Q2 2024 Kirby Corp Earnings Call

Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Kurt Niemietz, Kirby's Vice President of Investor Relations and Treasurer. Please go ahead.

Operator: Please be advised that today's conference is being recorded.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Mr. Kurt Nimitz Kirby's, Vice President of Investor Relations and Treasurer. Please go ahead.

Operator: I would now like to hand a conference over to your first speaker today.

Kurt Niemietz: Mr. Kurt Niemietz, Kirby's Vice President of Investor Relations and Treasurer, please go ahead. Good morning, and thank you for joining the Kirby Corporation 2024 second quarter earnings call. With me today are David Grzebinski, Kirby's chief executive officer, and Christian O'Neill, Kirby's president and chief operating officer. And Raj Kumar, Kirby's executive vice president and chief financial officer.

Kurt A. Niemietz: Good morning, and thank you for joining the Kirby Corporation 2024 Second Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer, Christian O'Neill, Kirby's President and Chief Operating 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. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements.

Kurt Niemietz: A slide presentation for today's conference call, as well as the earnings release, which was issued earlier today, can be found on our website. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release. And are also available on our website and the Investor Relations section under Financials.

Kurt Niemietz: 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 factors can be found in Kirby's latest form 10-K and in our other filings made with the FCC from time to time.

Kurt A. Niemietz: 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. A list of these factors can be found in Kirby's latest Form 10-K and in our other filings made with the SEC from time to time. I will now turn the call over to David.

David Grzebinski: I will now turn the call over to David. Thank you, Kurt. And good morning, everyone.

David Grzebinski: Before we begin, I'd like to recognize our employees, especially our Texas-based team members, that were recently impacted by Hurricane Barrel. Their lives were disrupted, and many were left without power for several days and actually up to a week or two. But they remain focused on and continued to meet the needs of our customers and business, as well as support each other during this event. I want to thank them for their exceptional efforts and resilience during this challenge.

David W. Grzebinski: Before we begin, I'd like to recognize our employees, especially our Texas-based team members that were recently impacted by Hurricane Beryl. Their lives were disrupted, and many were left without power for several days and actually up to a week or two, but they remained focused on and continued to meet the needs of our customers and business as well as support each other during this event. I want to thank them for their exceptional efforts and resilience during this challenge. These difficult ones were mostly offset by good execution.

David Grzebinski: Now, turning to the second quarter earnings, today we announced earnings per share of $1.43, which compares to 2023 second quarter earnings of 95 cents per share. Our second quarter results reflected steady market fundamentals in both marine transportation and distribution and services. Even though we experienced some modest weather and navigation challenges for marine and continued supply challenges and distribution and services. These head ones were mostly offset by good execution. Solid demand in both marine and distribution and services continued during the quarter and led to strong financial performance. In inland marine transportation, our second quarter results reflected continued pricing momentum, with the modest impact from poor navigational conditions due to weather and locked delays.

David W. Grzebinski: Solid demand for both marine and distribution and services continued during the quarter and led to strong financial performance. In inland marine transportation, our second quarter results reflected continued pricing momentum with a modest impact from poor navigational conditions due to weather and lock delays. From a demand standpoint, customer activity was steady with barge utilization rates running in the low to mid 90% range throughout the quarter. Bot prices increased in the low to mid-single digits sequentially and in the mid-teens range year-over-year.

David Grzebinski: From a demand standpoint, customer activity was steady, with barge utilization rates running in the low to mid 90% range throughout the quarter. Bot prices increased in the low to mid single digits sequentially and in the mid teens range year over year. term contract prices also renewed up higher with mid single digit increases year versus a year ago. Overall, second quarter inland revenues increased 11% year over year, and margins were in the low 20% range. In coastal, market fundamentals remained steady, with our barge utilization levels running in the mid to high 90% range. During the quarter, we saw strong customer demand and limited availability of large capacity vessels, which resulted in high teens percentage increases on term contract renewals year over year.

David Grzebinski: Average spot market rates increased in the high single digits sequentially and in the mid 20% range year over year. These increases help soften continued inflationary pressures, particularly with shipyards, and help partially offset the capital expense from the addition of ballast water treatment systems. Overall, second quarter coastal revenues increased 24% year over year and had an operating margin in the low teens range.

David W. Grzebinski: Overall, second quarter coastal revenues increased 24% year-over-year and had an operating margin in the low teens range. Turning to distribution and services, demand was stable across our end markets with sequential growth in revenue and operating income. In power generation, revenue grew 9% year over year, and the pace of orders was strong with several large project wins from backup power and other industrial customers as power continues to become more critical.

David Grzebinski: Turning to distribution and services in total, demand was stable across our end markets, with sequential growth in revenues and operating income. In power generation, revenue grew 9% year over year, and the pace of orders was strong, with several large project wins from backup power and other industrial customers as power continues to become more critical. In oil and gas, revenues were down year on year, but up 22% sequentially, driven by some growth in our e-fract business. In our commercial and industrial market, revenues were up 9% year over year and 16% sequentially, driven by steady demand across our different businesses, with growth coming from the Thermo King product deliveries.

David W. Grzebinski: In oil and gas, revenues were down year on year but up 22% sequentially, driven by some growth in our EFRAC business. The inland market is strong, and we see continued pricing momentum. In the coastal market, industry-wide supply-demand dynamics remain very favorable.

Speaker Change: 2% sequentially driven by some growth in our E Frac business.

Speaker Change: In our commercial and industrial market revenues were up 9% year over year, and 16% sequentially driven by steady demand across our different businesses with growth coming from the thermo King product deliveries.

David Grzebinski: In summary, our second quarter results reflected ongoing strength in market fundamentals for both segments. The inland market is strong, and we see continued pricing momentum. In coastal, industry-wide supply demand dynamics remained very favorable. Our barge utilization is strong, and we are realizing real rate increases. Increased demand for power generation and distribution and services is mostly offsetting softness in oil and gas areas.

Speaker Change: In summary, our second quarter results reflected ongoing strength and market fundamentals for both segments. The inland market is strong and we see continued pricing momentum and coastal industry wide supply demand dynamics remain very favorable our barge utilization.

David W. Grzebinski: Our barge utilization is strong, and we are realizing real rate increases. Increased demand for power generation and distribution and services is mostly offsetting softness in oil and gas areas. I'll talk more about our outlook later, but first, I'll turn the call over to Raj to discuss the second quarter segment results and balance sheet in more detail. Compared to the second quarter of 2023, total marine revenues increased $58 million, or 14%, and operating income increased $31 million, or 48%. As David mentioned, weather and lock delays modestly impacted operations as heavy rains in the Houston area briefly closed the ship channel, and two major locks on the lower Mississippi River were closed for repair.

Speaker Change: <unk> is strong and we are realizing real rate increases.

Speaker Change: Increased demand for power generation and distribution and services is mostly offsetting softness in oil and gas areas.

Raj Kumar: I'll talk more about our outlook later, but first I'll turn the call over to Raj to discuss the second quarter segment results and balance sheet in more detail. Thank you, David, and good morning, everyone. In the second quarter of 2024, marine transportation segment revenues were 485 million and operating income was 95 million, with an operating margin around 20%. Compared to the second quarter of 2023, total marine revenues increased 58 million of 14%, and operating income increased 31 million of 48%. 10. Compared to the first quarter of 2024, total marine revenues inland and coastal combined increased 2%, and operating income increased 14%.

Speaker Change: I'll talk more about our outlook later, but first I'll turn the call over to Raj to discuss the second quarter segment results.

Raj: Balance sheet in more detail.

Raj Kumar: As David mentioned, whether and lock delays modestly impacted operations as heavy rains in the Houston area briefly closed the ship channel and two major locks on the lower Mississippi River were closed for repairs. This led to a 44% increase in delay days over the year, but these headwinds were offset by solid underlying customer demand, improved pricing, and, most importantly, execution. Looking at the inland business in more detail, the inland business contributed approximately 81% of segment revenue. Average barge utilization was in the low to mid 90% range for the quarter, which is similar to the first quarter of 2024 and the second quarter of 2023.

Raj Kumar: This led to a 44% increase in delay days year over year. But these headwinds were offset by solid underlying customer demand, improved pricing, and, most importantly, execution. Looking at the inland business in more detail, the inland business contributed approximately 81% of segment revenue.

Raj Kumar: Average barge utilization was in the low to mid 90 percent range for the quarter, which is similar to the first quarter of 2024 and the second quarter of 2023. Long-term inland marine transportation contracts, or those contracts with a term of one year or longer, contributed approximately 65% of revenue, with 59% from time charters and 41% from contracts of freight. As David mentioned, improved 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: Long term inland marine transportation contracts, or those contracts with a term of one year or longer, contributed approximately 65% of revenue, with 59% from time charters and 41% from contracts of a freightman. As David mentioned, improved 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 second quarter were up, on average, in the mid single digits compared to the prior year. Compared to the second quarter of 2023, inland revenues increased 11%, primarily due to higher term and spot contract pricing.

Raj Kumar: Term contracts that renewed during the second quarter were up on average in the mid-single digits compared to the prior year. Compared to the second quarter of 2023, inland revenues increased 11%, primarily due to higher term and spot contract prices. However, inland revenues increased low to mid-single digits compared to the first quarter of 2024.

Raj Kumar: Inland revenues increased low to mid single digits compared to the first quarter of 2024. Inland operating margins improved by around 300 basis points year over year, driven by the impact of higher pricing and continued cost management, which helped save, save off lingering inflationary pressures.

Raj Kumar: Inland operating margins improved by around 300 basis points year-over-year, driven by the impact of higher pricing and continued cost management, which helped stave off lingering inflationary pressure. Now moving to the coastal business, coastal revenues increased 24% year-over-year due to higher contract pricing and fewer shipyards.

Raj Kumar: Now moving to the coastal business. Coastal revenues increased 24% year over year due to higher contract pricing and fewer shipyards. We had one large vessel conclude its planned shipyard and re-enter service during the quarter. Overall, Coastal had an operating margin in the low teens range, resulting from higher pricing and shipyard timings, which will temporarily reverse in the fourth quarter. The coastal business represented 19% of revenues for the marine transportation segment. Average coastal barge utilization was in the mid to high 90% range, which is in line with the second quarter of 2023 and the first quarter of 2024.

Raj Kumar: We had one large vessel conclude its planned shipyard and re-enter service during the quarter. Overall, Coastal had an operating margin in the low teens range, resulting from higher pricing and shipyard timings, which will temporarily reverse in the fourth quarter. The coastal business represented 19% of revenues for the marine transportation sector. During the quarter, the percentage of coastal revenue under term contracts was approximately 100%, of which approximately 97% were time charted.

Raj Kumar: During the quarter, the percentage of coastal revenue under term contracts was approximately 100%, of which approximately 97% were time charges. Average spot market rates were up in the high single digits sequentially and in the mid 20% range year over year. Renewals of term contracts were higher in the high teens range on average year over year.

Raj Kumar: Average spot market rates were up in the high single digits sequentially and in the mid-20% range year over year. Renewals of term contracts were higher in the high teens range on average year over year, with respect to our tank barge fleet for both the inland and coastal business. We have provided a reconciliation of the changes in the second quarter, as well as projections for 2024. This is included in our earnings call presentation posted on our website.

Raj Kumar: with respect to our tank barge fleet for both the inland and coastal businesses.

Raj Kumar: We have provided a reconciliation of the changes in the second quarter, as well as projections for 2024. This is included in our earnings call presentation posted on our website. At the end of the second quarter, the inland fleet had 1,093 barges representing 24.2 million barrels of capacity. On a net basis, we expect to end 2024 with a total of 1,096 inland barges representing 24.3 million barrels of capacity.

Raj Kumar: At the end of the second quarter, the Inland Fleet had 1,093 barges, representing 24.2 million barrels of capacity. On a net basis, we expect to end 2024 with a total of 1,096 inland barges representing 24.3 million barrels of capacity. Coastal Marine is expected to remain unchanged for the year.

Raj Kumar: Coastal marine is expected to remain unchanged for the year.

Raj Kumar: Now I'll move on to review the performance of the distribution and services segment. Revenue for the second quarter of 2024 was 340 million, with operating income of 29 million and an operating margin of 8.7%. Compared to the second quarter of 2023, the distribution and services segment revenue decreased by 11 million or 3 percent, while operating income was flat year over year. When compared to the first quarter of 2024, segment revenues increased by 7 million or 2 percent, and operating income increased by 7 million or 34 percent.

Raj Kumar: Now I'll move on to review the performance of the distribution and services sector. Revenues for the second quarter of 2024 were $340 million, with operating income of $29 million and an operating margin of 8.7%. When compared to the first quarter of 2024, segment revenues increased by $7 million, or 2%, and operating income increased by $7 million, or 34%. Power generation represented 32% of total segment revenue.

Raj Kumar: In power generation, our revenues tied to non-oiling gas and markets were up 16 percent sequentially and 87 percent year over year, driven by strong demand as we continue to see significant orders from backup power, data centers, and other industrial customers for power generation equipment and backup power availability. Our power generation revenues tied to the oil and gas space were down sequentially and year over year as product delays continued to contribute to lumpiness. All together, power generation revenues were up 9 percent year over year, while operating income was up 16 percent year over year, with operating margins in the low double digits.

Raj Kumar: Power generation represented 32 percent of total segment revenues.

Raj Kumar: On the commercial and industrial side, steady activity in marine repair and growth in Thermo King product sales offset lower activity in other areas, particularly on highway truck service. As a result, commercial and industrial revenues were up 9 percent year over year. Operating income increased 38 percent year over year, driven by favorable product mix and ongoing cost savings initiators. TNI made up 49 percent of segment revenues, with operating margins in the high single digits. Compared to the first quarter of 2024, commercial and industrial revenues increased by 16 percent as a result of stable demand in most areas and higher ThermoKing product shipments.

Raj Kumar: Compared to the first quarter of 2024, commercial and industrial revenues increased by 16% as a result of stable demand in most areas and higher thermal king product shipments. However, revenues from oil and gas were down 33% year over year but increased 22% sequentially. Oil and gas represented 19% of segment revenues in the second quarter, and operating margins were in the low to mid-single digits. Now I'll turn to the balance sheet. As of June 30th, we had $54 million in cash with a total debt of around $1.05 billion, and our debt-to-cap ratio was 24.3%.

Raj: Thermo King product shipments.

Raj Kumar: Operating income was up 45 percent over the same period, driven by favorable product mix.

Raj: Operating income was up 45% over the same period driven by favorable product mix.

Raj Kumar: In the oil and gas market, we continue to see softness in conventional frack-related equipment as low rig counts and lower fracking demand, tempered demand for new engine transmissions and parts throughout the quarter. This softness is being partially offset by solid execution and backlog and new orders of e-fract equipment. Revenues in oil and gas were down 33% year over year, but increased 22% sequentially. Oil and gas represented 19% of segment revenues in the second quarter and had operating margins in the low to mid-single digits.

Raj: In the oil and gas market, we continue to see softness in conventional frac related equipment as low rig counts and lower fracking demand tempered demand for new engines transmissions and parts throughout the quarter.

Raj: This softness is being partially offset by solid execution on our backlog and new orders of E Frac equipment.

Raj: Revenues in oil and gas were down 33% year over year, but increased 22% sequentially.

Raj: Oil and gas represented 19% of segment revenues in the second quarter.

Raj: Operating margins in the low to mid single digits.

Raj Kumar: Now, I'll turn to the balance sheet. As of June 30th, we had 54 million dollars of cash with a total debt of around 1.05 billion, and our debt to cap ratio was 24.3%. During the quarter, we had net cash flow from operating activities of close to 180 million. Second quarter cash flow from operations saw a working capital reduction of approximately 10 million. We continue to target unwinding more working capital as a year progresses and into 2025. We use cash flow and cash on hand to fund 89 million of capital expenditures or capex, primarily related to maintenance of marine equipment.

Raj Kumar: Second quarter cash flow from operations saw a working capital reduction of approximately $10 million. We continue to target unwinding more working capital as the year progresses and into 2025, primarily related to maintenance of marine equipment. During the quarter, we also used $43.7 million to repurchase stock at an average price of $117.

Raj Kumar: During the quarter, we also use 43.7 million to put repurchase stock at an average price of $117. As of June 30th, we had total available liquidity of approximately 488 million. For 2024, we remain on track to generate cash flow from operations of 600 to 700 million, driven by higher revenues and EBITDA. We still see some supply chain constraints posing some headwinds to managing working capital in the near term. Having said that, we are targeting to unwind this working capital as audorship in 2024 and beyond. With respect to cap acts, we expect capital spending to range between 300 and 330 million for the year.

Raj Kumar: For 2024, we remain on track to generate cash flow from operations of $600 million to $700 million, driven by higher revenues and EBITDA. However, we still see some supply chain constraints posing some headwinds to managing working capital in the near term. Approximately $200 to $240 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements. Additionally, approximately $90 million is associated with gross capital spending in both of our businesses.

Raj Kumar: Approximately 200 to 240 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements. Approximately 90 million is associated with growth capital spending in both far businesses. The net result should provide approximately 300 to 350 million of free cash flow for the year. As always, we are committed to a balanced capital allocation approach and will use cash flow to return capital to shareholders and continue to pursue long-term value-creating investment and acquisition opportunities.

David Grzebinski: I will now turn the call back to David to discuss the remainder of our 2024 outlook. Thank you, Raj. While we exited the quarter with continued momentum in our businesses, the beginning of the third quarter was challenged by Hurricane Barrel. The hurricane impacted our marine operations and temporarily shut down some of our DNS locations due to power averages. Our teams worked hard despite the challenging environment and were pleased to have quickly returned to normal operating conditions. Despite these challenges, pricing in the marine market continues to improve and demand is strong, and our DNS businesses continue to hold steady.

David W. Grzebinski: Our teams worked hard despite the challenging environment, and we're pleased to have quickly returned to normal operating conditions. Despite these challenges, with these strong market fundamentals, we expect our barge utilization rates on the inland to be in the low to mid 90% range throughout the remainder of the year. These favorable supply and demand dynamics are expected to drive further improvements in the spot market, which currently represents approximately 35% of inland revenue. We also expect continued improvement in term contract pricing as renewals occur throughout the remainder of the year.

David Grzebinski: with favorable fundamentals in the second half of the year. We expect year-over-year earnings growth to be at the high end of our original guidance of 30 to 40 percent growth. For some more detail on marine, our outlook remains strong for the remainder of the year, driven in large part by limited availability of equipment and continued high refinery activity and improving chemical utilization. Specifically, in inland marine, we anticipate positive market dynamics due to strong customer demand and limited new barbed construction. With these strong market fundamentals, we expect our barbed utilization rates in inland to be in the low to mid-90 percent range throughout the remainder of the year.

David Grzebinski: These favorable supply and demand dynamics are expected to drive further improvements in the spot market, which currently represent approximately 35 percent of inland revenues. We also expect continued improvement in term contract pricing as renewals occur throughout the remainder of the year. These increases are necessary as we continue to see inflationary pressures, and there is an acute mariner shortage in the industry driving up labor costs. Also, for the third quarter, although we expect an increase in required regulatory maintenance activity to be a headwind to margins, this should be offset by pricing gains. That said, we expect offering margins will gradually improve during the remainder of the year from the second quarter of the levels and average just over 20 percent for the full year.

David W. Grzebinski: For the third quarter, although we expect an increase in required regulatory maintenance activity to be a headwind to margins, overall, inland revenues are expected to grow in the high single to low double-digit range on a full-year basis.

David Grzebinski: Overall, inland revenues are expected to grow in the high single to low double-digit range on a full-year basis. In coastal market conditions remain very strong, and supply and demand is favorable across the industry fleet. Strong customer demand is expected throughout the year, with our barge utilization in the low to mid-90 percent range. With major shipyards and ballast water treatment installations behind us, revenues for the full year are expected to increase in the low double-digit to mid-teens range compared to full year 2023. We expect stable margins in the third quarter, with a number of planned shipyards in the fourth quarter adding together to have coastal operating margins to average in the low double-digit range for the full year.

David W. Grzebinski: In the coastal market, market conditions remain very strong, and supply and demand are favorable across the industry fleet. With major shipyards and ballast water treatment installations behind us, revenues for the full year are expected to increase in the low double-digit to mid-teens range compared to full year 2023. We expect stable margins in the third quarter with a number of planned shipyards in the fourth quarter to average in the low double-digit range for the full year.

Raj: With major shipyards and ballast water treatment installations behind us revenues for the full year are expected to increase in the low double digit to mid teens range compared to full year 2023.

Raj: We expect stable margins in the third quarter with a number of <unk>.

Raj: Planned shipyards in the fourth quarter.

Raj: Adding together to have coastal operating margins.

Raj: To average in the low double digit range for the full year.

David Grzebinski: In distribution and services, we continue to see an uptick in demand for our power generation products and services, and we continue to receive new orders and manufacturing, both of which are helping to soften the inherent volatility in our oil and gas markets. On the demand side, despite the uncertainty from volatile commodity prices, we expect incremental demand for parts, products, and services in the segment. In commercial and industrial, the demand outlook in marine repair is strong, while on highway, impacted by a rather large trucking downturn, is somewhat weak with the exception of refrigeration products and services.

David W. Grzebinski: In distribution and services, we continue to see an uptick in demand for our power generation products and services, and we continue to receive new orders in manufacturing, both of which are helping to soften the inherent volatility in our oil and gas market. On the demand side, despite the uncertainty from volatile commodity prices, we expect incremental demand for parts, products, and services in the segment. In commercial and industrial, the demand outlook for marine repair is strong, while on-highway, impacted by a rather large trucking downturn, is somewhat weak, with the exception of refrigeration products and services.

Speaker Change: In distribution and services, we continue to see an uptick in demand for our power generation products and services and we continue to receive new orders in manufacturing both of which are helping to soften the inherent volatility in our oil and gas markets.

David Grzebinski: Justice. In power generation, we anticipate continued growth as data center demand and the need for backup power is very strong. In oil and gas, activity levels are lower but seem to be bottoming. We do anticipate extended lead times for certain OEM products to continue, and that will contribute to a volatile delivery schedule for new products in 2024 and into 2025. Overall, the company expects segment revenues to be flat to slightly down on a full-year basis when compared to 2023, and operating margins to be in the mid to high single digits may be slightly lower year-over-year due to mix.

David W. Grzebinski: In power generation, we anticipate continued growth as data center demand and the need for backup power are very strong. In oil and gas, activity levels are lower, but they seem to be bottoming. We do anticipate extended lead times for certain OEM products to continue and that will contribute to a volatile delivery schedule for new products in 2024 and into 2025. Overall, the company expects segment revenues to be flat to slightly down on a full year basis when compared to 2023 and operating margins to be in the mid to high single digits, although may be slightly lower year-over-year due to mix.

David Grzebinski: To conclude, overall, solid execution and favorable market conditions led to a strong first half of the year for us, and we have a favorable outlook for the remainder of the year. We see growth coming in at the higher end of our previously guided range, and as Rodge mentioned, our balance sheet is strong and we expect to generate significant pre-cast blow this year. We see favorable markets continuing and expect our businesses will produce strong financial results as we move through the remainder of this year, and as we look long-term, we're confident in the strength of our core businesses and with our long-term strategy.

David W. Grzebinski: To conclude, overall, solid execution and favorable market conditions led to a strong first half of the year for us, and we have a favorable outlook for the remainder of the year. We see growth coming in at the higher end of our previously guided range, and as Raj mentioned, our balance sheet is strong, and we expect to generate significant free cash flow this year. We see favorable markets continuing and expect our businesses to produce strong financial results as we move through the remainder of this year.

Raj: As Raj mentioned, our balance sheet is strong and we expect to generate significant free cash flow this year.

Raj: We see favorable markets, continuing and expect our businesses will produce strong five ounce to financial results as we move as we move through the remainder of this year.

David W. Grzebinski: And as we look long term, we're confident in the strength of our core businesses and in our long-term strategy. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Raj: And as we look long term, we're confident in the strength of our core businesses.

David Grzebinski: We intend to continue capitalizing on these fundamentals, and we'll drive shareholder value creation.

Speaker Change: And with our long term strategy we.

Speaker Change: We intend to continue capitalizing on these fundamentals and will drive shareholder value creation.

Kurt Niemietz: Operator, that concludes our prepared remarks. Christian, Raj, and I are now ready to take your questions. Thank you.

Speaker Change: Operator that concludes our prepared remarks Christian Raj and I are now ready to take your questions.

Operator: To withdraw your question, please press star 11 again. As a reminder, we ask that you please limit your questioning to one question and one follow-up. Please stand by as we compile the Q&A roster. Our first question comes from the line of Greg Lewis at BTIG. The line is yours.

Operator: At this time, we will conduct the question-and-answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. As a reminder, we ask that you please limit your question to one question and one follow-up. Please stand by as we compile the Q&A roster.

Gregory Lewis: Our first question comes from the line of Greg Lewis at BTIG. The line is yours. Yes, thank you, and good morning, everybody. Thanks for taking my questions.

Gregory Lewis: You know, I was hoping if you could talk a little bit more about coastal. I mean, you know, this has been a long time coming. It feels like, you know, coming out of a really a long extended multi-year down cycle. You know, as you see what's happening in that market, and you know, I can appreciate, you know, no one's really ordering new equipment.

Gregory Robert Lewis: Yeah, good morning. I was hoping you could talk a little bit more about Coastal. I mean, you know, it's been a long time coming, it feels like, you know, coming out of a really long, extended, multi-year down cycle. You know, as you see what's happening in that market, and I can appreciate, you know, no one's really ordering new equipment. You know, how much of this, you know, strength in coastal areas is really being driven by, you know, just increasing demand? And if it is that, could you talk a little bit about that?

David Grzebinski: You know, how much of this, you know, strengthen coastal is really being driven by, you know, just increasing demand? And if it is that, could you talk a little bit about that? Or is it really been, you know, a little bit of that and some fleet rationalization? And as you think about where we are, I know you always talk about, you know, inland in terms of, you know, economics around new builds. You know, as you think about where we are in coastal, you know, how far away are we from that also those kind of new build economics that we are in, that we are in, that we are in, that we are in, that we are in?

David W. Grzebinski: Or has it really been, you know, a little bit of that and some fleet rationalization? And as you think about where we are, I know you always talk about, you know, inland in terms of, you know, the economics around new builds, you know, as you think about where we are on the coast, you know, how far away are we from that? Also, there's kind of new build economics that, Yeah, sure. Look, it's really tight on a supply and demand standpoint. Take the demand first.

David Grzebinski: Yeah, sure. Look, it's really tight on a supply and demand standpoint. Take the demand first. The demand's strong. It's up from where it used to be. You know, I think part of that's just coming back out of COVID. You're seeing more refined products move around the U.S. Diesel, gasoline, jet fuel demands up. You can look at some of the international flights. Now have picked up. And, you know, all that's helping the ecosystem from a demand standpoint. So we're, you know, we're moving around a lot of refined products. There's a little bit of renewable, renewable diesel moves that are emerging as well.

David W. Grzebinski: The demand's strong. It's up from where it used to be. I think part of that is just coming back out of COVID. You're seeing more refined products moving around the US. Diesel, gasoline, jet fuel demands are up. You can look at some of the international flights now that have picked up.

Speaker Change: To move around the U S.

Speaker Change: Diesel gasoline jet fuel demands up you can look at.

David W. Grzebinski: And all that's helping the ecosystem from a demand standpoint. So we're moving around a lot of refined products. There's a little bit of renewable diesel technology that are emerging as well.

Speaker Change: Some of the international flights now have picked up.

Speaker Change: All of that is helping the ecosystem from demand standpoint. So we're we're moving around a lot of refined products.

David W. Grzebinski: So demand is good. On the supply side, you know, capital costs. There was a lot of equipment that got retired, which was good.

Speaker Change: There is a little bit of renewal renewable diesel moves that are emerging as well so demand is good.

David Grzebinski: So demand's good. On the supply side, that's where it's been really helpful. There's been a lot of rationalization, you know, as we and other industry participants looked at putting in balanced water treatment and, you know, the capital costs. There was a lot of equipment that got retired, which is good. It brought the market back into balance. And actually, it's a very tight balance right now. You know, so that's just on the existing supply.

Speaker Change: On the supply side.

Speaker Change: Yes.

Speaker Change: Where it's been really helpful Theres been a lot of raft rationalization.

Speaker Change: As we and other industry participants looked at putting in ballast water treatment.

Speaker Change: The capital costs.

Speaker Change: There's a lot of equipment that got retired.

David W. Grzebinski: It brought the market back into balance, and actually, it's a very tight balance right now. You know, so that's just on the existing supply. I think the most encouraging thing is nobody's really contemplating building now. Even if somebody would, you know, the cost of building's gone up considerably. To just give you a reference point, we built an 185,000 barrel ATB unit, which is a tug and a barge, back five years ago when it was $80 to $85 million. I think to build that unit today would be $130 to $135 million, maybe.

Speaker Change: Which is good.

David Grzebinski: I think the most encouraging thing is nobody's really contemplating building now. Even if somebody would, you know, the cost of building's gone up considerably. To just give you a reference point. We built 185,000 barrel unit, ATB unit, which is a tug and a barge. Oh, back five years ago when it was 80, 80 to $85 million, I think to build that unit today would be 130 to 135, maybe. So the rates to build new equipment required are very high. So probably another 40% above where we're at right now, maybe even higher than 40%. So, you know, rates are going up.

David W. Grzebinski: So, you know, the rates to build new equipment required are very high. So probably another 40% above where we're at right now, maybe even higher than 40%. So, you know, rates are going up. That's a good thing.

David Grzebinski: That's a good thing. I mean, you saw in the quarter of Comm's term pricing was up. Our offshore coastal pricing was up in the high teens. Spot pricing was up in the mid-twenty year-over-year. So it's good. Now, part of that is we as an industry have to recover the cost of all the capital that went into ballast water treatment. So that's part of it. And there's inflation out there, as we've talked about, you know, crew costs. There is an acute mariner shortage we're seeing at both inland and offshore. So, you know, labor costs are going up a lot.

David W. Grzebinski: I mean, you saw in the quarter, comms term pricing was up. Our offshore coastal pricing was up in the high teens. Spot pricing was up in the mid-20s year over year. So it's good.

David W. Grzebinski: Part of that is we, as an industry, have to recover the cost of all the capital that went into ballast water treatment. So that's part of it. And there's inflation out there, as we've talked about, you know, crew costs. There is an acute mariner shortage. We're seeing it both inland and offshore.

David Grzebinski: But the bottom line is supply and demand is very tight, and we're getting real rate increases in coastal. And that looks like it'll go for another three to five years at least because nobody's contemplating building anything right now. And building a new box in the coastal space, Greg, it's going to take at least three years from where we are sitting right now.

David W. Grzebinski: So, you know, labor costs are going up a lot. The bottom line is supply and demand is very tight, and we're getting real rate increases in coastal, and that looks like it'll go on for another three to five years at least, because nobody's contemplating building anything right now and building a new box in the coastal space, Greg. It's going to take at least three years from where we are sitting right now.

Gregory Lewis: Yeah, no doubt it's good to see. You know, looks like Coastal definitely has a long runway.

Gregory Robert Lewis: Yeah, no doubt. It's good to see, you know, looks like Coastal definitely has a long runway. Um, you know, I had one more question about the inland side. Um, you know, clearly that market is kind of playing out the way the company really expected, maybe even a little bit ahead of that. Um, you know, just one of the questions we're hearing about now.

Speaker Change: It's good to see you know it looks like coastal definitely has a long runway.

Gregory Lewis: You know, I did have one more question around the inland side. You know, clearly that market, you know, is kind of playing out the way, you know, the company really expected, maybe even a little bit ahead of that. You know, I guess one of the questions we're hearing about now, you know, there's some talk now of expectations of the natural gas market, maybe tightening here in the medium term. As I think about the inland side, pricing has been great. Any way to kind of parcel out how much of that strength has been driven by refined products versus pet kems or is it kind of, yeah, I'm just kind of curious, we're seeing great pricing everywhere, but is it more, well, what's the real drive?

Speaker Change: I did have one more question around the inland side.

Speaker Change: Clearly that market is.

Speaker Change: Kind of playing out the way you know the company really expected, maybe even a little bit ahead of that.

Speaker Change: Just I guess one of the questions.

Speaker Change: We're hearing about now you know, there's some talk now of expectations of.

Gregory Robert Lewis: There's some talk now of expectations that the natural gas market may be, you know, tightening here, you know, in the medium term. As I think about the inland side, pricing has been great. Any way to kind of parcel out how much of that strength has been driven by refined products versus pet chems? Or is it kind of Thank you, operator.

Speaker Change: The natural gas market, maybe tightening here.

Speaker Change: Medium term.

Speaker Change: As I think about the inland side.

Speaker Change: Pricing has been great.

David Grzebinski: Yeah, Christian and I will tag team out here, you know, big picture, you know, they coming out of COVID is like that refined products, that's been strong. You know, the refineries are running pretty much flat out. They're cracked spreads have narrowed a little bit, but they, you know, it's been pretty good, and it's really about demand. And, you know, chemicals has been a little weak.

Christian O'Neill: Let me, let me turn it over to Christian. He's in the trenches every day with our product demand. Sure. Thanks.

Christian O'Neill: Good morning, Greg. You know, I think on the refined product side, you really see the strength of the US golf refining infrastructure. You know, we've got world-class refineries, and you see trade patterns evolve a little bit post post-COVID with the conflict in the Ukraine. Where are Gulf Coast refineries supplying more refined products to markets in Europe, South America, Latin America. And so they've had a nice, strong run here. Our chemical customers are very steady, with maybe some upside here going in the back half of the year. Super helpful. Thank you very much. Thanks, Greg. Take care.

Operator: Thank you for your question.

Benjamin Nolan: One moment for the next question. Our next question comes from the line of Ben Nolan. What type of line is yours?

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line.

Speaker Change: Ben Nolan with Stifel line is yours.

Benjamin Nolan: Thank you, operator. Appreciate it. I guess a quarter. So I've got two questions. The first one relates a little bit to the power side or power generation side. You talked to margins kind of now in the low double digits, but I remember last quarter, David, you said that you thought it was going to be hard to really push margins there. Is that change, or are the bottlenecks enabling you to get a little bit better pricing, or you've found ways to be more efficient, or what's the cause for the uplift and how you're thinking about margins?

Operator: Appreciate it. Hey guys, good quarter. So I've got two questions.

Ben Nolan: Thank you operator appreciate it.

Ben Nolan: Hey, guys good quarter.

Ben Nolan: So I had two questions. The first one it relates a little bit too.

Speaker Change: To the power side or.

Benjamin Joel Nolan: The first one relates a little bit to the power side or, power generation side, you talked about margins kind of now in the low double digits, but I remember last quarter, David, you said that you thought it was going to be hard to really push margins there. Is that changed, or are the bottlenecks enabling you to get a little bit better pricing, or you've found ways to be more efficient, or what's the cause for the uplift in how you're thinking about margins? Yeah, part of it's mixed.

Speaker Change: Power generation side.

Speaker Change: You talked to you talk to margins kind of now in the.

David: Low double digits, but I remember last quarter. David you said that you thought it was going to be hard to hard to really push margins. There is is that change or are the bottlenecks and enabling you to get a little bit better pricing or you found ways to be more efficient.

David Grzebinski: Yeah, part of its mix, it depends on what segment we're doing in terms of power gin. But look, you know, Christians got the team focused on kind of lean manufacturing. So we're getting a little run-through on that. But it'll vary depending on the end market a little bit. But the big picture is Power gin strong. You know, you saw our growth in power gin. Year over year, revenue was only 9%; that seems weak. But the oil and gas part of Power Gin was down a little bit this quarter, and it'll vacillate quarter to quarter. A lot of it's based on deliveries and when it comes out of our manufacturing facilities.

David W. Grzebinski: It depends on what segment we're doing in terms of power gen. But it looks, you know, Christian's got the team focused on kind of lean manufacturing. So we're getting a little, little run through on that, but it'll vary depending on the end market a little bit. But the big picture is PowerGen is strong. You saw our growth in PowerGen year-over-year revenue was only 9%.

David W. Grzebinski: That seems weak, but the oil and gas part of PowerGen was down a little bit this quarter. And it'll fluctuate from quarter to quarter. A lot of it's based on deliveries and when it comes out of our manufacturing facilities. But the bottom line is kind of like we said in our prepared remarks, the need for backup power and to have power in any business 24-7 is just necessary. Obviously, it becomes acute during hurricanes.

David Grzebinski: But the bottom line is kind of like we said in our prepared remarks, the need for backup power and to have power in any business 24/7 is just necessary. Yeah, obviously it becomes acute during hurricanes, and that's actually where we do pretty well is in the rental fleet of that cup power. That's some of the higher margin pieces. You know, when that's needed, you know, the margins are pretty good and rental. Hopefully that answers your question, man. Yeah, that's how full of appreciate it.

David W. Grzebinski: That's actually where we do pretty well in the rental fleet, backup power. That's some of the higher margin pieces. You know, when that's needed, the margins are pretty good in rental. Christian, I'll tag team this one because we've got lots of pieces to this story. Look, It's really tight.

David Grzebinski: And then I guess for my second one, you guys are just talking about labor availability among mariners, and boy, it must be nice to be in a business that has wage inflation. But is that is that creating is it simply inflationary, or are there are there bottleneck issues where, you know, maybe you're not able to deliver as much as you thought you could. And because you don't have the people to do it, or we're not sort of at that level. Yeah, Christian, I'll tag team this one because we've got lots of pieces that to this story.

Speaker Change: And then I guess for my second one.

Speaker Change: You guys were just talking about.

Speaker Change: Labor availability.

Speaker Change: Mariners and boy it must be nice to be in a business that has wage inflation, but.

Speaker Change: Is that is that creating is it simply inflationary or are there are there bottleneck issues, where maybe you are not able to deliver as much as you thought you could simply because you don't have the people to do it or we're not sort of at that level.

Speaker Change: Yes, Christian I will tag team this one because.

Speaker Change: We've got lots of PS.

Christian Raj: Pieces to this story.

David Grzebinski: Look, it's really tight. You know, we talked about barge supply and demand, but frankly, if we have more barges, it would be very difficult to move them because there's just not enough mariners. And the boat community and the horsepower situation is really tight. And we get Christian to talk talk about it. Yeah, I mean, we're doing fine. We have our own school, and we produce our own mariners, which is good, but it is tight across the entire ecosystem, whether it's coastal or inland, and I'll let Christian add some more there. But obviously, we've had to give some really nice increases.

David W. Grzebinski: You know, we've talked about barge supply and demand, but Frankly, even if we had more barges, it would be very difficult to move them because there's just not enough mariners. The boat community in the horsepower situation is really tight, and I'm going to get Christian to talk about it. Yeah, I mean, we're doing fine. We have our own school, and we produce our own mariners, which is good, but it is tight across the entire ecosystem, whether it's coastal or inland.

Speaker Change: Look.

Speaker Change: It's really tight.

Speaker Change: <unk> talked about barge.

Speaker Change: Supply and demand but.

Speaker Change: Frankly.

David W. Grzebinski: I'll let Christian add some more there, but obviously, we've had to give some really nice increases, and it's well-deserved by our mariners, no doubt, but it's just an acute, tight market. Go ahead and add some color, Christian.

Christian O'Neill: And it's well deserved by our mariners. No doubt, but it is. It is. It's just in the cute tight market. Go ahead and add some color, Christian. Thanks, David. Hey, good morning, Ben. There's significant pressure around crewing across the industry as a whole, inland and offshore. We're competing against some pretty good paying short side jobs that are a challenge to kind of recruit some people back to the marine industry. I think we've been successful with our training center. And that's kind of one of our leverage points versus, you know, versus the industry, but it is a challenge.

Christian O'Neill: Yeah, thanks, David. Hey, good morning, Ben. There's significant pressure around crewing across the industry as a whole, inland and offshore. We're competing against some pretty good-paying shoreside jobs that are a challenge to kind of recruit some people back into the marine industry. I think we've been successful with our training center, and that's kind of one of our leverage points versus the industry, but it is a challenge. Our merit cycle for the Mariners occurs in July.

Christian O'Neill: Our merit cycle for the Mariners occurs in July. We just went through that and gave some some healthy increases to our mariners. Happen to do that, but it's a challenge. It's just sort of the nature of attracting people to the marine life again. And we're having success, but no doubt it's a challenge for Kirby and the industry. But, but it's not yet at the point where you're like, man, we just we can't we can't do, you know, whatever XYZ business. It's not quite that level. No, it is not quite to that level, but it is a bit of a dance to every day keep everything fully crewed and moving, you know, challenges around, you know, holidays sometimes and different, you know, graduations. But we keep it going.

Christian O'Neill: We just went through that and gave some healthy increases to our Mariners, happy to do that, but it's a challenge. It's just sort of the nature of attracting people to the marine life again, and we're having success, but no doubt it's a challenge for Kirby and the industry. No, it is not quite to that level, but it is a bit of a dance every day to keep everything fully crude and moving.

Christian O'Neill: You know, challenges around, you know, holidays sometimes and different, you know, graduations, but we keep it going. We've got people that will trip over, they can earn a premium to trip, and there's some levers we pull like that to keep everything moving. We have not seen, you know, an instance where we've had to shut down any, you know, major operations.

David Grzebinski: We got people a little trip over. They can earn a premium trip, and there's some levers. We pull like that to keep everything moving. We have not seen, you know, an instance where we've had to, you know, shut down any, you know, major operation. You know, the industry is taking care of the customer base, but, you know, we're. We're having to ask a lot of people to ride longer watches and earn longer tours of duties, so to speak. Right. All right.

Christian O'Neill: You know, we're having to ask a lot of people to ride longer watches and longer tours of duty, so to speak. Our next question comes from the line of Daniel Imbrough with Stevens. The line is yours. Good morning, Joe.

Benjamin Nolan: Well, that does it for my two. I appreciate it. Thanks, Scott. Thanks, Ben.

Operator: Thank you for your question. One moment, please.

Daniel Brown: Our next question comes from the line of Daniel. I'm Brown with Stevens. The line is yours. Yeah. Thanks, guys.

Joe Enderland: This is Joe Enderland on for Daniel. Thanks for taking the questions.

Joe Enderland: Morning, Joe. Morning.

Speaker Change: <unk>.

Speaker Change: Good morning, gentlemen.

David Grzebinski: Just given the move higher and spot pricing on the inland side, do you have any changes and expectations on the shipbuilding side for the industry? And then if spot prices continue to increase on the inland side, does this maybe change your thinking around the math for new builds? And how do you think this will change how competitors are thinking about shipbuilding or adding capacity? Yeah, the cost of new builds is still very high. You know, I think a new build 30 is twice what it was five. A new build 30,000 barge is probably twice what it was five years ago.

Speaker Change: Just given the move higher in spot pricing on the inland side do you have any changes in expectations on the shipbuilding side for the industry and then if spot prices continue to increase on the inland side does this maybe change your thinking around the math for new builds and how do you think this will change how competitors are thinking about shipbuilding or adding capacity.

Speaker Change: Yes sure.

Daniel Imbrough: Yeah, the cost of new builds is still very high. You know, I think a new build 30 is twice what it was five years ago. A new 30,000-barrel barge is probably twice what it was five years ago, so the cost is up a lot, and the price needed to justify a new build is still 40% above where we are now. So that said, there's not a lot of new building. I think for the year, we're hearing around 40-ish.

Speaker Change: Yeah.

Speaker Change: The cost of new builds is still very high.

Speaker Change: I think the Newbuild.

Speaker Change: <unk> is twice what it was five.

Speaker Change: Our Newbuild 30000 barrel barges, probably twice what it was five years ago.

David Grzebinski: So the cost is up a lot in the pricing needed to justify, you know, a new build is still, you know, 40% above where we are now. So that said that, you know, there's not a lot of new building I think for the year. We're hearing around 40-ish new barges; I think 11 have been delivered year to date. Yeah, that's the Christian could talk about shipyard capacity, but you know, it gets around to, you know, rates don't justify new builds. People are still dealing with a big maintenance bubble, which we are. So that's chewing up a lot of companies' free cash flow just to go through the maintenance bubble.

Speaker Change: So the cost is up a lot in the pricing needed to to justify.

Speaker Change: New build is still 40%.

Speaker Change: Where we are now.

Speaker Change: So that said.

David Grzebinski: And then, as we've been talking about, the Mariners side of things is pretty tight.

Christian O'Neill: So you put all that together, and nobody's really anxious to go build. Christian, you want to add some color to that. Yeah, thanks, David. Hey, Joe. Yes, so plate steel remains stubbornly high. The cost of plate steel that certainly has created an environment where we're seeing tank barge construction being at all-time highs. David outlined the numbers. You know, I think you're also seeing capacity constrained a lot of the shipyards reduce their workforces during COVID. And, you know, by my unofficial count, I think if you looked at the inland tank barge construction shipyard market and said, hey, what's the capacity today.

David W. Grzebinski: You know, by my unofficial count, I think if you looked at the inland tank barge construction and shipyard market and said, hey, what's the capacity today? I would tell you it's probably down to about a bill of about 50 barges a year if it was running full flat out, and I don't think you can get a new tank barge delivered right now until 2026. So that kind of gives you some context around the new bills and what we're seeing. That's helpful.

Christian O'Neill: I would tell you it's probably down to about a build about 50 barges a year if it was running full flat out.

Christian O'Neill: And I don't think you can get a new tank barge delivered right now until 2026. So that that kind gives you some context around new builds and what we're seeing.

Joe Enderland: That's helpful. Thanks, guys.

David W. Grzebinski: Thanks, guys. Just as a follow-up, within marine transportation, I guess, what are the biggest factors as far as weather and maybe navigational delays that can maybe throw you off course for your revenue guidance? And then what steps operationally can you take to mitigate against any of those factors?

David Grzebinski: Just as a follow-up within marine transportation, I guess what are the biggest factors as far as whether maybe navigational delays that can maybe throw you off course for your revenue guidance and then what steps operationally can you take to execute against any of those factors. So whether a nav delays are the two things we could tend with it tends to be a mix is to which can be more impactful in any given quarter. I'll give you an example: you know, we're coming out acute to a quarter where we had some lockouts just due to maintenance that were pretty significant.

Speaker Change: Within Marine transportation. So I guess, what are the biggest factors as far as whether maybe navigational delays that could maybe throw you off course for your revenue guidance and then what steps operationally can you take to execute against any of those factors.

David W. Grzebinski: So weather and NAB delays are the two things we contend with. It tends to be a mix as to which can be more impactful in any given quarter. I'll give you an example.

Speaker Change: So whether at Nab delays are the two things we contend with.

Speaker Change: It tends to be a mix as to which can be more impactful in any given quarter. I'll give you. An example will come out of Q2, a quarter, where we had some lock outages due to maintenance that were pretty significant and then really something as basic as flooding in the Houston, Texas area.

David W. Grzebinski: You know, we're coming out of Q2, a quarter where we had some lockouts just due to maintenance that was pretty significant. And then really something as basic as flooding in the Houston and Texas area caused a two and a half day closure of the Houston Ship Channel. You know, that's something we haven't really seen. And that, you know, as the water goes down the watershed in Texas, we get the Brazos River floodgates experience, you know, record delays, again, something I haven't seen in 25 years. You know, there were 80, 90 barges toes in the queue trying to get through the Brazos River floodgates.

David Grzebinski: And then really something is basic is flooding in the Houston and Texas area, you know, caused a two-and-a-half-day closure of the Houston Ship Channel. That's something we haven't really seen. And that you know, as the water goes down the watershed in Texas, we get the broadest river floodgates experience. You know record delays again, something I haven't seen in 25 years. You know, there are 80 90 bar toes in the queue trying to get through the broadest river floodgates. So whether is a significant factor; obviously, we're getting into that part of the year where you have hurricanes to worry about.

Speaker Change: Cause a two five day closure of the Houston ship channel that.

Speaker Change: That's something we haven't really seen that as the water goes down the watershed in Texas. The Brazos River Floodgates experienced record delays again, something I haven't seen in 25 years 80, 90 tows in the queue trying to get through the Brazos River flood gates so weather.

David W. Grzebinski: So weather is a significant factor. Obviously, we're getting into that part of the year where you have hurricanes to worry about, and with a La Nina effect, we'll see what it looks like, but we've already had three named storms. So weather plays a big role.

David Grzebinski: And with a lot of non-linear effect, we'll see what it looks like, but we've already had three named storms. So weather plays a big role, and then it's really the lock delays, lock outages, bridge repairs can impact navigation, and then obviously the high water, low water issues on the Mississippi River. Which we've been pretty fortunate this year; there's been, you know, a short period of high water where we went into our high water action phase on lower Mississippi River. But for the most part, the rivers behave themselves well this year, but you do see the maintenance and the locks and the bridges and, you know, other weather.

David W. Grzebinski: And then it's really the lock delays, lock outages, bridge repairs that can impact navigation. And then obviously the high water, low water issues on the Mississippi River, which we've been pretty fortunate with this year. There was, you know, a short period of high water where we went into our high water action phase on the lower Mississippi River.

David W. Grzebinski: But for the most part, the river's behaved well this year, but you do see the maintenance and the locks and the bridges and, you know, other weather events that help give you some context. Got it. That's all for us. Thank you, guys. Thanks, Joe. Thank you for your questions.

David Grzebinski: and so that helps give you some context.

Joe Enderland: That's all for us. Thank you, guys. Thank you.

Operator: Thank you for your question. One moment, please.

Gregory Wasikowski: Our next question comes from the line of Greg Wasikowski from Webber Research and Advisory. The line is yours. Hey, good morning. Good morning. Thanks for taking the question. First one is just around higher costs than your customers. Just curious, do you think there's more of an understanding across the industry now versus this time last year or maybe even two years ago, and overall there's just a little bit less pushback nowadays around higher prices and things like cost escalators in your contract. Yeah, look, we have a very sophisticated customer base. They're well aware of the global leverage around cost.

David W. Grzebinski: Morning, thanks for taking the questions. The first one is just around higher costs and your customers. Just curious, do you think there's more of an understanding across the industry now versus this time last year, or maybe even two years ago, and overall, there's just a little bit less pushback nowadays around higher prices and things like cost escalators in your contract? Yeah, look, we have a very sophisticated customer base. They're well aware of all the levers around cost. Now, these are some of the biggest, most sophisticated companies in the world.

David Grzebinski: These are some of the biggest, most sophisticated companies in the world. They do understand the labor inflation piece, for sure. Obviously, they're aware of steel prices being up. I think they deal with some of the same price inflation that we do. That's a good thing. They understand it. They understand the capital costs have gone up. Things like balance water treatment, which are regulatory driven. They fully understand that. They're like any other company when business is good. They're a little less sensitive about price. When business is bad, they give a high percentage of about it. Fortunately, their businesses have been pretty good.

David W. Grzebinski: They do understand the labor inflation piece for sure. Obviously, they're aware of steel prices being up. I think they deal with some of the same price inflation that we do. That's a good thing. They understand that capital costs have gone up. Things like ballast water treatment, which are regulatory driven, they get it.

Speaker Change: They do understand the labor inflation piece for sure.

Speaker Change: Obviously, they are aware of steel prices being up.

Speaker Change: I think they deal with some of the same same price inflation that we do.

Speaker Change: That's a good thing they understand it they understand the capital cost have gone up things like ballast water treatment, which are regulatory driven.

Speaker Change: Fully understand that so.

Speaker Change: There are like any other company when business is good there are a little less sensitive about price when business is bad they give a hypersensitive about it.

Speaker Change: Fortunately.

Speaker Change: Their businesses have been pretty good.

Gregory Wasikowski: What we care about, though, is their volumes. They can have bad pricing that still have the same volume or good pricing. Obviously, we're all in favor of them doing really well. It's good to have healthy, viable, strong earnings in our customer base. But the short answer to your question, Greg, is they do understand the cost structure, and they acknowledge it. Got it. Okay. Understood.

Speaker Change: What we care about though as their volumes.

Speaker Change: They can have bad pricing, but still have the same amount of volume or good pricing now obviously, we were all in favor of them doing really well.

Speaker Change: Good to have healthy viable strong earner.

Speaker Change: Earnings.

Speaker Change: Our customer base, but.

David W. Grzebinski: Okay, understood. And then I want to go back to new builds and rates on the inland. David, we've talked about this before.

David Grzebinski: And then I want to go back to new builds and rates in England. And David, we've talked about this before. If we can just try to boil it down to talking about like a headline rate for 30,000 barrels to unit toe spot rates. And what that number needs to be to make the return, you know, make economic sense for people to start building again, less on spec and more for making the absolute economic sense. And I feel like, you know, it used to be we were talking about is probably like 10 or 11, 10 or 11, excuse me.

David W. Grzebinski: If we can just try to boil it down to talking about like a headline rate for 30,000 barrels, two unit tow spot rates, and what that number needs to be to make the return, you know, make economic sense for people to start building again, less on spec and more for making absolute economic sense to build new construction. Now, the larger point is when will people start building? Some we worry about. Some people try and do things on spec.

David Grzebinski: And then that number is inching up to maybe 12. I think I've heard as high as 14 nowadays. If you could, if you could estimate where it boils down to just a number to watch that headline rate of where, you know, not that there'd be any cause for worry given industry capacity, but where you might might see some orders start to trickle in. And just purely based off of the economics, where would you put that now? And then do you think there's a risk that that continues to slide higher as costs continue to rise with rate.

David Grzebinski: Yeah, well, you're spot on. You know, that break even rate, it's not even break even; we call it to get a double digit return on capital, like a 10% return on capital. Yeah, it's just, it's gone up, it keeps sliding up, it's probably close to $14,000 a day. If you look at the capital cost of a two-barge tow, it's probably $15 million, depending on the horsepower tow boat that you build for it. So, that cost continues to rise, but you know, the operating costs have gone up. We've talked about labor costs, but just regulatory compliance costs keep going up as well.

David Grzebinski: All the little things that you expect do have an impact, you know. If you think about our mariners, and we're moving around, call it 2,500 mariners every day, you know, that's a lot of airline flights, it's a lot of rental cars. There's a lot of costs just in that, and sure inflation's coming down, but it's, they're still, those costs continue to go up. So, when you factor it all in, it's been creeping up that break-even cost to build new construction. Now, you know, the larger point is when do people start building? You know, that's, you know, that's always, some we worry about; some people try and, you know, do things on spec and build in advance of what they think is necessary. But I'd go back to some earlier comments of both Christian and I made that one of the shipyards are tight; there's not a lot of capacity out there to build new.

David Grzebinski: There's a maintenance bubble, so that's chewing up a lot of people's cash flow in the industry, including ours. I mean, we've got a big third quarter maintenance bubble here that's going to hit us, and everybody in the industry is experiencing that. So, then you roll in just the cost of borrowing money has changed considerably. Now, we'll see if the Fed reduces rates later this year, but you put it all together and it just is keeping building and check, and we're still just, you know, for capital discipline where it weighs away from that new build price.

David W. Grzebinski: You know, for capital discipline, we're a ways away from that. Yeah, I think David described that very well, and I would tell you what you are seeing being built is replacement capacity, for the most part. There's very little speculative building.

David Grzebinski: Yeah, I think David could describe that very well, and I would tell you what you are seeing being built is replacement capacity for the most part. There's very little speculative building. There's capital discipline, I think, in the industry, you know, coming out of COVID and the price money, and you're seeing some of that, and, you know, there's just not much construction going on right now. Got it. Okay. I appreciate the color, guys, and David appreciate you swinging in an actual number there. It's really helpful. Thanks. Thanks, Greg. Thank you for your question.

David W. Grzebinski: There's capital discipline, I think, in the industry, coming out of COVID and the price of money, and you're seeing some of that. And there's just not much construction going on right now. Got it. Okay. Appreciate the color, guys.

David W. Grzebinski: And David, I appreciate you swinging in an actual number there. It's really helpful. Thank you for your questions. One moment, please.

Speaker Change: Okay I appreciate the color guys and David appreciate you swinging into an actual number there thats really helpful.

Greg: Alright, Thanks, Greg.

Kenneth Hoexter: One moment, please. Our next question comes from a line of Ken Hoester of B of A. The line is yours. Hey, Greg, good morning. Just to follow up on that, I know you gave the break even number, but we're a race trending now, and then fun miles were down about 5%. It seemed a little extreme. Is that Christian?

Speaker Change: Thank you for your question one moment please.

Operator: Our next question comes from the line of Ken Hoexter of B of A. The line is yours, whether he can make his point by the end of the season. Let me just wrap that up. Given the hurricane at the start of the quarter, should we expect it to kind of flow through into 3Q?

Speaker Change: Our next question comes from the line of Ken <unk> of Bofa. The line is yours.

Ken: Hey, great good morning.

Speaker Change: Just to follow up on that I know you gave the breakeven number but with where our rates trending now and then ton miles were down about 5%.

Christian Raj: It seemed a little extreme is that Christian is that because of the the lab shutdowns that youre talking about or is there something shifting within the business. Thanks.

Christian O'Neill: Is that because of the lock shutdowns that you're talking about, or is there something shifting within the business? Thanks. Exactly. I think what you saw in the sun miles in the quarter is we were impacted heavily by some repairs and some locks. and some of the weather events on Reference. It was definitely the late days were lock and weather, whether they can make explain by those two factors. I can't give in the hurricane at the start of the seat. Just let me just wrap that up. Given the hurricane at the start of the quarter, should we expect kind of flow through into RQ.

Speaker Change: Exactly I think what you saw on Sun miles in the quarter as we were impacted heavily by some some some repairs and some locks and some of the weather events I referenced there was definitely delay days were lock and whether.

Ken: Whether it can make explained by those two factors Ken given the hurricane at the start of this.

Speaker Change: Let me just wrap that up given the hurricane at the start of the quarter should we expect kind of flow through into Q.

Christian O'Neill: Yeah, I mean, that was a Q3 event for us in barrel. So there, you know, there'll be some impact, you know, from barrel. We weathered it pretty well as a whole both in both companies, but it did have, you know, did have an impact and closed Houston down for a few days in the month of July.

Ken: Hugh.

Speaker Change: Yes, I mean that was a Q3 event for us and barrel.

Speaker Change: So there'll be some some impact from barrel.

Kenneth Scott Hoexter: And Ken, I'd just add, you know, ton miles are also about the length of some trips, too. You know, we used to do a lot of moving crude and condensate out of the upper Midwest, and those are long voyages. So, you know, looking at ton miles, you got to be a little careful because it ebbs and flows. I think revenue per ton mile is also a thing you have to factor in as you look at things.

David Grzebinski: Yeah, can I just add, you know, ton miles are also about the length of some trips to, you know, we used to do a lot of like moving crude and condensate out of the Upper Midwest and those are long voyages. So, you know, looking at ton miles, you've got to be a little careful because it ebbs and flows. I think we're going to be able to get revenue per ton mile is also a thing you got to factor in as you look at things. So that's good.

Kenneth Scott Hoexter: So that's good. And in terms of your question about, You know, where are the current rates? Our general counsel would probably shoot me if I gave you a current rate on a call, so you can do some channel checks and get it. Sorry, I wish we could be more specific, but probably not advised. When we talk about the magnitude of increase sequentially, can I presume that they continue to decline sequentially? Oh, I heard decline.

Kenneth Hoexter: And in terms of your question about, you know, where are current rates that our general counsel would probably shoot me if I gave you a current rate on a call. So it's, you can do some channel checks and get it. I, sorry, I wish we could be more specific, but we probably not advising. All right, understood on that. I guess, well, let's go. Can you, can you, I guess, can we talk about magnitude of increased sequentially? Can I presume that they continued to decline sequentially? To decline sequentially. Ton miles. Oh, great, great, great. Oh, they will; they will not decline sequentially.

David Grzebinski: Yeah, they'll go up increase. Yeah, yeah. I said, can we presume they've increased sequentially? Oh, I heard declines. No, they'll increase sequentially.

David W. Grzebinski: Okay, good. No, they'll increase sequentially. You know, I'll talk, and it really gets back to margins, you know, I'll talk about the big picture, and then Christian will give you some more quarterly type color. You know, big picture, because of the seasonality we get, you know, this can, you know, the winter quarters are lower margin than the summer quarters, and, you know, so that's why early last year, or early this year, we gave guidance that I think we're on track to be 400 or better.

Speaker Change: I heard decline okay.

Speaker Change: Will increase sequentially.

David Grzebinski: You know, we're, I'll talk and it really gets back to margins. You know, I talk big picture and let Christian give you some more questions. You know, I think we're going to have a lot of questions. I think we're going to have a lot of questions. Great, great.

Speaker Change: Well I'll talk in a really gets back to margins I'll talk Big picture and then let Chris can give you some more quarterly type color.

Speaker Change: Big picture because of the seasonality we get this Ken the winter quarters are lower margin than the summer quarters.

Speaker Change: So that's why early last year early this year, we gave guidance that said look at full year margin 2023 to 2024, and we said margins would be up around 300 basis points I think we're on track to be 400 or better.

Speaker Change: I think big picture, we will see something similar.

Speaker Change: Barring a.

Speaker Change: A recession or something.

Speaker Change: Foreseen.

Speaker Change: We will see that level of.

Speaker Change: Increase in margins next year.

Speaker Change: And that comes from.

Speaker Change: Basically rate increases.

Speaker Change: <unk> real and nominal.

Speaker Change: I'll, let Christian talk about the quarterly progression a bit.

David W. Grzebinski: You know, I think, in the big picture, we'll see something similar. Yeah, we're still seeing strong pricing momentum. We'll have an opportunity to continue to reset the portfolio. You know, as the year goes on, Q4 is one of our larger opportunities to reset the portfolio, but you're still seeing spot rates outpace term by 10 to 15%. So we still have room to go. And things feel pretty good, Ken.

Christian Raj: Yes, we are still seeing strong pricing momentum.

Christian Raj: We will have an opportunity to continue to reset the portfolio.

Christian Raj: As the year the year goes on Q4 as well.

David W. Grzebinski: Great, great. And just a follow-up on the DNS segment, and I know Greg was asking about it before, but I might have missed some of that. Your power generation fell from 41% of revenues to 32%.

Daniel Brown: And I just follow up on the DNS segment. And I know I think Greg was asking about it before, but I might have missed some of that. Your power generation fell from 41% of revenues to 32%.

David W. Grzebinski: Is that a seasonal impact? I mean, I see margins went up, you know, from maybe about 7% to 11%. So again, a margin, maybe you could just talk through that a little bit more. Yeah, it's just, it's really nothing more than timing of shipments. It's helpful just because it's newly broken up. Appreciate the time, guys. Thanks for the thoughts. Thank you for the question. Again, as a reminder, to ask a question, you will need to press star one one on your telephone.

Raj Kumar: Is that a seasonal impact? I mean, I see margins went up, you know, from maybe about 7% to 11%. So again, margin, maybe you could just talk through that a little bit more. Yeah, it's just, it's really nothing more than timing of shipment. When certain power generation packaging gets shipped, it's nothing more than that. Again, it's almost like what we talked about with margins; you kind of got to look at year over year for the full year. The good news is where the demand is growing, not even shrinking right now. And you'll see that revenue number move around based on shipments, particularly out of our larger manufacturing facilities.

Raj Kumar: Chappell, just because it's newly broken out.

Daniel Brown: Appreciate the time, guys. Thanks for the thoughts. Thanks again.

Scott Group: Thank you for the question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone. I'll go ahead and promote the next question. Our next question comes from the line of Scott Group with Wolf Research. The line is yours. Hey, thanks. Morning, guys. So I just want to make sure I'm here and right. Inland margin should improve sequentially Q2 to Q3. And then, with the pricing opportunity, some of the Q4s are heavier pricing opportunities. Should we expect another sort of uptake in margin in Q4? And then did I hear a right that you're saying that inland could improve maybe another 400 base points next year?

Operator: I'll go ahead and promote the next question. Our next question comes from the line, of Scott Group with Wolf Research. The line is yours.

Scott Group: With the pricing opportunity, sounds like Q4 is a heavier pricing opportunity. Should we expect another sort of uptick in margin in Q4? And then did I hear right that you're saying that Inland could improve maybe another 400 base points next year? I appreciate you. Nah, I think you covered that well.

Raj Kumar: That would be the higher.

David Grzebinski: Good morning, Scott. That would be the higher of end of what we would expect next year. It's kind of the 300. Maybe maybe we get to 400. But in terms of sequential, yeah, I think third quarter will be up versus second quarter. Fourth quarter starts to get dicey, and we don't like to, I guess, guide to a higher margin of fourth quarter. It's just that's one weather start, Scott. And we, you know, we can get fog. Fog is actually, believe it or not, worse than a hurricane, not in terms of personal impact, but in terms of being able to move our equipment around.

David Grzebinski: You know, we just basically stop moving and fog. And it can, we can have weeks of fog that just shut down our moves in the fourth quarter. So we're very cautious about fourth quarter margins. They usually dip down a little bit versus third quarter. I don't appreciate anything. You know, I think you cover that well.

Raj Kumar: And then maybe can we do the same discussion around coastal, right? Obviously, there's some really good pricing there. Times like we're going to get like 1000 base points of margin improvement this year. Where does a low double-digit margin go to assuming that there's continued pricing momentum there? Yeah, we haven't put pencil to paper. But, you know, it won't be, well, we were in 23 to your point. We were bouncing around break even. We had a lot of shipyards in 2023. A lot of a lot of it was driven by ballast border treatment. And we've come out of that.

David W. Grzebinski: You know, it won't be, well, we were in 23, to your point, we were bouncing around break even. We had a lot of shipyards in 2023, a lot of it was driven by ballast water treatment. We've come out of that. We got through that in, through, through the first quarter. I think we finished our last ballast water treatment in the second quarter.

Raj Kumar: We got through that in in. through the first quarter. I think we finished our last ballast water treatment in the second quarter. And, you know, so we've had a lot more uptime; the margins have popped. You will see the margin in the fourth quarter. Probably get cut in half just because we've, as Christian alluded to, we've got six or seven big shipyards on some of the bigger units. But big picture year over year and going into 25, we're not really giving guidance to 25 yet. But you should see, you know, a nice pickup. You know, it won't be a thousand basis points, but it could be three to 500 basis points next year.

Christian Raj: At our last ballast water treatment in the second quarter.

David W. Grzebinski: And, you know, we've had a lot more uptime, and the margins have popped. You will see the margin in the fourth quarter probably get cut in half, just because we've, as Christian alluded to, we've got six or seven big shipyards on some of the bigger units. But big picture, year over year, and going into 25, we're not really giving guidance for 25 yet, but you should see a nice pickup. It won't be 1,000 basis points, but it could be 300 to 500 basis points next year.

Christian Raj: And so we've had a lot more uptime in the margins.

Christian Raj: <unk>.

Speaker Change: You will see the margin in the fourth quarter, probably get cut in half just because we've as kristian alluded to we've got six or seven big shipyards on some of the bigger units.

Christian Raj: But big picture year over year and going into 'twenty, five we're not really giving guidance to 25, yet, but you should see.

Christian Raj: A nice pick up it.

Christian Raj: It won't be.

Christian Raj: Basis points, but it could be three to 500 basis points next year, we havent put pencil to paper, but.

David W. Grzebinski: We haven't put pencil to paper, but given the price rises we're getting, and we need, you should see a very nice uptick in margins in Gulf Stream. Alright, yeah. We're feeling really good about Coastal. You know, the rate environment, operating, executing at a very high level, our uptime is about as good as it's ever been, and the fleet's in great shape, and it's in high demand. You know, I think in the context of the last three years.

Raj Kumar: We haven't put pencil to paper, but given the price rises, we're getting. And we need; you should see in a very nice uptick and margins and coastal mixture. Yeah, we're feeling really good about Coastal. You know, the rate environment, operating, executing at a very high level are uptime. You know, it's about as good as it's ever been and facing great shape, and it's in high demand with our customers.

Christian Raj: Given the price rises we're getting and we need.

Christian Raj: You should see in a very nice uptick in margins in coastal next year.

Christian Raj: Yes, we're feeling really good about coastal.

Christian Raj: The rate environment.

Christian Raj: Operating and executing at a very high level.

Christian Raj: Our uptime is about as good as it's ever been in the fleet's in great shape, it's in high demand.

Christian Raj: With our customers.

Scott Group: And then just last thing, just quickly, like I totally hear you: like all the questions about build activity. Do you have visibility are the, are the orders starting to pick up though, either in winter, coastal, like just to start the clock, but I don't know that I've got visibility about any color you guys have. You know, I think in the context of, you know, the last three years, you're talking about 20 some odd barges built in 2022, 20 some odd barges built in 2023. And so, you know, at 40 this year in 2024, you know, year over year is an increase, but I will tell you those three years represent the lowest construction in decades in this business.

Speaker Change: Okay, and then just last thing just quickly I totally hear you like all the questions about build activity.

Speaker Change: Do you have visibility are the are the orders starting to pick up though either inland or coastal like just to start the clock, but.

Speaker Change: I don't know that Ive got visibility, but any color you guys have.

Speaker Change: I think in the context of.

Speaker Change: The last three years.

Speaker Change: Youre talking about 20, some odd barges built in 2000 to 2020 to 20, some odd barges built in 2023 and so at 40 this year in 2024.

Christian Raj: Year over year is an increase but I will tell you those three years represent the <unk>.

Christian Raj: Lois construction in decades in this business so even at 40 barges or even 50 barges year youre still not going to outpace the retirements you still have.

David Grzebinski: So even at 40 barges or even 50 barges a year, you're still not going to outpace the retirements. You still have, you know, 500 some odd barges that are, you know, 30 to 40 years old and are candidates for retirement. So I think what you see is, you know, some of the, some of the construction now is being done out of necessity to replace, replace bars that are retiring. And so I think contextually, you know, these three years back to back to back, you know, represent, you know, by every measure, the least amount of inland tank barge construction we've seen in decades.

David W. Grzebinski: So even at 40 barges or even 50 barges a year, you're still not gonna outpace the retirements. You still have 500 odd barges that are 30 to 40 years old and are candidates for retirement. So I think what you see is some of the construction now is being done out of necessity to replace barges that are retiring. And so, contextually, these three years back to back to back represent, by every measure, the least amount of inland tank barge construction we've seen in decades.

Christian Raj: 500, some odd barges that are <unk>.

Christian Raj: 30 to 40 years old and are candidates for retirement, so I think what you see is.

David Grzebinski: Yeah, I would say offshore is even more acute, right? As Christians that early, if you are Raj said that, you know, if you wanted to build an offshore unit right now, an offshore ATB, you wouldn't see it until the end of 27. But nobody's, nobody's even contemplating building right now. So go ahead, I cut you off, Scott. I totally get it. I just, I'm wondering like, do you see orders so like picking up so like the 40 this year could become, could that be 100 or whatever or more next year? I don't know if you can see orders.

David W. Grzebinski: Yeah, I would just say I'm not. Go ahead; I cut you off, Scott. I totally get it. I'm wondering, like, do you see orders picking up so, like, the 40 this year could become, could that be 100 or whatever or more next year? I don't know if you're, if you can see orders. Yeah, we, I mean, we don't have, you know, Helpful.

Christian O'Neill: Yeah, I mean, we don't have, you know, clear visibility into every, you know, exact order book, but it's actually the capacity of the yards themselves, the space that they're available to sell and market. That is constrained by the reduction in some of the shipyards that historically weren't existence pre-COVID, compounded with the labor issues that the shipyards are facing themselves. And so, you know, as of today. You know, we may not have exact visibility in the order book, but I can tell you with some level of confidence that the actual ability to build barges is diminished.

Christian Raj: The shipyards that historically werent existence pre COVID-19 compounded with the labor issues that the shipyards are facing themselves so as of today.

Speaker Change: We don't we may not have exact visibility into the order book, but I can tell you with some some level of confidence that the actual ability to build barges is diminished.

Scott Group: Helpful, thank you guys.

Scott Group: Thank you, guys. Shatner. Thank you, Gerald, and thank you everyone for joining our call today. If there's any follow-ups, please feel free to reach out. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Helpful. Thank you guys.

Scott Group: Thanks, Scott.

Scott: Thanks, Scott Thanks, Scott.

Operator: Thank you for your question.

Kurt Niemietz: This concludes the question-and-answer session.

Speaker Change: Thank you for your question. This concludes the question and answer session I would now like to turn it back to Mr. Currently units for closing remarks.

Kurt Niemietz: I would now like to turn it back to Mr. Current Niemietz for closing remarks. Thank you, Gerald. And thank you, everyone, for joining our call today. If there's any follow-ups, please feel free to reach out to me. Thank you for your participation in today's conference.

Speaker Change: Thank you Gerald and thank you everyone for joining our call today. There is any follow ups. Please feel free to reach out to me.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Operator: This does conclude the program. You may now disconnect. Thank you.

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