Q3 2023 Kirby Corporation Earnings Call

[music].

Okay.

Good morning, and welcome to the Kirby Corporation 2023 third quarter earnings Conference call. All participants will be in a listen only mode. After today's presentation. There will be an opportunity to ask questions. We ask that you limit your questions to one question and one follow up.

To ask a question you press star one on your telephone and then Youll hear an automated message comprising your hands raised I would now like to turn the conference call over to Mr. Kirk minutes.

He's VP of Investor Relations.

Treasurer. Please go ahead.

Okay.

Good morning, and thank you for joining US with me today are David.

President and Chief Executive Officer, Raj Kumar, Kirby's, Executive Vice President and Chief Financial Officer.

Slide presentation for today's conference call as well as the earnings release issued earlier today can be found on our own.

Website.

During this conference call, we may refer to certain non-GAAP or adjusted financial measures reconciliations of the non-GAAP financial measures.

The directly comparable GAAP financial measures are included in our earnings press release.

Still available on our website.

Section under financial.

As a reminder.

That's 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.

Actual results could differ materially from those anticipated.

As a result of various factors.

Factors can be found in Kirby's Form 10-K for the year ended December 31, 2022, and our other filings made with the FTC.

From time to time.

Now I'll turn the call over to Dave.

Thank you Kurt and good morning, everyone.

Earlier today, we announced third quarter revenue of 765 million and earnings per share of $1 five.

This compares to 2022.

Third quarter revenue of $746 million and earnings of 65 cents per share.

Both of our segments continued to perform well during the quarter despite facing some temporary challenges.

Marine transportation pricing on spot and term contracts continued to benefit from strong demand and limited availability of barges.

Results were impacted.

By the Illinois River lock closure.

And several of refinery outages during the quarter.

Distribution and services delivered improved margins, even as we continue to work through supply chain.

<unk> during the quarter.

Our earnings increased sequentially and year over year, and we continued to repurchase stock during the quarter.

In inland Marine transportation, our third quarter results reflected continued improvement in pricing, partially offset by the hit the headwinds from the Illinois River closure that I mentioned as well as the refinery outages in the quarter.

From a demand standpoint.

Customer activity remains strong in the quarter with barge utilization running in the high 80% range.

Spot market prices continue to progress higher and were up in the mid single digits sequentially and in the mid teens range year over year.

The current contract prices also renewed at higher rates with high single digit increases versus a year ago.

Margins were in the high teens.

In coastal market fundamentals accelerated with solid customer demand and limited availability of large capacity vessels, resulting in spot prices increasing in the mid single digits sequentially and then the low 30% range year over year.

During the quarter, our barge utilization in coastal.

Continued to run.

In the mid 90% range.

As mentioned before.

Our results this year are being impacted by planned shipyard maintenance on several large vessels, which led to an over overall decrease in third quarter coastal revenues.

And operating margin was just below breakeven.

In distribution and services.

<unk> remained strong across our markets with steady levels of service and repair work.

With high levels of backlog.

In our commercial and industrial market overall demand remained solid across our different businesses with growth coming from the marine repair our generation.

Anyway sectors.

While our gas.

Revenues were down as we continue to manage through persistent supply chain issues, particularly with electrical and electronic componentry.

What's delayed many.

New equipment deliveries during the quarter.

We continue to work diligently to manage the supply challenges.

Even with the decline in revenues operating income and oil and gas was up both sequentially and year over year, driven by favorable product mix and operating efficiencies.

Overall revenues were up 7% year over year and operating margins improved.

Under 10%.

In summary, our third quarter results reflected ongoing strength in market conditions for both segments. Despite the temporary headwinds in the quarter. The inland market is strong and rates continue to push higher helping to offset lingering at places.

Our coastal revenue remains challenged mute challenge near term by planned shipyard industry wide supply demand dynamics remain very favorable.

Our barge utilization is good we are realizing healthy rate increases.

Steady demand in distribution and services is contributing to further growth in this segment.

And while supply chain bottlenecks are expected the outlook for the market is strong.

I'll talk more about our outlook later, but first I'll turn the call over to Raj to discuss.

The third quarter segment results and the balance sheet.

Thank you David and good morning, everyone.

In the third quarter of 2023 Marine Transportation segment revenues were $430 million.

Operating income was $64 million.

Operating margin of 15%.

Compared to the third quarter of 2022.

Marine revenues decreased by $3 million or 1%, while operating income increased $22 million or 52%.

Increased pricing.

And improved operating efficiencies in the inland market were partially offset by lower inland utilization due to the Illinois River closure, some refinery outages and coastal shipyards.

Compared to the second quarter of 2023 total marine revenues inland and coastal together increased 1%, while operating income was flat.

Looking at the inland business in more detail.

Allen business contributed approximately 82% of segment revenue.

<unk> barge utilization was in the high 80% range for the quarter.

With the reopening of the Illinois River.

Realization has moved into the low 90% range as we begin the fourth quarter.

Long term inland marine transportation contracts.

Those contracts with a term of one year or longer contributed approximately 65% of revenue with.

With 66% from time charters and 34% from contracts of affreightment.

Tight market conditions contributor to spot market rates, increasing sequentially in the mid single digits and in the mid teens range year over year.

Contracts that renewed during the third quarter were on average up in the high single digits compared to the prior year.

Compared to the third quarter of 2022.

<unk> revenues increased by 2%, primarily due to higher Ed.

Spot contract pricing.

<unk> revenues were up 1% compared to the second quarter of 2023.

As higher pricing was partially offset by lower utilization given the Illinois River closure.

And then the operating margins were in the high teens during the quarter with the benefit of higher pricing, partially offset by lower utilization.

Now moving to the coastal business.

Wholesale revenues decreased 13% year over year and were up 1% sequentially as downtime from planned shipyards was partially offset by higher contract prices and improved balance sheet utilization.

Overall coastal had near breakeven operating margins as improved pricing was offset by increased shipyard days.

The coastal business represented 18% of revenues for the Marine Transportation segment.

Average coastal barge utilization was in the mid 90% range, which compares to a low to mid 90% range in the third quarter of 2022.

During the quarter the percentage of coastal revenue under term contracts was approximately 90% of which approximately 90% what time charters.

Average spot market rates were up in the mid single digits sequentially in the load in in the low 30% range year over year and prices on term contract renewals were up in the low double digits 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 third quarter as well as projections for the remainder remainder of 2023.

This is included in our earnings call presentation posted on our website.

At the end of the third quarter the inland fleet. The inland fleet had 1071 barges, representing $23 6 million barrels of capacity.

On a net basis, we currently expect to end 2023.

A total of 1073 inland barges, representing $23 6 million barrels of capacity driven by modest number of reactivation in the fourth quarter.

Now I'll review the performance of the distribution and services segment.

Revenues for the third quarter of 2023 were 335 million with operating income of $33 million and an operating margin around 10%.

Compared to the third quarter of 2022, the distribution and services segment saw revenues increase by $22 1 million or 7% with operating income increasing by $10 9 million or 49%.

When compared to the second quarter of 2023.

Revenues decreased by $15 million or 4% and operating income increased by $3 million or 11%.

On the commercial and industrial market strong activity contributed to a 28% year over year and 17% sequential increase in revenues with improved demand for equipment parts and service and our marine repair and on highway businesses.

Power generation was also up year over year.

Overall, the commercial and industrial businesses represented approximately 63% of segment revenue and had an operating margin in the high single digits in the third quarter.

In the oil and gas market revenues were down 16% year on year and 27% sequentially we.

We continue to manage through supply chain bottlenecks, especially in our manufacturing business, which led to shipment delays in the quarter.

Despite these issues the manufacturing business experienced continued favorable trends in new orders and backlog driven by our E frac units and associated power generation equipment.

Overall oil and gas represented approximately 37% of segment revenue in the third quarter and had operating margins in the low double digits.

Now I will turn to the balance sheet.

As of September 32023, we had $42 million of cash with total debt just over $1 billion.

During the quarter, we increased our debt balance by $69 million and our debt to cap ratio increased to 25, 3%.

During the quarter, we had net cash flow from operating activities of $96 $3 million, we use cash flow and cash on hand to fund $104 million of capital expenditures of which 50 million was related to maintenance of equipment and the remainder was directed to growth Capex and marine and E. Frac we can.

<unk> to return capital to shareholders in the quarter and repurchased $23 3 million of stock.

At an average price of around $80 31.

As of September 30, we had total available liquidity of approximately $451 million.

With respect to cash flow, depending on the timing on working capital, we would likely expect to generate close to $475 million to $525 million of operating cash flow at $100 million to $150 million in free cash flow this year.

We are committed to a balanced capital allocation approach and we expect to use most of the free cash flow to continue to repurchase stock.

I will now turn the call back to David to discuss the remainder of our outlook for the fourth quarter.

Thank you Raj.

We had a good quarter with both of our businesses performing well despite some temporary headwinds.

Binary activity remains at high levels, our barge utilization is strong in both inland and coastal and rates are steadily increase.

While we expect some near term issues in the fourth quarter related to low water conditions on the Mississippi River, increasing delay days due to normal seasonal weather and high levels of shipyard activity in coastal our outlook in the marine market remains strong.

In distribution and services, despite ongoing supply chain constraints and delays demand for our products and services is good and we continue to receive new orders in manufacturing.

Overall, we expect our businesses to deliver improved financial results.

In 2024.

While all of this is encouraging we are mindful of challenges related to slowing to a slowing global economy.

Geopolitical unrest and additional economic weakness due to high interest interest rates.

Even with these uncertainties, we remain very positive and expect to drive strong cash flow from operations going forward.

Diving into the businesses in more detail I'll start with inland favorable conditions are expected to continue going forward driven by the combination of high refinery and petrochemical plant utilization and minimal new barge construction across the industry.

Or do you expect the strength to be partially offset by increasing delay days due to normal seasonal weather that we generally see in the fourth quarter.

And we also expect the low water conditions on the Mississippi River to have an impact.

And further there are some inefficiencies remaining with some lock maintenance and Louisiana.

The company still expects further improvement in spot market prices, which currently represent approximately 45% of inland revenues.

<unk> contracts are also expected to continue to set reset higher.

Overall fourth quarter inland revenues are expected to be roughly flat sequentially with a modest improvement in margins and we still expect end the year close to 20%, it's not at 20%.

Margin.

In the coastal market conditions have tightened considerably and the industry is close to supply and demand balance across the fleet.

As we've discussed are close to revenues and operating margins continued to be impacted this year by an approximate doubling of planned shipyard maintenance days and ballast water treatment installations on certain vessels.

Third we expect steady.

Customer demand through the balance of the year with barge utilization.

In the low to mid 90% range rates are expected to continue improving as the availability availability of equipment.

Tight across the industry.

For the fourth quarter coastal revenues are expected to be up in the low to mid single digits compared to the 2023 third quarter.

As we continue to progress through major shipyards.

However, there there is some possibility of the shipyards extending into early 2024.

Postal operating margins are expected to be near breakeven to low single digits on a full year basis.

Moving to distribution and services steady demand in commercial and industrial and favorable oil field fundamentals are expected to continue throughout the remainder of 2003 and into 2024.

In commercial and industrial steady markets are expected to remain in the fourth quarter with incremental activity in power generation Marine repair and on the highway this activity should be partially offset by lower rental equipment activity as the hurricane season winds down.

That will create a slight headwind to margins in the oil and gas market. Despite the near term volatility in commodity prices and rig counts. We expect continued demand for manufacturing as well as for OEM parts products and services within manufacturing.

The company expects demand for environmentally friendly pressure pumping an E. Frac power generation equipment to remain strong with new orders and increased deliveries of new equipment for the remainder of the year and into 2024.

Supply chain issues and long lead times are expected to persist in the near term.

Tribute to some volatility of deliveries.

And potentially shifting some deliveries from the fourth quarter into next year.

Overall, the company expects fourth quarter segment revenues to be up in the low to mid single digit sequentially with lower operating margins impacted by mix.

And dropping into the mid to high single digit range.

Almost 10% range, we had this quarter.

To conclude.

Both of our segments performed well during the quarter in the face of some temporary challenges and our team executed well on near term objectives as well as on our long term strategy.

Our balance sheet is very strong and we expect to generate significant free cash flow in coming quarters, and we expect to use free cash flow for share repurchases debt repayment as well as opportunistic growth projects.

Though we see favorable markets, continuing and expect our businesses will produce improving financial results as we head into 2024, we are closely monitoring the potential for a recession as well as the potential short term weather and low water related impacts on our marine business.

Having said that as we look long term, we are confident in the strength of our core businesses and our long term strategy. Our marine businesses are in the early innings of a multiple full year recovery and demand remains solid in distribution and services. Despite recent macro headlines.

Intend to continue capitalizing on strong market fundamentals and driving value for the shareholders.

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

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press Star. One again also as a reminder, we ask you. Please limit your questions to one question and one follow up please standby while we compile.

All the Q&A roster.

Our first question comes from Ben Nolan of Stifel. Ben Your line is open.

Thank you.

Good morning, David and Raj So.

Good morning, Ben.

So for my first question I wanted to ask a little bit on the on the inland side, well actually inland and coastal.

We've gone through a number of years now with very little in a way of ordering activity and I know that you got.

Guys have been pretty vocal about saying the economics for.

New equipment still.

Don't line up but at some point in the industry is going to need some replacement capex.

Can you maybe put a little color around that and how you think about it with respect to your own fleet.

Yes, Ben.

Thanks for the question and good morning.

Yeah look.

Cost of new equipment as you know is pretty much doubled in the last five years.

Steel prices are up labor input costs are up paint.

Just skilled labor for welding is up.

Radars and electronics on boats are up just about everything.

High performance line on the on the tow boats are up 60, 70%. So all the input costs have gone up so if you take like the two barge tow.

Yes.

$4 million per barge.

$8 million, and then you put a $6 million to $7 million.

Towboat with it youre talking about $15 million worth of capital equipment for two large tow and they get a 12%.

Or 10% type return.

On on that equipment, you'd need north of $13000. A day now so it doesn't make sense for anybody to build right now rates need to come up and they need to keep going up.

Phil fighting inflation, so I, just don't see anybody jumping to build in this environment.

Until those rates start to really get up there.

And Thats when Youll start to see it now the other part of the equation as we've talked before about.

Just the cost of borrowing money right now has gone up a lot.

I would say it used to be about three 4%. If you were using secured financing now I would imagine.

Operator: Good morning and welcome to the Kirby Corporation 2023 third quarter earnings conference call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions.

Sure.

A smaller company would have to pay north of 10% to to get.

To borrow money and then you.

Losing bonus depreciation so bill.

Operator: We ask that you limit your question to one question and one follow-up. To ask a question, you will press star 11 on your telephone and then you'll hear an automated message advising your hand is raised.

Building equipment in that environment.

With the cost of debt being almost double digit.

It may be well above $13000, a day to justify it could be even higher maybe <unk>, but.

Kurt Niemietz: I would now like to turn the conference call over to Mr. Kurt Niemietz, Kirby's VP of Investor Relations and Treasurer. Please go ahead.

It's all about the cost picture now that said we are you are seeing some equipment that was.

Kurt Niemietz: Good morning and thank you for joining us. With me today are David Grzebinski, Kirby's president and chief executive officer and Raj Kumar, 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. During this conference call, we may refer to certain non-gap or adjusted financial measures. Reconciliation of the non-gap financial measures to the most directly comparable gap financial measures are included in our earnings press release and are also available on our website in the Investor Relations section under financials.

Tied up during <unk>.

During COVID-19 come off the bank some of it will never come off the bank, but.

But youll see us reactivating is probably I think Raj gave an estimate there were reactivated and a handful but.

For year end here, we're almost done reactivating Aro laid out fleet.

Imagine as equipment continues to get tight in Youre not building a whole new set of equipment people will.

If the numbers can work will start to bring some.

Stuff off the bank, but that's only maybe 2% to 3% that could come off the bank if that.

Kurt Niemietz: As a reminder, statements contained in this conference call with respect to the future are forwarded looking statements. These statements reflect management's reasonable judgment with respect to future effects. Forward-looking statements involve risk and uncertainties and our actual results could differ materially from those anticipated as result of various factors. A list of these risk factors can be found on Kirby's form 10K for the year-end of December 31st, 2022 and in our other filing made with the FBC from time to time.

It may already have been off the bank so.

So long way of saying I, just don't see building for for another year or two.

And depending on how fast rates go but.

It's pretty and check right now I think I don't know.

Since we last updated you guys on the call here I think we said there were 22 barges being built this year, we got an update into 'twenty seven barges now.

Now retirements will be high this year.

David Grzebinski: I will now turn the call over to David. Thank you, Kurt. Good morning, everyone. Earlier today, we announced third quarter revenue of $765 million and earnings per share of $1.5. This compares to 2022 third quarter revenue of $746 million and earnings of $65 cents per share. Both of our segments continued to perform well during the quarter despite facing some temporary challenges. In marine transportation, pricing on spot and term contracts continued to benefit from strong demand and limited availability of barges, but results were impacted by the Illinois River Lock Closure and several refinery outages during the quarter.

The maintenance bubble as you start to bring older equipment and for for these big heavy maintenance shipyards, you look at the cost and you say well I'm not going to put put $2 million into a 25 year old barge.

I'll just I'll just retire it so you could see retirements b.

Little more than we expected.

It could be north of 75.

But we don't have a good handle on that we only know what we are retiring.

Hard to say what the industry is your tanks, so thats a long drawn out.

Answered, Ben but I don't see anybody building.

For a couple of years based on just based on the economics right now and then I'll just add I will just add on the coastal side.

Thats why we are not seeing any building.

If you would appeal.

David Grzebinski: Distribution and services delivered improved margins even as we continued to work through supply chain to challenges during the quarter. Overall, our earnings increased sequentially in year-over-year and we continued to repurchase stock during the quarter. In inland marine transportation, our third quarter results reflected continued improvement pricing, partially offset by the headwinds from the Illinois River Closure that I mentioned, as well as the refinery outages in the quarter. From a demand standpoint, customer activities remained strong in the quarter with barge utilization running in the high 80 percent range.

Lead times value the lead times are going to take you through 2007 timeframe.

Alright, well I appreciate that you guys answered a lot of questions in that one question there.

Second one though.

If I could move over to the D&S side. It seems like some of these supply chain issues are persistent and we're not hearing that as much from other places that I'm curious if that is.

Just pushing sales into next year and sort of what line of sight you have for the DNS business going into 2024, appreciating that you haven't given guidance on that yet but.

Just.

Looking to understand how you feel.

David Grzebinski: Spot market prices continued to progress higher and were up in the mid-single digit sequentially and in the mid-teens range, year-over-year, for a year. Term contract prices also renewed at higher rates with high single digit increases versus a year ago. Margins were in the high team. In coastal market fundamentals accelerated with solid customer demand and limited availability of large capacity vessels resulting in spot prices increasing in the mid single digit sequentially and in the low 30% range year over year.

Sort of what's already in the bag for next year, and then maybe David I know that you and I've talked about.

Yes.

Ultra grid staff, a little bit curious how that is playing out and if maybe you could give a little color on that within D&S.

Sure Yeah, the supply chain.

I don't want to overstate the supply chain was but.

It's almost.

It's hit and Miss we can have problems getting variable frequency drives and then I'll clear up for a while and it may come back we might have problems getting some electric componentry and then I'll then I'll start to deliver.

But.

David Grzebinski: During the quarter, our bar utilization in coastal continued to run in the mid 90% range. As mentioned before, our results this year are being impacted by planned chip yard maintenance on several large vessels which led to an overall decrease in third quarter coastal revenues and operating margins just below break even. In distribution and services, the man remains strong across our markets with steady levels of service and repair work combined with high levels of backlog.

It has improved in some areas and then.

A few months later it goes back.

Again, the other way yeah, I will say this some of our engine suppliers. For example, we can't get engines until 2025 in some cases so.

There is still some some heavy headwinds there that said we are seeing on parts for engine that's getting better.

We do a lot of repair work as you know Ben So we are seeing some some improvement there I would just say it's bouncing around it is on the margin better than it has been but it's still.

David Grzebinski: In our commercial and industrial market, overall the man remained solid across our different businesses with growth coming from the marine repair, our generation and on highway sectors. In oil and gas revenues were down as we continued to manage through persistent supply chain issues, particularly with electrical and electronic compometry which delayed many new equipment deliveries during the quarter. We continue to work diligently to manage these supply challenges, even with the decline in revenues operating income in oil and gas without both sequentially and year over year driven by favorable product mix and operating efficiencies.

Bill impacting us a bit.

We did say in our prepared remarks that you could see some some some shipments in the fourth quarter shift and shift into the 2024.

But by and large.

It's more of the same I guess is what I would say in terms of supply chain and shipments.

And youll see it bounce around a bit.

Okay.

Both grid.

Yes, Volta grid.

For those not familiar voltage grids, one of our customers, we don't like to talk about direct customers, but they provide power by the hour.

Not only to the Frac space, but for the other places in the industry and <unk>.

We build a lot of there a lot of their equipment.

David Grzebinski: Overall revenues were up 7% year over year and operating margins improved to just under 10%. In summary, our third quarter results reflected ongoing strengths in market conditions for both segments. Despite the temporary hit wins in the quarter, the inland market is strong and rates continue to push higher, helping to offset lingering inflation. Well, our coastal revenue remains challenged near term by planned chip yards industry-wide supply demand dynamics remain very favorable. Our marginalization is good and we are realizing healthy rating increases. Betty Demand in distribution and services is contributing to further growth in the segment and while supply chain bottlenecks are expected, the outlook for the market is strong.

They continue to expand and to build we continue to get orders firm from them.

They're a world class organization and growing well.

Probably best for me not to give you much more detail than that alright, I appreciate it thanks David.

Thanks Ben.

Thank you and as a reminder, if you would like to ask a question. Please press star one on your phone.

Standby for our next caller please.

Our next call comes from Ken <unk> of Bank of America, Ken Your line is open.

Hi, Thank you Hi, this is Nathan Don land for <unk>, congratulations on a great quarter.

My question is on the inland marine side, so seeing.

<unk> seen the ton miles are down <unk>.

11% on an <unk>.

Some of the factors the team as mentioned.

Raj Kumar: I'll talk more about our outlook later, but first I'll turn the call over to Raj to discuss the third quarter segment results and the balance sheet.

I noticed the callout on Mississippi water levels in some of the locked away days based off of weather.

Sure.

Raj Kumar: Thank you David and good morning everyone. In the 10th quarter of 2023, green transportation segment revenues were 430 million and operating income was 64 million with an operating margin of 15%. Compared to the third quarter of 2022 Total marine revenues decreased by 3 million or 1 percent, while operating income increased 22 million or 52 percent. Increased pricing and improved operating efficiencies in the inland market were partially offset by lower inland utilization due to the Illinois River closure, some refinery outages, and coastal shipyards.

Just wanted to get a scale on what that represents in terms of an operating challenge from a volume perspective should we assume somewhat of a similar level of decline this quarter versus the last.

Yeah, Hey, good morning, Nathan Thanks, Thanks for the questions.

Youll note on the ton miles is a good one and we should elaborate on that.

As you know the Illinois was closed and if you think about what we do on the Illinois, It's usually taking barges from the Gulf Coast, all the way up the.

Hello, Illinois, and sometimes into Chicago.

That's a long journey and generates a lot of ton miles and when when the Illinois closed.

Raj Kumar: Compared to the second quarter of 2023, total marine revenues, inland and coastal together increased 1 percent while operating income was flat. Looking at the inland business in more detail, the inland business contributed approximately 82 percent of segment revenue. Average barge utilization was in a high 80 percent range for the quarter. With the reopening of the Illinois River, our utilization has moved into the low 90 percent range as we begin the fourth quarter.

Theres a lot less ton miles just just from that the other thing is crude we move a lot of crude condensate from the northeast.

The Utica and the Marcellus.

Those are pretty gassy.

Fields and so when there when gas prices are low theyre not not.

Not producing as much condensate and so we don't get those crude moves all the way from the Ohio Valley down to the Gulf Coast. So that's fewer ton miles that said, we're still pretty busy as you heard our utilization was good. So if you look at revenue per ton mile. It's up.

Raj Kumar: Long-term inland marine transportation contracts, or those contracts with a term of one year or longer, contributed approximately 55 percent of revenue with 66 percent from time charges and 34 percent from contracts of a fragment. Type market conditions contributed to spot market rates increasing sequentially in the mid-single digits and in the mid-teens range year over year. Term contracts that renewed during the third quarter were on average up in the high-single digits compared to the prior year.

That's that's because we're busy in other parts of the system.

We have something we call it cross channel, which maybe just taking a barge from from one part of Houston to another part of Houston.

<unk>.

Could tie up the barge for days, but theres a lot of revenue, but not many miles in that so you got to be careful with ton miles and revenue per ton mile.

And as you correctly noted the Illinois had an impact on that now, Illinois back open we started deploying barges in October. So so that's starting to pick back up and we're still impacted because it takes a while to get all that equipment, moving again and get it up river.

Raj Kumar: Compared to the third quarter of 2022, inland revenues increased by 2 percent, primarily due to higher term and spot contract pricing. Inland revenues were up 1 percent compared to the second quarter of 2023, as higher pricing was partially offset by lower utilization, given the Illinois River closure. Inland operating margins were in the high teens during the quarter with the benefit of higher pricing partially offset by lower utilization.

But we do have lock delays there is a major lock in the New Orleans area that.

Clothes, that's causing.

<unk> to be.

Routed and diverted and that's adding some some back some delays into the system.

Raj Kumar: Now moving to the coastal business. Postal revenues decreased 13 percent year over year and were up 1 percent sequentially, as downtime from planned shipyards was partially offset by higher contract prices and improved barge utilization. Overall, coastal had near-break even operating margins as improved pricing was offset by increased shipyard days. The coastal business represented 18 percent of revenues for the marine transportation segment. Average coastal barge utilization was in the mid-90 percent range, which compared the low to mid-90 percent range in the third quarter of 2022.

But we're working through that that's normal I would say what is different is the low water on the Mississippi.

It got to.

Our record low again.

That said, we got some rain in the Ohio Valley, just last week, which may help out a bit.

In the past I think when we had record lows it cost us about two to three since two to five in a quarter.

This should be less than that but it's hard to say right now we're watching it.

Order of magnitude, it's probably in that two well, it's going to be in that range to <unk>, but it feels like there should be less than that but given the recent rain hard to say.

Raj Kumar: During the term contracts was approximately 90 percent, of which approximately 90 percent were time charted. Average spot market rates were up in the mid-single digits sequentially, in the low and in the low 30 percent range year over year and prices on term contract renewals were up in the low double digits 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 third quarter as well as projections for the remainder of 2023.

It's trying to predict whether and see where at all all plays out hopefully that answered the question.

That does thanks, Thanks, Steve and I guess my next question is just.

Sort of a little more big picture trying to trying to understand how the teams looking at the contract exposure side of things, particularly in inland.

I see that you've mentioned that rough.

Currently more or less around half the book right now, but historically this could trend well into the <unk> I mean.

We're talking about historically tight vessel capacity and strong demand.

Raj Kumar: This is included in our earnings at the end of the third quarter, the inland fleet had 1771 barges representing 23.6 million barrels of capacity. On a net basis, we currently expect to end 2023 with a total of 1773 inland barges representing 23.6 million barrels of capacity driven by a modest number of reactivations in the fourth quarter.

Could we see this sort of locking in of current rates.

Kind of ramp gradually higher into the next couple of years.

Yes.

No good good observation here.

As you've noted we're about 55%.

Term at 45% spot and I would just say Directionally, we don't mind, having a big spot exposure, we do that kind of on purpose, especially in a rising rate environment.

Raj Kumar: The distribution and services segment, revenues for the third quarter of 2023 were 335 million with operating income of 33 million and and operating margin around 10%. Compared to the third quarter of 2022, the distribution and services segment saw revenues increased by 22.1 million or 7% with operating income increasing by 10.9 million or 49%. When compared to the second quarter of 2023, revenues decreased by 15 million or 4% and operating income increased by 3 million or 11%.

Sequentially, we saw inland rates up mid single digits year over year spot rates were up mid teens.

So we.

We're enjoying our spot position I will say this to your point.

Customers are they are well aware of the maintenance bubble.

And.

We're seeing a little little push to two extending.

Extending and maybe terming up more equipment or getting longer spot deals unit.

Call it spot deal something less than a year.

Instead of one month deal they might be doing three months or six months builds now theyre starting to get a little nervous about this maintenance level.

Raj Kumar: On the commercial and industrial market, strong activity contributed to a 28% year over year and 17% sequential increase in revenues with improved demand for equipment, parts and service in our marine repair and on highway businesses. Power generation was also up year over year. Overall, the commercial and industrial business represented approximately 63% of segment revenue and had an operating margin in the high single digits in the third quarter. In the oil and gas market, revenues were down 16% year and year and 27% sequentially.

Because the spot market is very very tight right now.

Okay makes sense, thanks for the thoughts.

Thanks, David.

Thank you very much one moment for our next caller.

Our next call comes from Jack Atkins of Stephens, Inc. Jacques you line is open.

Great. Good morning, everybody. Thanks for taking my questions.

Hey, good morning.

So David I'd like to maybe go back to Ben's first question, if I could just sort of a capacity question, but maybe ask it in a different way I mean, I think historically.

Raj Kumar: We continued to manage through supply chain bottlenecks, especially in our manufacturing business, which led to shipment delays in the quarter. Despite these issues, the manufacturing business experienced continued favorable trends in new orders and backlog driven by our e-thrack units and associated power generation equipment. Overall, oil and gas represented approximately 37% of segment revenue in the third quarter and had operating margins in the low double digits.

Theres been a lot of focus around new barge construction, then relative to retirement and the impact that could have on capacity or not.

But I guess one big piece of capacity is also the ability to get Mariners to crew your boats and could you maybe talk about that as a capacity constraint because what we're hearing through the channel is.

That's as challenging in terms of hiring qualified folks to operate your boats as.

Raj Kumar: Now I'll turn to the balance sheet. As of September 30, 2023, we had 42 million of cash with total debt just over 1 billion. During the quarter, we increased our debt balance by 69 million and our debt to cap ratio increased to 25.3%. During the quarter, we had net cash flow from operating activities of 96.3 million. We used cash flow and cash on hand to fund 104 million of capital expenditures of which 50 million was related to maintenance of equipment and the remainder was directed to growth caps in marine and e-thrack.

Maybe being able to build a barge so that's a limiter for capacity as well, but I wanted to maybe get your thoughts on that.

No I mean, that's an excellent point horsepower as you know is is how we move the barges and we've got a crew these vessels.

And we've seen a very very tight labor market, it's been hard to get crews.

Fortunately Kirby has got our own school so we.

We anticipated some of this and started the school basically.

Almost two years ago ramping up even as Covid was going on we're doing okay. We're short mariners I'll be honest, we're short mariners, but we're able to crew our vessels right now.

Raj Kumar: We continued to return capital to shareholders in the quarter and repurchased $23.3 million of stock at an average price of around $80.31. As of September 30, we had total available liquidity of approximately 451 million. With respect to cash flow, depending on the timing on working capital. Cardinal, we would likely expect to generate close to $475 to $525 million of operating cash low and $100 to $150 million in free cash low this year. We have committed to a balanced capital allocation approach and we expect to use most of the free cash low to continue to re-burch their stock.

While the Lauder Mariners working all over time to help do that which is good.

They're good team players, but it is absolutely a factor in the tightness in the market.

There is just not a lot of available horsepower, which.

Which is making it really tight so you've got type barge.

Availability and tight boat availability and that just as you as you would imagine.

It makes it even more difficult.

To get moves going so thanks for bringing apps a good point, we don't talk about it a lot, but it is a major factor.

David Grzebinski: I will now turn the call back to David to discuss the remainder of our outlook for the fourth quarter. Thank you Raj. We had a good quarter with both our businesses performing well despite some temporary headlamps. Refinery activity remains at high levels. Our barge utilization is strong in both inland and coastal and rates are steadily increasing. While we expect some near-term issues in the fourth quarter related to low water conditions on the Mississippi River, increasing delay days due to normal seasonal weather and high levels of shipyard activity in coastal are outlook in the marine market remains strong.

And Thats part of the inflation picture right.

There is some labor inflation, we've been we've been dealing with that.

And part of it is because we're short mariners and the whole ecosystem.

Yes, okay.

That makes sense I just wanted to kind of get your thoughts on that piece and then I guess, just as we kind of think about the bigger picture.

This is maybe a two part question, but both as it relates to sort of your fourth quarter outlook and then.

And then kind of longer term going into 2024.

Yes.

What do you think about relative to three months ago as the fourth quarter outlook changed at all.

David Grzebinski: In distribution and services despite ongoing supply chain constraints and delays, demand for our products and services is good and we continue to receive new orders and manufacturing. Overall, we expect our businesses to deliver improved financial results in 2024. While all of this is encouraging, we are mindful of challenges related to slow and global economy, geopolitical unrest and additional economic weakness due to high interest rates. Even with these uncertainties, we remain very positive and expected drives strong cash flow from operations going forward.

And if so is that really kind of tied purely to the water levels or is there anything else going on there in terms of.

Customer demand and maybe that will give you a chance to talk about.

Yes, just the output that you are seeing from some of your key customer groups within analytics.

Yeah.

Now the fourth quarter outlook hasn't changed a lot if anything it's gotten a little better.

Okay.

Tighter than we.

I mean, you've always deal with weather in the fourth quarter and we're starting to see it and as you know Jack fog is as bad as low water, it's actually worse, because the Mississippi is only about 25% of the 20% to 25% of our volume, but the Gulf Coast, where we're very active.

They can really bogged down the fleet and we always see that in the fourth quarter that said, whether it does tighten up utility too right.

David Grzebinski: Driving into the businesses in more detail, I will start with inland, favorable conditions are expected to continue going forward driven by the combination of high refinery and petrochemical plant utilization and minimal new barge construction across the industry. Herbie expects these strengths to be partially offset by increasing delay days due to normal seasonal weather that we generally see in the fourth quarter. And we also expect the low water conditions on the Mississippi River to have an impact.

You don't you just not moving as efficiently. So it does tighten up utility I would say.

If anything it's as expected maybe marginally better just because we're so tight on on spot now that Illinois opened back up.

The low river, that's a little bit of a headwind because you have to run lower drafts.

You have to be careful in wafer dredges things like that so.

It's all it's call it all in our our outlook for now.

David Grzebinski: And further, there are some inefficiencies remaining with some lock maintenance in Louisiana. The company still expects further improvement in spot market prices, which currently represent approximately 45 percent of inland revenues. Current contracts are also expected to continue to reset higher. Overall, fourth quarter inland revenues are expected to be roughly flat sequentially with a modest improvement in margins. And we still expect in the year close to 20 percent, if not at 20 percent margin.

But I think what's important is we're heading into.

Our contract renewal period in the fourth quarter as you know, that's usually a pretty heavy contract renewal time and the markets market's tight our customers are sophisticated they they know it's tight.

This maintenance bubbles there.

So we feel we're pretty energized about the outlook.

It's too hard it's too early to talk about 'twenty four yet but.

It certainly feels good going into the major contact renewals right now.

David Grzebinski: In the coastal market, conditions have tightened considerably and the industry is close to supply and demand balance across the fleet. As we've discussed, our coastal revenues and operating margins continue to be impacted this year by an approximate doubling of planned shipyard maintenance, and Stays, and Ballast Water Treatment Installations on certain vessels. Kirby expects steady customer demand through the balance of the year, the barge utilization in the low to bid 90 percent range.

Okay. Thank you again for the time guys really appreciate it.

Thanks Jack.

Thank you and as a reminder to ask a question. Please press star one on your phone.

Our next call comes from John Daniel of Daniel Energy Partners. John Your line is open.

Hey, David Thank you for including me.

Hi.

I got just one question.

On the environmentally frac equipment, which would you characterize the interest not orders to interest as accelerating or stable right now.

David Grzebinski: Rates are expected to continue improving as the availability, availability of equipment is tight across the industry. For the fourth quarter, coastal revenues are expected to be up in the low to mid-single visits compared to the 2023-3rd quarter as we continue to progress through major shipyards. However, there is some possibility of the shipyards extending into early 2024. Coastal operating margins are expected to be near break even to low single digits on a full year basis.

And then also is it coming from a broader customer base or is it the same customers.

It is.

Is broader.

It is broader.

And I would say.

Accelerating maybe too strong of a word but improving.

I wouldn't say accelerating because that makes it sound.

That gets a huge ramp but it is improving the interest is improving I mean, John you know this better than anybody.

Efficiencies you get with E. Frac are are so pronounced and so good for for not only.

Our customers the pressure pumper, but the E&P companies.

David Grzebinski: Moving to distribution and services, steady demand and commercial and industrial and favorable oil field fundamentals are expected to continue throughout the remainder of 23 and into 2024. And commercial and industrial steady markets are expected to remain in the fourth quarter with incremental activity and power generation marine repair and on the highway. This activity should be partially offset by lower rental equipment activity as the hurricane season winds down. That will create a slight headwind to margins.

The savings is there.

Obviously, everybody likes the ESG benefits, but the operational savings.

Is so significant.

Yes, I think you should tell us because you know the customers.

As well as we do but.

I think you're just going to see continued building of the Frac.

And conventional Frac you won't see much of going forward in terms of new builds.

I tend to great. There's a lot of stuff that needs to be replaced out there.

Yes.

David Grzebinski: In the oil and gas market despite the near-term volatility in commodity prices and rig counts, we expect continued demand for manufacturing as well as for OEM parts, products and services. Within manufacturing, the company expects the man for environmentally friendly pressure pumping and heat-prac power generation equipment to remain strong. With new orders and increased deliveries of new equipment for the remainder of the year and into 2024. The pie chain issues and long lead times are expected to persist in the near-term contributing to some volatility of deliveries and potentially shifting some deliveries from the fourth quarter into next year.

The only other thing I would say.

You say accelerating but.

We're seeing some interest internationally now to on track on <unk>. So.

I would say that's kind of new to the game.

Would you be willing to share which markets are the most interested I understand you don't want to.

Yeah, well I think.

Next question, it's the middle East as the Middle East, Okay fair enough on the supply chain constraints the electronic components.

Do you have any more color you could add like what's really driving that or are they diverting supply to other sectors, where they just can't make it past us.

Yes, it's the latter they can't make it fast enough and we buy I don't want to name the vendor because that.

It would not be nice, but we by.

David Grzebinski: Overall, the company expects fourth quarter segment revenues to be up in the low to mid-single digits sequentially with lower operating margins impacted by MIX and dropping into the mid-to-high single digit range from the almost 10 percent range we had this quarter.

Variable frequency drives for example from from Scandinavian area.

You just can't make it fast enough.

Which is an interesting dilemma yes.

Sometimes you get and.

Closures the back up and that's you would think thats.

You don't want to call it a dumb iron but.

David Grzebinski: To conclude, both our segments performed well during the quarter in the face of some temporary challenges and our team executed well on near-term objectives as well as on our long-term strategy. Our balance sheet is very strong and we expect to generate significant free-cast flow in coming quarters and we expect to use free-cast flow or share repurchases debt repayment as well as opportunistic growth projects. Although we see favorable markets continuing and expect our businesses will produce improving financial results as we head into 2024, we are closely monitoring the potential for a recession as well as the potential short-term weather and low-water related impacts, and Max in our marine business.

You would think enclosures wouldn't be a problem, but that gets backed up.

No.

Interesting okay.

Different electric componentry, and things around electrics as seems seems to be backing up and John.

If you look at.

All of the data centers going up.

Now you got things like chat GPT in AI and <unk>.

We've seen another surge for for backup power.

Whether it's data centers or whatnot so.

We use that same equipment and generating electricity for their frac spreads. So it's there's just a lot of demand in the system in.

What's going on and it's usually just electric or electronic related.

Okay.

David Grzebinski: Having said that as we look long-term, we are confident in the strength of our core businesses and our long-term strategy. Our marine businesses are in the early innings of a multiple year recovery and demand-remain solid and distribution and services despite recent macro headlands.

That's very helpful and I appreciate you letting me ask some questions today. Thank you sure John Thanks take care.

Sure.

Thank you one moment for our next question.

Our next question comes from Greg Koski, Weber Research and advisory Greg.

David Grzebinski: We intend to continue capitalizing on strong market fundamentals and driving value for the shareholders, as the shareholders operator, this concludes our prepared remarks. We are now ready to take questions. Thank you.

Greg Your line is open.

Hey, David and Roger Good morning, how are you guys doing good morning, Greg.

Hey, so I wanted to I want to check in on that chunk of term contracts that rolls over in Q4, I know, it's early days here, but.

Operator: At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Also, as a reminder, we ask you please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster.

Wanted to see how would you characterize your initial expectations and your level of confidence when looking into Q4, right now say versus your expectations and level of confidence last year and the year before.

Yes, well last year.

Okay.

Didn't we.

We're still recovering a little bit from Covid. So this year is much much better environment than last year last year was good don't get me wrong, but we were still hey, as Covid really gone.

Benjamin Nolan: Our first question comes from Ben Nolan of Stiffle. Ben, your line is open. Thank you. Good morning, David and Raj. Good morning, Ben. From my first question, I wanted to ask a little bit on the inland side. Well, actually, inland and coastal. We've gone through a number of years now with very little and a way of ordering activity. I know that you guys have been pretty vocal about saying the economics for new equipment still don't line up.

Is the market really coming back.

Are the volumes on the river coming back so.

And we did see it come back and of course.

First quarter of this year, we had some pretty tough weather conditions and whatnot. So.

I would say contract renewals feel better this year.

Benjamin Nolan: At some point, the industry is going to need some replacement catbacks. Can you maybe put a little color around that and how you think about it with respect to your own fleet? Yeah, Ben. Thanks for the question and good morning. Yeah, look, the cost of new equipment, as you know, is pretty much doubled in the last five years. Steel prices are out, labor input costs are out, paint up, you know, just skilled labor for welding is up, you know, radars and electronics on boats are up.

I want to use the word significantly better, but they certainly feel better.

It's a tight market.

This maintenance bubble is real.

Our customers have lots of volumes to move and.

You can look at the share buybacks, among our customer base and it tells you how good they're doing right. So.

Benjamin Nolan: Just about everything, you know, high performance line on the tow boats are up, you know, 60, 70%. So, you know, all the input costs have gone up. So if you take like a two barge tow, you know, the $4 million per barge, you know, that's $8 million and then you put a $6 to $7 million tow boat with it. You know, you're talking about $15 million worth of cable equipment for a two barge tow and to get a 12% or a 10% type return on that equipment.

The barge cost to them in terms of.

Moving refined products or chemicals as is nothing.

And they should they should be generous.

Sure.

Understood. Okay. Thanks, David and then.

Can you talk a little bit more about the power generation fleet in Q3, and Q4, so far I'm, just curious how demand compared to last year relative to the severity and the frequency of storms last year versus this year maybe.

And maybe remind us operationally to do your customers essentially have it standing annual rental agreements regardless of what the storm activity really is or would increase storm activity drive demand higher real time within the quarter.

Yes, it's usually.

Benjamin Nolan: You'd need north of $13,000 a day now. So it doesn't make sense for anybody to build right now. Rates need to come up and they need to keep going up, you know, we're still fighting inflation. So I just don't see anybody jumping to build in this environment until those rates start to really get up there. And that's when you'll start to see it. Now, the other part of the equation as we talked before about, you know, just the cost of borrowing money right now has gone up a lot.

Stan every customer is a little different Greg, it's usually a standby fee during the hurricane season, and then if we deploy.

The rates go up a lot it was a mild hurricane season this year thank goodness.

Because that impacts our marine business, but but we kept pretty busy with the rental fee because everybody has gotten smart about putting stuff on standby and paying us for it but as we exit the hurricane season that tapers off a bit as you would expect.

Benjamin Nolan: You know, I would say it used to be about 3, 4% if you were using secured financing. Now I would imagine, you know, A smaller company would have to pay north of 10% to get to borrow money and then you're losing bonus depreciation. So, you know, building equipment in that environment, you know, with the cost of debt being, you know, almost double digit, it may be well above $13,000 a day to justify it, could be even higher, maybe 14.

I would just tell you that is the general theme is this every company knows they need power $24, seven and they have gotten smarter and smarter and smarter about having backup power options.

We do also sell backup power.

All over all over the place we sell backup power generation equipment to data centers, we sell it to the banks and financial institutions, we sell it to hospitals and that's part of what's helping KBS do better is our power generation business and manufacturing or assembling that kind of.

Benjamin Nolan: But, you know, it's all about the cost picture. Now, that said, we are, you're are seeing some equipment that was, you know, tied up during, during COVID come off the bank. Some of it will never come off the bank, but you'll see us reactivating these probably, I think, Raj gave an estimate that we're reactivating a handful before you're in here. We're almost done reactivating our late up fleet, but I would imagine as equipment continues to get tight and you're not building a whole new set of equipment, people will, if the numbers can work, we'll start to bring some stuff off the bank, but you know, that's only maybe two to three percent that could come off the bank.

Equipment and delivering it to institutions that really.

Really don't don't don't want to take a chance with not having power.

Yes.

Yeah got it okay. Thanks, David Hope Youre doing well with with your Astros.

Well.

The answer to that question, but at least it's another Texas team that's in.

That's right that's right.

Thanks, Greg.

Yes.

As a reminder to ask questions. Please press star one on your phone.

Benjamin Nolan: If that, it may already have been off the bank. So, it's a long way of saying, I just don't see building for another year or two, depending on how fast rates go, but it's pretty in check right now. I think, I don't know, since we last updated you guys on the call here, you know, I think we said there were 22 barges being built this year. We got an update and it's 27 barges.

As there is no further questions. This concludes our question and answer session I would now like to turn the conference back over to Mr. Kurt limits for any closing remarks.

Thank you Corey and thank you everyone for joining us on the call today. If there is any follow up questions. Please reach out to me anytime today.

Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Benjamin Nolan: You know, now retirements will be high this year. You know, with the maintenance bubble, as you start to bring older equipment in for these big heavy maintenance shipyards, you look at the cost and you say, well, I'm not going to put $2 million into a 25 year old barge. I'll just retire it. So, you could see retirements be a little more than we expected. You know, it could be north to 75, but we don't have a good handle on that.

Okay.

[music].

Okay.

Okay.

Okay.

[music].

Benjamin Nolan: We only know what we're retiring. It's hard to say what the industry is retiring. So, that's a long drawn out answer, Ben, but I don't see anybody building for a couple of years based on just based on the economic trade now. And Ben, I'll just add on the coastal site, you know, to David's point, we're not seeing any building. And if you would have built the lead times, you know, the lead times are going to take you into the 237 time frame.

Benjamin Nolan: Right. Well, I appreciate that. You guys answered a lot of questions in that one question there. My second window, if I could move over to the DNS side, it seems like some of these supply chain issues are persistent. And we're not hearing that as much from other places. I'm curious if that is just pushing sales into next year and sort of what line of site you have for the DNS business going into 2024, appreciating and giving guidance on that yet.

Benjamin Nolan: But just looking to understand how you feel about sort of what's already in the bag for next year. And then maybe David and I've talked about the multigrid stuff a little bit curious how that is playing out. And if maybe you could give a little color on that with Indiana. Sure, yeah, supply chain, I don't want to overstate the supply chain woes, but it's almost, it's, it's hidden Miss, you know, we can have problems getting variable frequency drives and then it'll clear up for a while and it may come back when I have problems getting some electric componentry and then it'll start to deliver, but yeah, it has improved in some areas and then, you know, if you months later it goes back again the other way.

Benjamin Nolan: Yeah, I will say this, you know, some of our engine suppliers, for example, we can't get engines until 2025 in some cases. So there are still some heavy headwinds there that said we are seeing on parts for engines that's getting better, you know, we do a lot of repair work as you know, Ben, so we are seeing some improvement there. I would just say it's bouncing around, it is on the margin better than it has been, but it's still still impacting us a bit.

Benjamin Nolan: You know, we did say in our prepared remarks that, you know, you could see some shipments in the fourth quarter ship shift into the 2024. But by and large, you know, it's, it's more the same, I guess, is what I would say in terms of supply chain and shipments. You'll see it bounce around a bit. Okay. You know, for those not familiar, it's one of our customers we don't like to talk about direct customers, but they provide power by the hour.

Benjamin Nolan: Not only to the frack space, but put other places in industry and we build a lot of their, a lot of their equipment. They continue to expand and to build, we continue to get orders from them. They're, they're a world-class organization and growing well. Probably best for me not to give you much more detail than that. All right, I appreciate it. Thanks Dave, not. Thanks, Ben. Thank you. As your reminder, if you would like to ask a question, please press star one one on your phone. Stand by for our next caller, please.

Nathan Dalant: Our next call comes from Ken Hoister, a Bank of America. Can your line is open? Hi. Thank you. This is Nathan Dalant for Ken Hoister. Congratulations on the great quarter. My question is on the inland marine side. So seeing that ton miles are down, three, two, 11 per cent on, partly some of the factors that teams mentioned. I noticed the call out on the Mississippi water levels or something to lock to lay days based off of weather.

Nathan Dalant: And just want to get a scale on what that represents in terms of an operating challenge from a volume perspective. Should we assume somewhat of a similar level of decline this quarter versus the last? Yeah, hey, good morning, Nathan. Thanks for the questions. Yeah, you're note on the ton miles is a good one and we should elaborate on that. As you know, the Illinois was closed. And if you think about what we do on the Illinois, it's usually taking barges from the Gulf Coast all the way up the Illinois and sometimes into Chicago.

Nathan Dalant: That's a long journey and generates a lot of ton miles. And when the Illinois is closed, you know, there's a lot less ton miles just from that. The other thing is crude. We move a lot of crude condensate from the Northeast and from the U to K and the Marcellus. And those are pretty gassy fields. And so when their gas prices are low, they're not producing as much condensate. And so we don't get those crude moves all the way from the Ohio Valley down to the Gulf Coast.

Nathan Dalant: So that's fewer ton miles. That said, we're still pretty busy as your hero utilization was good. So if you look at revenue per ton mile, it's up. You know, that's because we're busy in other parts of the system. You know, we have something we call a cross channel, which may be just taking a barge from from one part of Houston to another part of Houston, which, you know, could tie up the barge for days, but there's a lot of revenue, but not many miles in that.

Nathan Dalant: So you got to be careful with ton miles and revenue per ton mile. And as you correctly noted, the Illinois had an impact on that. Now, Illinois's back open. We started deploying barges in October, so so that's starting to pick back up. And we're still impacted because it takes a while to get all that equipment moving again and get it up forever. But we do have locked delays. There's a major lock in the New Orleans area that's closed and it's causing routes to be rerouted and diverted in that's adding some back, some delays into the system.

Nathan Dalant: But we're working through that that's normal. I would say what is different is the low water on the Mississippi. You know, it's got to a record low again. That said, we got some rain in the Ohio Valley just last week, which may help out a bit. You know, in the past, I think when we had record lows, it cost us about two to three cents to the five cents in a quarter.

Nathan Dalant: This should be less than that, but it's hard to say right now. We're watching it, you know, that the order of magnitude is probably in that two. Well, it's gonna be in that range to five cents, but feels like this should be less than that, given the recent rain. Hard to say, you know, it's, it's, you know, it's trying to predict weather and see where at all, all plays out. Hopefully that answered the question, Nathan. No, that does. Thanks, thanks a bunch, Dave.

Nathan Dalant: And I guess my, my next question is just a sort of a little more big picture. Trying to try to understand how the team's looking at the contact exposure side of things, particularly in the inland. I see that you've mentioned that rough. It's currently more or less around half the book right now, but historically this could trend well into the 80s. I mean, you know, what we're talking about historically tight vessel capacity and strong demand.

Nathan Dalant: Can we see this sort of locking in of current rates kind of ramp gradually higher into the next couple of weeks? Cheers. Yeah, no, good observation here. As you've noted, we're about 55% term and 45% spot. And, you know, I would just say, directionally, we don't mind having a big spot exposure. We do that kind of on purpose, especially in a rising rate environment. You know, sequentially, we saw inland rates of mid-single digits year over year, spot rates were up mid-teens.

Nathan Dalant: So, you know, we're enjoying our spot position. I will say this to your point, customers are well aware of the maintenance bubble. And, you know, we're seeing a little push to extending and maybe terming up more equipment or getting longer spot deals. You know, we call a spot deal something less than a year. You know, instead of one month deal, they might be doing three months or six month deals now. They're starting to get a little nervous about this maintenance bubble because the spot market is very, very tight right now. Makes sense. Thanks for the thoughts, David. Thank you very much. One moment for our next caller.

Jack Atkins: Our next call comes from Jack Atkins of Steven Zink. Jack, your line is open. Okay, great.

Jack Atkins: Good morning, everybody. Thanks for taking my questions. Good morning. So, David, I'd like to maybe go back to Ben's first question if I could. It was sort of a capacity question, but maybe ask it in a different way. I mean, I think historically, you know, there's been a lot of focus, you know, around, you know, new barge construction and, you know, relative to retirement and the impact that could have on capacity or not.

Jack Atkins: You know, but I guess one big piece of capacity is also the ability to get mariners to crew your boats. And could you maybe talk about that as a capacity constraint? Because what we're hearing through the channel is, you know, that's as challenging in terms of hiring qualified folks to operate your boats as, you know, as, you know, maybe be able to build a barge. So that's a limiter for capacity as well.

Jack Atkins: But I wanted to maybe get your thoughts on that. No, I mean, that's an excellent point. The forced power, as you know, is how we move the barges and we've got to crew these vessels. And we've seen a very, very tight labor market. It's been hard to get crews. You know, fortunately, Kirby has got our own school. So we anticipated some of this and started the school basically almost two years ago, ramping up even as COVID was going on.

Jack Atkins: We're doing okay. We're short mariners. I'll be honest. We're short mariners, but we're able to crew our vessels right now. A lot of mariners working a little over time to help do that, which is good. They're good team players. But it is absolutely a factor in the tightness in the market. There is just not a lot of available force power, which is making it really tight. So tight boat availability. And that just as you, as you would imagine, makes it even more difficult to get moves going.

Jack Atkins: So thanks for bringing that up. It's a good point. We don't talk about it a lot, but it is a major factor. And that's part of the inflation picture, right? I mean, there's some labor inflation. We've been dealing with that. And part of it is because we're short Yeah, okay, no, that makes sense. I just wanted to kind of get your thoughts on that piece.

Jack Atkins: And then I guess just, you know, as we kind of think about the bigger picture, you know, this is maybe a two-part question, but both as relates to sort of your fourth quarter outlook and then, and then kind of longer term going into 2024. You know, I guess, you know, when you think about relative to three months ago, as the fourth quarter outlook changed at all. And if so, is that really kind of tied?

Jack Atkins: It purely to the water levels, or is there anything else going on there in terms of, you know, customer demand, and maybe that'll give you a chance to talk about, you know, you know, just the output that you're seeing from some of your key customer groups within inland. Now the fourth quarter outlook has changed a lot. If anything, it's got a little better, because we're tighter than we, I mean, you always deal with weather in the fourth quarter.

Jack Atkins: And, you know, we're starting to see it. And as you know, Jack Fogg is as bad as low water. It's actually worse because Mississippi is only about 25% of our 20 to 25% of our volume. But the golf coast where we're very active, you know, a fog day can really bog down the fleet. And we always see that in the fourth quarter. That said, weather does tighten up utility too, right? I mean, you just not moving as efficiently, so it does tighten up utility.

Jack Atkins: I would say, you know, if anything, it's as expected, maybe marginally better, just because we're so tight on spot now that Illinois's open back up. The lower river, you know, that's a little bit of a head blend because you have to run lower drafts. You have to be careful and wait for dredges and things like that. So, you know, it's all it's calling all in our outlook for now. But I think what's important is we're heading into, you know, a contract renewal period in the fourth quarter.

Jack Atkins: As you know, that's usually a pretty heavy contract renewal time. And the markets markets tight, our customers are sophisticated. They they know it's tight. They know there's this maintenance bubbles there. So we're we're we're pretty energized about the outlook. You know, it's too hard. It's too early to talk about 24 yet. But it certainly feels good going into the major contact for noodles right now.

Jack Atkins: Okay, thank you again for the top guys really appreciate it. Thanks, Jack. Thank you.

Operator: As a reminder, to ask a question, please press star 11 on your phone.

John Daniel: Our next call comes from John Daniel of Daniel Energy Partners. John your line is open. Hey, David. Thank you for including me. I got just one question on the environmentally frack equipment, which would you characterize the interests, not orders to interest as accelerating or stable right now. And and also is it coming from a broader customer base? Or is it the same customers? It is it is broader. Okay. And I would say accelerating maybe too strong of a word, but improving, you know, I wouldn't say accelerating because that that makes it sound like it's a huge ramp.

John Daniel: It is improving. The interest is improving. I mean, John, you know, this better than anybody that the efficiencies you get with EFRAC are are so pronounced and so good for for not only our customers, the pressure pumpers, but the EMP companies that the savings is there. And you know, obviously everybody likes the ESG benefits, but you know, the operational savings is so significant. And yeah, I think and you should tell us because you know, the customers as well as we do, but I think you're just going to see continued building of EFRAC and conventional FRAC you won't see much of going forward in terms of new builds.

John Daniel: No, I can't do great. There's a lot of stuff that needs to be replaced out there. Yeah. Well, they only have the thing I would say on, you know, you say accelerating, but you know, we're seeing some interest internationally now too on FRAC on EFRAC. So, you know, I would say that's kind of new to the game. John Daniel. Would you be willing to share which markets are the most interested? I understand if you don't want to.

John Daniel: Well, I think it's the middle east. On the supply chain constraints, the electronic components, do you have any more color you could add as to what's really driving that? Are they diverting supply to other sectors or they just can't make it fast enough? Yeah, it's the latter. They can't make it fast enough. You know, we buy, I don't want to name the vendor because that would not be nice, but we buy variable frequency drives, for example, from Scandinavian area.

John Daniel: They just can't make it fast enough, which is an interesting dilemma. Sometimes you get enclosures, the backup and that's, you know, you would think that you don't want to call it dumb iron. But you would think enclosures wouldn't be a problem, but that gets backed up. Interesting. Okay. Different electric componentry and things around electrics seems to be backing up. And John, you know, if you look at, you know, all the data centers going up and now you've got things like chat, GPT and AI and just we've seen another surge for backup power, whether it's a data centers or whatnot.

John Daniel: So, you know, we use that same equipment in generating electricity for the fractured. So it's, there's just a lot of demand in the system. And, you know, that's what's gone. And it's usually just electric or electronic data. Okay. Well, that's very helpful and I appreciate you. Let me ask some questions today. Thank you. Sure John. Thanks. Take care. Yes sir. Thank you. One moment for our next question.

Gregory Wasikowski: Our next question comes from Greg Wazakowski, Web of Research and Advisory. Greg, your line is open. Hey, David and Raj, good morning. How you guys doing? Hey, good morning, Greg. Hey, so I wanted to check in on that chunk of term contracts that rolls over in Q4.

Gregory Wasikowski: I know it's early days here, but I wanted to see how would you characterize your initial expectations and your level of confidence when looking into Q4 right now, say versus your expectations and level of confidence last year and the year before. Yeah, well, last year, you know, we didn't say, you know, we were still recovering a little bit from COVID. So this year's much, much better environment than last year. Last year was good.

Gregory Wasikowski: Don't get me wrong, but we were still. Hey, is COVID really gone? You know, is the market really coming back is, you know, are the volumes on the river coming back? So and we did see it come back and of course, you know, first quarter of this year, we had some pretty tough weather conditions and whatnot. So I would say contract renewals feel better this year. I want to use the word significantly better, but they certainly feel better.

Gregory Wasikowski: It's a tight market. This maintenance bubble is real. Our customers have lots of volumes to move and you can look at the share buybacks among our customer base and it tells you how good they're doing, right? So the barge cost to them in terms of moving refined products or chemicals is nothing and they should be generous.

Gregory Wasikowski: Understood. Okay, thanks David.

Gregory Wasikowski: And then can you talk a little bit more about your power generation fleet and Q3 and Q4 so far? I'm just curious how demand compared to last year relative to the severity and the frequency of storms of last year versus this year? You know, rental agreements regardless of what the storm activity really is or would you know increase storm activity drive demand higher real time within the quarter? Yeah, it's usually a a stand every customer is a little different Greg.

Gregory Wasikowski: It's usually a stand by fee during her hurricane season and then if we deploy you know the rates go up a lot. It was a mild hurricane season this year. Thank goodness because that impacts our marine business. But but we kept pretty busy with the rental fee because yeah everybody is gotten smart about putting stuff on standby and paying us for it. But as as we exit the hurricane season you know that tapers off a bit as you would expect you know I would just tell you that the general theme is this every company knows they need power 24 7 and they've gotten smarter and smarter and smarter about having backup power options.

Gregory Wasikowski: You know we do also sell backup power all over all over the place. We sell backup power generation equipment to data centers. We sell it to banks and financial institutions. We sell it to hospitals and that's part of what's helping KDS do better is our power generation business and manufacturing or assembling that kind of kind of equipment and delivering it to institutions that that really really don't don't don't want to take a chance with not having power. Yeah.

Gregory Wasikowski: Got it. Okay. Thanks David. Hope you're doing well with with your asterisk. Well you know the answer to that question but at least it's another Texas team that's in. Yeah. That's right. All right. Thanks very. Yep. Thank you. As a reminder to ask questions please press star 1-1 on your phone.

Kurt Niemietz: As there is no further questions this concludes our question and answer session. I would now like to turn the conference back over to Mr. Kurt Nimitz for any closing remarks. Thanks. Thank you Corey and thank you everyone for joining us on the call today. If there's any follow-up questions please reach out to me any time today. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

John Daniel: John Daniel, Scott Group, Kenneth Hoexter, David Grzebinski