO implementation happens that would explain the substantial year over year decline, but the results.
Aside from that it is not that far off from where we had been trending over the past few quarters and as I said on the call earlier for Green, Yes that number has been moving up a bit in the first few weeks of April.
Aviation when you compare our margin for last year were up.
Principally as Mike said because of mix.
Because we have way less lower margin high volume commercial passenger business.
More of the mix losses.
Our cargo business aviation et cetera.
Contributed to year over year improvement in margin.
And then in the land business you probably have.
Multi service in your numbers last year, which from the fact that year over year comparison their margin in the first quarter and land was a bit higher again, driven by the really strong results each day.
And the net gas business.
So from it from a trend standpoint going forward.
Aviation may trend down a little bit as the mix begins to shift towards for commercial passenger business marine.
Again should be open to be up a little bit.
And land should trend down a little bit again coming off the extraordinary results from first quarter.
Yes.
Alright, great and then that doesn't my two questions about one follow up quickly would be Afghanistan.
In aviation.
Can you describe how much is left in the results I know you've got commercial that will rebound and offset some of that but.
Is there a wages we can counter with the what is left in the number.
Yes, I can say that when you look to the second quarter.
Down to about 7% of gross profit.
Debt remains coming.
Coming out of that business and based upon the announcements coming out of the White House and Halo, obviously that number will decline quite possibly to zero by the end of the year.
So you got you got the complement to two factors right Thats, most likelihood would decline there's still some fuzziness on on timing and there may be some lingering activity. We don't we don't know yet.
And at the same time, you've got the core aviation recovery going on debt.
It likely will continue to improve a bit over the balance of the year again, the improvement plus or minus will be tied to.
What happens in Europe for example, when that starts coming back.
So on an overall basis.
Aviation should should start trending up a little bit data as much as it otherwise would have.
Yes.
Gas and activity continue by the way that's 7% just to clarify in the second quarter, a little bit of that is in land two sets of consolidated <unk>.
I would say.
5% aviation, 2% relates to land.
Yes.
Wow.
Yes, I forgot the other aviation or for total order growth of 7% as a percentage of our total consolidated gross profit.
Most of that 80% of that is in aviation and about 20% of Atlanta.
Okay.
Sorry, Michael.
I'll give them cash notwithstanding timing.
Clearly for better or worse in a world.
Qualities that film to break out any time soon.
We're committed we've been in the space for many many years.
Various different locations, we do have activity.
To the extent that the concentration.
Within Afghanistan.
We will keep saying that we already do have activity there so in any case.
It's a business we continue to be committed to skip business.
Jack It gives us great.
So it's a capability that.
We leverage into our commercial activities.
That of course will be.
Combined within our other business operations until such time as debt.
Income size.
Actually break it out.
Great I appreciate the time thanks, Michael.
Thanks, Ken.
Thank you for our next question comes from the line of Ben Nolan with Stifel. Please proceed with your question.
Yeah. So first of all I appreciate the breakout on Afghanistan step there that was helpful.
Wanted to stick with aviation for a moment, if I could I know that.
And obviously here in the U S. We're seeing a lot more.
<unk>.
Passenger.
However, air freight moving in and people on vacation from that kind of thing, but as you said in the prepared remarks, you're not necessarily seeing that in other places around the world like Europe.
In Asia.
Was curious if you might be able to break down sort of what your business mix is how much of what you do is domestic here versus other parts of the world and how do you think for sort of what that means for with respect to the cadence of normalization.
Yes, that's a loaded question Ben from Sterne.
Endpoint looking at debt at different points in time, historically, 70% plus of our aviation business would be commercial with <unk>.
Something close to 50 50 split between North America other parts of the world for Us.
Gary over time Thats, probably.
Pretty pretty.
Pretty close to.
Yes.
We've trended historically.
Okay.
Yes different type of business, though right I would say the piece of business internationally on average would.
It would be higher margin, because thats, where we have more of a physical presence again driven by our excellent unrelated acquisition a few years back.
We are operating in over 100 airports today.
Where we have the infrastructure and we're not quote unquote just.
Demand in the middle.
That type of business, which hasn't come back yet.
Does it all lockdowns and restrictions in Europe.
Generally higher margin where the domestic.
Larger volume type customers.
Type of business in the U S. This generally at the lower end of the margin structure right.
So.
You may be 50, 50 on volume but.
You have an increasing amount of profitability over the last few years coming from our international operations.
Okay. That's helpful.
And then secondly for me sort of a sort of a similar question, but as it relates to.
As it relates to land and especially as we look back into the last quarter.
Yeah. It was a pretty good number, especially the other multi service in there and some of that I think is as you say from the U K normal seasonality, but then there was also to the natural gas business.
Which was helped by weather and everything else at this point how much of the land businesses natural gas that's kind of my question and how much of what we saw in the first quarter might have been you know just sort of.
Weird weather versus what what is it a normal run rate.
Yes, it's been running still been running at a relatively small level on a run rate basis of land overall profitability.
There was probably.
An extra seven or $8 million of profitability beyond the norm.
Debt.
That contribute the land results from the first quarter.
If you back that out and look at the result short of that goal.
So somewhat better than normal Q1, again because of the strength in the U K.
Right. Okay. That's that's great and then I guess for my follow up or third questioner. However are in on the marine side.
Hopefully I think went in July.
They'll start running cruise ships again.
Can you maybe talk to how big of a deal that is to.
For the Marine business I know, obviously you guys are located right there in the cruise hub of the world right, but how.
How much of the business is crews and or maybe more importantly, how much of that gross profit is ordinarily.
Derived from net cruise business for you guys.
It has historically been good question Thats only been about 10% of our of our marine profitability.
Over over the years now it's accelerated a bit as we added some new locations in a year or so year or two priority prior to COVID-19.
Maybe it's maybe it's 11, 12%, but it's somewhere between 10 and 12% historic So it's enough to add a few million dollars for profitability.
On a quarterly basis going forward when that when that does come back it seems like it should.
Start coming back around the end of the year now just because you're scaling in.
In the fall if thats going to happen.
For a shift sales are going to be nowhere near where they were pre pandemic day, one so it's going to be up relative.
Relatively slow ramp for that business.
Unfortunately for for.
For them for their happy they're all happy to.
She's again, even if even if they're not running at 100%.
Sure sure alright, well our debt.
Is my three questions. So I appreciate it thanks guys.
Mr cash spot there are no further questions at this time I will now turn the call back to you for closing remarks.
Well, thanks, everyone for listening in.
Thanks to all of my colleagues around the world.
Youre doing a great job, it's great to work with you every day, thanks, everybody and we'll talk to you next quarter.
Ladies and gentlemen that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Okay.
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