Q2 2023 Kirby Corporation Earnings Call
Good day and thank you for standing by welcome to the Curvy Corporation 2023 second quarter earnings conference call at.
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Oh now like you had conference over to your speakers today, Kurt Nimitz, Vice President and Treasurer. Please go ahead.
Good morning, and thank you for joining US with me today are David <unk>, President and Chief Executive Officer, Rajkumar, Kirby's Executive Vice President and Chief Financial Officer Slide.
Slide presentation for today's conference call as well as the earnings release, which was issued earlier today can be found on our web site.
During this conference call, we may refer to certain non-GAAP or adjusted financial measures reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release.
Also available on our web site and the Investor Relations section under financial.
As a reminder statements contained in this conference call with respect to the future are forward looking statements and the statements reflect management's reasonable judgment with respect to future events.
We're looking statements involve risks and uncertainties and are accurate could.
Differ materially from those anticipated as a result of various actors listed these risk factors can be found in Kirby Form 10-K for the year ended December 31st 2022, and then our other filings made with the S. C. C from time to time.
Now I'll turn the call over to David.
Thank you Curt and good morning, everyone.
Earlier today, we announce second quarter <unk>.
New of $777 million in earnings per share of 95 cents.
Both of our segments continued to perform well during the quarter and produced higher revenue in operating income sequentially and year over year.
And marine transportation pricing on spot in term contracts continued to benefit from strong demand and limited availability of barges.
Favorable weather conditions and increased operating efficiency helped improve margins for both inland and coastal.
Distribution and services delivered improved margins and business remains stable at high levels. Overall, we had solid results and we generated $113 million of free cash flow, which helps support an increase in our share repurchases to $34 million in the quarter.
And inland Marine transportation, our second quarter results reflected continued improvement in pricing together with better weather conditions and operating efficiencies.
From a demand standpoint customer activity was strong in the quarter with bars utilization rates running in the low 90% range.
Spot market prices were up in the mid single digits sequentially and in the mid to high 20 per cent range year over year.
Term contract prices, all stirred renewed up with low double digit increases versus a year ago.
Overall second quarter inland revenues increased 11% year over year and margins where in the high teens range.
[noise] also shortly after the end of the second quarter, we acquired twenty-three inland tank barges from an undisclosed seller.
With a total capacity of 265000 barrels and an average age just under 14 years. These barges will be a nice addition to the Kirby fleet.
Okay coastal market fundamentals continued to improve with our barge utilization levels running in the mid to high 90% range.
During the quarter, we saw a solid customer demand and limited availability of large capacity vessels, which resulted in high teens price increases on term contract renewals and increases on new spot deals in the high 20 per cent range.
As mentioned on our first quarter call. Our results. This year are being impacted by plan shipyard maintenance on several large vessels.
Consequently, second quarter coastal revenues decreased slightly year over year, but operating margins were positive.
In the low single digits.
And distribution and services demand remains strong across our markets with continued new orders combined with high levels of backlog.
And manufacturing revenues were up sequentially and year over year is heim market acceptance drove strong demand for our environmentally friendly pressure pumping equipment and power generation equipment for E Frak.
However, as expected persistent supply chain issues, particularly with electronic.
An electrical components delayed many nuke equipment deliveries during the quarter.
We continue to work diligently to manage the supply chains challenges.
And our commercial and industrial market overall demand remains solid across our different businesses with growth coming from the marine repair power generation and on highway sectors.
In summary, our second quarter results reflect an ongoing strength and market conditions for both segments.
Inland market is strong and rates continue to push higher helping to offset inflation.
Well, our coastal revenue is challenged near term by plants shipyards industry wise supply and demand Matt dynamics remain very favorable.
Our barge utilization is good and we are realizing price rate increases.
Steady demand and distribution and services is contributing to further growth and the segment and while supply chain bottlenecks are expected.
The outlook for the market is very strong.
I'll talk more about our outlook later, but first I'll turn the call over to Raj to discuss the second quarter segment results and the balance sheet.
Thank you David and good morning, everyone.
In the second quarter of 2023.
<unk> transportation segment revenues for a $427 million in operating income was $64 million with an operating margin of 15%.
Compared to the second quarter of 2022, total marine revenues increased $21 million or 5% in operating income increased $34 million or 108% driven by increased pricing and improved operating efficiencies in the inland market.
Compared to the first quarter of 2023 total marine revenues inland coastal together increased 4% and operating income increased 49%.
Inland was up while coastal looked down and I'll provide more details on this in a minute.
First let me discuss the inland business in more detail.
Inland business contributed approximately 82% of segment revenue.
Average barge utilization was in the low 90% range for the quarter. This was slightly down from the utilization seen in the first quarter of 2023 as weather conditions improved and operating efficiency increased.
This compares to the low 90% range in the second quarter of 2022.
Long term inland marine transportation contracts are those contracts with a term of one year or longer contributed approximately 55% of revenue with 62% from time Chavez and 38 from contracts of affreightment.
Improved market conditions contributor to spot market rates, increasing sequentially in the mid single digits and in the mid to high 20% range year over year.
Term contracts that renewed during the second quarter, one average up in the low double digits compared to the prior year.
Compared to the second quarter of 2022.
Inland revenues increased by 11%, primarily due to higher term and spot contract pricing.
Revenues were up 4% compared to the first quarter of 2023 is higher pricing was partially offset by lower rebuild revenues due to lower fuel prices.
Inland operating much it's improved sequentially from the low teens to the high teens as the benefits of higher pricing and improved operating conditions was seen throughout the quarter.
Now moving to the coastal business.
Coaster revenues decreased 15% year over year as downtime from plan ship yards was partially offset by higher contract prices and improved barge utilization.
Overall coastal had a positive operating margin in the low single digits has improved pricing was partially offset by increased shipyard Dave.
The coastal business represented 18% of revenues for the Marine Transportation segment.
Average coastal bodger utilization was in the mid to high 90% range, which compares to the low 90% range in the second quarter of 2022.
During the quarter the percentage of coastal revenue under term contracts with approximately 85% of which approximately 90% what time Chartist.
Average spot market rates up in the mid single digits sequentially and renewals of term contracts will on average higher in the high teens range year over year.
With respect to our tank barge fleet for both the inland and coastal businesses. We have provided a reconciliation of the changes in the second quarter as well as projections for 2023.
This is included in our earnings called presentation posted on our website.
At the end of the second quarter. The inland fleet had 1045, <unk>, representing 23.3 million barrels of capacity.
On a net basis, we currently expect to end 2023.
Total of 1073 inland barges, representing 23.6 million barrels of capacity.
This increase is driven by a modest number of Reactivations and the acquisition of a small number of barges from an undisclosed cellar that David mentioned.
Coastal marine is expected to remained unchanged for the year.
Now I'll review the performance of the distribution and services segment.
Revenues for the second quarter of 2023 with $350 million with operating income of $30 million in an operating margin of 8.5%.
Compared to the second quarter of 2022, the distribution and services segment, salt revenues increase by $58 million or 20% with operating income increasing by $13 million or 78%.
When compared to the first quarter of 2023 revenues increased by $12 million or 4% and operating income increased by $7 million or 31%.
In oil and gas market rare.
Revenues were up 30% year on year and 14% sequentially.
We experienced steady demand for new engines transmissions in parts throughout the quarter.
As David mentioned, we continued to manage true supply chain bottlenecks, especially in our manufacturing business.
Despite these issues the manufacturing business experience continued favorable trends in new orders and backlog driven by our <unk> units and associated power generation equipment.
Overall oil and gas represented approximately 48% of segment revenue in the second quarter and had operating margins in the mid to high single digits.
On the commercial and industrial site strong activity contributor to a 12% year over year increase in revenues with improved demand for equipment parts and service in a marine repair and on highway businesses.
Power generation was also up year over year.
Overall, the commercial and industrial business represented approximately 52% of segment revenue and had an operating margin in the high single digits in the second quarter.
Now I'll move on to the balance sheet.
As of June 30th we had $37 million of cash with total debt just under $1 billion.
During the quarter, we reduced our dead balances by $81 million and our debt to cap ratio improved to 24.3%.
During the quarter, we had net cash flow from operating activities of $211 million.
Second quarter cash flow from operations improved sequentially as <unk> collections will partially offset by a slight inventory built as a result of supply chain delays.
We continued to target unwinding working capital as the year progresses, and I'm, making progress towards this goal.
We used cash flow and cash on hand to fund $98 million of capital expenditures of which 60 million what's related to maintenance of equipment and the remainder was directed to growth capex in marine and <unk>.
During the quarter, we had free cash flow of 130 minutes of 113 million.
Which we used 34.4 million to repurchase stock at an average price of around $72.
As of June 30th we had total available liquidity of approximately $516 million.
420 23.
We expect to generate net cash flow from operating activities of $500 million to $580 million.
Our capex guidance for 2023 is still expected to be in the $300 million to $380 million range.
Of this.
Up to 140 million, it's related to growth Capex and both of our businesses.
It is important to note.
That even with the anticipated higher level of capital spending, we expect to generate $150 million to $200 million in free cash flow.
We are committed to a balanced capital allocation approach.
Expect to use this free cash flow to continue to repurchase stock pay down debt and look for value added.
Acquisitions.
I will now turn the call back to David to discuss the remainder of our outlook for 2023.
Thank you Roger.
We exited the quarter with continued strength in our businesses pre.
Pricing in the marine market continues to improve and demand is strong.
And distribution and services, despite persistent supply chain constraints and delays demand for our products and services continues to grow and we continue to receive new orders in manufacturing.
Overall, we expect our businesses to deliver improved financial results in the coming quarters.
Well all of this is encouraging we are mindful of challenges related to us.
Slowing global economy Adore.
Additional economic headwinds due to higher interest rates and choppiness in the oil and gas market.
Also labor constraints and inflationary pressures continued to contribute to rising costs across our businesses. Although some of that is starting to moderate.
Even with these headwinds and uncertainties, we remain very positive and expect to drive strong cash flow from operations.
And inland marine steady demand driven in part by high refinery and chemical plant utilization should continue to support hi barge utilization limb.
<unk>, new barge construction and high industry maintenance requirements for the next several years combined with lingering inflationary pressures are expected to further support inland rate increases.
Barge availability remains very constrained.
These factors are expected to contribute to our barge utilization running in the low to mid 90% range for the foreseeable future.
These favorable supply and demand dynamics are expected to drive further improvements in the spot market, which currently represents approximately 45% of inland revenues.
We also expect continued improvement in term contract pricing is renewals occur throughout the remainder of the year.
And the third quarter or inland Marine operations will be challenged by near term headwinds associated with locked closures on the Illinois River and recent unplanned refinery outages.
However, improve efficiencies generated by better weather and continued increases in pricing should off said this and yield modest sequential improvement in revenue and operating margin.
For our inland business in the third quarter.
Overall, we are on track to grow inland revenues and the double the low double digit range for the full year and expect near term inland operating margins to average in the high teens for the full year with gradual improvement for the remainder of 2023, ending the year close to if not.
Not at 20%.
And coastal market conditions are expected to follow a steadily improving path as the industry is getting very close to supply and demand balance across the fleet.
Even if there is some market softness kirby's coastal barge utilization is expected to remain in the low to mid 90% range.
Full year 2000, twenty-three coastal revenues are expected to be flat year over year.
Good fundamentals in our core liquid cargo business and high higher cole slipped shipments and our off shore drive cargo business are expected to be largely offset by this year's planned maintenance and ballast water treatment installations <unk> in terms of shipyard days.
Almost doubled compared to last year.
Operating margins are expected to be near breakeven to low single digits on a full year basis.
That said looking forward 2024 will be a much better year for coastal.
Looking at distribution and services, we continue to have a favorable demand outlook for equipment parts and service across the segment and the oil and gas market. Despite the near term headwinds of lower commodity prices and lower rig counts, we expect strong demand for manufacturing as well as four.
M parts products and services and our distribution business.
As an early mover and Ive Frac, our units have a long standing operating history of safety performance and reliability and we see a growing understanding from our customers of the total.
The lower total cost of ownership of <unk>.
Our latest generation of units have increased power and efficiency and are performing well in the field.
As a direct result, we added new incremental orders for <unk> and associated power generation equipment in the second quarter and we expect this trend will continue.
And although we've seen a slight improvement and supply chains in general we expect the delays and long lead times for OEM equipment.
Which in some cases extend beyond a year to remain an ongoing challenge.
These issues are likely to contribute to some choppiness with new product deliveries, which could potentially shift between the final quarters of 2023, and perhaps even into 2024.
And commercial and industrial we expect steady demand in on highway parts and service driven by increased on highway municipal repair work continue to improve <unk> and bus ridership and increased longterm demand for thermal peeing refrigeration products.
And power generation, new backup power installations parts and service activity are expected to remain solid as demand for electrification and 24 seven power continues to grow.
Marine repair is also expected to be strong with increasing activity in the Gulf of Mexico, and improved commercial markets on the east and west coasts.
For the 2023 full year, we are on track to achieve revenue growth in the low double digit range for commercial and industrial.
Well supply chain issues are expected to continue impacting new product and equipment deliveries and distribution services. We expect 2023 segment revenues will increase 10% to 20% for.
For the full year with commercial and industrial representing approximately 60% of revenues and oil and gas representing 40%.
We expect segment operating margins will be in the mid to high single digits.
Four 2023.
To conclude both are segments performed well during the quarter delivering improved revenue in operating income and our team executed well on near term objectives. Our balance sheet is very strong and we expect to generate significant free cash flow this year and expect to use free cash flow for.
Share repurchases.
Debt repayment and high value added projects.
Although received favorable market conditions, continuing and expect our businesses will produced improving financial results. In 2023, we are closely monitoring the potential for a recession or an economic pullback that may impact our business.
Having said that as we look longterm, we are confident in the strength of our core businesses and our long term strategy or marine businesses are in the early innings of a multi year recovery and demand remains solid and distribution and services. Despite recent macro headwinds.
We intend to continue capitalising on a strong market fundamentals and driving shareholder value.
Operator, this concludes our prepared remarks.
We're now ready to take questions.
As a reminder to ask a question. Please press tile on one on your telephone and wait for your needs to be announced to.
Try your questions. The first tier one one again please.
<unk>, Thank you and your last year.
And our first question comes from the line of <unk>. Your line is that okay.
Okay, great good morning, and congratulations on a great quarter here guys.
Hey, thanks.
So you know I guess, David if we can maybe start for a minute just in terms of the.
The pricing backdrop.
Seems to be still quite a bit of momentum both year over year in sequentially in terms of spot and contract pricing.
Is there any way to maybe think about you know the.
Differential like how far below.
How far is contract pricing below spot pricing right now and you know.
But we've had this window, we're not a lot of capacity has been built.
How much longer do you think we have before you start seeing the order boards increase in terms of new capacity, maybe maybe getting built.
Sure.
Well, let me talk about the pricing first and then I'll get into new builds.
And what.
What what prices.
Would be needed to justify new builds.
Look I mean, you saw our numbers spot pricing was up mid single digits sequentially.
Up over 20% year over year term contracts that renewed.
Load the double digits.
Pretty healthy.
Spill still a good gap between spot and contract with spot being probably 10 to 15.
<unk>, 15% above contract. So that's as you know as a healthy healthy market dynamic.
Yeah, you know, what's driving that jacket is supply and demand demand is held up okay. We we have seen some weakness in chemicals.
But it's been at the margin not.
Overly material.
Refined products is still pretty strong the rest of.
Our trade lanes are pretty strong.
So demand is holding up.
Supply is what's really helping right. It's all it's in check.
Think this year on the order boards about 2007 barges to be delivered.
And if you combine this year and last year, it's still the lowest it's been in decades.
So there's not a lot of new new capacity coming on and we really don't see that changing much. If you think about the cost of a new 30000 barrel barge is pretty high right now and needs to be because steel prices are high in labor inputs are high.
So the cost of new new barges as high prices don't really support building, new yet I've come back to that in a second.
The other thing that you look that cost the money's gone up we have a lot of private.
Competitors in our space and borrowing rates have gone up.
And then you overlay.
Bonus depreciation slowly disappearing, it's about 80% this year down from 100 next year goes to 60% and 40% the following year.
So when you when you put all that together.
And there's not a lot of building that's going to happen I would tell you rates.
<unk> do need to continue to go up because inflation is still here, we're still trying to offset inflation every day. It's real you can see it and consumables you can see it in wages you can see it in the shipyard cost with steel up labor labor inputs up.
The wages, obviously, we're feeling that in there.
Then you've got other things like medical.
Continue to seek medical inflation so.
Luke with inflation.
You need.
Rates.
12 to $13000 a day on a to barge tow to justify building to get it.
To get a double digit return.
Owner's depreciation obviously impacts at two right because.
Bonus depreciation helps front end load the cash flow so.
That's what we're seeing not a lot of building so that's kept supply and demand tight.
And demand continues to go Okay. We are mindful of.
The ever rising interest rates and it is pretty clear the feds trying to tamp down the inflation I just talked about.
So we're watching that carefully.
But so far our demands holding up and supply is in check.
So we're we remained constructive I will tell you that there is some interim headwinds here in this quarter of the Illinois River. Some Ah some of you know on the call that the Illinois is closed now and it's scheduled to be closed the whole the whole of the third quarter, that's a little bit of a headwind.
And there's been a couple refinery fires in outages that that have impacted thanks, but even with that we're staying pretty darn busy in the market is very constructive right now for us.
Okay. That's that's super helpful. David I guess, just as a quick follow up for barrage.
We think about the balance sheet here, it sort of capital allocation.
Yeah, what's the baby.
Is there an update in terms of the targeted level of debt that you are getting maybe try to run AD whether its debt to EBITDA.
To cap Raj and then I guess, when we think about the buyback activity $34 million I think in the second quarter is that the kind of run right. We should be thinking about here given the level of cash flow you should be generating or on a quarterly basis or was it sort of frontloaded I mean, it just kind of can you help us think about that yeah sure Jack.
Good question.
I think in the comments, we talked about how we're looking at capital allocation I mean, it's a balancing act.
You saw we closed on an acquisition a coupla weeks ago very value, creating acquisition. So we've got a balance between the projects that we have in front of us share buyback of course as a as a priority and on that side I think.
You could see us paid out a bit more debt, but to a lesser extent so the way I would look at it as good as we go to go through the rest of the year.
Barring any attractive projects, you should see <unk> share repurchases.
Okay, Alright, thank you very much at the time guys.
Thanks Jack.
One moment so your next question.
And your next question comes from the lineup <unk> next cable line account.
Alright, Thanks quarter, guys real quick hopefully this doesn't Canada question, David you've mentioned you'd need barge rates of 12 13000, a day for two bars too.
Just to help contextualize that where where would you say is roughly.
The place that we're at right now.
Yeah.
I gotta be careful doing that Ben for.
For competitive reasons not.
Obviously.
Our lawyers would fuss at me.
If the if I gave current rates, so I'm going to avoid that a little bit I think I think you can.
Some outside services that can give you an indication a we.
We just can't for legal reasons signal kind of pricing, but.
You you can get the range it's it's.
It's out there prettier.
Pretty readily available I'd, rather not say.
That's why the.
I wanted to circle back on to the acquisition you announced setting it was.
Twenty-three barges sounded like they were maybe 10000 barabar just roughly.
And.
You said right now so it makes sense to build new can you may be talk through what you're seeing.
With respect to second hand acquisitions.
Obviously prices are higher there too, but how are you thinking about the.
The relative economics and attractiveness of acquiring.
Second hand equipment.
Yeah now this was.
Yeah, It was kind of a one off deal.
The great thing about this deal it was it was all barges.
As you've heard us discuss.
We have the ability to to leverage our infrastructure and work barges pretty readily with our existing horsepower. So.
Is a very good deal for us in terms of that.
I would tell you it's a signal.
Significant discount to two replacement value as you would expect.
It was mostly tens, but there were a number of specialty barges in this twenty-three barge.
Acquisition I think it was a total of seven specialty barges. So you can just take the pricing divided but it it fit perfectly with this I would say.
It's a good 50% below replacement value in terms of of of cost.
And we're really excited about it it's kind of.
Our bread and butter a drop in consolidating acquisition.
It's right in our wheelhouse so to speak.
Okay, and then and then lastly for for me arrived maybe.
I think it was $240 million a maintenance capex. This year, obviously that includes a decent amount of shipyard costs associated with the coastal fleet. Just for next year is it possible to maybe without giving specific guidance, but maybe frame and how how I should think about what the the run rate <unk>.
Hence capex should look like.
So so bin.
This shipyard bubble is actually going to stretch into next year. So I think if you look at the the maintenance capex on the inland side I think we will still see the bubble continue on the on the coastal side, we should be done with all of the ballast water treatment.
Installations et cetera by the middle of the year so.
The way I would describe it as inland probably going to stretch into 24 in coastal is probably going to.
With the ballast water it should end by the middle of the year. So I don't know whether I have given the color of that.
That's enough, but that's that's what that's what we're looking at right now so.
I would say probably slightly lower but not not materially.
Okay and then just once that's done how should how should I think about sort of what a normalized maintenance capex.
I mean is it added 200 or 150 error I don't know so without without giving your numbers I think what you could do is go back to.
What we used to do prior prior to.
Prior to all the shipyard.
This shipyard bubble that we were talking about right now bat bear in mind, though.
Those numbers need to be adjusted for inflation right. So you've seen Davis earlier point considerable inflation, there I would say the 160 to 180 range could be reasonable.
Yeah.
Perfect Alright, I appreciate it thank you.
Thanks. Thanks.
One moment for your next question.
And your next question comes from the line of <unk> Bank of America.
Okay.
Hey, this is Nathan dialing in four contexture congratulations on the fantastic results I'd like to just dig a little deeper into to.
<unk> acquisition I mean.
Currently in just a fantastic environments.
For the inland marine side of the business I'm, just curious on what you're seeing within the secondhand space and the availability of these types of.
Uhm constant consolidation related opportunities.
Yeah.
Yeah, there's not a lot of of activity there, there's there's always a few.
Smaller deals out there is that they could transact.
We've seen a few in our space here recently.
Couple.
Yeah, I wouldn't say, it's overly active Nathan.
It's more just.
Kind of one off deals.
Some times larger companies.
Selling off their their.
They are barge fleets, but.
Price expectations are going to be going up Brian them, and it's a pretty good market. When you look at <unk>.
Multi year upcycle here as we look at the maintenance bubble.
The supply being relatively and check in demand pretty solid.
I think price expectations are higher so.
It's always hard to forecast acquisitions.
So I'm always cautious, but I would say, there's probably going to be fewer than.
More going forward.
That said you never know.
People want to sell at the top and and people like us want to buy at the bottom so.
We have to we have to meet in the middle and it's hard to predict where that middle is yeah.
Yeah, I was just curious what motivates operators Sir.
Capacity sure I guess, that's my follow ups.
On distribution and services pretty materials step ups and operating margins.
And your prepared remarks I think.
The team referenced still some supply chain related constraints.
Have we seen any type of improvement there and maybe talk a little bit about what's driving this this margin improving sequentially. Thanks.
Yeah, well, let me take the supply chain one first.
It's the.
Improved on the margin, but they're.
We talk about whack a mole sometimes it.
You get one part of the supply chain lined out and another part Pops up.
But I would tell you where we have been most affected us on electrical and electronic type parts.
As you know we're building a lot of electric track equipment in power generation equipment.
That supply chain has been choppy at best it is improving at the margin, but it's still been.
Is Raj would say hand to hand combat.
That said.
We're delivering and some backlog and so that's.
That's helping margins.
Across the board.
When when we're not delivering equipment it just <unk>.
<unk> margins and checked and as we start deliveries margins tend to to improve.
And also we're just running running better.
Tell you we've taken a lot of costs out and and now that things are run a little smoother.
Yeah. It helps some margin.
Not in a rush anything you want on it.
I think <unk>.
Build on what David just said Nathan I think we've done a lot of work in terms of bleeding out our operations on the <unk> site and we're starting to see the benefit of that.
But we are we are cognizant of the supply chain issues to David's point.
If everything works out and deliveries go get shipped.
<unk> <unk>.
<unk> will be better right, but then if you have a supply chain hiccup.
We start to see some headwinds there yeah.
When you have to so you can't get certain parts that you've designed in and then all of a sudden you gotta switch parts, there's a whole new design.
And management of change process, where you got it.
Just eats up engineering hours that eats up.
Labour hours.
As you make supply chain changes so.
The good news is as the supply chain continues to improve that should help us on a go forward basis.
Great.
[noise] helpful. Thank you.
Thanks.
One moment for your next question.
And your next question caution and lineup grabbed my purse can you repeat that for me right now.
Hey, David and Raj I wanted to talk about the.
The rate bogey here for potentially new orders kind of coming in.
Being that 12 or 13 K per day, I think last time, we talked about it.
Closer to 11 or 12 K per day.
So I just.
I want to understand.
As we as we move closer to that point.
<unk>.
Do you think about it is that 12 or 13 K per day contemplate further cost increases like we've seen or is there a potential for that bogey to kind of continue moving higher as we get closer and therefore.
Maybe maybe there's even more breathing room, then people realised right now.
Yeah no.
It's been inflation I, maybe you've heard me rattle off all the inflation inputs, but.
Cost of compliance has gone up.
Whether it's with the coast guard or or our customers vetting standards.
And then you get into tier four engine packages on boats.
More expensive they are more expensive to operate.
There is there is.
It's just a whole host of little things that keep adding up.
There is a little bit forward looking to your question directly there is a bit of forward looking inflation in that in that 12 to 13 number.
Yes, you are right.
Six months or a year ago. We were we were a thousand dollars below when we we gave you that number and I would just tell you that inflation has continued.
Across the board in almost every category.
We've seen even just on consumables, whether it's line paint and things that we use on a regular basis.
They have gone up and then of course, everybody knows about food rental cars.
You can imagine with our our three or 4000 Mariners moving them every day getting them to boats.
Just the cost of moving around and putting them in hotels as the crew on our crew off or getting rental cars for them or whatnot to facilitate getting them to where they need to be those costs have gone up and have continued to gun now. The good news is we're seeing a little bit of that.
Moderate now I think we've seen Brit rental car rates come down a bit.
Hotel rates not so much but airfare has come down a little bit, but not not a lotta.
So it's.
Not giving you a direct answer but.
Directionally, we do see more inflation and I put a little more of inflation and that number.
But that's what's been driving the increase.
I mean, you can look at steel prices alone.
It tells you alone and and I think Greg even you're going to have to add the cost of money is gone out right that that should be an accomplice. When you look at the rate increase that we're talking about right now.
Yeah for sure now that's that's helpful. Thanks, guys.
Connect.
Exit come down so that's a good story.
[laughter] Yeah [laughter].
Next I wanted to revisit the idea of vertical integration for you guys.
See this.
From from two angles.
Ramble, a bit but I just wanted to flush them out here. So the first.
More practical would be to.
Span sanjak or acquire additional repair and maintenance yard capacity. So that you guys can.
Maybe avoid longer lines over the next few years.
At yards for your own fleet, and then potentially benefit from the upcoming maintenance bubble that we see in the market.
The more far fetched I guess would be to.
Think about acquiring or develop enough barge building capacity, where you have some some control or some say over the supply in the future if and when we do get to the place where the orders start to come into the market I realized that the that the huge move and probably unlikely, but still I think worth acknowledging at least and seeing what your opinion.
For that but but mostly.
Mostly contemplating expanding repair and maintenance capacity for Caribbean kind of integrating.
<unk> a little bit how do you how do you think about that.
Yeah well.
You are aware, we bought Sanjak shipyard out of out of bankruptcy a number of years ago.
That has helped us.
It doesn't cover and not even close to covering all our maintenance needs, but they do help us when maintenance.
One of the exciting things about sand Jack is we're just.
They are about to Christian.
The first diesel hybrid electric towboat.
In August and that's really exciting we're getting a lot of traction with that a lot of customer interest in it it's got a great carbon footprint.
We've got the ability to use green dark power for it.
So it could be.
In terms of emissions almost emission tree working in the in the Houston Harbor areas.
Initially so we're really excited about <unk> enabled that <unk>.
We have expanded stand jack-up bid to help with barge maintenance as well as both maintenance.
But.
Look we've got as you know.
A lot of arches in a lot of boats.
We need the whole ecosystem supporting us.
Look we've got great partners and.
<unk> been <unk> been helpful.
Always been a partner.
Always been partners I would say.
They've seen inflation.
We're seeing.
Cost of maintenance go up with each ship yard.
What you would expect no in terms of building new barges.
Look at I mean, you know the players there are in our Kosta is is.
Is probably the most efficient and they build an excellent barge.
Is it something we would want to get into now is the short answer.
Again, we've got great partners.
So.
We work pretty well as an ecosystem.
San Jac is different for us, it's really kind of.
A small part of our maintenance.
And also doing things like building.
Electric hybrid boats.
Which could be a good future for that but it's not something that would be.
A massive investment are undertaking for us.
<unk> space.
Okay that makes sense alright.
Thanks, Greg.
Again and get cash question. Please press one one on your telephone.
<unk> one one on your telephone.
Female further questions on the queue.
Six days conference call. Thank you for your participation you mean that disconnect.
Yeah.
[music].