Q4 2023 Kirby Corporation Earnings Call
Good morning, and welcome to the Kirby Corporation 2023 fourth 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. Please note. This event is being a record.
Kurt: I would now like to turn the conference over to Mr. Kurt image Kirby's VP of Investor Relations and Treasurer. Please go ahead.
Kurt: Good morning, and thank you for joining the Kirby Corporation 2023 fourth quarter earnings call with me today are David <unk>, Kirby's, President and Chief Executive Officer.
Raj Kumar: Raj Kumar Kirby's Executive Vice President and Chief Financial Officer.
Kurt Kirby: Slide presentation for today's conference call as well as the earnings release, which was issued earlier today can be found on our website.
Kurt Kirby: During this conference call, we may refer to certain non-GAAP or adjusted financial measures reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and our.
Kurt Kirby: Also available on our website in the Investor Relations section under financials.
Kurt Kirby: As a reminder statements contained in this conference call with respect to the future are forward looking statements. These statements reflect management's reasonable judgment with respect to future events forward looking statements involve risks and uncertainties and our actual results could differ materially from those anticipated as a result of various factors.
Kurt Kirby: These risk factors can be found in Kirby's latest Form 10-K filing and in our other filings made with the SEC from time to time with that I will now turn the call over to David.
David: Thank you Kurt and good morning, everyone.
David: Earlier today, we announced fourth quarter revenue of 799 million and earnings per share of $1 four.
David: This compares to 2022 fourth quarter revenue of $730 million and earnings per share of <unk> 62 cents.
David: During the fourth quarter continued strong fundamentals in both our businesses resulted in significant year over year growth in our revenue and earnings in.
David: In marine transportation pricing on spot and term contracts benefited from strong demand and limited availability of barges.
David: While the onset of winter weather conditions proved to be a headwind.
David: Our efficiency in the quarter.
David: Distribution and services delivered higher revenues sequentially, but margins were down slightly from the third quarter as a result of lower demand in our power rental business and typical seasonal impacts.
David: We ended the year on a good note and we anticipate strong growth in 2024.
David: In inland Marine.
David: We continued to experience strong demand and high barge utilization with our barge utilization rates in the low 90% range.
David: Spot market prices continue to push higher and we were up in the low to mid single digits sequentially, and then mid teens year over year.
Pricing increases on term contract renewals were up year.
David: Year over year on average in the high single digits during the quarter.
David: While the efficiency of our operations was challenged during the quarter with delayed days up 86% sequentially strong pricing and utilization, mostly offset this allowing for inland marine margins to remain flat sequentially with operating margins remaining in the high teens on average.
In our coastal marine business, we saw consistent customer demand during the fourth quarter that helped maintain barge utilization in the low to mid 90% range.
David: We're all coastal marine revenues were up 4% sequentially as improved spot and term contract pricing more than offset planned maintenance and ballast water treatment installations, which reduced equipment availability.
David: As a result, the coastal business was able to finish the year with operating margins in the low single digit for the quarter.
David: In distribution and services demand in the fourth quarter remained steady throughout much of the segment marked by a sequential increase in revenues increases in new orders and steady backlog.
David: And oil and gas revenues and operating income were up sequentially and year over year as solid execution on our backlog and deliveries were partially offset by lingering supply chain delays.
David: And commercial and industrial while revenues were up sequentially the seasonal falloff in our power rentals business led to a sequential decline in operating income.
David: Despite supply chain issues and seasonal weaknesses.
David: Weakness the business segment overall concluded the year very strong.
David: <unk> segment revenues were up 13% year over year and operating margins were in the high single digits.
David: In summary, our fourth quarter results reflected ongoing strength in.
David: And market conditions for both segments.
David: Despite the temporary headwinds of seasonal winter weather in the quarter. The inland market is strong and rates continue to push higher helping to offset lingering inflation.
David: While our coastal revenue was challenged near term by planned shipyard industry wide supply and demand dynamics remain very favorable our utilization is good and we are realizing healthy rate increases.
David: Steady 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 stable.
I'll talk more about our 2024 outlook later, but first I'll turn the call over to Raj to discuss the fourth quarter segment results and balance sheet in more detail.
Raj Kumar: Thank you David and good morning, everyone in.
In the fourth quarter of 2023 Marine Transportation segment revenues were $453 million and operating income was 68 $68 million with an operating margin of 15%.
Raj Kumar: Compared to the fourth quarter of 2022 total marine revenues increased by $30 million of 7% and operating income increased $21 million of 46% increase.
Raj Kumar: Increased pricing and utilization in the inland market were partially offset by weather related inefficiencies and coastal shipyards.
Raj Kumar: Compared to the third quarter of 2023 total marine revenues inland and coastal together increased 5%, while operating income increased by seven 7%.
Raj Kumar: Now looking at the inland business in more detail.
Raj Kumar: The inland business contributed approximately 82% of segment revenue average.
Raj Kumar: Average barge utilization was in the low 90% range for the quarter.
Raj Kumar: Long term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 60% of revenue with 62% from time charters and 38% from contracts of affreightment.
Raj Kumar: Tight market conditions contributed to spot market rates, increasing sequentially in the low to mid single digits and in the mid teens range year over year.
Raj Kumar: Term contracts that renewed during the fourth quarter were on average up in the high single digits compared to the prior year.
Raj Kumar: Compared to the fourth quarter of 2022 inland revenues increased by 11%, primarily due to higher term and spot contract pricing.
Raj Kumar: Inland revenues were up 6% compared to the third quarter of 2023 due to higher pricing and the reopening of the of the Illinois River locks.
Raj Kumar: While inland operating margins remained on average in the high teens, we did exit at 20% in the final month of the quarter.
Raj Kumar: Now moving to the coastal business.
Raj Kumar: Coastal revenues decreased 7% year over year and were up 4% sequentially as downtime from planned shipyard was partially offset by higher contract pricing.
Raj Kumar: Overall coastal had low single digit operating margins as improved pricing was partially offset by increased shipyard days.
Raj Kumar: The coastal business represented 18% of revenues for the Marine transfer transportation segment.
Raj Kumar: Average coastal barge utilization.
Raj Kumar: In the mid 90% range, which was in line with the fourth quarter of 2022.
Raj Kumar: During the quarter the percentage of coastal revenue under term contracts was the breadth across approximately 95% of which approximately 94% what time charters.
Raj Kumar: Average spot market rates were up in the mid single digits sequentially.
Raj Kumar: And in the mid 30% range year over year and prices on term contract renewals were up in the 20% range year over year.
Raj Kumar: With respect to our tank barge fleet for both the inland and coastal businesses. We have provided a reconciliation of the changes in the fourth quarter as well as projections for 2024.
Raj Kumar: <unk> is included in our earnings call presentation posted on our website.
Raj Kumar: At the end of the fourth quarter. The inland fleet had 1076 barges, representing $23 7 million barrels of capacity on.
Raj Kumar: On a net basis. We currently expect to end 2024, we had a total of 1078 inland barges, representing $23 8 million barrels of capacity driven by a modest number of additions in the year.
Speaker Change: Now I'll review the performance of the distribution and services segment.
Speaker Change: Revenues for the fourth quarter of 2023 were 347 million with operating income of $29 million and an operating margin of around 8%.
Speaker Change: Compared to the fourth quarter of 2022, the distribution and services segment.
Speaker Change: Revenues increased by $39 2 million or 13% with operating income increasing by $11 6 million or 68%.
Speaker Change: When compared to the third quarter of 2023 revenues increased by 12, 12 million or 3% and operating income decreased by $4 5 million or 14% with a decline in margins related to product mix.
Speaker Change: On the commercial and industrial market strong activity contributed to a 24% year over year and 5% sequential increase in revenues with improved demand for our equipment parts and service in our marine repair and on highway businesses.
Speaker Change: Power generation was also up year over year.
Speaker Change: Overall, the commercial and industrial business represented approximately 64% of segment revenue and had an operating margin in the mid to high single digits in the fourth quarter.
Speaker Change: In the oil and gas market revenues were down 3% year over year and up 2% sequentially as solid execution on our backlog was partially offset by lingering supply chain delays.
Speaker Change: While we saw slowing trends in our conventional remanufacturing business, we experienced continued favorable trends in new orders and backlog driven by our <unk> units and associated power generation equipment.
Speaker Change: Overall oil and gas represented approximately 36% of segment revenue in the fourth quarter and had operating margins in the low double digits.
Speaker Change: Now I will turn to the balance sheet.
Speaker Change: As of December 31, 2023, we had $33 million of cash with total debt of around $1 billion.
Speaker Change: During the quarter, we decreased our debt balances by $51 million and our debt to cap ratio improved to 24, 2%.
Speaker Change: We achieved cash flow from operating activities of $216 million for the quarter.
Speaker Change: We used cash flow and cash on hand to fund the $127 million of capital expenditure, our capex of which $56 million was related to maintenance of equipment and the remainder was directed to growth Capex in marine and E. Frac.
We continued to return.
Speaker Change: Capital to shareholders in the quarter and repurchased $52 million of stock at an average price of $77 eight.
Speaker Change: As of 30 as of December 31, we had total available liquidity of approximately $491 million.
Speaker Change: For 2024, we expect to generate cash flow from operations of 600 to 700 million on higher revenues and EBITDA.
Speaker Change: We still see supply chain constraints closing some headwinds to managing working capital in the near term.
Speaker Change: Having said that we expect to unwind most of this working capital as August ship as 2020 full progresses and beyond.
Speaker Change: With respect to Capex, we expect.
Speaker Change: Capital spending to range between 290 and $330 million for the year.
Speaker Change: Approximately $190 million to $240 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment, including the remaining ballast water treatment system on some coastal vessels and some facility improvements.
Speaker Change: Up to approximately $90 million is associated with growth capital spending in both of our businesses.
Speaker Change: The net result should provide approximately $300 million of free cash flow for the year.
Speaker Change: We are committed to a balanced capital allocation approach and we will use this cash flow to Opportunistically return return capital to shareholders and continue to pursue long term value, creating niche investment and acquisition opportunities.
Speaker Change: I will now turn the call back to David to discuss the remainder of our outlook for 2024.
David: Thank you Raj.
David: We had a good quarter in both of our businesses.
David: Despite some temporary headwinds refinery activity remains at high levels, our barge utilization is strong in both inland and coastal and rates are steadily increasing.
David: While we expect typical seasonal weather conditions to pose some near term headwinds in the first quarter.
David: And some high shipyard activity in our coastal business our outlook in the Marine segment remains strong for the full year.
David: In distribution and services.
David: Despite supply chain constraints that we've discussed demand for our product.
David: Products and services is good and we continue to receive new orders.
David: Overall, we expect our businesses to deliver improved financial results in 2024.
David: While all of this is encouraging we are mindful of challenges related to a slowing global economy and additional economic weakness due to interest rates. However, even with these uncertainties, we remain very positive and expect to drill.
David: <unk> strong earnings and strong cash flow from operations going forward.
David: In inland Marine our 2024 outlook anticipates positive market dynamics with tight conditions due to limited new barge construction in the industry and many units going in for maintenance combined with steady customer demand.
David: With these market conditions, we expect our barge utilization rates to be in the low to mid 90% range throughout the year.
David: Overall inland revenues are expected to grow in the mid to high single digit range on a full year basis.
David: Normal seasonal weather winter weather has started and is expected to be a headwind to revenues and margins in the first quarter as usual.
David: With respect to operating margins, we expect to gradually improve during the year with the first quarter being the lowest and.
David: And averaging around 20% for the full year, what will be a 300 to 400 basis point improvement from the 2023 average.
David: In coastal market conditions have tightened considerably and supply and demand are balanced across the industry fleet.
David: Strong customer demand is expected throughout the year with our barge utilization in the low to mid 90% range.
With major shipyards and ballast water treatment installations, concluding in the first half of the year revenues for the full year are expected to increase in the high single to low double digit range when compared to 2023.
David: Coastal operating margins are expected to be in the mid to high single digit range on a full year basis with the first quarter, the lowest due to weather and shipyard.
David: And the distribution and services segment, despite the uncertainty from volatile commodity prices, we expect to see incremental demand for OEM products parts and services within this segment and.
David: In commercial and industrial strong demand for power generation and stable Marine repair is expected to help drive full year revenue growth in the high single digit to low double digit percent range.
David: And oil and gas our manufacturing backlog is expected to provide stable levels of activity through most of 2024.
David: But will be somewhat offset by lower activity levels in the oilfield market.
David: We anticipate extended lead times in the near term to continue contributing to volatile deliveries.
David: With respect to the schedule of new products in 2020 for overall the company expect segment revenues to be flat to slightly down on a full year basis with operating margins in the mid to high single digits, but slightly lower than year over year due to mix.
David: To conclude we ended 2023 and a position of strength in both of our segments in marine transportation barge utilization and customer demand remains strong and rates continue to increase.
Operator: Good morning, and welcome to the Kirby Corporation 2023 4th Quarter Earnings Conference Call. All participants will be in a listen-only mode.
David: In D&S demand for our products and services remains strong and we continue to receive new orders in manufacturing.
David: Overall, we anticipate our businesses to deliver 30% to 40% earnings growth in 2024.
Operator: 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. Please note this event is being recorded. I would now like to turn the conference over to Mr. Kurt Nimitz, Kirby's VP of Investor Relations and Treasurer.
David: Key risks, putting us at the lower end of that range would be the impact of the recession a potential recession.
David: Or lingering inflation.
David: While achieving the higher end of this range would be driven by stronger than expected chemical markets for marine and stronger than expected oil and gas markets in D&S.
Kurt Nimitz: Good morning, and thank you for joining the Kirby Corporation 2023 Fourth Quarter Earnings Call. 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. The 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-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the investor relations section under financial.
As we look long term, we remain confident in the strength of our core businesses and our long term strategy. Our marine businesses are in the early innings of a multiyear up cycle and demand remained solid and DNS.
Speaker Change: We intend to continue capitalizing on strong market fundamentals and driving value for our shareholders. Operator. This concludes our prepared remarks, we are now ready to take questions.
Speaker Change: Certainly we will now begin the question and answer session. As a reminder, we ask that you limit your questions to one question and one follow up one moment for your first question.
Kurt Nimitz: As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risk and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's latest Form 10-K filing and in our other filings made with the SEC from time to time. With that, I will now turn the call over to David. Thank you, Kurt. And good morning, everyone.
Speaker Change: Our first question will be coming from Jack Atkins of Stephens. Your line is open.
Okay great.
Jack Atkins: Good morning, guys. Thanks for taking my questions.
Jack Atkins: Hey, good morning, Jeff.
Jack Atkins: David I guess I'd like to maybe if I could start with the Capex guidance for a second the $90 million I think in growth Capex.
Jack Atkins: Can you kind of give us a little more color how that split between the.
The coast excuse me the marine versus the distribution businesses and I guess as I look at the 39.
David W. Grzebinski: Earlier today, we announced fourth-quarter revenue of $799 million and earnings per share of $1.04. This compares to 2022 fourth-quarter revenue of $730 million and earnings per share of $0.62. During the fourth quarter, continued strong fundamentals in both our businesses resulted in significant year-over-year growth in our revenue and earnings. In marine transportation, pricing on spot and term contracts benefited from strong demand and limited availability of barges, while the onset of winter weather conditions proved to be a headwind to our efficiency in the quarter. Distribution and services delivered higher revenues sequentially, but margins were down slightly from the third quarter as a result of lower demand in our power rental business and typical seasonal impact.
Jack Atkins: If I'm reading this right 39, new.
Speaker Change: I guess, how many barges are you planning on adding in 2024 I'm just trying to get that correct. As we think about next year are you building barges for 2024 and inland.
Speaker Change: No what happened Jack as we stepped into a competitor's shipyard contract. They were they were building some charges and some boats.
Speaker Change: Sure.
Speaker Change: They.
Speaker Change: They needed to not do that and.
Speaker Change: We were able to step in and get a good deal with the with the shipyard.
Speaker Change: So those those boats and barges.
Speaker Change: Basically two two boats with about thrusting units that go with those and then.
Speaker Change: Four barges, we stepped into those that contract for them.
David W. Grzebinski: We ended the year on a good note, and we anticipate strong growth in 2024 and in Inland Marine. We continue to experience strong demand and high barge utilization, with our barge utilization rates in the low 90% range. Spot market prices continue to push higher, and we were up in the low to mid-single digits sequentially and in the mid-teens year over year. Additionally, pricing increases on term contract renewals were up, year-over-year on average, in the high single digits during the quarter.
Speaker Change: It was kind of.
Speaker Change: Underway in the competitor Couldnt.
Speaker Change: Got it.
Speaker Change: So we do it.
Speaker Change: A good price we were happy with it.
Speaker Change: Do we want building no.
Speaker Change: New construction.
Speaker Change: <unk> doesn't make sense now we were able to get a decent price on these in.
Speaker Change: And so we stepped into it so thats part of that growth Capex and then we're doing some things in C&I.
For Tds, it's helping a little bit but.
The biggest part of our Capex as you know as maintenance Capex.
David W. Grzebinski: While the efficiency of our operations was challenged during the quarter, with delayed days up 86% sequentially, strong pricing and utilization mostly offset this, allowing for inland marine margins to remain flat sequentially, with operating margins remaining in the high teens on average. In our coastal marine business, we saw consistent customer demand during the fourth quarter that helped maintain barge utilization in the low to mid 90% range. Overall, coastal marine revenues were up 4% sequentially as improved spot and term contract pricing more than offset planned maintenance and ballast water treatment installations, which reduced equipment availability. As a result, the coastal business was able to finish the year with operating margins in the low single digits for the quarter.
Speaker Change: We've talked about the maintenance bubble it it's real it's real for the industry, it's real for us.
Speaker Change: So our capex is still pretty elevated with the maintenance side of things.
Speaker Change: Okay, No that makes total sense and thank you for clarifying that and then I guess, maybe just to that last point I guess as you think about.
Speaker Change: New builds in 2024 for the industry relative to maybe anticipated retirements.
Speaker Change: Walk us through that and then I know that a lot of the industry is going to be down for maintenance on the inland side in 2024, how much of your fleet do you think will be out for maintenance relative to your normal maintenance schedule in 2024.
Speaker Change: Yes, it's significant.
On any given day, we will have 80 barges out.
Speaker Change: <unk>.
Speaker Change: And.
Speaker Change: I think for the industry is going to be a big year. It could be on the order well I know its north of 600, maybe as high as 1000.
David W. Grzebinski: In distribution and services, demand in the fourth quarter remains steady throughout much of the segment, marked by a sequential increase in revenues, increases in new orders, and a steady backlog. In oil and gas, revenues and operating income were up sequentially and year over year as solid execution on our backlog and deliveries were partially offset by lingering supply chain delays. In commercial and industrial, while revenues were up sequentially, the seasonal falloff in our power rental business led to a sequential decline in operating income, despite supply chain issues and seasonal weakness. The business segment overall concluded the year very strong. Overall, segment revenues were up 13% year-over-year, and operating margins were in the high single-digits. In summary, our fourth quarter results reflected growing strength in market conditions for both segments. Despite the temporary headwinds of seasonal winter weather in the quarter, the inland market is strong, and rates continue to push higher, helping to offset lingering inflation.
Speaker Change: For this year.
So it's a big number I actually think this is positive for a number of reasons one.
Speaker Change: It helps tighten up utility.
Speaker Change: But more importantly people are busy maintaining their fleets, they're going to put their cash to that instead of going in and build new it doesn't make sense to build new so.
Speaker Change: Yes, I think it actually helps the whole supply picture.
Speaker Change: Quite a bit but it is.
Speaker Change: It's unknown bubble and the good news is our customers understand that they are sophisticated they get it they know what's going on.
And inflation is not helping this either as you might imagine.
Speaker Change: Shipyards used to be jacketed run three shifts three shifts now.
Speaker Change: A number of them can only crew to shifts in <unk>.
Speaker Change: <unk> cost have gone up steel costs are going up labor costs are very high so all thats factoring into.
Speaker Change: Keeping that supply in check.
Speaker Change: And I think that continues through 'twenty five to be honest.
David W. Grzebinski: While our coastal revenue will be challenged near term by planned shipyards, industry-wide supply and demand dynamics remain very favorable, our utilization is good, and we are realizing healthy rate increases. Steady 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 stable. I'll talk more about our 2024 outlook later, but first, I'll turn the call over to Raj to discuss the fourth quarter segment results and balance sheet in more detail. Thank you, David, and good morning, everyone.
Speaker Change: And just on that first part of the question.
Speaker Change: As you think about new builds for the industry relative to retirements would you expect net capacity attrition and 24.
Speaker Change: Absolutely I think what we've heard there is only about 20 barges maybe 25.
Speaker Change: On dock for for 2024.
Speaker Change: Yes.
Speaker Change: I would imagine.
Speaker Change: Don't have good data on retirements, but I could imagine you bring something into the shipyard and you see it's going to cost you a heck of a lot sooner retire. It if it's only got five five years left of that slide So we should see attrition of.
Raj Kumar: In the fourth quarter of 2023, marine transportation segment revenues were $453 million, and operating income was $68 million, with an operating margin of 15%. Compared to the fourth quarter of 2022, total marine revenues increased by $30 million, or 7 percent, and operating income increased by 21 million, or 46 percent. Increased pricing and utilization in the inland market were partially offset by weather-related inefficiencies and coastal shipyards.
Speaker Change: My guess is 50 to 150 barges.
Speaker Change: This year. So we should have a net decline this year.
Speaker Change: Supplant, Okay, Thats really encouraging thanks for the time David.
Speaker Change: Hey, Thanks Jack.
Speaker Change: And one moment for our next question.
Raj Kumar: Compared to the third quarter of 2023, total marine revenues, inland and coastal together, increased 5 percent, while operating income increased by 7 percent. Now looking at the inland business in more detail. The inland business contributed approximately 82% of segment revenue. Average barge utilization was in the low 90% range for the quarter.
Speaker Change: And our next question will come from Ben Nolan of Stifel. Your line is open Ben.
Benjamin Joel Nolan: Thank you.
Benjamin Joel Nolan: Hey, Hey, David Raj.
Benjamin Joel Nolan: Numbers.
Benjamin Joel Nolan: So my first question.
Benjamin Joel Nolan: Is on that on the D&S side, specifically on the industrial side. It seems like that business is just really grown well over the last number of years.
Benjamin Joel Nolan: And as I am looking forward and trying to.
Raj Kumar: Long-Term Inland Marine Transportation Contracts, or those contracts with a term of one year or longer, contributed approximately 60% of revenue, with 62% from time charges and 38% from freight. Tight market conditions contributed to spot market rates increasing sequentially in the low to mid single digits and in the mid-teens range year over year. Term contracts that renewed during the fourth quarter were, on average, up in the high single digits compared to the prior year. Compared to the fourth quarter of 2022, inland revenues increased by 11 percent, primarily due to the highest term and spot contract prices. Inland revenues were up 6% compared to the third quarter of 2023 due to higher pricing and the reopening of the Illinois River lot.
Benjamin Joel Nolan: Sort out how sticky that is I'm. Just curious are you may be talk to.
Benjamin Joel Nolan: On the industrial side, how do you think of that with respect to whether it's cyclical or.
Benjamin Joel Nolan: Or maybe structural and you've changed your business mix and Thats just resulted in more growth or have you captured share.
Benjamin Joel Nolan: How are you thinking about in that industrial side of the business.
Speaker Change: Yes, no. Thanks, Thanks for the question Ben.
Speaker Change: Hello.
Speaker Change: C&I side, there's really three parts to it there's on high.
Speaker Change: Highway.
Benjamin Joel Nolan: Marine repair and then there is power generation.
Benjamin Joel Nolan: So I'd say the first two marine repair and on highway really are going to move with the economy right.
Benjamin Joel Nolan: We see we saw a little pullback.
Benjamin Joel Nolan: On highway trucking space you saw one of the truckers go bankrupt last year, we have seen a little pullback that's in our guidance for.
Benjamin Joel Nolan: For 2024.
Raj Kumar: While inland operating margins remained on average in the high teens, we did exit at 20% in the final month of the quarter. Now, moving to the coastal business. Coastal revenues decreased 7% year over year and were up 4% sequentially as downtime from planned shipyards was partially offset by higher contract prices. Overall, Coastal had low single-digit operating margins, as improved pricing was partially offset by increased shipyard sales. The coastal business represented 18% of revenues for the marine transportation segment. Average coastal barge utilization was in the mid 90% range, which was in line with the fourth quarter of 2022. During the quarter, the percentage of coastal revenue under term contracts was approximately 95 percent, of which approximately 94 percent were time charters.
Benjamin Joel Nolan: On Marine Marine repair, we do both commercial marine and pleasure craft.
Benjamin Joel Nolan: With being an election year, we're seeing a little pullback in pleasure craft, but commercial marine repair is pretty strong as.
Benjamin Joel Nolan: As you would expect as you hear us talk about maintaining our our vessels.
And then the real secular growth story is in power generation.
Benjamin Joel Nolan: It's pretty obvious to everybody needs power 2047 now.
Benjamin Joel Nolan: Every business.
Benjamin Joel Nolan: Runs using computing power.
Benjamin Joel Nolan: I think AI and machine learnings only adding to that demand.
Benjamin Joel Nolan: So we're seeing secular growth in our on our power generation side.
Benjamin Joel Nolan: As you know.
Benjamin Joel Nolan: <unk> backup power to places like the New York Stock Exchange J P Morgan and others as well as.
Benjamin Joel Nolan: Retail environments like.
Benjamin Joel Nolan: Walmart Costco target and.
Raj Kumar: Average spot market rates were up in the mid single digits sequentially and in the mid 30% range year over year, and prices on term contract renewals were up in the 20% 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 fourth quarter, as well as projections for 2024. This is included in our earnings call presentation posted on our website. At the end of the fourth quarter, the Inland Fleet had 1,076 barges, representing 23.7 million barrels of capacity.
Benjamin Joel Nolan: Alight.
Benjamin Joel Nolan: As well as rentals, we rent power out so.
Benjamin Joel Nolan: Yes.
We're seeing a lot of growth there we manufacture some of that equipment. So it's it helps the manufacturing as well as the distribution side and that's more of a secular growth story.
Benjamin Joel Nolan: Okay.
Benjamin Joel Nolan: All in if you were just sort of take a high level approach to it does it does it feel like the business is less cyclical than it used to be two or three years ago as a function of that power business.
Absolutely.
Benjamin Joel Nolan: Yes, absolutely.
Benjamin Joel Nolan: Oil and gas is still going to cycle.
Benjamin Joel Nolan: Overall, Youll see 24 versus 23, we're seeing that revenue in DNS is going to be down.
Raj Kumar: On a net basis, we currently expect to end 2024 with a total of 1,078 inland barges representing 23.8 million barrels of capacity, driven by a modest number of additions in the year. Now I'll review the performance of the distribution and services sector. Revenues for the fourth quarter of 2023 were $347 million, with operating income of $29 million and an operating margin of around 8%.
Benjamin Joel Nolan: Flat to slightly down and that's that's really all based on oil and gas.
Benjamin Joel Nolan: C&I is offsetting it.
Benjamin Joel Nolan: <unk>.
Benjamin Joel Nolan: I'm sure you heard calls on the oilfield side, whether it's pressure pumper or E&P or service companies. They are all looking for a down year 'twenty for over 23 that that's in our guidance.
Benjamin Joel Nolan: And Thats Thats, why youre seeing kind of flattish revenue for DNS.
Raj Kumar: Compared to the fourth quarter of 2022, the distribution and services segment saw revenues increase by $39.2 million, or 13%, with operating income increasing by $11.6 million, or 68%. However, when compared to the third quarter of 2023, revenues increased by 12 million, or 3%, and operating income decreased by 4.5 million, or 14%, with a decline in margins related to product mix. On the commercial and industrial market, strong activity contributed to a 24% year-over-year and 5% sequential increase in revenues, with improved demand for equipment, parts, and service in our marine repair and on-highway business. Power generation was also up year over year. Overall, the commercial and industrial business represented approximately 64% of segment revenue and had an operating margin in the mid to high single digits in the fourth quarter.
Benjamin Joel Nolan: Really the strength of C&I is making that look.
Benjamin Joel Nolan: Not as bad.
Speaker Change: Okay, and then and then for my second question shifting gears a little bit.
Speaker Change: The coastal business looks like it's finally going to be in for a pretty good year.
Speaker Change: Although I was looking at it I mean.
Speaker Change: Two I think like 28 coastal barges I mean, there was a point in which you are at 80 I know that has not been obviously a focus of growth for you in.
Speaker Change: And you've said it.
Speaker Change: At least in the past it hasnt been but is there a point, where you just need sort of critical scale or is there a point at which you may be thinking about.
Speaker Change: Adding to that or it remains sort of not the primary focus.
Speaker Change: Yes, well I mean, you know our preference would be inland marine.
Speaker Change: If we're if we're going to grow anywhere it would be an inland Murray would be our preference that said coastal is going to be a great five year story here we are.
Speaker Change: Supply and demand are balanced now.
Raj Kumar: In the oil and gas market, revenues were down 3% year over year and up 2% sequentially as solid execution on a backlog was partially offset by lingering supply chain delays. While we saw slowing trends in our conventional remanufacturing business, we experienced continued favorable trends in new orders and backlog driven by our EFRAC units and associated power generation equipment. Overall, oil and gas represented approximately 36% of segment revenue in the fourth quarter and had operating margins in the low double digits.
Speaker Change: We're as you saw in our prepared remarks.
Speaker Change: We saw spot prices up year over year in the mid 30% range in term contracts up in the mid 20 low 20% range.
Speaker Change: That's going to continue.
Speaker Change: $25 26, probably into 2017 easily.
Speaker Change: We need at the rates have been low we've been bouncing along in our coastal business to breakeven this year for 24 weeks.
Speaker Change: We're going to be kind of mid single digits, maybe even get to the high single digits in terms of operating income margins.
Raj Kumar: Now I'll turn to the balance sheet. As of December 31st, 2023, we had $33 million in cash with total debt of around $1 billion. During the quarter, we decreased our debt balances by $51 million, and our debt-to-capital ratio improved to 24.2%. We achieved cash flow from operating activities of $216 million for the quarter. We used cash flow and cash on hand to fund $127 million of capital expenditure, or CAPEX, of which $56 million was related to maintenance of equipment, and the remainder was directed to growth CAPEX in marine and eFRAC. We continued to return capital to shareholders in the quarter and repurchased $52 million of stock at an average price of $77.08.
Speaker Change: And really that should continue because the.
Speaker Change: The supply picture.
Speaker Change: As you know these these vessels a very expensive 185000 barrel unit, we built five years ago for $80 million right.
Speaker Change: Right now if you were to build that it would be a $130 million to $135 million to build it.
Speaker Change: And Nobody's got one on the books and even if they did you wouldn't get it until 2027. So we're very enthusiastic about the coastal business does that mean, we want to go out and and speculative build absolutely not I mean.
Speaker Change: Sure.
Speaker Change: There may be some contracts coming from customers that we would get that.
Speaker Change: But we're not going to go out and just to comment on the on our fleet.
Speaker Change: Our actual high I think it was 59 barges not 80, but.
Raj Kumar: As of December 31st, we had total available liquidity of approximately $491 million. For 2024, we expect to generate cash flow from operations of $600 to $700 million on higher revenues than EBITDA. We still see supply chain constraints posing some headwinds to managing working capital in the near term. Having said that, we expect to unwind most of this working capital as orders shift, as 2024 progresses and beyond, with respect to CapEx. We expect capital spending to range between $290 and $330 million for the year.
We took out a lot of wire barges wire the customer demand for wire barges was low they were older. We've got a much higher quality fleet now.
And the other thing just in terms of construct there what happened to that that business was was the ban.
Speaker Change: On exporting crude was lifted so one point, we had 17 barges moving crude.
Speaker Change: Coastwise business now we got zero.
Speaker Change: And that happened all across the industry and that's why we've been in a.
Speaker Change: A protracted downturn in that business in <unk>.
Speaker Change: All of that.
David W. Grzebinski: Approximately $190 to $240 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment, including the remaining ballast water treatment system on some coastal vessels and some facility improvements. Up to approximately $90 million is associated with gross capital spending in both of our businesses. The net result should provide approximately $300 million of free cash flow for the year. We are committed to a balanced capital allocation approach and will use this cash flow to opportunistically return capital to shareholders and continue to pursue long-term value-creating niche investment and acquisition opportunities. I will now turn the call back to David to discuss the remainder of our outlook for 2024. Thank you, Roz.
Speaker Change: All of that excess supply has been retired and its in balance now.
Speaker Change: We're pretty excited about it.
Speaker Change: Okay and theirs.
Speaker Change: I don't think Theres any.
Speaker Change: Critical mass issues or economies of scale issues or anything.
Speaker Change: You ours is plenty large enough.
Speaker Change: Yes.
Speaker Change: I think we're still one of the largest players in this space on a barrel volume.
Speaker Change: Basis, probably.
Speaker Change: One or two there is.
Two of our competitors are trying to get together in a joint venture so that we will see what that brings but.
Speaker Change: We're still one or two in the market in terms of size to it we've got the critical mass and as you know it's the same customers that we deal with on the inland side. So.
Speaker Change: We have that scale, just because our commercial team deals and our vetting team deals was with the major customers every day.
David W. Grzebinski: We had a good quarter in both our businesses, despite some temporary headwinds. Refinery activity remains at high levels. Our barge utilization is strong in both inland and coastal waters, and rates are steadily increasing. Although we expect typical seasonal weather conditions to post some near-term headwinds in the first quarter and some high shipyard activity in our coastal business, our outlook in the marine segment remains strong for the full year, and Distribution and Services. Despite the supply chain constraints that we've discussed, demand for our products and services is good, and we continue to receive new orders. 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 a slowing global economy and additional economic weakness due to interest rates.
Speaker Change: It's the same same group, whether it's coastal or in them.
Speaker Change: Got you I appreciate it.
Speaker Change: Lastly, just congratulations to Joe Pyne is a heck of a career.
Speaker Change: Yes, thanks for saying that I made a joke.
Speaker Change: As an institution.
Speaker Change: Basically been the father of our business for 46 years, a grew it from from nothing into what it is today it will be there'll be missed.
Speaker Change: Thanks Pam.
Speaker Change: Yes.
Speaker Change: And one moment for our next question.
Speaker Change: Our next question will come from Kenn Hoekstra of Bank of America. Your line is open.
Kenn Hoekstra: Hey, good morning, David Raj.
So just by the way for first of all let me throw it in as well just long career long time working with Joe. So so best of luck as he moves on.
Kenn Hoekstra: And thanks for all the help over the years.
Kenn Hoekstra: Youre inland barge segment, right, if <unk> exits at 20%.
David W. Grzebinski: However, even with these uncertainties, we remain very positive and expect to drive strong earnings and strong cash flow from operations going forward. For Inland Marine, our 2024 outlook anticipates positive market dynamics with tight conditions due to limited new barge construction in the industry and many units going in for maintenance, combined with steady customer demand. With these market conditions, we expect our barge utilization rates to be in the low to mid 90% range throughout the year. Overall, inland revenues are expected to grow in the mid to high single-digit range on a full year basis. Normal seasonal weather Winter weather has started and is expected to be a headwind to revenues and margins in the first quarter, as usual.
Kenn Hoekstra: Most contracts renew in or near 20%, sorry, and most contracts for new in the fourth quarter.
Kenn Hoekstra: As pricing stalled at inland and thus, we're not seeing accelerating acceleration in your margin target from basically fourth quarter run rate levels.
Kenn Hoekstra: I'm, just trying to guess, maybe where our spot levels now is it possible to re achieved the mid twenty's kind of that <unk>.
Kenn Hoekstra: <unk> talked about if pricing keeps it creating it given your costs.
Kenn Hoekstra: Hopefully have decelerated on an inflation basis. Thanks.
Speaker Change: Short answer is yes, we will definitely get to the mid <unk>.
Speaker Change: But let me give some color Ken I think it's a great question.
Speaker Change: The average for the fourth quarter was in the high teens December was.
Speaker Change: <unk> weather months, so we touched that 20%.
Speaker Change: First quarter is always the worst weather. So we're anticipating margins will dip back down into the high teens, the first quarter because of the weather.
David W. Grzebinski: With respect to operating margins, we expect to gradually improve during the year, with the first quarter being the lowest, averaging around 20% for the full year, which will be a 300 to 400 basis point improvement from the 2023 average. In the coastal market, market conditions have tightened considerably, and supply and demand are balanced across the industry fleet. Strong customer demand is expected throughout the year, with our barge utilization in the low to mid 90% range. With major shipyards and ballast water treatment installations concluding in the first half of the year, revenues for the full year are expected to increase in the high single to low double-digit range when compared to 2023. Coastal operating margins are expected to be in the mid to high single-digit range on a full-year basis, with the first quarter the lowest due to weather and shipyards.
Speaker Change: By the second and third will be probably north of 20.
Speaker Change: Fourth quarter, we'll have to see that's always a tough weather month.
Speaker Change: The way I look at margins.
Speaker Change: Ken is look we will be up year over year.
Speaker Change: 300 to 400 basis points in margin.
Speaker Change: Because of the weather high water low water hurricane lock closures, it's just hard to get.
Speaker Change: Any one quarter or two.
Speaker Change: Too specific but my view is that the whole the whole.
Speaker Change: Entity will be up 3% to 400 basis points and more importantly is.
Speaker Change: We anticipate the same kind of improvement in that order of magnitude and 25.
Speaker Change: It's.
Speaker Change: This is a runway and it should take several years to play out now in terms of <unk>.
David W. Grzebinski: In the distribution and services segment, despite the uncertainty from volatile commodity prices, we expect to see incremental demand for OEM products, parts, and services within the spectrum. The commercial and industrial strong demand for power generation and stable marine repair is expected to help drive full-year revenue growth in the high single-digit to low double-digit percent range. In oil and gas, our manufacturing backlog is expected to provide stable levels of activity through most of 2024, but will be somewhat offset by lower activity levels in the oil field market. We anticipate extended lead times in the near term to continue contributing to volatile deliveries, with respect to the schedule of new products in 2024. Overall, the company expects segment revenues to be flat to slightly down on a full-year basis with operating margins in the mid to high single digits, but slightly lower than year-over-year due to mix.
Speaker Change: Pricing.
Speaker Change: Rolling over or even flattening, we didn't see that.
Speaker Change: Spot prices year over year, and inland were up 15% to 18% term pricing was up 7% to 9% year over year.
Speaker Change: So there is there is actually a healthy gap between spot and term you want to spot above term what.
Speaker Change: What we see it's.
Speaker Change: A pretty good gap and then even sequentially we saw.
Speaker Change: From third to fourth quarter spot pricing was up 2% to 5%. So we didn't see any flattening.
Speaker Change: Look.
Speaker Change: Yes.
Speaker Change: Pricing needs to continue to go up we're offsetting inflation.
Speaker Change: Trying to get returns back up to where.
Speaker Change: We can get a return on our invested capital.
Speaker Change: And we're still a long way away from from justifying new builds.
Speaker Change: So it's very constructive.
Speaker Change: I think you'll see the margin progression of three to 400 basis points up this year and then.
David W. Grzebinski: To conclude, we ended 2023 in a position of strength in both of our segments. In marine transportation, barge utilization and customer demand remain strong, and rates continue to increase. In D&S, demand for our products and services remains strong, and we continue to receive new orders in manufacturing. Overall, we anticipate our businesses will deliver 30 to 40% earnings growth in 2024. Key risks putting us at the lower end of that range would be the impact of a recession, a potential recession, or lingering inflation.
Speaker Change: Perhaps something similar in 2025.
Speaker Change: Okay.
Speaker Change: So really the best way I guess to takeaway from that is is you can't look at the fourth quarter as the exit rate run rate you got to look at the annual as far as the improvement given the seasonality and repricing.
Speaker Change: Just to add.
Speaker Change: I think Thats fair I mean, you heard our term term contracts were up in the high single digits, 7%, 9%. So that's going to roll through this year.
Speaker Change: And.
Speaker Change: It will progress.
Speaker Change: And then did you mentioned where spot rates are now for.
Operator: Well, achieving the higher end of this range would be driven by stronger than expected chemical markets for marine and stronger than expected oil and gas markets in DNS. As we look long-term, we remain confident in the strength of our core businesses and our long-term strategy. Our marine businesses are in the early innings of a multi-year upcycle, and demand remains solid in DNS. We intend to continue capitalizing on strong market fundamentals and driving value for our shareholders. Operator, this concludes our prepared remarks. We are now ready to take questions. Certainly. We will now begin the question and answer session.
Speaker Change: <unk>.
Speaker Change: No I didn't.
Speaker Change: Better.
Speaker Change: I shouldn't or my attorney.
Speaker Change: You'll kick me.
Speaker Change: And then.
Speaker Change: Going out the OMG side, you keep mentioning supply chain delays I, just would imagine we're well past everything post COVID-19.
Speaker Change: And supply chain issues I mean, maybe red Sea is now popping up now with rerouting, but what are the issues that you are still dealing with an on the supply chain.
Speaker Change: Yes, it's gotten a lot better can for sure you saw our deliveries.
Speaker Change: For our deliveries in the fourth quarter were pretty good out of our manufacturing facilities, we were having problems with electronic componentry and one off items holding up.
Operator: As a reminder, we ask that you limit your questions to one question and one follow-up. One moment for our first question. Our first question will be coming from Jack Atkins of Stevens. Your line is open. Okay, great. Good morning, guys.
Speaker Change: All series of equipment, that's kind of worked its way out what's really happening now is long lead time engine packages for for example, if we were to order engines.
Jack Atkins: Thanks for taking my questions. David, I guess I'd like to maybe if I can start with the CapEx guidance for a second, you know, that the $90 million, I think, in growth CapEx, can you can you kind of give us a little more color how that's between the, the coast, excuse me, the marine versus the distribution businesses. And I guess as I look at the 39. John Zerlitz, Ian Flannigan, Robert Ruggiero, David Redford, Dominic Vieira, Alan Shuster, Honda Zonda, Loretta Sinclair, Sonia Hubbard, Anthony Balcert, Kathleen Miller, Aydin Nadz cool guy, Howard Schultz, Thomas H. Hawkman Scott use of the gun Normal Outlook, Joseph Waller-Irminger Microsoft Office Word Microsoft Word 97-2003 Document MSWordDoc Word.
Speaker Change: Today, we wouldn't get them until kind of mid 25, so that's the.
Speaker Change: The big component tree is the problem.
Speaker Change: The lead times on engines in particular have had.
Speaker Change: I have been a problem and it's really about boundary.
Speaker Change: Constraints and the engine world, but.
Speaker Change: It's just long lead time, so we're still dealing with that.
Speaker Change: If that was compressed.
Speaker Change: We would deliver.
Speaker Change: Other results, if we could get engines quicker, particularly on C&I for power generation.
Speaker Change: Ken.
Ken: We're seeing a lot of demand for backup power.
Ken: In.
Ken: The engine packages could flow quicker.
Ken: To have better numbers and DNS for for 2024.
Ken: Dave I just wanted to clarify two things one a real quick if I caught the first answer on the margin. So just the three or 400 basis points. If December exited close to <unk> does that mean December 23 does that mean December 24 could exit close to 24% for that month, just given that seasonality is that kind of conceptually how we should think about it and then.
David W. Grzebinski: Document.8, If I'm reading this right, there are 39 new barges. I guess how many more barges are you planning on adding in 2024? I'm just trying to get that correct as we think about next year. Are you building barges for 2024 inland? No, what happened, Jack, is we stepped into a competitor's shipyard contract. They were building some barges and some boats, but they needed to not do that, and we were able to step in and get a good deal with the shipyard. So those boats and barges, it's basically two boats with the bow thrusting units that go with those and then four barges.
Ken: So we need to change the supply chain in any way to.
Ken: The fact that change.
Dave: Yes on the margins.
Dave: It depends on weather and December right, but yes, I mean directionally. If we saw a mild December I think absolutely would be close to that.
Dave: Great.
Dave: Great.
On the supply chain.
Dave: Look we use is best for me not to name different engine companies, but we use all kinds of different engines.
Dave: And theyre seeing it whether it's a German based engine company or a U S based engine company.
David W. Grzebinski: We stepped into that contract for them, kind of, you know, underway, and the competitor couldn't, couldn't get it. Oh, so we agreed to it. And it's a good price.
Dave: They're all have the same issues in terms of.
Dave: Foundries, producing blocks and getting getting it through.
David W. Grzebinski: We were happy with it. You know, do we want a building? No.
David W. Grzebinski: You know, new construction doesn't make sense now, but we were able to get a decent price on these soon. And so we stepped into it. So that's part of that growth capex. And then we're doing some things in CNI for AllThingsD??. www.tigertainment.com, Okay.
Dave: Yes, there is not much we can do is their supply chain, we're working with them trying to preorder stuff and work work that side of the.
Dave: But look they are working hard to get to get the engines they want to sell as many as as they can as well so.
Dave: Yes, we're working on it with them.
Speaker Change: Some of it's out of our control.
David W. Grzebinski: No, that makes total sense. And thank you for clarifying that. And then, I guess maybe just to that last point, I guess, as you think about new builds in 2024 for the industry relative to, you know, maybe anticipated retirements, can you walk us through that? And then, you know, I know that a lot of the industry is going to be down for maintenance on the inland side in 2024. How much of your fleet do you think will be out for maintenance relative to your normal maintenance schedule in 2024? Yeah, it's significant.
Speaker Change: We're trying to do better job planning as you would expect.
Speaker Change: Thanks, a lot Dave I appreciate the time.
Thanks, Ken.
Speaker Change: Our next question.
Our next question will be coming from Jon Chapell of Evercore ISI. Your line is open.
Jonathan Chappell: Thank you good morning.
Jonathan Chappell: David I'm going to say a bit of a longer term question, but it ties together I think a lot of things we've been talking about for the last couple of years or so when you lay out a path for 300 400 basis points. Both this year and next kind of gets us close to the mid twenties.
Jonathan Chappell: Had spoken maybe a year and a half ago now at this point about inflation really kind of tension potentially.
David W. Grzebinski: It's, you know, on any given day, we'll have 80 barges out. And, you know, I think for the industry, this is going to be a big year. It could be on the order of, well, I know it's north of 600 and maybe as high as 1,000 for this year.
Jonathan Chappell: Precluding the inland margin from getting back to the to the cyclical peaks of 10 plus years ago is inflation easing at all now and when you talk about the early innings I would assume that would mean this has a couple more years of runway can we revisit then those kind of mid to high 20% inland.
David W. Grzebinski: So it's a big number. I actually think this is positive for a number of reasons. One, you know, it helps tighten up utility.
Jonathan Chappell: Barring an extraordinary event.
David W. Grzebinski: But more importantly, you know, people are busy maintaining their fleet. They're going to put their cash into that instead of going in and building new ones. It doesn't make sense to build new ones.
Speaker Change: Yeah, I'll take those kind of in reverse order I do believe we could get to the to the high <unk> in margin.
Speaker Change: We'll see but inflation is real.
David W. Grzebinski: So, you know, I think it actually helps the whole supply picture quite a bit. But it is a known bubble, and, you know, the good news is that our customers understand it. They're sophisticated.
Speaker Change: We are seeing it.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: When you listen to the.
Speaker Change: Dependence out there.
Speaker Change: Still seeing inflation.
Speaker Change: Not deflation.
David W. Grzebinski: They get it. They know what's going on. And inflation's not helping this either, as you might imagine. You know, shipyards used to be jacked. They'd run three shifts.
Speaker Change: I would tell you that maintenance is as maintenance inflation has gone up a lot we talked a little bit about.
Speaker Change: The the shipyards, having a hard time.
David W. Grzebinski: Now, you know, a number of them can only crew two shifts. And, you know, shipyard costs have gone up, steel costs have gone up, and labor costs are very high. So all that factoring into keeping that supply in check. And I think that will continue through 2025, to be honest. And just on that first part of the question, you know, as you think about new bills for the industry relative to retirements, would you expect net capacity attrition in 2024? Absolutely. I think, you know, from what we've heard, there's only about 20 barges, maybe 25. I'm doc for 2024, you know, I would imagine.
Speaker Change: Getting labor steel prices have abated at all.
Speaker Change: In our in our ecosystem.
Speaker Change: Mariners are short critically short across the entire industry.
Speaker Change: Fortunately, we have our own.
Speaker Change: <unk> School, where we train main mariners, but we're still.
Speaker Change: Really tight on on Crewing.
Speaker Change: So we're seeing labor inflation, everybody is seeing it.
Speaker Change: Things like paint and steel.
Speaker Change: All of that.
Speaker Change: Still seeing inflation.
Speaker Change: Believe it or not rental cars.
Speaker Change: And we do a lot of crew moves and rental car inflation as it is so we're still offsetting that I think.
David W. Grzebinski: I don't have good data on retirements, but I could imagine, you know, you bring something into the shipyard and you see it's going to cost you a hell of a lot, and you just retire it if it's only got, you know, five years left of its life. So we should see attrition of... My guess is 50 to 150 barges this year, so we should have a net decline in supply. Okay, that's that's really encouraging. Thanks for your time, David.
Speaker Change: He has been a little frustrated with the pace of our margin improvement certainly us we would like to have improved it faster, but it's really about this inflation and trying to offset it.
Speaker Change: Look our customers are experiencing the same thing they have inflations in their refineries and other chemical plants, they're fighting steel cost.
Speaker Change: Supply chain issues and of course labor costs. So.
Speaker Change: Our sophisticated customers definitely understand it they understand we're fighting inflation.
Speaker Change: We are getting some real price increases, but we needed to get to.
Jack Atkins: Hey, thanks, Jack. In one moment for our next question. And our next question will come from Ben Nolan of Stiefel. Your line is open, Ben. Thank you.
Speaker Change: To prices that could justify replacement capacity.
Speaker Change: It's a long rambling.
Speaker Change: Sponsor, John sorry, but inflation.
Speaker Change: Inflation is there.
Speaker Change: But.
Speaker Change: The fundamentals are such that we're going to get to the mid twenties.
Benjamin Joel Nolan: Hey, David, Raj, good numbers. So my first question is on the DNS side, specifically on the industrial side. It seems like that business has just really grown well over the last number of years. And as I'm looking forward and trying to, you know, sort out how sticky that is, I'm just curious if you maybe talk to me about the industrial side, how you think of that with respect to whether it's cyclical or maybe structural and you've changed your business mix and it's just resulted in more growth, or have you captured share? How are you thinking about that industrial side of the business? Yeah, no, thanks.
Speaker Change: At some point.
Speaker Change: <unk>.
Speaker Change: Barring anything unforeseen, we should get to the high Twenty's.
Speaker Change: That's great.
Speaker Change: For my follow up maybe a tag team here tying two things together so.
Speaker Change: David Youre able to pick up those barges that your competitor had to walk away from conceivably in Europe, obviously, a great balance sheet position to do that when I look at your buybacks in 'twenty three as far as I can find it's the second highest year for at least 15 16 years after 2015.
Speaker Change: And a ton of free cash flow per your guidance for 24. So I guess the question is.
Speaker Change: Picking up barges in.
David W. Grzebinski: Thanks for the question, Ben. Look, on the CNI side, there are really three parts to it. There's the on highway and marine repair. And then there's power generation. So I'd say the first two, marine repair and on highway, really are going to move with the economy, right? We saw a little pullback in the on highway trucking space. You saw one of the truckers go bankrupt last year.
The orders are I think a one off event, but is the M&A market kind of Bubbling up a little bit now where you are off the bottom.
Speaker Change: No one wants to sell at the low so maybe there is some activity brewing there and how much dry powder do you want to keep for that vis vis maybe using all this free cash flow to continue to ramp.
Speaker Change: The buyback pace, so for David heard Raj.
Speaker Change: Yes, I'll, let Roger chime in here a bit too.
Speaker Change: We still have <unk>.
Speaker Change: Liquidity available on our revolver and our debt to EBITDA is fine we've got plenty of borrowing capacity.
David W. Grzebinski: We have seen a little pullback that's in our guidance for 2024. You know, on marine, marine repair; we do both commercial marine and pleasure craft. You know, with it being an election year, we're seeing a little pullback in pleasure craft, but commercial marine repair is pretty strong, as you would expect, as you hear us talk about maintaining our vessels. And then, but the real spectacular growth story is in power generation, I think, pretty obvious. Now, everybody needs power 24-7.
Speaker Change: And to your point, we do we're going to have a lot of free cash flow this year.
And we've been aggressive buying our stock we'd like our stock where it's at particularly when we look at.
Speaker Change: The next three to five years is going to be.
Speaker Change: <unk> be a good run so were happy to buy back our stock that said.
Speaker Change: We always like those inland acquisitions.
Speaker Change: But we're not going to lose our price discipline.
Speaker Change: We'll be very disciplined and they're hard to predict we did pick up we bought some barges from a competitor last year as well.
Speaker Change: We will look for those one offs.
Speaker Change: <unk> a big deal that's that's a lot harder I would just tell you we're going to stay disciplined.
David W. Grzebinski: Every business runs using computing power. I think AI and machine learning is only adding to that demand. So we're seeing phenomenal growth on our power generation side. As you know, we provide backup power to places like the New York Stock Exchange, JP Morgan, and others, as well as retail environments like Walmart, Costco, Target, and others, as well as rental power. We rent power out.
Speaker Change: We think we've got good borrowing capacity in any event.
Speaker Change: And.
Speaker Change: We also like our stock, but Raj do you want to add David. Thank you. Thanks, Jonathan I think you saw last year in 2003, we we've dedicated about 80 plus percent of our free cash flow towards share repurchase and to David's point, it's very difficult to predict any M&A.
David W. Grzebinski: So, yeah, we're seeing a lot of growth there. We manufacture some of that equipment, so It helps the manufacturing as well as the distribution side, and that's more of a secular growth story. Okay, so all in, if you were just to sort of take a high-level approach to it, does it feel like the business is less cyclical than it used to be two or three years ago as a function of that power business? Absolutely. Absolutely.
We always look at it we are very very we have a rigorous approach towards looking at projects at M&A opportunities, but barring anything that's attractive.
Speaker Change: I think you can continue to see us progressing that trend of share repurchases similar to what we did in 2023.
Speaker Change: Okay. Thank you Raj and thanks, David.
Speaker Change: Thanks, John Good morning.
Our next question.
David W. Grzebinski: You know, oil and gas is still going to cycle. Overall, you'll see, you know, 24 versus 23, we're seeing that revenue and DNS is going to be down to flat to slightly down. And that's, that's really all based on oil and gas. You know, CNI is offsetting it.
Speaker Change: And that when people are going to cover it be coming from Greg Lewis of <unk>, Greg Your line is open.
Gregory Lewis: Hey, Thanks, and good morning, everybody.
Gregory Lewis: Hey, good morning, Greg.
Gregory Lewis: Great.
Gregory Lewis: David David I guess this is for Raj two I did want to ask about.
Gregory Lewis: I guess the decision to kind of reintroduce full year.
David W. Grzebinski: But you, you, I'm sure you heard calls on the oil field side, whether it's pressure pumpers or EMP or service companies, they're all looking for a down year 24 over 23. That, that's in our guidance. And that's why you're seeing kind of flattish revenue for DNS. Really, the strength of CNI is making that look, not as bad.
Gregory Lewis: Earnings guidance, I mean, like it seems like we've pulled it away a couple of years ago, I mean, David Youre talking about I guess, a multiyear run in terms of the.
Gregory Lewis: Operating environment is that kind of the Genesis for what drove the.
David W. Grzebinski: Okay. And then for my second question, shifting gears a little bit, the coastal business looks like it's finally going to be in for a pretty good year. Although I was looking at it, I mean, you're down to, I think, like 28 coastal barges. I mean, there was a point when you were at 80.
Gregory Lewis: The full year earnings guidance back into the equation.
Gregory Lewis: No.
Gregory Lewis: Notice is not numeric and were not given quarterly.
David Raj: We debated a long time about whether we should give number but.
David Raj: I think.
David Raj: And the kind of the environment.
There's a lot of moving pieces, we thought it would be good too.
David Raj: Give a little more specificity on it.
David W. Grzebinski: I know that has not obviously been a focus of growth for you. And you've said it, you know, at least in the past. But is there a point where you just need sort of critical scale, or is there a point at which you maybe think about adding to that, or it remains sort of not the primary focus? Yeah, well, I mean, you know, our preference would be inland marine. If we're gonna grow anywhere, it would be an inland marine.
David Raj:
David Raj: Just at the outset of this year I don't think.
David Raj: We're going to give quarterly guidance or anything like that or even in America EPS. It's just kind of we wanted to set the kind of the.
David Raj: The range for the year given <unk>.
David Raj: Given everything we're seeing.
David Raj: But both of DNS and marine.
Speaker Change: Okay and then.
Speaker Change: Aye.
And then we kind of changed I guess, we reported delay days.
Speaker Change: I guess they are <unk>.
David W. Grzebinski: That said, coastal is going to be a great five-year story here. We are. Supply and demand are in balance now. As you saw in our prepared remarks, we saw spot prices up year over year in the mid 30% range and term contracts up in the low 20% range. That's going to continue in 2025, 2026, and probably into 2027 easily. We need it. The rates have been low.
Speaker Change: Up sequentially because of weather.
Speaker Change: Any kind of any kind of way to quantify that EPS impact with I mean was that a couple of pennies was it was it more any kind of color around matter.
Speaker Change: Yeah.
Speaker Change: Yeah, Ivy and delay days were up a lot as you heard you essentially.
Speaker Change: Sure.
It's hard to quantify it there's so many moving pieces.
Speaker Change: So far in January has been brutal.
Speaker Change: At the same Youll remember first quarter of 'twenty three.
David W. Grzebinski: It's been bouncing along in our coastal business at breakeven. This year for 24, we're going to be kind of in the mid single digits, maybe even get to the high single digits in terms of operating income margins. And really, that should continue because of the supply picture. As you know, these vessels are very expensive; an 185,000 barrel unit we built five years ago for $80 million. Right now, if you were to build that, it would cost $130,000, $135 million to build it. And nobody's got one on the books.
Speaker Change: Was a really tough tough quarter from a weather delay.
Speaker Change: January is as bad as last year.
Speaker Change: We'll see what February brings.
Speaker Change: It's hard to predict but it has a real impact I mean, you would see our margins dipped down.
Speaker Change: Usually in the fourth quarter and the first quarter because of weather.
Speaker Change: It can be anywhere from <unk>.
Speaker Change: Couple of hundred basis points in that range, but it's really hard to.
Speaker Change: To say as you know, Greg we have time charters and we have contracts of affreightment.
Speaker Change: And those contracts of affreightment.
Speaker Change: Hurt us a little bit in the winter weather, but they help us a lot in the summer summer weather I would also say that.
David W. Grzebinski: And even if they did, you wouldn't get it until 2027. So we're very enthusiastic about the coastal business. But does that mean we want to go out and speculatively build? Absolutely not.
Gregory Lewis: Is it.
Gregory Lewis: With respect to the first quarter one of the things, we did see and Thats reflected in our guidance here is there was a freeze and it impacted some of the refineries and chemical plants in January and they are still coming.
David W. Grzebinski: I mean, we're, You know, there may be some contracts coming from customers that would get that, but, you know, we're not going to do well. And just to comment on our fleet, you know, our actual high was 59 barges, not 80. But we took out a lot of wire barges because the customer demand for wire barges was low. They were older.
Gregory Lewis: Coming out of that so.
Yes.
Gregory Lewis: So it's all it's all in there, but it's multifaceted.
Gregory Lewis: And Thats why we kind of look at it.
Gregory Lewis: Trying to Rebase everybody here to look at it from a year over year for the whole year average because theres. So many moving parts with weather lock delays hurricanes hopefully, we don't have a hurricane this year, but.
Speaker Change: Lots of moving parts, so I hope that helps Greg I wish again.
David W. Grzebinski: We've got a much higher quality fleet now. And the other thing, just in terms of construction, what happened to that business was the ban on Exporting Crude was lifted. So at one point, we had 17 barges moving crude in the coastal business. Now we've got zero.
Speaker Change: Like I say, yes.
Speaker Change: It's just interesting because I think it's kind of an easily quantified what that his numbers and then I did just in terms of the guidance you mentioned the potential opportunity in chemicals.
Speaker Change: A function of an.
Speaker Change: I don't follow the chemicals industry, maybe as closely as I should is that a function could.
Speaker Change: Could you kind of talk a little bit about broad strokes, what why we could see maybe chemicals be a little better than.
David W. Grzebinski: And that happened all across the industry, and that's why we've been in a protracted downturn in that business. All that excess supply has been retired, and it's in balance now. We're pretty excited about it. Okay, and you don't think there's any, you know, critical mass issues or economies of scale issues or anything where you are planning large enough.
Speaker Change: Why that could help drive some upsides on the high end of the range.
Speaker Change: Yes.
Look in the fourth quarter, we saw the chemical industry pulled back a little bit the volumes pulled back a little bit.
Speaker Change: We haven't seen China reemerged in terms of chemical demand.
Speaker Change: Back to where they used to be so if that started in earnest begin.
David W. Grzebinski: Yeah, no, I think we're still one of the largest players in the space on a barrel volume basis. We're probably one or two. There are two of our competitors are trying to get together in a joint venture. So, you know, we'll see what that brings. But we're still one or two in the market in terms of size, so we've got the critical mass. And as you know, it's the same customers that we deal with on the inland side. We have that scale just because our commercial team deals with and our vetting team deals with the major customers every day. It's the same group, whether it's coastal or inland.
Speaker Change: It would just help volumes.
Speaker Change: As you know we move a lot of chemicals on the inland waterways.
And just be very very constructive for us to see.
Speaker Change: Some growth in that and if it came back now we are.
Speaker Change: Being in January a little little uptick in chemical movements, but.
Speaker Change: It's kind of one of those things on the margin that could help us and get us closer to that high end of the range.
Speaker Change: Okay Super helpful guys. Thank you.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press star one on your telephone again for any questions. Please press star one line and one moment our next question.
David W. Grzebinski: Gosh, I appreciate it. And, lastly, just congratulations to Joe Pine. That's a heck of a career.
Speaker Change: Our last question will come from Craig Mr. Koski of Weber Research and Advisory your line is open.
David W. Grzebinski: Yeah, thanks for saying that. I mean, Joe, he's an institution. He's basically been the father of our business for 46 years. He grew it from nothing into what it is today.
Craig Koski: Hey, good morning, David and Raj, Thanks for taking the questions.
David W. Grzebinski: He'll be missed. Thanks, man. Yeah, in one moment for our next question. Our next question will come from Ken Hoexter of Bank of America. Your line is open. Hey, good morning, David Raj.
Craig Koski: Good morning.
Craig Koski: So I wanted to ask you David what are you seeing out there on the on the order book right now on the inland side of things and I know I know rates are still a ways off of making that equation makes sense to build new but.
Kenneth Scott Hoexter: So just by the way, first, let me throw it in as well. Just a long career, a long time working with Joe, so best of luck as he moves on. And thanks for all the help over the years.
Yeah.
Craig Koski: Sure.
David Raj: Movements that youre seeing out there does it give you any sense of concern at all or do you think it's kind of widely understood throughout the industry that.
David W. Grzebinski: Your inland barge segment, right, if 4Q exits at 20% and most contracts renew in or near 20%, sorry, and most contracts renew in the fourth quarter, has pricing stalled on the inland and thus we're not seeing acceleration in your margin target from basically fourth-quarter run rate levels? I'm just trying to guess maybe where our spot level is now. Is it possible to reach the mid-20s, the kind of targets you talked about, if pricing keeps accreting it, you know, given your costs, which hopefully have decelerated on an inflation basis? Thanks. Yeah, the short answer is, yeah, we'll definitely get to the mid-20s. But let me give you some color, Ken.
David Raj: Any chunks of orders here would be a function of either.
David Raj: Honors biting the bullet for the sake of customer satisfaction, our customer retention and our fleet renewal is there where are we in terms of.
David Raj: Not necessarily for the economics, but in terms of sentiment and making sure that nobody panics.
Yes no.
David Raj: Yes.
David Raj: This isn't precise but we think there are only 24 25 liquid barges on order for 2020 for delivery.
Certainly nobody's panic.
David Raj: I think I referenced <unk> been some earlier comments, but.
David W. Grzebinski: I think it's a great question. You know, the average for the fourth quarter was in the high teens. December was an okay weather month, so we touched that 20%. The first quarter is always the worst weather.
David Raj: Most of our competitors, including US were very busy just trying to maintain our fleet with this maintenance bubble that fitness so.
David Raj: That's soaking up a lot of.
David Raj: A lot of capital for and finances for a lot of our competitors, including US I mean, we're spending a lot more you heard our maintenance Capex is up.
David W. Grzebinski: So we're anticipating margins will dip back down into the high teens in the first quarter because of the weather. By the second and third quarters, we'll probably be north of 20. The fourth quarter, we'll have to see.
David Raj: A lot in the last couple of years.
David Raj: So nobody is really panicking and trying to go out and build any new equipment right now.
David W. Grzebinski: That's always a tough weather month. The way I look at margins, Ken says, look, we will be up year over year 300 to 400 basis points in March. Because of weather, high water, low water, hurricanes, lock closures, it's just hard to get any one course too specific, but my view is that the whole entity will be up 300 to 400 basis points. And more importantly, we anticipate the same kind of improvement in that order of magnitude in 2025. It's a runway, and it should take several years to play out now in terms of, you know, pricing, rolling over, or even flattening. We didn't see that, you know. Spot prices year-over-year in Inland were up 15 to 18 percent.
David Raj: Everybody's.
David Raj: <unk> absorbed and disciplined right now just trying to keep their current fleet running.
David Raj: Okay, Great that makes sense and then you kind of alluded to this before on.
David Raj: Labor and Mariners availability, but can you can you remind us how many or what percentage of tow boats. You guys are chartering in currently or expect to for the coming year and then any commentary on that.
David Raj: There is labor constraints and wage increases kind of affecting the availability and cost of chartering in.
Yes look our mariners are short across the board.
David Raj: Whether it's in the charter fleet our own fleets.
David W. Grzebinski: Term pricing was up 7 to 9 percent year-over-year, so there's actually a healthy gap between spot and term. You want spot above term, which we see, it's a pretty good gap. And then even sequentially, we saw... from the third to fourth quarter, spot pricing was up two to 5%. So, you know, we didn't see any flattening.
David Raj: We operate probably 290 inland tow boats.
David Raj: 28 27 offshore.
David Raj: Our charter charter fleet, we don't get too specific on it but it's in the 60 range.
David Raj: We're.
David Raj: We're seeing labor pressure across the board in.
David Raj: Just getting qualified Mariners I think what happened is kind of interesting people.
David Raj: There was a trucker shortage.
David W. Grzebinski: Look, pricing needs to continue to go up. We're offsetting inflation. We're trying to get returns back up to where, you know, we can get a return on our invested capital. And we're still a long way away from justifying new builds. So it's very constructive.
David Raj: And there was a lot of shortages of labor.
And a lot of people kind of moved away from maybe the marine side.
David Raj: There may be moving back now but.
David Raj: It's tough to find qualified Mariners thats why we have our own school.
It.
David W. Grzebinski: I think you'll see the margin progression of three to 400 basis points up this year and then perhaps something similar in 2020. So really, the best way, I guess, to take away from that is you can't look at the fourth quarter as the exit rate, or run rate. You got to look at the annual as far as the improvement given the seasonality and repricing.
David Raj: It's a very.
David Raj: Skilled.
David Raj: Set of.
David Raj: Yes.
David Raj: It's our highest set of skills to to push a football field full of barges with a tow boat on a on a river that that's moving with wind blowing.
David Raj: These are highly skilled individuals.
David Raj: Including the tanker man in the deck hands on so.
Speaker Change: Yes, I'm rambling a bit here, Greg sorry about that but we.
Speaker Change: We are seeing labor pressure.
David W. Grzebinski: I think that's fair. I mean, you heard our term contracts were up in the high single digits, 7 to 9 percent. So that's going to roll through this year, and, you know, it'll progress. And then did you mention where the spot rates are now for the two-toe barge? No, I didn't, I better not, I shouldn't, or my attorney will kick me out.
Speaker Change: Both on the on the charter side in the owned side.
Speaker Change: It's just there's just a shortage of them, we're trying to train them as fast as we can but it takes a while to train.
Speaker Change: For these very specific.
Speaker Change: Very specific tasks that are very highly skilled.
David W. Grzebinski: And then. Going on the ONG side, you keep mentioning supply chain delays. I would imagine we're well past everything post COVID and supply chain issues. I mean, maybe Red Sea is now popping up now with rerouting.
Speaker Change: Okay, Yeah I appreciate that.
Speaker Change: How do you think it.
Speaker Change: Like how do you think the industry kind of solves that problem I mean, I know you guys have your school in <unk>.
Speaker Change: Method, but just industry wide is it simply a function of.
Kenneth Scott Hoexter: But what are the issues that you're still dealing with in the supply chain? Yeah, no, it's gotten a lot better, Ken, for sure. You saw our, our deliveries, well, you can probably infer it, our deliveries in the fourth quarter were pretty good out of our manufacturing facility. We were having problems with electronic componentry and, you know, one-off items holding up whole series of equipment. That's kind of worked its way out.
Speaker Change: Rates getting to a place where wages can increase enough to attract.
Speaker Change: Additional labor back in to the industry or do you think is it is it a solvable issue do you see it getting solved over time or do you think it's just a.
Speaker Change: When necessary.
Speaker Change: <unk> in the future.
Speaker Change: No I'm, a crewing is always a bit of a challenge.
Look I mean living on a on a boat is a different lifestyle right.
David W. Grzebinski: What's really happening now is a long lead time. Engine packages, for example, if we were to order engines today, we wouldn't get them until the mid-25s. So that's, you know, the big componentry is the problem. The lead times on engines, in particular, have been a problem, and it's really about boundary constraints in the engine world. Yeah, it's just a long lead time. So we're still dealing with that. You know, if that were compressed, we would deliver better results.
Speaker Change: Some of our guys worked 30 on and then 30 off for two weeks on one week off.
Speaker Change: Not being home every night is a challenge.
Speaker Change: Specific lifestyle, that's hard to.
Speaker Change: So Phil just because you are away from home and family.
Speaker Change: <unk>.
So there is there is that natural tension away permit from from.
Speaker Change: And have a life balanced standpoint.
Speaker Change: That said, we do pay well I think our industry plays really really well.
David W. Grzebinski: If we could get engines quicker, particularly on CNI for power generation, can we? We're seeing a lot of demand for backup power. And, you know, if the engine packages could flow quicker, we'd have better numbers in DNS for 2020. Dave, I just want to clarify two things. One, real quick, if I count on the first answer on the margin, so just the three, 400 basis points, if December exited close to 20, does that mean December 23? Does that mean December 24 could exit close to 24% for that month, just given that seasonality? Is that kind of conceptual?
Speaker Change: We recruit and high schools.
Speaker Change: Last year, we hired 300 new.
Speaker Change: Dec Mariners.
Speaker Change: And we're doing everything we can I think it solves itself.
Speaker Change: We will keep running as a business but.
Speaker Change: That is part of the reasons rates have to go up Greg to your point right.
Speaker Change: With all the inflation in the trading facility that we have Greg helps us a lot.
Speaker Change: It's a differentiator for us.
Gregory Lewis: Got it okay. Thanks, David I appreciate it.
Speaker Change: Alright, thank you.
Speaker Change: And this concludes our Q&A session I would now like to turn the conference back to Mr. Kurt <unk> for closing remarks.
Kenneth Scott Hoexter: I always think about it. And then do we need to change the supply chain in any way to affect that change? Yeah, on the margins, it depends on the weather in December, right, but yeah, I mean directionally, if we saw a mild December, I think absolutely we'd be close to that. That's great, on the supply chain, you know, we're, Look, we use. It's best for me not to name different engine companies, but we use all kinds of different engines.
Kurt Kirby: Thank you operator, and thank you everyone for joining us for any follow up questions. Please reach out to me directly.
Speaker Change: This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
David W. Grzebinski: And they're seeing it; whether it's a German-based engine company or a US-based engine company, they all have the same issues in terms of foundries producing blocks and getting them through. There's not much we can do. It's their supply chain. We're working with them, trying to pre-order stuff, working that side of me. But look, they're working hard to get the engines. They want to sell as many as they can as well.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
David W. Grzebinski: You know, we're working on it with them. Some of it is out of our control. We're trying to do better job planning, as you would expect. Thanks a lot, Dan. I appreciate the time. Thanks again.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Kenneth Scott Hoexter: In one moment for our next question. Our next question will be coming from John Chappell of Evercore ISI. Your line is open. Thank you. Good morning.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Jonathan Chappell: Evan, I'm going to ask you a bit of a longer-term question, but it ties together, I think, a lot of things we've been talking about for the last couple of years or so. When you lay out a path for 300, 400 basis points both this year and next, that kind of gets us close to the mid-20s. You know, we had spoken maybe a year and a half ago at this point about inflation really kind of pinching you, potentially, you know, precluding the inland margin from getting back to the cyclical peaks of 10-plus years ago. Is inflation easing at all now?
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Dan.
Speaker Change: [music].
David W. Grzebinski: And when you talk about the early innings, I would assume that would mean this has a couple more years of runway. Can we revisit then, those kind of mid-to-high 20% inland margins, you know, barring an extraordinary event? Yeah, I'll take those in kind of reverse order.
David W. Grzebinski: I do believe we could get to the high 20s in margin. We'll see. But inflation is real. We're seeing it, yeah, even when you listen to the pundits out there, you know, we're still seeing inflation, not deflation. I would tell you, you know, maintenance is. Maintenance inflation has gone up a lot. We talked a little bit about the shipyards having a hard time getting labor because steel prices haven't abated at all.
David W. Grzebinski: In our ecosystem, mariners are short, critically short across the entire industry. You know, fortunately, we have our own school where we train mariners, but we're still, you know, really tight on crewing. So, we're seeing labor inflation, everybody's seeing it, you know, things like paint and so on. All of that we're still seeing in place.
David W. Grzebinski: Believe it or not, rental cars are, you know, we do a lot of crew moves because of rental car inflation. It is. So we're still offsetting that, you know. I think everybody's been a little frustrated with the pace of our margin improvement. Certainly, we would like to have improved it faster.
David W. Grzebinski: But it's really about this inflation and trying to offset it. Look, our customers are experiencing the same thing. They have inflation in their refineries, in their chemical plants.
David W. Grzebinski: They're fighting steel costs, supply chain issues, and, of course, labor costs. So our sophisticated customers definitely understand it. They understand we're fighting inflation. We are getting some real price increases, but we need them to get to prices that could justify replacement capacity. So it's a long, rambling response, John.
David W. Grzebinski: Sorry, but inflation is there. But the fundamentals are such that we're going to get to the mid-20s, at some point. Barring anything I'm foreseeing, we should get to the high 20s. Yep. That's great. For my follow-up, maybe a tag team here, tying two things together.
Jonathan Chappell: So, David, you're able to pick up, you know, those barges that your competitor had to walk away from conceivably, and you're in a, you know, obviously a great balance sheet position to do that. When I look at your buybacks in 23, as far as I can find, it's the second highest year, you know, for at least 15, 16 years after 2015. And a ton of free cash flow per year guidance for 24.
David W. Grzebinski: So, I guess the question is, picking up barges in the orders is, I think, a one-off event. But is the M&A market kind of bubbling up a little bit now that you're off the bottom? You know, no one wants to sell at the low, so maybe there's some activity brewing there. And how much dry powder do you want to keep for that vis-a-vis, you know, maybe using all this free cash flow to continue to ramp up the buyback pace? So, for David and Raj.
David W. Grzebinski: Yeah, well, I'll let Raj chime in here a bit too. You know, we still have liquidity available on our revolver, and our, you know, debt that it takes is fine. We've got plenty of borrowing capacity. And to your point, we are going to have a lot of free cash flow this year, and we've been aggressive in buying our stock. We like our stock where it's at, particularly when we look at where the next three to five years is going to be. It's going to be a good run.
David W. Grzebinski: So we're happy to buy back our stocks. That said, you know, we always like those inland acquisitions, but we're not going to lose our price discipline. We'll be very disciplined.
David W. Grzebinski: They're hard to predict. We did pick up, you know, we bought some barges from a competitor last year as well. We'll look for those one-offs.
David W. Grzebinski: You know, predicting a big deal is a lot harder. I would just tell you, we're going to stay. We think we've got good borrowing capacity in any event. And, you know, we also like our stock. Raj, do you want to add anything? Yeah, David.
Raj Kumar: Thank you. Thanks, Jonathan. I think, you know, last year in 23, we dedicated about 80 plus percent of our free cash flow to a share repurchase. And, you know, to David's point, it's very difficult to predict any M&A. We always look at it, we have a rigorous approach to looking at projects and M&A opportunities, but barring anything that's attractive, you know. I think you can continue to see us progressing that trend of share repurchases similar to what we did in 2018. Okay. Thank you, Raj.
Jonathan Chappell: Thanks, David. Thanks, John. One moment for our next question. And now we're going to have questions from Greg Lewis of BPIG. Greg, your line's open. Hey, thanks. And good morning, everybody.
Gregory Lewis: Hey, good morning, Greg. David, and I guess this is for Raj too, I did want to ask about, I guess the decision to kind of reintroduce full year earnings guidance. I mean, like it seems like we pulled it away a couple years ago. I mean, David, you're talking about a, I guess, a multi-year run in terms of the operating environment. Is that kind of the genesis for what drove the, you know, the full year earnings guidance back into the equation? No, I mean, you notice it's not numeric and we're not giving quarterly guidance. We debated a long time about whether we should give numbers, but, you know, I think, in the kind of the environment where there's a lot of moving pieces.
Gregory Lewis: We thought it would be good to give a little more specificity on that. You know, just at the outset of this year, I don't think so. You know, we're not going to give quarterly guidance or anything like that, or even a numerical PPS. It's just kind of, we wanted to set kind of the..., the range for the year given everything we're seeing, but both at DNS and. Okay, and then um, I you know, and then we kind of changed, you know? I guess we reported the late days. I guess they, you know, they're obviously up sequentially because of weather. You know, any kind of any kind of way to quantify that EPS impact was I mean, was that a couple pennies? Was it more any kind of color around that?
David W. Grzebinski: Or did we? Yeah, I mean, the late days were up a lot, as you heard, eventually, yes. It's hard to quantify it, there are so many moving pieces. You know, so far in January, it's been brutal.
David W. Grzebinski: At the same time, you'll remember the first quarter of 23 was a really tough, tough quarter from the weather delay. January was as bad as last year, and we'll see what February brings. And, you know, it's hard to predict, but it has a real impact. I mean, you see our margins dip down and in usually in the fourth quarter and the first quarter because of weather. You know, it can be anywhere from a couple hundred bases or so. That range.
David W. Grzebinski: But, you know, it's really hard to say. As you know, Greg, we have time charters, and we have contracts for freight, and those contracts for abatement. I would also say that, with respect to the first quarter, one of the things we did see, and that's reflected in our guidance here, is that there was a freeze, and it impacted some of the refineries and chemical plants in January, and they're still coming out of that. So, you know that. It's all in there, but it's still multifaceted. And that's why we kind of look at it that way. I'm trying to get everybody here to look at it from a year over year for the whole year average because there are so many moving parts with weather, lock delays, and hurricanes. Hopefully, we don't have a hurricane this year.
David W. Grzebinski: Lots of moving parts. I hope that helps, Greg. I wish I could... Yeah, yeah, yeah.
David W. Grzebinski: Like I said, it's just, you know, interesting because I think it kind of needs to be quantified with those numbers. And then I did, you know, just in terms of the guidance, you mentioned the potential opportunity in chemicals. Is that a function of, and you know, I don't follow the chemicals industry maybe as closely as I should.
David W. Grzebinski: Is that a function of, you know, could you kind of talk a little bit about broad strokes, why we could see maybe chemicals be a little better than..., you know, why that could help drive some upsides, you know, the high end of the range. Yeah, you know, look, in the fourth quarter, we saw the chemical industry pull back a little bit, and volumes pulled back a little bit. We haven't seen China reemerge in terms of chemical demand, you know, back to where they used to be.
David W. Grzebinski: So, you know, if that started in earnest again, it would just help volumes. You know, as you know, we move a lot of chemicals on the inland waterways. And, you know, it would just be very, very constructive for us to see some growth in that. And if it came back, now we are seeing in January, a little uptick in chemicals, but, You know, it's kind of one of those things on the margin that could help us to get closer to that high end of the range. Okay. Very helpful, guys.
Gregory Lewis: Thank you. Thank you. Our last question will come from Greg Wysikowski of Webber Research and Advisory. Your line is open.
Gregory Lewis: Hey, good morning, David and Raj. Thanks for taking the question. Good morning.
David W. Grzebinski: Um, so I wanted to ask you, David, what are you seeing out there on the order book right now on the inland side of things? And I know rates are still a ways off of making that equation make sense to build new, but for the movements that you're seeing out there, does it give you any sense of concern at all? Or do you think it's kind of widely understood throughout the industry that, you know, any chunks of orders here would be a function of either, you know, owners biting the bullet for the sake of customer satisfaction or customer retention or fleet renewal? You know, where are we in terms of? Not necessarily for economic reasons, but in terms of sentiment and, you know, making sure that nobody panics. Yeah, no, I, you know. This isn't precise, but we think there are only 24 or 25 liquid barges on order for 2024 delivery. Certainly nobody's panicked. I think it's a reference that's been in some earlier comments, but.
David W. Grzebinski: Most of our competitors, and including us, are very busy just trying to maintain our fleet with this maintenance bubble that's hitting us. So that's soaking up a lot of capital in finance for a lot of our competitors, including us. I mean, we're spending a lot more.
David W. Grzebinski: You heard our maintenance capital expenditure is up a lot in the last couple years. So nobody's really panicking and trying to go out and build any new equipment right now. Everybody is pretty absorbed and disciplined right now, just trying to keep their current fleet running. Great, that makes sense.
David W. Grzebinski: And then you kind of alluded to this before on labor and mariner availability. But can you remind us how many or what percentage of towboats you guys are chartering in currently or expect to for the coming year? And then any commentary on labor constraints and wage increases kind of affecting the availability and cost of chartering? Yeah, look, mariners are short across the board, you know, whether it's in the charter fleet or own fleet. You know, we operate probably 290 inland tow boats and 28, 27 offshore.
David W. Grzebinski: You know, our charter, we don't get too specific on it, but it's, you know, in the 60 range. We're seeing labor pressure across the board and, you know, just getting qualified mariners. I think what happened is kind of interesting. There was a trucker shortage, and there was a lot of shortages of labor, and a lot of people kind of moved away from maybe the marine side. They may be moving back now, but it's tough to find qualified mariners. That's why we have our own school. It's a very big... Guild.
David W. Grzebinski: It's a high set of skills to push a football field full of barges with a towboat on a river that's moving with the wind blowing. These are highly skilled individuals, including the tanker men and the deckhands on that. Yeah, I'm rambling a bit here, Greg. Sorry about that.
David W. Grzebinski: But we are seeing labor pressure, both on the charter side and on the own side. It's just there's just a shortage of them. We're trying to train them as fast as we can, but it takes a while to train them for these various, very specific tasks that are very highly skilled.
David W. Grzebinski: Okay, yeah, appreciate that. How do you think the industry kind of solves that problem? I mean, I know you guys have your school and you know, have a method, but just industry-wide, is it simply a function of rates getting to a place where wages can increase enough to attract additional labor back into the industry?
David W. Grzebinski: Or do you think, like, is it a solvable issue? Do you see it getting solved over time? Or do you think it's just necessary?
David W. Grzebinski: evil in the future. Yeah, no, I mean, crewing is always a bit of a challenge. Look, I mean, living on a boat is a different lifestyle, right? I mean, some of our guys work 30 on and then 30 off or two weeks on, one week off. Not being home every night is a challenge. So, you know, it's a specific lifestyle that's hard to fail just because you're away from home and family a lot.
David W. Grzebinski: So there's that natural tension away from it from a life balance standpoint. That said, we do pay well. I think our industry is doing really, really well. We recruit in high schools. Last year, we hired 300 new deck mariners.
David W. Grzebinski: And, you know, we're doing everything we can. I think it will solve itself, you know, we'll keep running as a business, but, you know, that is part of the reasons rates have to go up, Greg, to your point. Right. With all the inflation and, you know, the training facility that we have, Greg, helps us a lot, and it's a differentiator.
David W. Grzebinski: Okay, thanks, David and Raj. I appreciate it. All right, thank you. And this concludes our Q&A session. I would now like to turn the conference back to Mr. Kurt Nimitz for closing remarks. Thank you, operator, and thank you, everyone, for joining us. If you have any follow-up questions, please reach out to me directly. This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.