Q3 2021 Kirby Corp Earnings Call

Good morning, and welcome to the Kirby Corporation 2021 third quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal our conference specialist.

My question, just Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions. We ask that you. Please limit your questions to one question and one follow up to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press the pound key.

Please no disadvantage being recorded I would now like to turn the conference over to Mr. Eric Holcomb Kirby's Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining US with me today are David <unk>, Kirby's, President and Chief Executive Officer, and Bill Harvey Kirby's Executive Vice President and Chief Financial Officer.

<unk> presentation for today's conference call as well as the earnings release, which was issued earlier today can be found on our website at Kirby Corp, Dot Com <unk>.

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.

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 the COVID-19 pandemic and the related response of governments on global and regional Mark to market conditions and the Companys businesses.

A list of these risk factors can be found on Kirby's Form 10-K for the year ended December 31, 2020, I will now turn the call over to David.

Thank you, Eric and good morning, everyone.

Earlier today, we announced adjusted earnings of <unk> 17 per share for the 2021 third quarter, which excludes a one time non cash charge totaling $4 58 per share related to our coastal marine business.

On a GAAP basis, we reported a net loss of $4 41 per share.

Overall, our quarter was messy with the one time charge in coastal a devastating hurricane which significantly impacted our inland marine business and increased issues related to COVID-19.

We'll talk more about each of these including the one time charge in a few moments, but first I will discuss our key markets.

In Marine transportation, our inland business started the quarter with improving customer demand.

In August however, barge volumes declined as the cases of the COVID-19 Delta variant increased.

Which slowed the pace of the economic recovery and reduced demand for refined products and crude.

Vehicle miles traveled in the U S declined including an overall four 4% decline in August with all regions of the U S impacted.

And our operations we experienced.

A meaningful rise in positive cases, among our mariners as a result, we incurred increased costs to charter additional horsepower during the quarter to ensure our operations were seamless.

Our inland business was also materially impacted by Hurricane Ida a significant.

Category, four storm, which made landfall near New Orleans in late August.

This storm left a widespread path of destruction, which led to prolonged shutdowns of many customer plant as well as significant damage to marine equipment and waterway infrastructure.

As the storm approached all refineries and chemical plants and the New New Orleans Baton Rouge corridor, we're forced into shutdowns.

The storm damage was so significant that many remain closed or operating at reduced production levels through September and in some cases well into October.

At the height of the storm more than 2 million barrels of refining capacity per day was offline, reducing tab three refinery utilization from 93% in August to 79% in September.

In the petrochemical sector with nearly the entire complex shut down operating rates at nameplate ethylene plants in the southeast.

Excuse me in southeast, Louisiana declined from 89% in August of 24% in September and production fill as much as 75% compared to August.

From our Marine Transportation perspective, the storm surge was so significant the Mississippi river flow backwards, causing many industry barges to break free and resulting in damage to numerous vessels customer docks and waterway infrastructure.

It's been estimated that as many as 2000 dry cargo and tank barges were damage during the storm, which included 30 Kirby tank barges.

All of this resulted in a full closure of the Mississippi River for about a week and a lengthy closure of parts of the Gulf Intracoastal waterway, which remains in effect today.

This closure has resulted in lengthy alternative routes.

Significant lock delays throughout September and October.

Overall, we estimate the damage caused by the hurricane on our equipment directly contributed to lost revenue and additional costs totaling approximately <unk> <unk> per share during the third quarter.

Moving to the coastal.

Market remained challenging during the third quarter, but we did experience some increases in spot market demand, which incurred which contributed to modest increases and barge utilization and reduced operating losses.

More importantly, we took significant actions to improve our coastal business, including the sale of our marine transportation assets in Hawaii, and the retirement of 12 laid up wire tank barges and four tug boats and the coastal fleet.

These actions resulted in a onetime noncash impairment charge in the third quarter. However, there are significant positives and it positions the coastal business for success going forward.

First our risk profile is greatly reduced by exiting Hawaii.

Which is a remote market that has generated poor returns for many years.

The retirement of our outdated and light laid up coastal wire barges and tugboats improves our cost structure and materially reduces future capital outlays.

Frankly, many of our customers view the old wire tow technology is less safe and less reliable when compared to newer atvs.

Overall going forward, we expect our smaller fleet will allow us to focus on attractive markets and more efficient safe and cost competitive equipment will ultimately generate improved earnings and favorable returns.

In distribution and services momentum continued to build with improved activity levels contributing to <unk> sequential and year on year increases in revenues and operating margins.

In commercial and industrial the timing of major backup power installations and seasonal utilization improvements in the rental fleet led to strong sequential activity in power generation.

Increased demand for Thermo King product sales and service also contributed favorably to the quarter's results. These gains were partially offset by modest activity reductions in marine repair primarily due to major excuse me two due to reduced major overhauls and <unk>.

Temporary facility closures following hurricane Ida.

And oil and gas increasing U S rig counts and completions activity drove strong incremental demand for new transmissions parts and service from major oilfield customers. This growth contributed to 25% sequential growth in oil and gas revenues and positive operating margins for the first time in more.

Two years.

And manufacturing all those supply chain constraints delayed the deliveries of several orders and led to a sequential reduction in revenues our backlog grew meaningfully with significant new demand for our environmentally friendly pressure pumping and electric power generation equipment.

In October <unk> acquired a small energy storage systems manufacturer based in Texas, which has been a key partner in the development of our new power generation solutions for electric fracturing equipment.

This acquisition will be important to the development of future energy storage solutions for the oilfield as well as industrial and Marine transportation applications.

In summary, our third quarter results reflected a challenging environment as well as key operating decisions and coastal marine.

The good news is that we have seen a significant improvement in inland market fundamentals in recent weeks with increasing customer demand and higher barge utilization in the high 80% range.

Distribution and services also continues to improve with the economy.

In a few moments I will talk more about these developments as well as the rest of our outlook, but first I'll turn the call over to bill to discuss more about the onetime charge as well as our segment results and balance sheet.

Thank you David and good morning, everyone before I review our segment results I want to provide a little more detail on the one time charge in coastal marine <unk>.

During the third quarter, we sold our coastal marine transportation assets in Hawaii, including for tank barges and seven tug boats for cash proceeds of $17 2 million.

We also retired 12 wire tank barges and four tugboats, which had limited customer acceptance and low utilization.

These events resulted in a noncash impairment charge of $121 7 million.

As a result, the company concluded that a triggering event had occurred and performed in term quantitative impairment tests on coastal goodwill, which resulted in a noncash impairment charge totaling $219 million.

In total the company recorded a noncash impairment related to coastal marine equipment and associated goodwill totaling $347 million before tax $275 million after tax or $4 58 per share.

Looking at our operating segments in the third quarter Marine Transportation revenues were $338 5 million with an operating income of $16 9 million and an operating margin of 5%.

Paired to the 2023rd quarter Marine revenues increased $17 9 million or 6%, primarily due to higher fuel rebuilds in inland and coastal as the average cost of diesel fuel increased 76%.

Improved barge utilization and inland is offset by lower pricing on term contracts that had renewed during last year operating income declined $15 5 million, primarily due to hurricane Ida lower term contract pricing and increased maintenance <unk>.

Compared to the 2021 second quarter Marine revenues increased $5 $6 billion or 2% due to modest improvements in coastal barge utilization and increased fuel rebuilds operating income declined $1 6 million as a result of sales mix increased horsepower costs and the impact of Hurricane Ike.

<unk>.

During the quarter the inland business contributed approximately 76% of segment revenue.

<unk> barge utilization was in the low 80% range, which was slightly down compared to the second quarter, but improved compared to the low 70% range in the 2023rd quarter.

Barge utilization during the quarter was heavily impacted by reduced volumes as a result of COVID-19 Delta variant and customer shutdowns following hurricane item.

Long term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 65% of revenue with 56% from time charters and 44% from contracts of affreightment.

With respect to pricing average spot market rates were stable compared to the second quarter and the 2023rd quarter.

Of the few term contracts that renewed during the third quarter average rates were down in the low to mid single digits compared to the 2023rd quarter inland revenues were up 3% due to significant increases in fuel rebuilds and improved barge utilization offset by lower average pricing.

Term contracts.

<unk> to the second quarter inland revenues were stable.

Overall, the inland market represented 76% of segment revenues and had an operating margin in the mid to high single digits.

And coastal spot market conditions improve modestly, resulting in barge utilization in the mid 70% range during the quarter.

Average spot market rates and renewals of term contracts were stable.

During the third quarter the percentage of coastal revenues under term contracts was approximately 80% of which approximately 85% were term time charters.

Revenues in coastal increased 4% sequentially and 13% compared to the 2023rd quarter, primarily due to higher fuel rebuilds and modest increases in spot market activity.

Overall coastal represented 24% of Marine Transportation segment revenues and had a negative operating margin the low single digits.

With respect to our tank barge fleet, a reconciliation of changes in the third quarter as well as projections for the remainder of 2021 are included in our earnings call presentation posted on our website.

Moving to distribution and services.

Revenues for the 2021 third quarter were $264 million with an operating income of $11 million and an operating margin of four 2%.

Compared to the 2023rd quarter distribution and services revenue increased $84 4 million or 48% and operating income income improved $9 9 million compared to the 2021 second quarter revenues increased $33 7 million or 15%.

And operating income increased $4 9 million.

These improvements are primarily due to a significant increase in demand for our oil and gas products and services as well as the improved economic conditions across the U S, which has raised demand for equipment parts and service in the commercial and industrial markets.

In commercial and industrial increased economic activity contributed to the increased sequential and year on year demand for equipment parts and service and on highway.

Thermo King in power generation the power generation rental fleet also benefit from increased utilization during the summer storm season, including Hurricane Ida.

Marine repair revenues were down sequentially and year on year due to reduced major overhauls as well as activity reductions at our Louisiana facilities. Following hurricane Ida during the third quarter commercial and industrial revenues increased 9%, 9% sequentially and 20% year on year.

Overall, the business represented approximately 59% of segment revenue and had an operating margin in the mid single digits.

And oil and gas favorable commodity prices and increased activity in the oilfield contributed to significant sequential and year on year increases in revenues and operating income.

The most significant increase was in our distribution business with better demand for new transmissions parts and service for our major oilfield customers.

Our manufacturing business businesses also experienced substantial increases in new orders for pressure pumping in frac related power generation equipment.

While manufacturing revenues increased sharply year on year, the business was negatively impacted by the timing of deliveries and OEM supply chain issues during the third quarter oil and gas revenues increased 25% sequentially and 120, 20% year on year overall, the oil and gas related business.

<unk> represented approximately 41% of segment revenue and had an operating margin in the low to mid single digits.

Turning to the balance sheet.

As of September 30, we had $54 million of cash and total debt of $1. Two 1 billion with a debt to cap ratio of 29, 8%.

Since the <unk> acquisition of April one 2020, we have repaid nearly $500 million in debt during the quarter, we generated strong cash flow from operations of $83 million net of capital expenditures of $34 million free cash flow was 49 million. We also sold assets with net proceeds of $22 million during.

Quarter, primarily composed of coastal marine assets in Hawaii.

At the end of the quarter, we had total available liquidity of $908 million.

As of this week, our net debt has been further reduced to $1 2 billion.

For the full year, we expect capital spending to be approximately $120 million to $130 million, which represents more than a 15% reduction compared to 2020 and is primarily composed of maintenance requirements for our marine fleet. We also expect to generate free cash flow of $250 million.

$290 million for the full year.

Lastly from a tax perspective, we expect an effective tax rate of approximately 29% in the fourth quarter.

I'll now turn the call back over to David.

Thank you Bill.

Although the third quarter certainly had its challenges we are very encouraged by the improving market fundamentals across our businesses, which are setting the stage for materially improved earnings in the coming year in.

In the near term for the fourth quarter, we expect a sequential improvement in overall revenues and earnings driven by increased volumes and more favorable market conditions in marine transportation offset in part by nominal and normal.

Ality and continued supply chain issues in distribution and services.

In the inland market, although some issues associated issues associated with hurricane Ida have carried over including extended customer shutdowns barge repairs and waterway closures our outlook remains very positive.

During October our barge utilization has been in the mid <unk> to high 80% range with recent utilization at the high end of that and then a high 80.

Some of this increase can be attributed to waterway closures in Louisiana, which have extended transit times, However, turnarounds and pent up demand are also driving up barge volumes.

Well the waterways are expected to fully reopen soon we expect barge utilization levels will be minimally impacted due to the ramping up of hurricane Ida affected plants economic improvements, new chemical plants coming online and the onset of winter weather.

With increased inland activity levels minimum new barge construction and continued retirements, we expect further improvements in the spot market going forward.

During the fourth quarter and into next year term contracts that renewed lower during the pandemic are expected to reset and gradually reset to reflect the improved market conditions.

Overall inland revenues are expected to sequentially increase in the fourth quarter with operating margins improving to around 10%.

Okay.

In coastal we expect the market will continue to recover with modest demand improvement for refined products in black oil transportation.

The recent retirement of the wire barge marine equipment will result in coastal barge utilization being around 90% for the fourth quarter.

Although the Hawaii equipment has been sold we will continue to operate the assets under a charter agreement through the end of the year when our existing customer contracts expire.

In the fourth quarter, we do anticipate some elevated shipyard activity on several of our larger capacity barges and that will result in a coastal revenue reduction in the mid single digits compared to the third quarter.

Coastal operating margins are expected to be at or slightly below breakeven.

For the fourth in the fourth quarter.

Looking at distribution and services favorable commodity prices and increasing rig counts as well as well completions are expected to yield continued strong demand in our oil and gas distribution business.

And manufacturing activity levels are also expected to remain strong driven by new orders and our growing backlog of environmentally friendly pressure pumping equipment.

And frac related power generation equipment as well as some modest re.

Manufacturing of conventional equipment.

However.

The OEM supply chain issues are expected to persist throughout the fourth quarter and they will delay sales some sales and project deliveries into 2022.

As a result, we expect our oil and gas businesses will experience a modest sequential reduction in revenues and operating income in the quarter in.

In commercial and industrial despite improving economic activity.

There will be normal seasonality in marine repair thermo, King and power generation, resulting in sequential.

The reductions in revenue and operating income in the fourth quarter.

Overall.

Compared to the 2021 third quarter distribution and services revenues are expected to decline modestly with operating margins.

In the low to mid single digits.

Now to wrap things up although the third quarter's results were disappointing we see we see improved results in the fourth quarter. Despite planned shipyards in coastal and seasonality and supply chain issues in distribution and services.

More importantly, we see strong momentum building across our businesses, which we will believe with which we believe will drive increased revenues and meaningful earnings growth in the coming years.

In inland barge utilization has recently touched 90% with October averaging in the mid to high 80% range.

With the world economy, beginning to emerge from the pandemic low inventories of refined products and oil demand expected to meet or exceed pre pandemic levels. In 2022, we believe inland has turned the corner.

With minimal new barge supply, we expect our inland business will steadily move higher with improved pricing earnings and returns going forward.

And coastal although market conditions remain challenging recent improvements in the spot market should lead to barge utilization around 90%.

Are difficult, but necessary decisions to exit the Hawaii market and retire unutilized assets are long term positives that will allow this business to focus on its best assets and markets to generate positive earnings.

As the market improves.

In distribution and services economic growth will benefit our commercial and industrial businesses in the coming quarters and oil and gas was strong commodity prices and expectations for increased U S. Gas directed drilling we are increasingly optimistic about.

Enhanced demand for our products and services.

Further a heightened customer focus on low carbon solutions.

<unk> friendly environmentally friendly pressure pumping equipment and our power generation solutions for E. Frac has translated into significant growth in our backlog.

These increasing levels of activity will lead to improved profitability in 2022.

And finally, our strict capital discipline and intense focus on cash flow generation throughout the pandemic has enabled us to significantly reduce our debt and increase our liquidity as a result, we are very well positioned to act on future strategic opportunities too.

To increase our earnings potential going forward.

Operator. This concludes our prepared remarks, we are now ready to take questions.

Somewhat capacity constrained.

Indefinitely inflation and some of those specifically those other two categories I'm curious what the crossover is if if those areas are starting to see a significant inflation is there any ability for some of the excess chemical or petroleum products to to sort of be priced out of the market or for you guys to <unk>.

Capture share if if those other two modes of transportation get more expensive.

Yeah, I'm not sure there's a lot of crossover.

It could be some yeah basically if we can move on water. It does I would just tell you in general.

Inflation is happening we're seeing a little wage pressure, we gave some raises and.

In July but we.

We've we've not had a problem.

Continued throughout the year, so we feel pretty good about where we are in terms of our labor supply.

And.

We're pretty excited about that we are seeing some inflation with supplies and food and whatnot.

But so far.

Okay.

The Big news for US really is that demand is growing.

We're we're starting to see it I mean, you can see it in the consumer right the consumers doing better gasoline demands back back up above the five year average manufacturing orders are up.

Or chemical customers are doing really well you can look at their earnings announcements are refining integrated customers are.

Seeing inventories low one, but the crack spreads really high.

One of our independent refining customers that it's shutdown that refinery during COVID-19 is is restarted it so.

From our perspective demands increasing it's not really crossover demand. It's just real demand that we saw on our base business.

And as you know that demand.

With supply and check means.

We're we're headed for much better pricing environment, we're starting to see that now we're getting price increases in the spot market spot prices are above contract prices in and things are moving along really well there.

Oh, great. That's that's good color appreciate it and then for my second question switch gears a little bit.

On the coastal side I know you guys have sort of been mentioned or danced around some of the opportunities around offshore wind development and curious if you can just sort of give us some sort of an update as to as to where that stands and maybe frame in the opportunity set.

From a Kirby perspective.

Yeah well.

Well, we've got to be very careful we're under.

Different nda's and we can't say too much in specific.

But you could imagine we very much want to be in the wind service business, whether it's when the installation or service.

And.

We're working hard on it.

As you have seen with these offshore installations the contracts.

Kind of drag out over time, and it's not moving as fast as anybody wants but.

Suffice it to say, we're in the middle of things and looking forward to.

Some meaningful avenues of future growth for Kirby and our marine operations I can't really tell you much more than that I wish it could but.

We'll see is these projects progress.

I understood all beyond that look out for that so I appreciate it thanks guys.

Thanks Ben.

Thank you. Our next question comes from John Chappelle with Evercore ISI Your 90 something.

Thank you good morning, everybody.

Hi, John.

David on the inland contract renewal. So Bill said three Q there was a few contracts and I guess they were reset down.

So when you think about <unk> and one Q can you speak to.

Some level of magnitude on number of contract renewals as a percentage of your book and also given everything you've just laid out with utilization touching 90% petrochemical production coming back online would you anticipate at.

At least flat is starting to see some positive revisions in the contractual renewal this quarter.

Well.

Be more positive than that actually were.

We've we've kind of lap the lows of Covid renew.

[noise] renewals, so what we anticipated contract renewals in the fourth quarter will be up.

We'll see how how much they'll be up but when you when you look at what's happening in the in the market and.

Particularly tightness around horsepower tightness around.

Supply is growing.

Where.

We're very optimistic and we think we will renew contracts.

Contracts higher spot pricing as well above contract pricing and we're we're about to reprice. Some of these the COVID-19 low.

Contract so it can't be too specific because.

It's a negotiation.

With numerous customers as you know fourth quarters, usually one of the heavier quarters I would say it's.

Kind of twice any other quarter first second and third are kind of all around the same.

Maybe a little more in the first and the second and the third but the fourth is always the heaviest so we're pretty optimistic.

We're heading in demand tight.

Pricing is going up.

Labor and Mariners are in short supply horsepower is in short supply.

It is set up.

To go up.

It needs to it has two and it will.

Okay.

And then sticking with that team as well.

People tend to watch refined product utilization refinery utilization, because we actually have visibility on that every week I think that data you provided on the petrochemical numbers out of southeast, Louisiana was pretty meaningful when you go from 89% to 25%.

Is there any and all the plumbing new customers are coming back on line, but when you think about four Q overall or maybe just kind of November and December run rates postal a ramp up period, what are you expecting for the petrochemical plant utilization and overall production at the kind of rebounds and that 75%.

<unk>.

Yeah, when we just look at South <unk>, South southeastern Louisiana ethylene as an example, pre hurricane Ida.

They were ethylene plants in that corridor were running around 89%.

As you heard a drop to 25% I think they are back up to 89%.

And may be even higher than that.

Some of the big chemical customers.

You know them.

They're saying, they're running full out.

Some of the refineries are saying the exact same thing.

The independent refiners are saying, they're going to run out.

Bernhard also we're seeing a little heavier feedstock mix, which is which is pretty positive for barging the heavier the feedstock mix.

The more byproducts and those byproducts generally.

Lead to to a little more barge movements.

Some of them are heavier products and.

Not not as readily moved and pipeline so.

It's shaping up nicely.

It's always good when your customers start making more money right.

Whether it's the chemical guys or the refiners or or the integrated they're all doing doing better and.

That's good and they're doing better because demand is picking up.

I think we're all tired of talking about Covid.

But it it's demand impact has been real.

And hopefully we are turning the corner we.

We had the Delta variant hopefully there's not another variant coming.

But.

Everything looks pretty good from from our perspective, just looking at refinery utilization and chemical plant utilization ethylene production aromatics production C. Four coproduct production.

They're all kind of increasing.

They've recovered from from Ida and actually are starting to get a.

Above pre.

Our pandemic levels and back to Prepandemic levels.

Alright, well, that's all great to hear thank you Dan.

As John.

Our next question is from Jack Act begins with <unk>, Okay, great. Good morning, and thank you for taking my questions.

Hi, good morning, Jay.

David I guess, maybe to start with it maybe a two parter on England.

Reference sort of some heavier feedstocks.

I would be curious and maybe you could expand on that a bit with natural gas prices movie.

Moving higher over the course of the last several months and could you maybe talk about how that impacts your business is that a positive or negative as you think about petrochemical output in activity and then with with fundamentals accelerating in the inland market.

Maybe any thoughts of going to some shorter term contracts.

To be able to participate in it may be a stronger pricing environment. As you look six or maybe even 12 months now just trying to think of a way to capitalize on that versus locking yourself into.

12 months commitment now right as the market is beginning to turn.

Yeah.

Take the first part first.

Look as is natural gas prices go up.

Ethane as part of that kind of split.

And ethane is a big feedstock for the ethylene plant stripe.

But as as those prices go up you'll you'll crack more nap, though or heavies could could be see fours or propane they'll start.

Cracking heavier because.

The math starts to work form for the heavier feedstocks and we're seeing that.

I think there's Dan Lippi and others did.

The publish on that but the the heavier feedstocks are going into the chemical plants and again, that's that's good for us.

The more natural they crack the more heavy that you will see you.

You could see see fours and butadiene coming out <unk>, a nice one because it's a pressure cargo.

Kirby's got a pretty good position and pressure products.

So yeah. The flexi crackers are are taking advantage of of kind of a.

The pricing dynamics and cracking a little more heavy.

In terms of.

More spot versus contract.

Bill you said the spots about what 35 30, 35% of our book right now.

And then we've got a lot of contracts that they are going to reap price here in the fourth quarter. So.

35% spots still feels about right.

I hear you loud and clear I mean, we'd like to capture more price increases but.

We'll roll through this and.

See where it goes it feels pretty good with 35% spot that will that will replace pretty big pretty quickly.

Jack.

No no I'm, sorry, I was I was on I was on mute.

Thank God.

Yeah.

I guess for my for my follow up question with regard to the coastal barging market in the action that you took there sort.

Clean up some underperforming assets with.

With utilization now at 90% or so kind of moving forward.

Understanding there are some issues in the fourth quarter to kind of clean up there to as you complete some contracts, but do you feel like that business now even at current pricing can be can be breaking.

Breakeven a modestly profitable.

Hi, how are you thinking about.

That profitability impact of the action that you took.

Yeah.

Hopefully, we'll be breakeven ish next year, they're still a little overhang in excess equipment in the coastal market.

I think everybody is aware of the bouchard equipment out there.

And.

There's still a fair amount of idle equipment amongst our competitors.

The good news is as we talked about demand is increasing right. If you think about the coastal businesses is pretty heavy in terms of refined products and.

As you as you heard in some of my previous comments.

Refinery Utilizations up product inventories are low crack spreads are stronger volumes are picking up.

I just need to pick up a little more they're still too much supply in the offshore business.

And but but we're getting closer to the term there I think that turn as further out in the inland tern.

Just just because of how overbuilt that market got after.

As you recall Jack.

Few years back there were probably.

A third of the fleet was moving crude by barge and I would say.

It's a lot less than that there's normally a handful of.

The coastal barges moving crude oil now so.

All that all that excess capacity has to be soaked up by refined products demand and that's happening. It's just it's just happening a little slower.

So, but it is headed in the right direction, we're doing our part.

Were taken out these.

These older wire equipment pieces and I also think that ballast water treatment may drive some others out.

To retire we're pretty far along on our fleet with those water treatment I think.

You other of our competitors are behind the curve on balance water treatment. So as they start to spend that capital, perhaps we'll see some some retirement.

So long winded answer to say that supply and demand still a little out of balance.

But its head in the right direction.

And we took the actions we felt that were necessary and I think.

We'll be breakeven ish.

Next year.

Based on what we see now and Jack One thing David mentioned, the prepared remarks, but it is not insignificant and allows us to focus the spending on the good assets.

Assets that are retired and the Hawaiian assets would have required significant capital and if that's not the place to put capital.

Okay. It makes it makes total sense. Thanks for the thanks for your time guys.

Sure.

Thank you. Our next question comes from Ken Health Stare with Bank of America, you're learning something.

Hey, good morning.

Maybe just a good one.

And.

Just at the <unk>.

Side of DNS, maybe can you talk a bit about the supply chain issues, you talked about the drag on margin verses the rising demand maybe.

Obviously, no easy answers of the supply chain, but but your thought on on how long that that remains in O'brien.

Yeah. It's.

Look at what you've been hearing Ah I can tell you that we are having problems with engine deliveries were having problems with transmission deliveries as you might imagine with with the electrical nature of much of what we're taking an an inbound.

Circuitry and components.

Motherboards and kind of chip based stuff has been slow.

I would tell you that if.

If we could have gotten some engines and a few other electrical components. We would have we would be shipping more product in the fourth quarter I think it resolves itself in early 22.

But it's real.

No you guys are tired of hearing about COVID-19 and supply chain, we're tired about it too but.

It's been real.

You can look at some of the big engine Oems, they're starting to catch up so I'm optimistic.

But they were real I think the encouraging thing can as as our backlog has jumped meaningfully I mean, our book to Bill is.

A huge percentage and we're not talking tens of millions, it's more like hundreds and.

Backlog is really growing a lot of it is ESG centric I'll tell ya.

And the oil and gas in particular.

Kind of any any new equipment is has got an element of carbon reduction for our customers and our customers customers and so we're very excited about it and.

May have heard also that we bought a small company during the quarter that that builds ESF energy storage systems are batteries, if you will ESF sounds a little more sophisticated but.

One of the things we do is we add that battery system to a crack spread and it helps even the electric load on the generation equipment as they are ramping up and down on the pressure pump the actual pumping.

That's so that's vertical integration, but the great thing about the esfs capabilities were able to extend those into other parts of our <unk> business that the distribution business.

You can imagine and commercial and industrial then the need for electric power keeps growing and having having a strong USS offering will help us and is helping US and then you can even take it to marine we're building.

Basically an electric hybrid towboat right now.

It will be able to run completely on electric power.

And.

We're really excited about that we see that as as a future and also place too.

To add product from this this very small acquisitions, but.

Scott High technology, that's a <unk>.

Long rambling answer.

Hopefully got got the answer you wanted no yeah, it's just I guess to understand that's helpful.

So I mean, it sounds like from your thoughts on England really seeing some some strength flow through may.

Maybe I'm a little confused and you follow up answer from some Jack in terms of.

Are you still concerned on the coastal pricing, while you're seeing that inflection.

Maybe maybe just a little clarity.

On that and then just a real quick follow up.

Well, we're seeing.

Ah nice inflection on inland in terms of pricing.

I would I would characterize coastal as flat.

Not yet rising the way it needs to.

So.

Sorry for that confusion, but inland is definitely moving on pricing and.

Coastal hasn't really started but it's not declining is just not filling up the way we'd like.

So.

Let me just ask you on corporate actions.

But.

I guess I'm, a little surprised by the the move to eliminate part of of the inland and close the marine side versus I think the general expectations were maybe something was coming down the Python.

Tom scaling or descaling on the orange or the.

Distribution services like maybe just sit back and and your thoughts on what other parts of the business sounds like you are adding more with this acquisition.

On the flip side, but.

How do you think things stand now within the organization.

Oh, Yeah, no I think we're very excited about marine I think you'll see.

Look this small acquisition is I mean.

Really small.

It's.

Or 40 piece immaterial in some ways.

40, really basically assuming some working capital liabilities and that's the extent of it very little cash outflow. So it's not it's not meaningful at all in terms of materiality in terms of cash.

As as we look at our business the serious cash deployment would be to continue to consolidate the inland marine business. If we're doing you may see a spin.

Some some meaningful capex on wind support type vessels.

Depending on contracts and how that might go but.

The big capital deployment will be in the marine side of the business.

Thank the offshore assets that was more of a.

Restructuring as we look at at our customers that they really.

Gravitated away from wire wire offshore barges.

To the favor of Atb's and we just we just kind of took that and said we need we need to restructure around that.

But the meaningful capital deployment or acquisitions will likely be.

In the Marine side I would tell you in DNS, we're running with the electrification side.

And.

That.

That has been meaningful and the oil and gas side as we've seen E frack come up in power generation used in.

And well servicing.

I would tell you the rest of that commercial and industrial is coming along too.

Almost every every business nowadays is looking at the the the.

The grid reliability and what they need to do to protect themselves. So we're pretty excited about that but as you know that didn't take a lot of capital right. That's doesn't requires to go by companies.

Or or.

A lot of Capex, it's really pretty low capex.

This small acquisition really was a small piece of vertical integration because we're already selling the esfs with with R. E X.

Okay. Thanks, I appreciate that thanks. Thanks.

Thank you.

Thinking our next question comes from Randy Givens Jaffray 90, something.

The gentleman has gone.

Yeah, Good how're you doing.

Good so I guess the first question are there still any real lingering impact from hurricane Ida or is that largely subsided. I know you mentioned there was an 8% negative impact during the third quarter. So just try and get the expected impact here in the fourth quarter.

Yeah. There in October there were probably a couple of cents worth of impact.

We factored into our thinking.

The plants are just now coming up we still have we have repair activities going on right now with some of the barges that were impacted from Ida They haven't all been repaired yet they are underway.

That should be take care of itself in the next three or four weeks.

The revenue is still down a little bit because of that.

Some of our major customers were just just now ramping back to full capacity, but they're coming back.

The only real lingering thing as the Intercoastal waterway is still closed near New Orleans, but I think that's going to open up in the next week or so.

What that does is causes us to divert around a little longer transit times.

To get to that New Orleans, Baton Rouge corridor.

So it's almost behind us and they were.

Some headwinds in the fourth quarter, there, but it's.

It's not near as as large as what we saw in the third quarter.

And as we talked a little bit about what our fourth quarter will look like that's all in the guidance.

Yeah.

Alright, and then for the sale of the Hawaii assets that are tigner that wire equipment, how meaningful is that in terms of potential profitability or meaning lost profitability for coastal and then I guess on the other side of the sales of those assets I think you mentioned and it's a little bit here a few minutes ago any appetite for.

Additional all kind of larger inland tank barge acquisitions at this point.

Yeah, I'll, let bill talk a little bit about the magnitude of.

Revenue and operating income for that but I'll come back and talk about acquisition.

We looked at those assets were underperforming assets. The we're not assets that we're generating profitability grandee and the contracts were ending and we didn't see profitability prospectively and as well that would have been capital employed. So we would have had to invest capital. So the way we looked at it.

It was the right time to leave we had lined up all the contracts to to the end of the year. So.

We sold the assets and took 17 million and will deploy our capital elsewhere.

Got it okay.

Yeah, and then in terms of acquisitions.

Look.

It's no secret.

There's been a lot of pain in the marine side, both both offshore and inland.

I think.

This market has been one of the worst ever.

In history.

We were we were coming out of the bottom.

Prepandemic and then the pandemic is kind of set a new low.

Many of our competitors have been an operating at cash breakeven or lower.

We had some contracts way down there as well you can look at our inland margins right.

They were kind of record lows now now that's coming back we were.

Mid single digits now, we're kind of I think we did around seven and a half in the inland side and in the third quarter, we're thinking will do 10% margins in the in the fourth quarter.

Hi.

Would see hopefully we get mid teens and 22.

Inland.

But when you when you start it really low margins and breakeven for many of our competitors there could well be some some opportunities.

I would caveat this and that is we've been very prudent through this this pandemic, we pay down a lot of dead as you heard from Bill I think since the Savage acquisition, we've paid down over $500 million in debt.

We're still generating really strong cash flow will continue to deliver and be prudent as we look for for acquisitions, but there could well be some I would just tell you we're going to be prudent.

It's.

It's been a rough rough coupla years, and there's a lot of pain out there.

But by the same token we want a delever a little more we've we've gotten our debt total cap down below 30%. It's I think it's 29% I'm looking at bill 29% ish.

So we're going to deliver a little more but there could be some.

Some some prospects in the coming year or two.

Okay, Yes that all makes us thanks for your time and go actress.

Thanks Randy.

Thank you and our next question comes from Greg Anthony B T.

90, something.

Hey, Thank you. Thank you and good morning, everybody, David I wanted to touch on.

Clearly the Q3, there was major disruptions.

Across the margins whoever was on the refining side and the pet can slide.

As we think about it historically traditionally Q3 was a good quarter utilization pricing it seems like.

Then you kind of step down a little in queue for men in Q1 really step down in terms of utilization and spa pricing just given what we saw in Q3 does that kind of change how we should be thinking about normal normal seasonal pattern, maybe not in queue for.

But it in Q1 and what that means in terms of setting up cute too.

Yeah no good question.

There is no doubt that.

Q3 was messy and Ah, we had the restructuring of postal.

Hurricane Ida was about eight since Covid, we didn't really talk much about it because I think we're all tired of talking about COVID-19, but that probably cost is five cents or <unk>.

As as Covid hit are marine.

Cruz, we had to divert.

Toes, we had to take them off of higher because we had to.

Re crew, we had higher medical costs et cetera. So and then we had a higher tax rate if you throw that onto the third quarter too. So it was a messy quarter.

As I look forward I would tell you that some of that those kind of headwinds are definitely going away I'd has gone away.

Third quarter is is almost always our best but.

That's because of our contracts or a fragrant as you know when the weather's good.

That's where we make good margins.

So.

I know it sounds cliche, but I think it quarter three was an anomaly.

As you do know quarter four has the weather in quarter, one has some weather as well.

That'll be normal but.

It won't be near as bad as say what.

Ida in Covid did to us in this quarter.

The other way to look at that very great weather.

Why there is still a fact it was a factor in person.

First quarter fourthquarter have that but it is a rising market so the rising tide.

The rising tide of pricing and utility is there.

Yeah, Okay, Great and then you touched on obviously the barge.

The loss of barges are submerged barges was more of a.

Of a dry bulk.

Large phenomenon than wet.

Any sense to us I mean, do we have any sense for maybe.

What type of negative impact on barge supply, whether it's medium term or long term.

Ida had on the tank large market.

Yeah, I think it's all temporary again.

The amount of liquid barges that were impacted were was pretty significant there were some dark customer docks that were impacted.

Yeah, I don't know if it would drive some retirement.

If you had a.

Ah damaged old barge you may retire it but.

There's a lot of barges in the shipyards now recovering from Ida, but I think it is very temporary it was it was more dry cargo and other vessels that were impact.

The the liquid tank barge market was impacted and I think.

I used Kirby as an example, we probably had 30 barges, we only got a handful left to to come out of repair. So we're almost through it and I would I wouldn't think the rest of the industry is much different than we were in that it was a meaningful impact though.

Have the Mississippi River go slow northward and rip a lot of fleets.

It was a significant impact, but I do think it's largely temporary and not Ah.

Stomach change to the inland market.

Okay, great. Okay, everybody. Thank you for your time.

Thanks, Greg.

Hey, Carmen this is Eric will take one more one more question yes.

Yes. Our next question is from a great glassy Koskey with a plethora research your line is open.

Hey, David Bell morning, Thanks for squeezing man.

Greg how ya doing.

Good good.

First question is on on the inland order book and just looking at the order book in prices for new barges.

Supply-side looks pretty construction pretty sorry constructive sure.

All the next few years to come and.

And I'm just curious.

Increase in Newbuild prices is that okay.

Directly attributable to hire steel prices or are there other factors at play there and I'm thinking specifically is there any sort of.

Hesitate hesitation from owners or underlying technology obsolescence risk embedded in there and the kind of looking at 510 20 years in the future.

And maybe you're saying in another way if steel prices were normalized.

Would we still be looking at a constructive supply picture here.

Yeah.

Good Multifactor question there.

I would tell you so look new barge, whether it's clean or dirty or hot Hot oil barge.

The prices.

Go back to 2017 2018 prices are almost.

Oh, gosh, I would say almost double.

A big portion of that is steel.

But.

Everything that goes into it has gone up in price too right.

Can take about paint you can think about welding and labor.

It's just it just costs more now to to build them.

That's why.

As we think about inflation, that's it's not necessarily a bad thing for Kirby. We've got this huge installed base of barges that are are relatively young and well maintained.

And so.

The higher the cost of new barges kind of the better the better for US is the way we look at it.

But still has no doubt.

A majority of that cost and.

It's it's.

Steele is up.

The price of barges went up 100% steals up 300% since prepandemic. So.

You could imagine that feels that I would tell you that most owner operators right now are not building new equipment. There has been some on order it's been an order for awhile deliver.

Deliveries or not.

Nominal and I would say retirements should outstripped.

Deliveries there.

In terms of your technology obsolescence, there's not.

A large as a large it's it's.

It's a big steel box, but they are more and more sophisticated but there's not a lot of technology obsolescence I would tell you that there is.

Because of the <unk> is becoming more and more important is is the pressure rating of a barge typical industry barge had a three pounds pressure rating.

Kirby's only built six pounds. So if you think about it fugitive emissions from from a <unk> barge or a lot less than they are in a three pound barge in the market starting to recognize that by the market I mean, our customers, they're worried about their fence line emissions and there.

There is there is a premium coming in and starting for six pound barges now is that an obsolescence thing.

Not not sure. It's an obsolescence thing it's just a fact right that everybody wants their emissions down those emissions are getting measured more and more and reported more and more so we're seeing a premium.

Kind of leak into the market.

Driven into the market by.

More desire for six pound barges versus three pounds, but that's not it's not technical obsolescence per se.

Okay, let's.

That's helpful. Thank you and.

And then one more quick one this on the pace of inland recovery.

Thinking about it in terms of you know it's not it's V shaped as maybe previously thought six months or a year ago can you speak to maybe the benefits of it being a a longer flatter curve and maybe it being.

More sustainable in the long run than a V shaped recovery.

Yeah.

The obvious benefits of that are.

It keeps building down longer right.

But it's also there's a lot of pain and not not that you like a lot of pain, but that pain.

May discourage.

People from.

Building, new barges are trying to expand as we look at some of our competitors, it's tough on them, it's tough on us.

So maybe that that sobers people up about.

About.

Building and expanding so that could be a benefit as well but.

Sure.

We'd like to see our returns up I have to say that so not that we want a sharpie, but.

Things things need to move and they are moving.

And.

Welcome.

Okay.

I appreciate the time guys.

Thank you thanks, Kurt Alright, Thanks, Greg and thanks, everyone for joining us today.

If you have any additional questions or comments feel free to reach out to me directly throughout the day I will be in the office. Thanks, everyone have a great day.

And the conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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Good morning, and welcome to the Kirby Corporation 2021 third quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions. We ask that you. Please limit your questions to one question and one follow up.

To ask a question you May press Star then one on your Touchtone phone to withdraw your question. Please press the pound key personnel disadvantage being recorded I would now like to turn the conference over to Mr. Eric Holcomb Kirby's Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining US with me today are David <unk>, Kirby's, President and Chief Executive Officer, and Bill Harvey Kirby's Executive Vice President and Chief Financial Officer, a slide presentation for today's conference call as well as the earnings release, which 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 the COVID-19 pandemic and the related response of governments on global and regional Mark to market conditions and the company's businesses.

A list of these risk factors can be found on Kirby's Form 10-K for the year ended December 31, 2020, I will now turn the call over to David.

Thank you, Eric and good morning, everyone.

Earlier today, we announced adjusted earnings of <unk> 17 per share for the 2021 third quarter, which excludes a one time noncash charge totaling $4 58 per share related to our coastal marine business.

On a GAAP basis, we reported a net loss of $4 41 per share.

Overall, our quarter was messy with the one time charge in coastal a devastating hurricane which significantly impacted our inland marine business and increased issues related to COVID-19.

We'll talk more about each of these including the one time charge in a few moments, but first I will discuss our key markets.

In Marine transportation, our inland business started the quarter with improving customer demand.

In August however, barge volumes declined as the cases of the COVID-19 Delta variant increased.

Which slowed the pace of the economic recovery and reduced demand for refined products and crude.

Vehicle miles traveled in the U S decline, including an overall four 4% decline in August with all regions of the U S impacted <unk>.

In our operations we experienced.

Meaningful rise in positive cases, among our Mariners as a result, we incurred increased costs to charter additional horsepower during the quarter to ensure our operations were seamless.

Our inland business was also materially impacted by Hurricane Ida a significant <unk>.

Category, four storm, which made landfall near New Orleans in late August.

This storm left a widespread path of destruction, which led to prolonged shutdowns of many customer plant as well as significant damage to marine equipment and waterway infrastructure.

As the storm approached all refineries and chemical plants and the New New Orleans Baton Rouge corridor, we're forced into shutdowns.

The storm damage was so significant that many remain closed or operating at reduced production levels through September and in some cases well into October.

At the height of the storm more than 2 million barrels of refining capacity per day was offline reducing pad three refinery utilization from 93% in August to 79% in September.

In the petrochemical sector with nearly the entire complex shut down operating rates at nameplate ethylene plants in the southeast.

Excuse me in southeast, Louisiana declined from 89% in August of 24% in September and production fell as much as 75% compared to August.

From our Marine Transportation perspective, the storm surge was so significant that Mississippi river flow backwards, causing many industry barges to break free and resulting in damage to numerous vessels customer docks and waterway infrastructure.

It's been estimated that as many as 2000 dry cargo and tank barges were damage during the storm, which included 30 Kirby tank barges.

All of this resulted in a full closure of the Mississippi River for about a week and a lengthy closure of parts of the Gulf Intracoastal waterway, which remains in effect today.

This closure has resulted in lengthy alternative routes.

Significant lock delays throughout September and October.

Overall, we estimate the damage caused by the hurricane on our equipment directly contributed to lost revenue and additional costs totaling approximately <unk> <unk> per share during the third quarter.

Moving to the coastal.

Market remained challenging during the third quarter, but we did experience some increases in spot market demand, which incurred which contributed to modest increases and barge utilization and reduced operating losses.

More importantly, we took significant actions to improve our coastal business, including the sale of our marine transportation assets in Hawaii, and the retirement of 12 laid up wire tank barges and four tugboats and the coastal fleet.

These actions resulted in a onetime noncash impairment charge in the third quarter. However, there are significant positives and it positions the coastal business for success going forward.

First our risk profile is greatly reduced by exiting Hawaii.

As a remote market that has generated poor returns for many years.

The retirement of our outdated and laid up coastal wire barges and tugboats improves our cost structure and materially reduces future capital outlays.

Frankly, many of our customers view the old wire tow technology is less safe and less reliable when compared to newer atvs.

Overall going forward, we expect our smaller fleet will allow us to focus on attractive markets and more efficient safe and cost competitive equipment will ultimately generate improved earnings and favorable returns.

In distribution and services momentum continued to build with improved activity levels contributing to net second sequential and year on year increases in revenues and operating margins.

In commercial and industrial the timing of major backup power installations and seasonal utilization improvements in the rental fleet led to strong sequential activity in power generation.

Increased demand for Thermo King product sales and service also contributed favorably to the quarter's results. These gains were partially offset by modest activity reductions in marine repair primarily due to major two excuse me two due to reduced major overhauls and <unk>.

Temporary facility closures following hurricane Ida.

And oil and gas increasing U S rig counts and completions activity drove strong incremental demand for new transmissions parts and service from major oilfield customers. This growth contributed to 25% sequential growth in oil and gas revenues and positive operating margins for the first time in more than.

Two years.

And manufacturing all those supply chain constraints delay the deliveries of several orders and led to a sequential reduction in revenues our backlog grew meaningfully with significant new demand for our environmentally friendly pressure pumping and electric power generation equipment.

In October Kirby acquired a small energy storage systems manufacturer based in Texas, which has been a key partner in the development of our new power generation solutions for electric fracturing equipment.

This acquisition will be important to the development of future energy storage solutions for the oilfield as well as industrial and Marine transportation applications.

In summary, our third quarter results reflected a challenging environment as well as key operating decisions and coastal marine.

The good news is that we have seen a significant improvement in inland market fundamentals in recent weeks with increasing customer demand and higher barge utilization in the high 80% range.

Distribution and services also continues to improve with the economy.

In a few moments I'll talk more about these developments as well as the rest of our outlook, but first I'll turn the call over to bill to discuss more about the one time charge as well as our segment results and balance sheet.

Thank you David and good morning, everyone before I review our segment results I want to provide a little more detail on the one time charge in coastal marine <unk>.

During the third quarter, we sold our coastal marine transportation assets in Hawaii, including for tank barges and seven tug boats for cash proceeds of $17 2 million.

We also retired 12 wire tank barges and four tug boats, which had limited customer acceptance and low utilization.

These events resulted in a noncash impairment charge of $121 7 million.

As a result, the company concluded that a triggering event had occurred and performed in term quantitative impairment tests on coastal goodwill, which resulted in a noncash impairment charge totaling $219 million.

In total the company recorded a noncash impairment related to coastal marine equipment and associated goodwill totaling $347 million before tax $275 million after tax or $4 58 per share.

Looking at our operating segments in the third quarter Marine transportation revenues for $338 5 million with an operating income of $16 9 million and an operating margin of 5% <unk>.

Compared to the 2023rd quarter Marine revenues increased $17 9 million or 6%, primarily due to higher fuel rebuilds in inland and coastal as the average cost of diesel fuel had increased 76% improve.

Improved barge utilization and inland is offset by lower pricing on term contracts that renewed during the last year operating income declined $15 5 million, primarily due to hurricane Ida lower term contract pricing and increased maintenance.

Compared to the 2021 second quarter Marine revenues increased $5 6 billion or 2% due to modest improvements in coastal barge utilization and increased fuel rebuilds operating income declined $1 6 million as a result of sales mix increased horsepower costs and the impact of hurricane.

Ida.

During the quarter the inland business contributed approximately 76% of segment revenue.

Average barge utilization was in the low 80% range, which was slightly down compared to the second quarter, but improved compared to the low 70% range in the 2023rd quarter.

Barge utilization during the quarter was heavily impacted by reduced volumes as a result of COVID-19 Delta variant and customer shutdowns following hurricane item.

Long term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 65% of revenue with 56% from time charters and 44% from contracts of affreightment.

With respect to pricing average spot market rates were stable compared to the second quarter and the 2023rd quarter.

Of the few term contracts that renewed during the third quarter average rates were down in the low to mid single digits compared to the 2023rd quarter inland revenues were up 3% due to significant increases in fuel rebuilds and improved barge utilization offset by lower average pricing on.

Term contracts.

Third to the second quarter inland revenues were stable.

Overall, the inland market represented 76% of segment revenues and had an operating margin in the mid to high single digits.

And coastal spot market conditions improve modestly, resulting in barge utilization in the mid 70% range during the quarter.

Average spot market rates and renewals of term contracts were stable.

During the third quarter the percentage of coastal revenues under term contracts was approximately 80% of which approximately 85% were term time charters.

Revenues in coastal increased 4% sequentially and 13% compared to the 2023rd quarter, primarily due to higher fuel rebuilds and modest increases in spot market activity.

Overall coastal represented 24% of Marine Transportation segment revenues and had a negative operating margin in the low single digits.

With respect to our tank barge fleet, a reconciliation of changes in the third quarter as well as projections for the remainder of 2021 are included in our earnings call presentation posted on our website.

Moving to distribution and services.

Revenues for the 2021 third quarter were $264 million with an operating income of $11 million and an operating margin of four 2%.

Compared to the 2023rd quarter distribution and services revenue increased $84 4 million or 48% and operating income income improved $9 9 million compared to the 2021 second quarter revenues increased $33 7 million or 15%.

And operating income increased $4 9 million.

These improvements are primarily due to a significant increase in demand for our oil and gas products and services as well as the improved economic conditions across the U S, which has raised demand for equipment parts and service in the commercial and industrial markets.

In commercial and industrial increased economic activity contributed to the increased sequential and year on year demand for equipment parts and service and on highway.

Thermo King in power generation the power generation rental fleet also benefit from increased utilization during the summer storm season, including hurricane either.

Marine repair revenues were down sequentially and year on year due to reduced major overhauls as well as activity reductions at our Louisiana facilities. Following hurricane Ida during the third quarter commercial and industrial revenues increased 9%, 9% sequentially and 20% year on year.

Overall, the business represented approximately 59% of segment revenue and had an operating margin in the mid single digits.

And oil and gas favorable commodity prices and increased activity in the oilfield contributed to significant sequential and year on year increases in revenues and operating income.

The most significant increase was in our distribution business with better demand for new transmissions parts and service for our major oilfield customers.

Our manufacturing business businesses also experienced substantial increases in new orders for pressure pumping in frac related power generation equipment while.

While manufacturing revenues increased sharply year on year, the business was negatively impacted by the timing of deliveries and OEM supply chain issues during the third quarter oil and gas revenues increased 25% sequentially and 120, 20% year on year overall, the oil and gas related business.

<unk> represented approximately 41% of segment revenue and had an operating margin in the low to mid single digits.

Turning to the balance sheet as of September 30, we had $54 million of cash and total debt of $1 to 1 billion with a debt to cap ratio of 29, 8%.

Since the <unk> acquisition of April one 2020, we have repaid nearly $500 million in debt during the quarter, we generated strong cash flow from operations of $83 million net of capital expenditures of $34 million free cash flow was $49 million. We also sold assets with net proceeds of $22 million during the <unk>.

<unk>, primarily composed of coastal marine assets in Hawaii at.

At the end of the quarter, we had total available liquidity of $908 million.

As of this week, our net debt has been further reduced to $1 2 billion.

For the full year, we expect capital spending to be approximately $120 million to $130 million, which represents more than a 15% reduction compared to 2020 and is primarily composed of maintenance requirements for our marine fleet. We also expect to generate free cash flow of $250 million.

$290 million for the full year.

Lastly from a tax perspective, we expect an effective tax rate of approximately 29% in the fourth quarter.

I'll now turn the call back over to David.

Thank you Bill.

Although the third quarter certainly had its challenges we are very encouraged by the improving market fundamentals across our businesses, which are setting the stage for materially improved earnings in the coming year.

In the near term for the fourth quarter, we expect a sequential improvement in overall revenues and earnings driven by increased volumes and more favorable market conditions in marine transportation offset in part by nominal and normal.

Ality and continued supply chain issues in distribution and services.

In the inland market, although some issues associated issues associated with Hurricane Ida has carried over including extended customer shutdowns barge repairs and waterway closures our outlook remains very positive.

During October our barge utilization has been in the mid <unk> to high 80% range with recent utilization at the high end of that and then a high 80.

Some of this increase can be attributed to waterway closures in Louisiana, which have extended transit times, However, turnarounds and pent up demand are also driving up large volumes.

Well the waterways are expected to fully reopen soon we expect barge utilization levels will be minimally impacted due to the ramping up of hurricane Ida affected plants economic improvements, new chemical plants coming online and the onset of winter weather.

With increased inland activity levels minimum new barge construction and continued retirements, we expect further improvements in the spot market going forward.

During the fourth quarter and into next year term contracts that renewed lower during the pandemic are expected to reset and gradually reset to reflect the improved market conditions.

Overall inland revenues are expected to sequentially increase in the fourth quarter with operating margins improving to around 10%.

Okay.

In coastal we expect the market will continue to recover with modest demand improvement for refined products in black oil transportation.

The recent retirement of the wire barge marine equipment will result in coastal barge utilization being around 90% for the fourth quarter.

Although the Hawaii equipment has been sold we will continue to operate the assets under a charter agreement through the end of the year when our existing customer contracts expire.

In the fourth quarter, we do anticipate some elevated shipyard activity on several of our larger capacity barges and that will result in a coastal revenue reduction in the mid single digits compared to the third quarter.

Coastal operating margins are expected to be at or below slightly below breakeven.

For the fourth in the fourth quarter.

Looking at distribution and services favorable commodity prices and increasing rig counts as well as well completions are expected to yield continued strong demand in our oil and gas distribution business.

And manufacturing activity levels are also expected to remain strong driven by new orders and our growing backlog of environmentally friendly pressure pumping equipment.

And frac related power generation equipment as well as some modest raw.

The manufacturing of conventional equipment.

However.

The OEM supply chain issues are expected to persist throughout the fourth quarter and they will delay sales some sales and project deliveries into 2022.

As a result, we expect our oil and gas businesses will experience a modest sequential reduction in revenues and operating income in the quarter in.

In commercial and industrial despite improving economic activity, there will be normal seasonality in marine repair thermo King and power generation, resulting in sequential.

Reductions in revenue and operating income in the fourth quarter.

Overall.

Compared to the 2021 third quarter distribution and services revenues are expected to decline modestly with operating margins.

In the low to mid single digits.

Now to wrap things up although the third quarter's results were disappointing we see we see improved results in the fourth quarter. Despite planned shipyards in coastal and seasonality and supply chain issues in distribution and services.

More importantly, we see strong momentum building across our businesses, which we will believe with which we believe will drive increased revenues and meaningful earnings growth in the coming years.

In inland our barge utilization has recently touched 90% with October averaging in the mid to high 80% range.

With the world economy, beginning to emerge from the pandemic low inventories of refined products and oil demand expected to meet or exceed pre pandemic levels. In 2022, we believe inland has turned the corner.

With minimal new barge supply, we expect our inland business will steadily move higher with improved pricing earnings and returns going forward.

And coastal although market conditions remain challenging recent improvements in the spot market should lead to barge utilization around 90%.

Are difficult, but necessary decisions to exit the Hawaii market and retire unutilized assets are long term positives that will allow this business to focus on its best assets and markets to generate positive earnings.

As the market improves.

In distribution and services economic growth will benefit our commercial and industrial businesses in the coming quarters and oil and gas was strong commodity prices and expectations for increased U S. Gas directed drilling we are increasingly optimistic about.

Enhanced demand for our products and services.

Further a heightened customer focus on low carbon solutions, including friendly environmentally friendly pressure pumping equipment and our power generation solutions for E. Frac has translated into significant growth in our backlog.

These increasing levels of activity will lead to improved profitability in 2022.

And finally, our strict capital discipline and intense focus on cash flow generation throughout the pandemic has enabled us to significantly reduce our debt and increase our liquidity as a result, we are very well positioned to act on future strategic opportunities to.

To increase our earnings potential going forward.

Operator. This concludes our prepared remarks, we are now ready to take questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

<unk> seen a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press <unk> turnkey as a reminder, we ask that you. Please limit your questions to one question and one follow up.

The first question comes from Ben Nolan with Stifel. Your line is open.

Thank you.

Good morning.

Hey, good day window.

Hi.

My first my first question I wanted to start with something a little bit more stores.

Maybe strategic or a function of sort of where where the broader market landscape. It is headed in and certainly one of the things that we're seeing is yes.

All of this supply chain issues, but it's impacting things like driver shortages and even on the railroads being somewhat capacity constrained.

And definitely inflation in some of those specifically those other two categories I'm curious sort of what the crossover is if if.

Those areas are starting to see significant inflation is there any ability for some of the excess chemical or petroleum products to sort of.

Be priced out of the market or for you guys to capture share if if those other two modes of transportation get more expensive.

Yes.

Im not sure Theres a lot of crossover there.

There could be some.

Basically if it can move on water it does.

I would just tell you in general.

Inflation is happening we're seeing a little wage pressure we gave some raises.

In July, but we've not had a problem.

Filling positions as you know Ben we started our our school, which is kind of a Kirby advantage. We started training Mariners in January and continued throughout the year. So we feel pretty good about where we are in terms of our labor supply.

And we're pretty excited about that we are seeing some inflation with supplies and food and whatnot.

But so far.

It's okay.

The Big news for US really is that that demand is growing.

Where we're starting to see it I mean, you can see it in the consumer the consumer is doing better gasoline demands back back up above the five year average manufacturing orders are up.

Our chemical customers are doing really well you can look at their earnings announcements.

Our refining and integrated customers are.

Seeing inventories low one, but crack spreads really high one.

One of our independent refining customers.

Shut down their refinery during Covid is has restarted it so.

From our perspective demands increasing its not really crossover demand. It's just real demand that we saw in our base business.

And as you know that demand with supply and check means we're we're headed for a much better pricing environment. We're starting to see that now we're getting price increases in the spot market spot prices are above contract prices in.

And things are moving along really well there.

Okay, Great. That's good color I appreciate it and then for my second question to switch gears a little bit.

On the coastal side I know you guys have sort of been mentioned or danced around some of the opportunities around offshore wind development. I'm curious if you can just sort of give us some sort of an update as to as to where that stands and maybe frame in the opportunity set.

From a recovery perspective.

Yes, well.

We've got to be very careful we're under a couple of different NDA is simple.

Can't say too much specific.

But you could imagine we very much want to be in the wind service business, whether its wind installation of our service.

And.

We're working hard on it.

As you've seen with these offshore installations the contracts.

Kind of drag out over time, and it's not moving as fast as anybody wants but.

Suffice it to say, we're in the middle of things and looking forward to.

Some meaningful avenues of future growth for Kirby and our marine operations I can't really tell you much more than that I wish I could but.

We will see as these projects progress.

Understood I'll be on the lookout for that so I appreciate it thanks guys.

Thanks Ben.

Thank you. Our next question comes from Jon Chapell with Evercore ISI. Your line is open.

Thank you good morning, everybody good morning.

Uh huh.

David on the inland contract renewal, So Bill said <unk> there was a few contracts.

I guess they were reset down.

So when you think about <unk> can you speak to.

Some level of magnitude on number of contract renewals as a percentage of your book and also given everything you've just laid out with utilization touching 90% petrochemical production coming back online would you anticipate at.

At least flat to starting to see some positive revisions in the contractual renewals this quarter.

Well.

To be more positive than that actually.

We've we've.

Kind of lapped the lows of Covid.

Renewals, so what we anticipate as contract renewals in the fourth quarter will be up.

We'll see how much that will be up but when you. When you look at what's happening in the inland market and particularly.

Particularly tightness around horsepower tightness around <unk>.

Supply is growing.

We are.

We're very optimistic and we think we will renew.

Contracts higher spot pricing is well above contract pricing and.

We're about to re price some of these COVID-19 low.

Contracts, so I can't be too specific because.

It's a negotiation.

With numerous customers.

As you know fourth quarter is usually one of the heavier quarters I would say it's kind.

Twice any other quarter because at first second and third are kind of all around the same.

Maybe a little more in the first and the second and the third but the fourth is always the heaviest so we're pretty optimistic.

We're heading in demand tight.

Pricing is going up.

Labor and Mariners are in short supply of horsepower is in short supply.

It is set up to go up.

It needs to it has two and it will.

Great.

And then sticking with that theme as well.

People tend to watch refined product utilization refinery utilization, because we actually have visibility on that every week I think that data you provided on the petrochemical numbers out of southeast, Louisiana was pretty meaningful when you go from 89% to 25%.

Is there any I know that new customers are coming back online, but when you think about <unk> overall or maybe just kind of November and December run rates postal a ramp up period, what are you expecting for the petrochemical plant utilization and overall production at the kind of rebound from that 75%.

Clyde.

Yes.

I'll just look at south I'll use south southeastern Louisiana ethylene as an example, pre hurricane Ida.

They were ethylene plants in that corridor were running around 89% as you heard a dropped to 25% I think they are back up to 89%.

And maybe even higher than that.

Some of the big chemical customers.

You know them, they're saying, they're running full out.

Some of the refiners are saying the exact same thing.

The independent refiners are saying theyre going to run out.

Run on hard.

Also we're seeing a little heavier feedstock mix, which is which is pretty positive for barging.

Heavy oil feedstock mix.

More byproducts and those byproducts generally.

Lead to two a little more barge movements.

Some of them are heavier products in.

Don is readily moved in pipeline so.

It's shaping up nicely.

It's always good when your customers start making more money right.

It's the chemical guys are the refiners are or the integrated they're all doing doing better and.

Yes, that's good and they are doing better because demand is picking up.

I think we're all tired of talking about Covid.

But if it's demand impact has been real.

And hopefully we are turning the corner.

We had the Delta variant hopefully theres not another variant coming.

But everything looks pretty good from from our perspective, just looking at refinery utilization and chemical plant utilization ethylene production aromatics production for.

For co product production.

They are all kind of increasing.

They've recovered from from Ita.

And actually are starting to get above pre <unk>.

Pandemic levels and back to pre pandemic levels.

Alright, well Thats all great to hear thank you David.

Yes, Thanks John.

Our next question is from Jack Atkins with Stephens. Your line is open.

Hey, great. Good morning, and thank you for taking my questions.

Hey, good morning, Jay.

So David I guess, maybe to start with maybe a two parter on inland.

You referenced sort of some heavier feedstocks.

I would be curious if maybe you could expand on that a bit with natural gas prices.

Now moving higher over the course of the last several months can you maybe talk about how that impacts your business is that a positive or negative as you think about petrochemical output in activity and then with with fundamentals accelerating in the inland market.

Is there maybe any thoughts that go into some shorter term contracts.

To be able to participate in maybe a stronger pricing environment as you look six or maybe even 12 months I'm just trying to think of a way to capitalize on that versus locking yourself into.

12 month commitment now right as the market is beginning to turn.

Yes.

Let me take the first part first.

We.

Look as natural gas prices go up.

Ethane is part of that kind of split.

And ethane as a feedstock for the ethylene plants right.

But as as those prices go up.

<unk> fuel crack more naphtha or heavy CTO could could be <unk> or propane they'll start.

Cracking heavier because.

The math starts to work for them for the heavier feedstocks.

And we're seeing that.

I think there is Dan <unk> and others.

The published on that but the heavier feedstocks are going into the chemical plants and again, that's good for us.

More naphtha crack the more heavies that youll see.

You could see <unk> in butadiene coming out butadiene, and some nice one because its a pressure cargo.

Kirby has got a pretty good position in pressure products.

So yes, the flexi crackers are are taking advantage of kind of the.

The pricing dynamics in cracking a little more heavy in.

In terms of.

More spot versus contract Bill you said the Spot's about what 35 30, 35% of our book right now.

And then we've got a lot of contracts that theyre going to reprice here in the fourth quarter. So 30.

35% plus still feels about right.

I hear you loud and clear I think we'd like to to capture more price increases but.

We'll roll through this in.

See where it goes it feels pretty good with 35%, but that will that will reprice pretty big pretty quickly.

Jack.

No no im sorry, I was on.

Thanks.

Yes.

For my for my follow up question.

With regard to the coastal barge market and the actions that you took there.

Sort of clean up some underperforming assets.

Utilization now at 90% or so kind of moving forward understanding there is some.

In the fourth quarter to kind of clean up there as you complete some contracts, but do you feel like that business now even at current pricing can be can be.

Breakeven to modestly profitable.

How are you thinking about that.

The profitability.

The impacts of the actions that you took during the year.

Yes.

We're hopeful we'll be breakeven ish next year, there is still a little overhang in excess equipment in the coastal market.

I think everybody is aware of the bouchard equipment out there.

And.

There is still a fair amount of idle equipment amongst our competitors.

The good news is as we've talked about demand is increasing right.

You think about the coastal businesses, it's pretty heavy in terms of refined products and.

As you as you heard in some of my previous comments.

Refinery utilizations up product inventories are low crack spreads are stronger.

Volumes are picking up.

They just need to pick up a little more there's still too much supply in the offshore business.

But but we're getting closer to the turn there I think that turn is further out than the inland tern.

Just just because of.

How overbuilt that market got.

After.

As you recall Jack.

No.

Few years back they were probably.

A third of the fleet was moving crude by barge and I would say.

It's a lot less than that so there is normally a handful of.

The coastal barges moving crude oil now so.

All of that all of that excess capacity has to be soaked up by refined products demand and that's happening. It's just it's just happening a little slower.

So, but it's heading in the right direction, we're doing our part or were taken out these.

These older wire equipment pieces and I also think that ballast water treatment may drive some others out.

To retire.

Pretty far along on our fleet with ballast water treatment I think.

A few other of our competitors are behind the curve on ballast water treatment. So as they start to spend that capital, perhaps we'll see some some retirement.

So long winded answer to say that supply and demand is still a little out of balance.

But it's heading the right direction.

And we took the actions we felt that weren't necessary and I think.

We'll be breakeven ish.

Next year.

Based on what we see now and Jack One thing David had mentioned in the prepared remarks, but it is not insignificant. It allows us to focus the spend on the good assets.

Sets that are retired in the Hawaiian assets, which would have required significant capital and that's not the place to put capital.

No makes it makes total sense. Thanks for the thanks for the time guys.

Thanks Jay.

Thank you. Our next question comes from Ken <unk> with Bank of America. Your line is open.

Hey, good morning.

Maybe just.

Good morning.

And Bill just at the OMG.

Side of DNS, maybe can you talk a bit about the supply chain issues, you talked about the drag on margin versus the rising demand maybe you thought obviously no easy answers to the supply chain, but but your thought on on how long that that remains an overhang.

Yes.

Look at it as what you've been hearing I can tell you that were having problems with engine deliveries were having problems with transmission deliveries as you might imagine with with the electrical nature of much of what we're taking in in the inbound.

Circuitry and components.

Motherboards.

Chip based stuff has been slow.

I would tell you that.

If we could have gotten some engines and a few other electrical components. We would have we would be shipping more product in the fourth quarter I think it resolves itself in early 'twenty two.

It's real.

I know you guys are tired of hearing about COVID-19 and supply chain.

We're tired about it too but.

It's been real.

You can look at some of the big engine Oems they are starting to catch up so I'm optimistic.

But they were real I think the encouraging thing, though Ken is as our backlog has jumped meaningfully I mean, our book to Bill is.

A huge percentage and we're not talking tens of millions, it's more like hundreds and.

Backlog is really growing a lot of it is ESG centric I'll tell you.

In oil and gas in particular.

Kind of any any new equipment is has got an element of carbon reduction for our customers.

And our customers' customers.

So we're very excited about it.

You may have heard also that we bought a small company during the quarter.

<unk>.

Builds ESF as energy storage systems or batteries, if you will DSS sounds a little more sophisticated but.

One of the things we do is we add that battery system to a frac spread and it helps even the electric load on the generation equipment.

As they are ramping up and down on the pressure pump into the actual pumping.

That's so that's vertical integration, but the great thing about.

The ESL capabilities, we're able to extend those into other parts of our kgs business that the distribution business.

You can imagine in commercial and industrial then.

Need for electric power, it keeps growing and having having a strong USS offering will help us and is helping US and then you can even take it to marine.

Building.

Basically an electric hybrid towboat right now.

It will be able to run completely on electric power.

And we're really excited about that we see that as is the future and also place too.

To add product from this this very small acquisition, but.

Scott Hi technology.

That's a long rambling answer.

Got the answer you wanted to.

Yes, just I guess to understand that's helpful.

So I mean, it sounds like from your thoughts on inland really seeing some strength flowed through.

Maybe I'm a little confused and you'll follow up answer from from Jack in terms of are you still concerned on the coastal pricing, while youre seeing that inflection inland, maybe maybe just a little clarity.

On that and then just a real quick follow up so well we are seeing.

A nice inflection on inland in terms of pricing.

I would I would characterize coastal is flat.

Not yet rising the way it needs to.

So.

Sorry for that confusion, but inland is definitely moving on pricing and.

Coastal hasnt really started but it's not declining it's just not filling up the way we'd like.

So.

Let me just ask you on corporate actions.

But.

I guess I'm, a little surprised by the move to eliminate part of that.

Inland and coastal marine side versus I think the general expectations were maybe something was coming down the pipe.

Tom scaling or Descale agave.

Alright.

Distribution and servicing side, maybe just step back and your thoughts on what are the parts of the business. It sounds like you are adding more with this acquisition.

The frac side, but.

How do you think things stand now within the organization.

Oh, Yes, no I think we're very excited about marine I think youll see it.

This small acquisition is.

Really small.

It's.

40 bps immaterial in some ways.

It <unk> really basically assuming some working capital liabilities and Thats the extent of it very little cash outflow. So it's not it's not.

Not meaningful at all in terms of materiality in terms of cash.

As we look at our business the serious cash deployment would be to continue to consolidate the inland marine business.

Do anything you may see a spin.

Some some meaningful capex on win support type vessels.

Depending on contracts and how that might go but.

The big capital deployment will be in the marine side of the business.

I think the offshore assets that was more of a.

Restructuring as we look at it our customers they really gravitated away from wire wire offshore barges.

To the favor of Atvs and we just we just kind of took that and said we need we need to restructure around that.

But the meaningful capital deployment or acquisitions will likely be.

In the Marine side I would tell you on DNS.

We're running with the electrification side.

And.

<unk>.

That has been meaningful in the oil and gas side as we've seen E frac come up in power generation used in.

In well servicing.

I would tell you that.

The rest of that commercial industrial is coming along too.

Almost every every business nowadays is looking at.

The grid reliability.

And what they need to do to protect themselves. So we're pretty excited about that but.

As you know that didn't take a lot of capital right.

Doesn't require us to go buy companies.

Or.

A lot of Capex, it's really pretty low capex.

This small acquisition really was a small piece of vertical integration, because we're already selling the esf's with with our E fracs.

Okay. Thanks, guys appreciate the time thanks, Dan.

Thank you.

Thank you. Our next question comes from Randy <unk> with Jefferies. Your line is open.

Howdy gentlemen, how's it going.

Hey, good how are you doing Brian.

So I guess first question are there still any real lingering impacts from hurricane Ida or is that largely subsided. I know you mentioned there was an 8% negative impact during the third quarter. So just trying to get to your expected impact here in the fourth quarter.

Yes, they are.

In October there were probably a couple of cents worth of impact.

We've factored into our thinking.

The plants are just now coming up we still have we have repair activities going on right now with some of the barges that were impacted from Ida they.

They haven't all been repaired yet they are underway.

That should take care of itself in the next three or four weeks.

The revenue is still down a little bit because of that.

Some of our major customers. We're just just now ramping back to full capacity, but theyre coming back I would say the only real lingering thing is the inter coastal waterway is still closed near New Orleans, but I think that's going to open up in the next week or so.

What that does is causes us to divert around a little longer transit times.

To get to that New Orleans, Baton Rouge corridor.

So it's almost behind us and there were.

Some headwinds in the fourth quarter, there, but it's.

It's not near as large as what we saw in the third quarter.

And as we've talked a little bit about what our fourth quarter will look like that's all in the guidance.

Yes.

Alright, and then for the sale of the Hawaii assets or timing of that wire equipment, how meaningful is that in terms of potential profitability or maybe loss profitability for coastal and then I guess on the other side of the sales of those assets. I think you mentioned this a little bit here, a few minutes ago, but any appetite for.

Additional kind of larger inland tank barge acquisitions at this point.

Yes, I'll, let bill talk a little bit about the magnitude of.

On a revenue and operating income for that but that I'll come back and talk about acquisitions, yes.

We looked at those assets were of underperforming assets.

They were not assets that were generating profitability, Randy and the contracts are ending and we didn't see profitability prospectively and as well there would've been capital employed so we would have had to invest capital. So the way we looked at it.

It was the right time to leave we had lined up all the contracts.

Through the end of the year so.

We sold assets in 2000 $17 million and will deploy our capital elsewhere.

Got it okay.

Yeah, and then in terms of acquisitions.

Look.

It's no secret.

There's been a lot of pain in the marine side, both both offshore and inland.

I think.

This market has been one of the worst ever in.

In the history.

We were coming out of the bottom.

Pre pandemic and then the pandemic just kind of set a new low.

Many of our competitors have been an operating at cash breakeven or lower.

We had some contracts way down there as well you can look at our inland margins right.

Yes.

They were kind of record lows now now that's coming back we were.

Mid single digits now.

I think we did around seven five in the inland side.

The third quarter, we're thinking we'll do 10% margins in the fourth quarter.

I would see hopefully we get to the mid teens in 'twenty two.

Inland.

But when you when you start at really low margins and breakeven for many of our competitors there could well be some some opportunities.

I would caveat this and that is we've been very prudent through this pandemic, we've paid down a lot of that as you heard from bill.

I think since the Savage acquisition, we've paid down over $500 million in debt.

We're still generating really strong cash flow, we will continue to delever and be prudent.

As we look for for acquisitions, but there could well be some I would just tell you we're going to be prudent.

It's.

It's been a rough rough couple of years and Theres a lot of pain out there.

But by the same token.

We want to Delever a little more.

<unk> got in our debt to total cap down below 30% I think it's 29% I'm looking at bill 29% ish.

So we're going to Delever, a little more but there could be some.

Some some prospects in the coming year or two.

Okay that all makes sense. Thanks for the time and go Astros.

Yeah. Thanks Randy.

Thank you and our next question comes from Greg Lewis with <unk>.

Your line is open.

Hey, Thank you. Thank you and good morning, everybody.

David I wanted to touch on.

Clearly the Q3, there was no major disruptions.

Cross the margins should weather was on the refining side and the pet Chem side.

As we think about it historically traditionally Q3 was a good quarter utilization pricing. It seems like then you kind of step down a little in Q4, and then in Q1 really stepped down in terms of utilization and spot pricing.

Just given what we saw in Q3 does that kind of change how we should be thinking about normal the normal seasonal path, maybe not in Q4, but in Q1 and what that means in terms of setting up Q2.

Yes, no good question.

Look there is no doubt that.

Q3 was messy, we had the restructuring of postal Hurricane Idaho was about eight.

Covid, we didnt really talk much about it because I think we're all tired of talking about COVID-19, but that probably cost us five or six.

As Covid hit our marine.

Cruise, we had to divert CRO.

Toes, we had to take them off of higher because we had to.

Re crew, we had higher medical costs et cetera. So and then we had a higher tax rate if you throw that onto the third quarter. Two so it was a messy quarter as I look forward I would tell you that some of that in those kind of headwinds are definitely going away I'd has gone away.

Third quarter is almost always our best but.

And thats because of our contracts of affreightment as you know when the weather is good.

Where we make good margins.

<unk>.

So.

No.

I know it sounds cliche, but I think quarter three was an anomaly.

As you do know quarter four has the weather in quarter, one has some weather as well.

That'll be normal but.

It wont be near as bad as say, what Ida and Covid did to us in this quarter.

The other way to look at that very great.

Whether it's still a fact it was a factor in first.

First quarter of fourth quarter have that but it is a rising market. So a rising tide.

The rising tide of pricing in that utility is there.

Yeah, Okay, Great and then I mean, you touched on.

Recently the barge.

The loss of barges are submerged barges was more of a.

The dry bulk.

Large phenomenon than wet is there any sense to us I mean, do we have any sense for maybe what.

What type of negative impact on barge supply, whether it's medium term or long term.

Ida had on the tank barge market.

Yes, I think it's all temporary again.

The amount of liquid barges that were impacted was pretty significant there were some dark customer docks that were impacted.

Yes, I don't know if it will drive some retirements.

If you had a.

A damaged old barge in may retire but.

There's a lot of barges in the shipyards now recovering from either.

But I think it's very temporary.

It was more dry cargo and other vessels that were impact.

The liquid tank barge market was impacted and I think.

I use Kirby as an example, we probably had 30 barges, we only got a handful left to come out of repair. So we're almost through it and I would I wouldn't think the rest of the industry is much different than we were in that it was a meaningful impact though.

Have the Mississippi River go slow northward.

Rip a lot of fleets.

It was a significant impact, but I do think it's largely temporary and not.

Stomach change to the inland market.

Okay.

Great. Thank you hey, everybody. Thank you for your time.

Thanks, Greg.

Hey, Carmen this is Eric will take one more one more question yes.

Yes, Sir our next question is from Greg Lessee Koski with Webber Research Your line is open.

Hey, David and Bill Good morning, Thanks for squeezing me in.

Hey, Greg how are you doing.

Good good.

First question is on on the inland order book looking at the order book in prices for new barges.

Supply side looks pretty construction pretty constructive.

Constructive for alright.

Probably next few years to come.

And I'm just curious.

The increase in Newbuild prices is that kind of directly attributable to higher steel prices or are there other factors at play there and I'm thinking specifically is there any sort of.

Hesitate hesitation from owners or underlying technology obsolescence risk embedded in there kind of looking ahead 510 20 years in the future.

And maybe saying it another way if steel prices were normalized.

Will we still be looking at a constructive supply picture here.

Yes.

<unk>.

Good Multifactor question there.

I would tell you so look new barge, whether it's clean or dirty or hot Hot oil barge.

The prices.

You go back to 2017 2018 prices are almost.

Oh, gosh, I would say almost double.

A big portion of that is steel.

But.

Everything that goes into it has gone up in price too right.

Can think about paint you can think about.

<unk> and labor.

It's just it just costs more now to to build them.

That's why.

As we think about inflation, that's it's not necessarily a bad thing for Kirby. We've got this huge installed base of barges that are.

Our relatively young and well maintained.

So.

The higher the cost of new barges kind of the better the better for US is the way we look at it.

But steel is no doubt.

Majority of that cost.

It's.

Steel is up.

Whereas the price of barges went up 100% steels up 300% since pre pandemic. So.

You could imagine this deal that I would tell you that most owner operators right now are not building new equipment. There has been some on the order it's been an order for a while.

<unk>.

Our.

Nominal and I would say retirements should outstrip.

Deliveries there.

In terms of your technology obsolescence Theres not.

Our barges of barges.

It's a big steel box, but they are more and more sophisticated but theres not a lot of technology obsolescence I would tell you that there is.

Because of the ESG is becoming more and more important as is the pressure rating of a barge a typical industry barge had a three pounds pressure rating.

Kirby's only built six pounds. So if you think about fugitive emissions from from our six found barge or a lot less than they are in a three pound barge and the market is starting to recognize that in by the market I mean, our customers.

Worried about their fence line emissions in there.

There is there is a premium coming in starting for six pound barges now is that an obsolescence thing.

Not sure. It's an obsolescence thing it's just a fact right that everybody wants their emissions down those emissions are getting measured more and more and reported more and more so we're seeing a premium.

Kind of leak into the market.

Driven into the market by.

More desire for six pound barges versus three pounds, but that's not it's not technical obsolescence per se.

Got it that's.

That's helpful. Thank you.

And then one more quick one just on the pace of inland recovery.

Thinking about it in terms of.

Is V shaped, maybe previously thought six months or a year ago can you speak to maybe the benefits of it being a longer flatter curve and maybe it being.

More sustainable in the long run than a V shaped recovery.

Yes.

The obvious benefits of that are.

It keeps building down longer right.

But it's also there's a lot of pain and not that we like a lot of pain, but that pain.

May discourage.

People from.

Building, new barges are trying to expand as we look at some of our competitors. It's tough on them, it's tough on us government.

So maybe that that silver's people up about.

About.

Building and expanding so that could be a benefit as well but.

Sure.

We'd like to see our returns up to say that so not that we want a sharp fee but.

Things things need to move and they are moving.

And it's welcome.

Okay got it appreciate the time guys.

Alright, Thanks, Craig Thanks, Curt Alright, Thanks, Greg and thanks, everyone for joining us today.

Do you have any additional questions or comments feel free to reach out to me directly throughout the day I will be in the office. Thanks, everyone have a great day.

Okay.

And the conference has now concluded. Thank you for attending today's presentation and you may now disconnect.