Q4 2021 World Fuel Services Corp Earnings Call
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Yeah.
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Welcome to the World Fuel Services Corporation fourth quarter and full year 2021 earnings Conference call. My name is Sylvia and I'll be your operator for today's call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
The question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
I will now turn the call over to Glenn <unk> World Fuel's, Vice President Treasurer, and Investor Relations. Mr. Kravitz, you may begin.
Thank you Sylvia and good evening, everyone and welcome to the World fuel services fourth quarter and full year 2021 earnings Conference call. This is Glenn and I'll be doing the introductions on this evening's call alongside our live slide presentation.
This call is also available via webcast to access this webcast or future webcast. Please visit the world fuel services Corporation website and click on the webcast icon.
With us on the call today are Michael <unk>, Chairman, and Chief Executive Officer, and IRA Burns Executive Vice President and Chief Financial Officer.
By now you should have all received a copy of our earnings release, if not you can access the release on our website.
Before we get started I would like to review World Fuel's Safe Harbor statement.
Certain statements made today, including comments about world Fuel's expectations regarding future plans and performance are forward looking statements that are subject to a range of uncertainties and risks that could cause world fuel's actual results to materially differ from the forward looking information.
A description of the risk factors that could cause results to materially differ from these projections can be found in world Fuel's. Most recent Form 10-K , and other reports filed with the Securities and Exchange Commission.
World fuel assumes no obligation to revise or publicly release the results of any revisions to these forward looking statements in light of new information.
Or future events.
This presentation also includes non-GAAP financial measures as defined in regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World fuels press release and can be found on its website.
We will begin with several minutes of prepared remarks, which will then be followed by a question and answer period.
As with prior conference calls, we ask that members of the media and individual private investors on the line participate in listen only mode.
At this time I would like to introduce our chairman and Chief Executive Officer, Michael Castleman. Thank.
Glenn and good evening, everyone I hope all of you are doing well and adjusting to a somewhat more normal environment.
On behalf of our leadership team I would like to again, thank our employees throughout the world for their continued dedication in maintaining and building our global energy solutions business.
We're collaborative efforts remained seamless as we successfully manage their commercial business during COVID-19 for a second straight year.
And a special callout to our physical operations team members that managed store logistics through the last two years. Thank you for your dedication and teamwork, it's truly a pleasure to work with you all.
Our aviation business finished the year strong in what has become a more broadly improving operating environment.
While the U S market has experienced the strongest recovery to date, we are beginning to also see many markets improving in other regions positioning us well as we continue through 2022.
The marine industry also finished the year well with improving opportunities in various key markets combined with rising prices and interest rates, which have historically benefited the marine business, where youre seeing some renewed momentum heading into 2022.
And lastly, our land business has a tremendous amount of excitement in the air between the recently completed Flyers acquisition, which has immediately added scale and geographic density to our North American operations and our growing connects sustainability platform, where we are finding more ways to help our customers navigate the <unk>.
Energy transition.
We are partnering with their customers to develop carbon reduction plans advising them on how to reduce energy use source renewable energy and finally competency for residual carbon emissions using carbon offsets.
We have the breadth and depth in the sustainable services and products such as onsite solar power agreements energy efficiency and many more that we custom tailor for diverse set of clients to achieve near term targets, while preparing for the energy transition of tomorrow.
Our solid financial position will continue to serve us well over the course of 2022 with an abundant pipeline of organic and inorganic growth opportunities across our core lines of business I'm encouraged about our market position and our ability to deliver comprehensive energy solutions in the years.
Ahead now.
Now I will turn the call over to IRA for a review of our financial results.
Thank you, Mike and good evening, everyone before I walk through our fourth quarter and full year 2021 results. Please note that the following figures that are about this year exclude the impact of non operational items highlighted in our earnings release.
Secondly, all of the non operational items in the fourth quarter related to our recent acquisition of Flyers energy.
Also all comparisons to 2020, excluding the operating results of multi service that was sold at the end of the third quarter of 2020.
To assist you in reconciling results published in our earnings release, the breakdown of the nonoperational items can be found on our website and on the last slide of today's webcast presentation.
So now let's continue with the financial highlights for the quarter and the year.
Consolidated revenue for 2021 rebounded to $31 3 billion up 54% year over year.
Adjusted fourth quarter net income and earnings per share was $17 $6 million 28 per share respectively up from $1 million and <unk> <unk> per share in the fourth quarter of 2020.
Adjusted full year net income and earnings per share were <unk> $86 million and a $1 36 per share respectively.
<unk>, increasing nearly 20% from prior year results adjusted.
Adjusted EBITDA for the fourth quarter was $56 million, an increase of $12 million or 26% compared to the fourth quarter of 2020 and for the full year EBITDA was $241 million effectively flat when compared to the prior year.
Volume continued to improve across the across all of our business segments as markets continue to recover with fourth quarter consolidated volume of $4 3 billion gallon or gallon equivalents up 23% year over year and full year volume of 16 billion gallons or gallon equivalents up 11% compared to the full year 2020.
And now I'll get into our results in greater detail, starting with segment volumes, our aviate. Our aviation segment volume was $1 7 billion gallons in the fourth quarter, that's an increase of 2% sequentially and 47% compared to the fourth quarter of 2020.
The year over year volume increase resulted principally from the ongoing recovery in commercial passenger activity.
Full year aviation volume was $5 9 billion gallons, that's an increase of 25% year over year.
Volume in our Marine segment for the fourth quarter was $4 9 million metric tons, that's an increase of 2% sequentially and 15% year over year.
We experienced increases in our core resale activity and physical operations during the fourth quarter and expect volume to continue to grow moderately over the course of 2022.
For the full year Marine volume was $18 5 million metric tons, that's a 6% year over year increase.
Our land segment volume was $1 4 billion gallons per gallon equivalents during the fourth quarter, that's an increase of 6% sequentially and 8% year over year.
The year over year volume increases spanned across much of North American retail wholesale commercial industrial operations at our connect natural gas and power activities for the full year land volume was $5 3 billion gallons or gallon equivalents, an increase of 4% year over year.
Moving onto gross profit consolidated gross profit for the fourth quarter was $215 million, an increase of 9% sequentially and 30% year over year.
And full year gross profit was $789 million up slightly from the prior year when excluding the results of multi service and despite the decline in activity in Afghanistan, which terminated during the third quarter of 2021.
Our aviation segment contributed $110 million of gross profit in the fourth quarter, that's a 3% decline sequentially, but an increase of 56% year over year.
Year over year increase in aviation gross profit related to the continuing recovery in commercial passenger volume, which reached 76% of pre pandemic levels in the fourth quarter driven largely by the strong rebound in activity in North America at an accelerated recovery in Western Europe , most specifically in countries, such as France, Germany and <unk>.
Italy.
We also benefited from approximately $10 million of inventory related gains related to price volatility during the fourth quarter.
And finally, our business aviation activity at our related service business has also experienced strong year over year growth for.
For the full year aviation gross profit was $388 million, that's a 12% increase compared to 2020 again, despite the year over year decline in activity in Afghanistan.
As we look ahead to this year's first quarter for aviation, while we expect to experience a meaningful seasonal sequential decline in aviation gross profit year over year aviation GP should still increase relative to the first quarter of 2021.
The Marine segment generated fourth quarter gross profit of $30 million, that's a 38% sequential increase and a 33% increase year over year, driven principally by improvement in core resale and physical supply activity.
For the full year Marine gross profit was $100 million.
That's a 33% year over year decline, while volume was stable, we experienced margin declines when compared to the prior year, where we benefited from the volatility surrounding the IMO transition during the first half of 2020.
As we look ahead to the first quarter for Marine we expect gross profit to increase sequentially and year over year, driven by renewed signs of improving market conditions in our core resale and physical operations with a strong opportunity for further improvement as we navigate through 2022.
Our land segment delivered gross profit of $75 million in the fourth quarter, an increase of 20% sequentially and 4% year over year. In addition to sequential seasonality related to heating oil in the U K and natural gas in the U S. We also experienced growth in our connect sustainability platform.
Year over year, we experienced growth in our commercial and industrial retail and natural gas activities, partially offset by the decline from Afghanistan.
For the full year, while also impacted by the termination of activity in Afghanistan land delivered $301 million of gross profit, that's a 3% year over year increase.
As we look ahead to the first quarter for land gross profit will increase significantly principally related to the inclusion of Flyers energy, which we closed at the beginning of the year as well as expected growth in our heating oil business in the U K.
While the first quarter is a seasonally soft quarter for Flyers, we still expect our full year contribution for 2022 to meet or exceed initial guidance.
Core operating expenses were $176 million in the fourth quarter. This is significantly above the range provided on last quarter's call.
The reason for this is clear.
Our people are our greatest assets and they have provided unwavering support over the past two unprecedented years, yet the pandemic impact on our operating results have made it difficult to reward them and the way we would have liked to.
However, when we significantly outperformed our expectations in the fourth quarter, we took the opportunity to increase incentive compensation, enabling us to better reward our high performing and well deserving team for the year, while still delivering a solid net result for the quarter I would call. This a big win for everyone.
Looking ahead to the first quarter apples to apples, our operating expenses will decline principally due to the impact of the additional incentive compensation expense in the fourth quarter, but we then pick up the operating expenses related to Flyers energy for the first time.
Considering both of these factors, we expect core operating expenses to be in the range of $180 million to $185 million in the first quarter.
Bad debt expense in the fourth quarter was $3 4 million and $6 3 million for the full year, representing a very significant improvement from 2020, and even a significant improvement from years. Prior as our team continues to manage our receivables portfolio and related credit risk with excellence.
Adjusted EBITDA for the fourth quarter was $56 million, that's a 26% over the fourth quarter of last year and for the full year. Adjusted EBITDA again was $241 million flat with the prior year, resulting from a significant rebound in aviation offset by reduced profitability in marine and the.
<unk> of operations in Afghanistan during the third quarter.
Fourth quarter interest expense was $11 million and that was effectively flat year over year.
As we look ahead to 2022 interest expense will increase principally due to higher borrowings related to the recent Flyers acquisition and rising interest rates with that being said first quarter interest expense is expected to increase to the range of 12 five to $13 5 million.
Our adjusted effective tax rate for the fourth quarter was 24, 6% that's below the guidance provided last quarter for the full year. Our adjusted effective tax rate was 26% down materially from 38, 3% in 2020. This relates to our continued efforts to drive greater tax efficiencies.
Across our global business as we look ahead to 2022, we expect our full year effective tax rate to be in the range of 25% to 28%.
During the fourth quarter operating cash flow was negative $50 million.
That principally relates to the significant sequential increase in fuel and natural gas prices during the fourth quarter.
However for the full year, we still generated a healthy $173 million of cash flow from operations.
And finally, we repurchased approximately 1 million shares of our common stock during the fourth quarter, demonstrating our continued commitment to drive additional shareholder value and.
And now I would like to turn the call back over to Mike for his closing comments. Thanks, Sarah So in summary, our aviation business continues to recover from the peak of the pandemic with volume and gross profit up significantly in 2021, despite the decline in year over year activity in Afghanistan, we continue to support our customers.
Around the world with a growing suite of products and service offerings to assist them in navigating the energy transition driving growth in 2021, and opening up more opportunities going forward. Despite the double digit year over year increase in volume and a near doubling of average fuel prices, we generated solid operating cash.
LOE for the year, representing our 10th consecutive year with operating cash flow greater than $100 million. The recent the recent completion of the Flyers acquisition significantly expands our north American land fuels business enhancing opportunities to drive operating efficiencies and accelerate further organic growth. This.
Is a real game changer for our North American land business and finally, our balance sheet continues to remain strong providing us with ample liquidity to continue pursuing additional strategic investment opportunities in our core businesses and maintaining our dividend and buyback strategies.
Thanks for listening and now I will turn the call over to our operator to begin the Q&A session.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
If you wish to be remote Mchugh, Please press the pump or the housekeeping.
Once again, if you have a question. Please press Star then one on your Touchtone phone.
And our first question comes from Ken <unk> from Bank of America.
Hey, great good evening.
Got it.
That's on the on solid performance.
IRA just can you clarify the price on the buyback and the shares you bought in the fourth quarter.
Then maybe just delve into the working capital you talked about it looks like accounts receivable up 323 million accounts.
Accounts payable up to be 75%, so maybe talk a bit about the youre, obviously, extending more credit or is that just solely on rising fuel prices, maybe talk about the strategy there.
On the <unk>.
On the buyback, we purchased $50 million worth of shares for the year and in the fourth quarter, there was about $26 million.
Of shares Thats, what Youre looking for there I can no not the number of shares at a price.
Yes.
Amount from them.
Cash flow just looking to see what.
When you bought it at and how many shares.
Well, we'll get you that detail.
A few moments.
Okay.
And then you wanted to know about accounts receivable.
Yes, just kind of your use of working capital right.
Our AP was what $50 million more than they are.
It just is that extending our credit is that just on rising fuel prices.
Well look pricing prices were up and we're also experiencing more volume quarter over quarter as the recovery.
<unk>, especially in aviation the cool thing not to say that we're always going to repeat this as our team continues to do.
Fantastic job managing working capital our net trade cycle was only for three days in the fourth quarter. Our total 80 I think as you pointed out was actually slightly ahead of our accounts receivable, which I don't believe has ever happened before so we're managing both sides of that coin.
Very well so our net working capital.
Despite the continued recovery in $30 billion worth of revenue in 2021 was still well under $500 million.
No.
Yes, we're extending more credit you got.
With much of the world recovering more and more every week every month on the aviation side some of the credit lines, there and outstanding receivables going up and that's why our <unk> back.
Back up to.
We're twice our low point that we hit in 2020, we went down to $1 billion.
Back to $2 4 billion.
And.
<unk> team continues to do a fabulous job managing through that while making sure.
We are wisely extending credit, meaning we're getting the returns that we that we feel we deserve.
Every piece of business, we execute on them.
Lastly for me just obviously given the global market right now geopolitics, what is your exposure on aviation or.
<unk>.
Russia, Ukraine, any any kind of exposure.
First I'm going to go back a step it was 923000 shares that we bought in the fourth quarter Kim.
In terms of in terms of Russia, the numbers are relatively small.
There's a few million dollars on the aviation side, a few million dollars on the <unk> sites spread amongst a pretty small number of customers in total so obviously.
We're monitoring the situation.
As you are considering the escalation overnight.
And we're being very careful about managing it.
Any additional.
Credit from today going forward.
We'll hopefully manage through that very well of course, there's a lot of factors outside of our control that.
That will become clearer in days to come related to sanctions et cetera. So it's a relatively small number.
It is it is several million dollars the only color I'll add to that Ken is.
We're pretty much used to this sanctions or not something new for us and certainly not new to the world in.
So.
Used to managing that.
Understanding how to respond to it.
<unk> of the business model as you know, it's a broad portfolio.
No.
And obviously, our military activity there is something that.
We understand quite well so it's not separate.
First time, we've been in a situation like this and we know how to respond.
Last one for me I'm, sorry, there's one more just.
Because mark you mentioned, the $100 million cash flow.
And Mike in your opening comments, you mentioned organic and inorganic growth.
Do you want to take time to digest, the fliers acquisition or.
Do you think now is a good time to be in the market. Maybe just talk about your thoughts and I said it I've said it on the last call and I've got to give kudos for.
This one and the whole land team and.
So.
That one I think it was <unk>.
<unk>, that's proceeding well phenomenal organization phenomenal team.
And listen integration you never take that for granted but the beauty of buying well run companies is that their pleasure to deal with and it's.
Performing wells, our expectation is that will perform well so we are pretty ready to rock and roll. So.
The us.
<unk> mentioned it we've been consistent that it's U S. Certainly good place to do business that is for sure within land.
And then of course, our connect business.
We are very much see the future.
To have our sustainability infused through everything we do.
So we like doing business in the U S. We certainly do business around the world, but land U S leveraging that getting operating leverage out of the platform. We feel good about that it takes a while it took us a long time to build our global aviation franchise.
<unk>.
We're confident that we're on our way finally in land and our connect business goes from strength to strength really excited about that.
And that is going to work.
Vesting.
The things that you have to appreciate is that they are.
Still a good amount of navigation there are things that are not necessarily proven.
The voluntary market is here, we don't think it's going away, it's had its ups and downs, but we know what we're doing we've got a phenomenal team of professionals. There. So it's connect and its U S. Land is the priority. Obviously, we have our other core businesses Marine we liked that business, we've got a global franchise there.
Alex and services.
And.
Certainly our commercial aviation business aviation.
Have a good amount of organic growth, but we're always open for good ideas in the comprehensive solutions, which has basically been our operating model custom tailored.
<unk> solutions for those clients and selectively penetrating the supply chain, we started in the middle and we've expanded in both directions. So that will continue we're agnostic to what the source of energy is but we've got our third party business, our physical inventory distribution assets.
Our digital value proposition for our clients so.
Nothing's changed there and those are the focuses.
Ken to answer your question, Yes, we're going to continue doing.
[laughter]. Thanks, IRA Thanks, Mike.
Our next question comes from Ben Nolan from Stifel.
Yeah, Thanks, Hey, AI or Mike.
So I wanted to go back to something I think IRA you mentioned that your aviation volumes or 76% of where they were in.
Pandemic level, if I heard that correctly.
I was just curious as we look at that where it seems like things have picked up pretty well in the U S and just without being able to have a good sense of sort of how how volumes shake out for you guys on a global basis, where do you think are the areas that.
Our lagging in terms of being able to get back closer to those pre pandemic levels with respect to your portfolio.
Yeah.
Sure so.
So the U S opened up earlier on and as.
As we've experienced for those of this had been in airports. It seems like aside from the masks the pandemic never happened.
So that's been happening for several quarters now.
Arguably even a full year in the U S.
Rest of the world was lagging pretty severely.
But over the past couple of quarters.
Stern Europe started coming back pretty strongly there was some fits and starts where strong summer things slowed down a little bit and then youll picked up again.
So.
With words, let's say 70, some odd percent in the U S. We're still it maybe some were probably in the sixties in Europe on a comparative basis, and then and then Asia Pac you can think of.
If you throw Australia, internet mix et cetera that part of the world.
That's fairly at 50% right. So.
Everything is moving in the right direction, but.
There's a much longer runway to return in areas outside of the U S. But there is still a reasonable runway that.
24% Delta being at 76% is as you know a couple of billion gallons plus of activity that was there in 19 that hasn't that hasn't found its way back yet.
Right.
And maybe just another another way to address that question.
How should we think about on a pre pandemic level.
There Youre aviation volume was like.
Roughly <unk> percent was it U S X percent was Europe , just trying to.
Source out sort of where they.
Yes.
In 2019 about 60% of the volume was in North America.
Europe was about.
15% or so the rest of it was Latin America Asia Pac.
So if you look at if you look at 'twenty one the numbers are more heavily tilted towards North America right now just because it's rebounded faster sure.
So hopefully that helps.
That's exactly what I was looking for thanks.
Sure.
Now switching gears a little bit.
We were kind of thinking that there might be some margin expansion in the marine business.
In the fourth quarter at least a little bit more than it was.
With the idea being that ordinarily when you have oil prices swinging around all over the place and higher just in general.
It tends to be pretty good for your margins.
Yes.
And certainly in the last month.
A month and a half two months that if anything thats accelerated.
Yes.
Is there are.
Am I wrong in thinking that or.
Should all of this volatility to be helping that business a bit.
Yes, it's a great great question.
On a historical basis as we've told you before there's been a much tighter correlation between price and margin range in our other businesses because it's principally.
Spot business, and we're going to be more of a bulk business selling.
For dollars per units that are pennies per unit.
So the issue is it.
It doesn't happen overnight.
There has historically been a bit of a lag I would say not necessarily has happened every single time either.
We were starting to see that at the tail end of the quarter.
Which is why we outperformed our expectation in Q4 to be honest.
And.
I'll use terminal one account with chicken is up 33 of them at home, but that's building thus far to the first quarter not not meaningfully but margins are certainly consistent with or maybe slightly higher than where we were in December .
So.
That'll play out over time of course prices are even higher as we speak today because of last night's events.
But there are opportunities there and thats why we were a bit more optimistic in our comments about marine for 'twenty two than we.
They have been three months ago.
That'll play out over time.
Okay.
I had no idea you were chicken farmer.
But.
The.
Last question for me is.
It relates to some of the adjustments and I know that they're on the last page of the slide presentation, but the bigger win seemed like it was in.
And land them I.
Right in thinking that that was entirely acquisition related or 100%, 100% related to the Florida acquisition.
Okay perfect and.
That closed it shouldnt be.
Any residual impact of that is that there is nowhere nearly as material I mean, there may be some things that.
We're still going on in the first quarter, but nowhere near 3 million maybe another few hundred thousand dollars in Q1, okay.
A few hundred thousand to 1 million Bucks in Q1.
Right.
All right well.
Does it for all of my questions I appreciate it thanks.
Okay. Thanks, guys.
We have no further questions at this time, Mr. Kessler I will now turn the call over for closing remarks.
Thanks, everybody for listening and we appreciate the support to all of our team members around the world.
Investors and friends suppliers and customers who may be on the call. Thank you. So much we enjoy working with all of you and we look forward to catching up with you next quarter take care stay safe be well.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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