Q3 2024 World Kinect Corp Earnings Call
I'm going to the next one.
Oh, what?
The End
The End
Speaker Change: Thank you for standing by and welcome to World Connect Corporations 3rd Quarter, 2024, earnings conference call. At this time, all participants are in a listen-only mode.
With me on the call today is Michael <unk>, Chief Chairman, and Chief Executive Officer, and IRA Birns Executive Vice President and Chief Financial Officer.
Speaker Change: I'd like to take a moment to announce that also Ballard will be leaving world connect after this earnings call, we would like to recognize and thank Elsa further fantastic job that she has done with our investor relations efforts by improving communication channels, driving greater transparency and improving the quality of our materials.
Speaker Change: As he moves on to new opportunities, we want to wish her the best in her future endeavors. Thank you Elsa and now I'd like to review our Safe Harbor statement.
Speaker Change: Certain statements made today, including comments about our expectations regarding future plans and performance are forward looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ.
Speaker Change: Factors that could cause results to materially differ can be found in our most recent Form 10-K, and other reports filed with the Securities and Exchange Commission.
Speaker Change: We assume no obligation to revise or publicly release the results of any revisions to these forward looking statements in light of new information or future events.
Speaker Change: This presentation also includes certain non-GAAP financial measures a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a question and.
Speaker Change: Answer period at this time I would like to introduce our chairman and Chief Executive Officer, Michael Caspar.
Michael Caspar: Thank you Bradley and thank you also for all the great work that you did for US we really appreciate it and best wishes on all your future endeavors. Good evening, everyone last quarter, we spoke about challenging market conditions in our land business.
Michael Caspar: Even though some of these headwinds persisted in the third quarter.
Michael Caspar: <unk> segment rebounded from the second quarter as expected.
Michael Caspar: Our overall business also performed in line with the guidance provided last quarter, highlighting our progress towards more predictable financial results consistent with my messaging in prior quarters. Our management team remains focused on implementing a more leverage of our business model across all of our company's operations.
Michael Caspar: Our capital allocation strategy remains consistent prioritizing opportunities that drive more predictable returns within an acceptable risk profile, all while leveraging our last half mile value added energy distribution solution platform, that's a mouthful, but that's what we do.
Michael Caspar: This disciplined approach to return risk and cost management is the key to achieving the operating efficiency targets. We shared with you at our Investor day earlier this year.
Michael Caspar: Our commercial business and general Aviation platform continues to be a great example of this strategy and we marked another quarter of excellent momentum. This scalable platform of diversified yet highly complementary offerings combined with robust summer demand in both the passenger and air cargo sectors.
Michael Caspar: Propelled aviation to double digit growth in operating margin.
Michael Caspar: Operating margin aviation also benefited from the strategic sale of Avenova last quarter as growth in core revenue contribution more than offset the income from avid node, but with a lower expense profile.
Michael Caspar: As we noted last quarter, we reallocated some of the proceeds from the Avenue sale to the acquisition of a tuck in bulk aviation fuel distribution business, which was completed at the beginning of the fourth quarter and is expected to be fully integrated into our aviation platform by year end, expanding our distribution network and.
Michael Caspar: Customer base, while relatively small this strategically complimentary acquisition is a great example of the core investments, we will prioritize to drive operating leverage growth and returns.
Michael Caspar: Our global aviation business is well positioned to capitalize on the long term growth trajectory and aviation.
Michael Caspar: Although more cyclical that aviation and marine business also operates on an efficient and highly scalable platform delivering outsized financial results from small improvements in market conditions, while still creating value and contributing cash flow even in a less favorable economic environments. So in the third quarter.
Michael Caspar: While marine generated an 8% year over year increase in gross profit with an operating margin improved by 450 basis basis points, demonstrating the power of the platform to create operating leverage.
Michael Caspar: Marine continues to represent a valuable diversification component of our portfolio of business with minimal working capital requirements and significant potential upside under the right conditions.
Michael Caspar: Yeah.
Michael Caspar: As I stated in my opening remarks land rebounded significantly in the second quarter of this year as market conditions improved in our north American fuel business as well as natural gas where prices and volatility edged upward from the uncharacteristically low levels experienced in the second quarter I will share more details in his <unk>.
Michael Caspar: Comments.
Michael Caspar: As discussed in New York in March growing and scaling the more predictable offerings in our land business is our largest opportunity for value creation in our north American liquid fuel business. We now have a clear path to improving operating efficiency and margins by consolidating and standardizing on a single tech.
Michael Caspar: Biology, and operating platform much as we have done in our aviation and marine segments.
Michael Caspar: And we will be completing this migration over the course of 2025.
Michael Caspar: Not only should this initiative to increase the profitability of our existing North American fuels business, but it will establish a vehicle for effective integration and synergy capture.
Michael Caspar: Rapid and efficient acquisition integration has been an effective growth strategy for aviation and marine segments that will finally be replicated in our land business.
Michael Caspar: Doing so and what is still a relatively fragmented land space a market is significantly larger than the combined marine and aviation markets is a key driver as we discussed at our Investor day to accelerate attainment of our medium term operating margin target.
Michael Caspar: And finally as always we wouldn't be here without our outstanding global team, it's their passion innovation and dedication to serve our customers suppliers and partners with the essential energy and logistics supply assurance that they require that makes us who we are and what we are.
Michael Caspar: Thank you for what you do every day it is truly a pleasure to serve with you IRA.
Speaker Change: <unk> will now provide a detailed financial and business updates IRA.
IRA: Thank you Michael and one last time, Thank you again, Elsa and good evening everyone.
IRA: Before I begin the core financial review. Please note that our third quarter non-GAAP results.
IRA: Reflect approximately $3 $2 million of total after tax adjustments.
IRA: This includes approximately $2 $1 million associated with the incremental tax expense related to the sale of avenova at approximately $1 million principally related to an impairment charge within our land segment.
IRA: Reconciliations of our non-GAAP measures are always available on our Investor Relations website and also in today's webcast presentation.
IRA: On a consolidated basis, our aviation and marine segments delivered solid year over year results in our land segment made meaningful improvement sequentially as certain market conditions that impacted us in the second quarter improved.
IRA: Volume of $4 4 billion was down slightly year over year and consolidated gross profit declined 5% from last years third quarter to $268 million in line with the guidance, we provided last quarter.
IRA: The year over year decline was primarily due to lower gross profit in our land segment, partially offset by higher gross profit in both aviation and marine.
IRA: Our aviation volume was down approximately 16 million gallons or just about 1% year over year again. This was impacted by our decision to exit certain low margin bulk fuel business during the fourth quarter of last year.
IRA: If you exclude the impact of exiting this bulk fuel activity volume was up approximately 4% year over year and also 4% sequentially benefiting from summer seasonality.
IRA: Aviation gross profit increased $3 million or 3% year over year positively impacted by stronger physical inventory related profitability in our core commercial business when compared to the third quarter of 2023. This is offset in part by the sale of Avenue, which contributed approximately $10 million of gross.
IRA: In last year's third quarter.
Speaker Change: Also as Mike mentioned, we recently closed a small tuck in acquisition in business Aviation. This transaction will expand our network of <unk> and aviation fuel card customers in the United States.
Speaker Change: As we look to the fourth quarter, we expect a sequential seasonal decline in gross profit. We also expect a year over year decline in gross profit in aviation driven principally by the impact of the Avenova sales.
Speaker Change: And the land business volumes decreased 3% year over year, principally driven by decreases in our North American wholesale and retail business activities offset in part by increased natural gas and power volume.
Speaker Change: Natural gas and power represented 33% of volume in the third quarter flat with the second quarter and up from 31% in the third quarter of 2023.
Speaker Change: And land, while our core North American fuel and natural gas businesses improved from a soft second quarter contributing to a 26% sequential increase in gross profit on a year over year basis, North American fuel activity was still lower.
Speaker Change: This combined with the continuation of the unfavorable market conditions in our Brazilian operations that we discussed last quarter contributed to a 16% year over year decline in gross profit for the overall land segment.
Speaker Change: Looking to the fourth quarter land results should continue to improve on a year over year basis with gross profit expected to be flat to up slightly year over year.
Speaker Change: As we have discussed throughout the year, we remain focused on refining and optimizing the portfolio of activities within our land business as we head towards 2025, we have identified several opportunities to significantly improve the profile of this business, which should drive improved margins and returns benefiting the broader business and strengthening our foundation.
Speaker Change: <unk> to achieve our medium term financial targets, we hope to share more details by the time of our next earnings call in February.
Speaker Change: In marine volumes were down 3% year over year and gross profit increased approximately 7% principally driven by strong performance in our core resale business activities, including year over year growth at several of our physical locations throughout the world.
Speaker Change: As we look to the fourth quarter, we expect marine gross profit to be effectively flat sequentially, but lower year over year, principally related to reduced market volatility and somewhat lower bunker fuel prices compared to the fourth quarter of 2023.
Speaker Change: As you look to the fourth quarter on a consolidated basis and with the backdrop of the related segment gross profit comments shared a moment ago. We expect consolidated gross profit to be in the range of $253 million to $260 million, that's $253 million to $260 million.
Speaker Change: Now, let's turn to adjusted consolidated operating expenses, which were $195 million in the third quarter down 6% year over year also consistent with the guidance provided last quarter.
Speaker Change: For the fourth quarter, we are expecting adjusted operating expenses of $194 million to $198 million generally consistent with the third quarter and a decline of approximately 5% year over year impacted in part by the elimination of Avenova related expenses offset in part by expenses associated with the recent.
Speaker Change: Aviation Tuck in acquisition.
Speaker Change: We remained focused on our medium term consolidated operating margin target.
Speaker Change: As mentioned earlier ongoing efforts and sharpening our portfolio of activities and greater operating efficiencies as efficiencies in our land business should be a significant factor in making progress towards this target.
We also remain focused on driving additional efficiencies across the broader business, which should contribute to the achievement of this target as well.
Interest expense was $24 million in the third quarter down about 16% year over year and below the guidance provided last quarter as we benefited from the recent interest rate reduction and we also had lower utilization under our liquidity facilities during the quarter.
Speaker Change: We expect another year over year decline in interest expense in the fourth quarter to 23% to $25 million with our full year 2020 for interest expense on track to come in approximately 18% both fiscal year 2023.
Speaker Change: Our adjusted effective tax rate in the third quarter was 24, 7%, that's slightly higher than anticipated and up slightly year over year.
Speaker Change: Based upon what we know today, our adjusted effective tax rate for the fourth quarter should be in the range of 20% to 23%, resulting in a full year 24, adjusted effective tax rate of 17% to 19%.
Speaker Change: In the third quarter operating cash flow was actually negative $39 million the use of cash in the third quarter was principally related to increased capital requirements associated with seasonal increases in business activity most specific to our aviation business.
Speaker Change: As you work through the fourth quarter, we are focusing on every opportunity to drive a solid cash flow outcome to finish the year.
Speaker Change: Also during the third quarter, we repurchased an additional $28 million of shares increasing total year to date repurchases to $57 million and we also announced the $200 million increase to our share repurchase authorization further demonstrating our commitment to returning capital to shareholders.
Speaker Change: In closing I want to leave you with a few thoughts.
Speaker Change: Aviation delivered solid year over year results driven by strong performance in our core commercial business offset in part again by the impact of the sale of Avenova and we recently closed a small tuck in acquisition, which further expands our core offerings in the United States. Our land segment rebounded nicely from the significant weakness experienced during the second quarter.
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We remain highly focused on driving greater rate ability across our business by continuing to carefully sharpen our portfolio of business activities, including the refinement and optimization of activities within our land business.
Speaker Change: Marine also delivered year over year growth principally related to higher profit contribution from our core resale business activities and again, we purchased $28 million of shares during the quarter, increasing year to date repurchases to $2 1 million shares.
Speaker Change: Finally, we remain highly focused on making progress towards our medium term financial targets, which we shared in March the achievement of these targets will further strengthen our balance sheet enhanced profitability and improve our return on invested capital, while driving greater shareholder value.
Speaker Change: Thank you I will now turn the call back over to our wonderful operator Latif to begin the Q&A session.
Speaker Change: Latif.
Latif: Thank you as a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May press Star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Ken Huckster Bofa. Your question. Please Ken.
Ken Huckster: Great Good afternoon, IRA and Michael.
Ken Huckster: And all the capital all my thoughts and also thank you for the discussions over the time.
Ken Huckster: IRA maybe just looking at the business review you just talked about.
And now your cost focus is there any other avid nodes out there that you look to monetize.
Ken Huckster: Are there other pieces that you look to refiners.
Ken Huckster: Review of the businesses.
Speaker Change: I wouldn't necessarily put anything in the Avenue category, because that was obviously an outstanding achievement considering the valuation that we got to that business, but yes. There is certainly other opportunities too.
Speaker Change: You have to look at the pieces of the business that we.
Speaker Change: We may be able to.
Speaker Change: Move on from and reallocate capital to our core businesses, there's lots of.
Speaker Change: Discussions around.
Speaker Change: Those topics.
Speaker Change: Ken.
Speaker Change: Avenue.
Speaker Change: Great, but an outlier in terms of it not necessarily part of our core now we're more focused on our core activities and where.
Speaker Change: We're accelerating investment makes sense and also where it may make sense to why the pump on the brakes or even consider exiting certain activities.
Speaker Change: And in particular, it should yes.
Speaker Change: Goal is to simplify the land story improve operating margins and profitability and simply allow us to focus more of our time on what what really matters, which should only benefit our efforts to drive greater levels of growth across the business.
Speaker Change: So let me take the flip side of that because years.
Speaker Change: Years ago.
Kind of when we.
Speaker Change: Launch covers you were very very acquisitive over time and that seems to have decelerated. So I guess alternatively, given the elongated freight recession is there is it creating any additional sellers.
Like the tuck in one you announced this quarter are you seeing more opportunities like that.
Speaker Change: Yes.
Speaker Change: There's a few things obviously, we were digesting a we lived through Covid, we were digesting a very large acquisition and fliers.
Speaker Change: And interest rates were skyrocketing, which didn't did.
Speaker Change: It didn't favor M&A for anyone really.
Speaker Change: Flyers is integrated we're actually benefiting from there very efficient platform within our North American fuels business and rates are starting to come down, which I would say are bringing more opportunities out of the woodwork. So I would say there is greater opportunity today than there has been in a while.
Speaker Change: To find opportunities to grow inorganically, but we're always very.
Speaker Change: Very very careful about where we make those investments.
Speaker Change: We'll take our time to make those decisions, but I would say the pipeline and opportunity set is growing and we have greater confidence in our ability to quickly integrate.
Speaker Change: Those types of businesses.
Speaker Change: Because we've we've worked our team has worked.
Speaker Change: Really hard on.
Speaker Change: Moving to a platform that's highly leverages, both something we didn't have many years ago.
Speaker Change: Great I appreciate that let me wrap up with them.
Speaker Change: Core business right. So you talked about land.
Speaker Change: Maybe being a little disappointing in terms of performance I just want to understand you kind of listed a bunch of things.
Speaker Change: Is it was it more seasonality than you thought was it just.
Speaker Change: I guess different things impacting the business, maybe can you walk through that a little bit more.
Speaker Change: Yes, a lot of the things that we talked about last quarter, which was very weak on a comparative basis year over year.
Speaker Change: It started to improve one of the things we talked about last quarter was Nat gas because you had an oversupply situation extremely low prices that market has stabilized and we did much better this quarter.
Speaker Change: On the flip side, we talked about Brazil, and Russian imports.
Speaker Change: Single supplier market aside from those imports and that Hasnt improved.
Speaker Change: So the year over year comparison, there remains weak.
Speaker Change: And then last quarter, we talked about.
Speaker Change: Our fuels business in North America, specifically, we talked a bit about what was going on in the west coast that hasnt changed that much but we did see improvement in other parts of the country. So we certainly had a better outcome in our north American fuels business.
Speaker Change: In this quarter than we did last quarter, but still still down a bit from from last year. So I think as we enter into.
Speaker Change: 25, I think with your previous question.
Speaker Change: Market conditions, hopefully continuing to move in.
Speaker Change: In a better direction and maybe reshaping the portfolio a bit more land has an opportunity to perform.
Speaker Change: Certainly at a higher level next year.
Speaker Change: And we need that rate to start moving more significantly towards the targets we have shared for.
Speaker Change: For operating margins in particular, and even our EBITDA target.
Speaker Change: Great I appreciate the time thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of John <unk> of Jpmorgan. Your line is open John.
John: Hi, good evening, Thanks for taking my question.
John: So I think you both touched on it a little in the opener and it sounds like maybe we will get some more details soon but I was hoping you could dig in a little on the path from here to there.
John: <unk>, 30% operating margin you're targeting in land.
John: How much of the bridge from where you are.
John: For today's headwinds coming back and normalizing and how much is.
John: Maybe some of these more controllable levers that you've discussed.
Speaker Change: Look there is the market conditions normalize it could only help but to be honest the part two which you've nailed is even bigger right. There there are things that we control.
Speaker Change: And strategic moves that we could make that could provide us with the.
Speaker Change: Significant progress towards that goal relatively quickly.
Speaker Change: None of it is an overnight exercise and that's why we've given ourselves till 'twenty six with the targets we shared.
Speaker Change: But we have some businesses that significantly outperform.
Speaker Change: The operating margin target our portfolio and unfortunately, we have some that significantly underperformed that target.
Speaker Change: Simply by doing less in the underperforming categories are your number.
Speaker Change: It moves in the right direction right. So.
Speaker Change: So we're focusing on things like that.
Speaker Change: And also the right type of M&A could help as well because if you look at the car.
Speaker Change: Card lock business for example.
Speaker Change: Yeah.
Speaker Change: A premium to our target operating margin right, because that's a extremely low cost higher margin low cost operation.
Speaker Change: So there's multiple levers right.
Speaker Change: Rebound in any in the existing business that you mentioned.
Things within our control that we could.
Speaker Change: That we could change or stop doing and then.
Speaker Change: Strategic M&A right up the middle of the fairway.
Speaker Change: That could drive growth and synergies with our existing platform.
Speaker Change: So theres a lot of that umbrella of items that I described.
Speaker Change: Within our I would say is within our control and we're spending a lot of time focusing on.
Speaker Change: Moving in that direction, and we're really hoping we'll have more tangible details to share by the time, we get to the February call.
Speaker Change: Just to add a little bit of color to that John it's more or less.
Speaker Change: That has less variability into it.
Speaker Change: In terms of its.
Speaker Change: Market profile, so again distribution.
Speaker Change: Once we come from the commodity side and we're pretty good at it.
But.
Speaker Change: Disproportionate and the variability of it obviously is not kind to results.
Speaker Change: And then platform so the Flyers platform.
Speaker Change: Is what we're going to consolidate under.
Speaker Change: And that is going to make all the difference in the world. So.
Speaker Change: The REIT portfolio selection with the right profile and the right both commercial and financial dynamics.
Speaker Change: And the right team with the right.
Speaker Change: That forms so the combination of all of those and as IRA has said and is working on is stopping and the rest of the team stopping and exiting some of the parts of the business is that while.
Speaker Change: Okay.
Speaker Change: Not necessarily additive.
Speaker Change: And there's some.
Speaker Change: Amount of trading activity that.
Speaker Change: It was perfectly good bit variable, but they've been disproportionate.
Speaker Change: And it's been difficult obviously to.
Have a predictable results and to be able to communicate and they don't really fit.
Speaker Change: With where we're going so there is a clear focus theres a clear plan and the platform is going to be transformative.
Speaker Change: Hopefully that gives you a little bit of color.
Speaker Change: Yes, that's really helpful color. Thank you.
Speaker Change: And then my follow up just on working capital.
Speaker Change: It was a pretty sizable headwind over $100 million in <unk> and <unk>.
Speaker Change: IRA mentioned some seasonality there.
So given that seasonality is there a natural reversion, there where we could see some some offsetting tailwind in future quarters and then.
Speaker Change: Relatedly was there any any of that headwind in <unk>.
Speaker Change: Was any of it price related.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yes, and yes, so certainly our goal is to recover from.
Speaker Change: Our first negative cash flow quarter in a while it was a strong seasonal quarter for them.
Speaker Change: On the aviation side. So we had some investment in working capital we had some.
Speaker Change: Customers coming to us asking for temporary increases in our credit line because of the expected strong summer, which.
Speaker Change: Came to pass that increase some of our receivable requirements.
Speaker Change: So that was part of it and then there are some.
Speaker Change: Price related timing differences.
Speaker Change: That we encountered from time to time on our.
Speaker Change: Our inventory positions around the world so that.
Speaker Change: That impacted us a little bit as well.
So were shooting for a positive cash flow quarter in Q4, and we remain confident that we should we should be delivering in the approximate range that we shared longer term on an annual basis in 'twenty five and beyond.
Speaker Change: From an operating and a free cash flow standpoint.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Again to ask a question. Please press star one one on your telephone.
Speaker Change: Our next question comes from the line of Pavel <unk> of Raymond James Your question. Please Pablo.
Speaker Change: Yes, thanks for taking the question.
Speaker Change: Stanford question to start low carbon was 12% of <unk>.
Speaker Change: <unk> profit in Q1, 8% in Q2, what was it in the most recent quarter.
Speaker Change: Gross profit was 11% this quarter.
Okay.
Speaker Change: Clear.
Speaker Change: You too.
As you look at SaaS, you had a series of announcements along those lines.
Over the past few months.
Speaker Change: It's still not huge volumes, obviously in the Grand scheme of things.
Speaker Change: On a percentage basis.
Speaker Change: How much more volume do you think youll do in SaaS.
This year versus the year before.
Speaker Change: Well, it's a long it's the law of small numbers, because we're still only deal with a few million gallons on a percentage basis, arguably pretty pretty high percentage, but that doesn't contribute millions of millions of gallons, but it is additive and generates incremental gross profit.
Speaker Change: And you also made reference to a couple of announcements one of them is a bit larger than the other depending on the timing and how that pans out that could further accelerate some growth here in the U S.
Speaker Change: So again, if you're only doing a few million gallons a year 1 million gallon increase in.
The 25% increase so it's tough to give you an exact number but.
Speaker Change: The pace of growth has definitely picked up little by little each year, and hopefully that will accelerate as we head through $25 26, compared to where were we.
Speaker Change: Where we've been in the past you being a little blase that'd be.
Speaker Change: Yes.
We've been App is for about 15 years and.
Speaker Change: So.
Speaker Change: We're one of the largest distributor of SaaS.
Speaker Change: In the U S and the world.
We've got tremendous capability to.
Speaker Change: Not only deliver it source it but also integrate and help our clients understand all of the technical regulatory <unk>.
Speaker Change: Attributes to it we have we have some of the most accomplished people.
Speaker Change: In the space.
Speaker Change: So.
Speaker Change: It is the only solution for Decarbonising the aviation industry.
Speaker Change: So.
Speaker Change: Combined with.
Speaker Change: The incentives in the us and the regulatory in Europe is going to become.
Speaker Change: Materially bigger part of what we do.
Speaker Change: <unk> is strategically important as is all of the.
Speaker Change: Renewables, you can't really talk about energy without talking about the renewable space and we.
Speaker Change: We certainly have a significant competitive advantage.
Speaker Change: Impaired to most of our other participants so drop in fuel and it's strategically important.
Speaker Change: Theres virtually no conversation that we have about jet fuel that there isn't a discussion about SaaS.
Speaker Change: So it's an important part of what we do and.
Speaker Change: From the digital booking claimed physical distributions, we basically do it from soup to nuts.
Speaker Change: There will be more of that in our future.
Speaker Change: It's where the market.
Speaker Change: Is heading to.
Speaker Change: Yes.
Speaker Change: Up on on.
Speaker Change: Natural gas kind of a macro question, we're seeing a lot of rhetoric about data centers appetite for Nat gas.
Speaker Change: Particularly with the AI build out.
Speaker Change: It's something you're observing.
Speaker Change: In your conversations with enterprise customers.
Data centers are.
Speaker Change: <unk>.
Speaker Change: That backup energy.
Speaker Change: Is something that we've developed a certain capability.
Speaker Change: At end.
Speaker Change: Within the various hyperscale orders.
Speaker Change: We are engaged with.
Speaker Change: Conversations.
Speaker Change: On the datacenter side.
Speaker Change: So it's a perfect combination I mentioned this at our Investor day.
Speaker Change: The.
Speaker Change: Energy consumption is just going to continue Theres no DLP semi glued tide.
Speaker Change: Solution for energy consumption.
Speaker Change: The more energy.
Speaker Change: That youre using the more that you want.
Speaker Change: It seems to be the name of the game so cutting across.
Speaker Change: All of those sources of energy our ability to participate is pretty broad from advisory to brokerage to services to digital to merchant to logistics and we cut across practically every single source of energy. So we're extremely well positioned.
Speaker Change: Within our platform and we are engaged within data center operators and Hyperscale.
Speaker Change: And a broad range of different activities.
Speaker Change: So I.
Obviously its focus.
Speaker Change: You can't do a little bit of everything.
Speaker Change: The beauty of <unk>.
Speaker Change: Our orientation is.
Speaker Change: We there isn't really any part of the energy spectrum, where we can't provide some type of service.
Speaker Change: Any case I don't want to take too much time on that but.
Speaker Change: That's.
That gives you hopefully a fulsome.
Speaker Change: Wholesome answer and.
Speaker Change: Thats the beauty of our participation model.
Speaker Change: Clearly when youre looking at physical activity and density and location.
Speaker Change: There are.
Speaker Change: Cost structure is based on that and.
Speaker Change: Having the appropriate platforms and the focus so that we can leverage is what we are highly sensitive to.
Speaker Change: So that we're able to have a discussion about our.
Speaker Change: Patient model is clearly focused on what is leveraging <unk>.
Speaker Change: Got it thanks.
Speaker Change: I'm just going to go back to SaaS for a second because Microsoft right I wasn't I wasn't bullish.
Speaker Change: They are small numbers, but.
Speaker Change: I'm not going to give you a going forward number but our volume year to date. This year is 40% above what it was last year. So the growth is accelerating, albeit I'll say it for the fifth time, a small base, but we're seeing we're seeing that number continue.
Speaker Change: The increase so you have that metric at least it's just going to be more and more important because.
Speaker Change: The aviation segment, there is really no other solution at this stage of the game in <unk>.
Speaker Change: While it represents somewhere about 3% of global emissions as the rest of the market Decarbonate Decarbonize.
Decarbonize.
Speaker Change: Youre going to see aviation stick out as a larger percentage, so theres going to be a greater demand for it. So we are extremely well positioned.
Speaker Change: To play that distribution service understand the data required and provide really.
Speaker Change: Our full last half mile solution from soup to nuts, both from producers and consumers. So again it fits within our model. It's a drop in fuel. So moving molecules is what we do regardless of whether they're fossil and renewable we're dealing with today's reality of a broad based.
Speaker Change: Energy diet.
Speaker Change: And we're understanding.
Speaker Change: The electrons in renewable electrons and as Youre seeing data centers go to nuclear Youre now going to see.
Speaker Change: And that opening up to X with different types of renewable molecules, which once again, we are well positioned to be able to take advantage of.
Speaker Change: So any case, so hopefully that gives you a little bit of color in terms of how we think about it and how we're positioning the company for for.
Speaker Change: <unk> for the future.
Speaker Change: Appreciate it.
Speaker Change: Thanks for the.
Speaker Change: Thank you all.
Speaker Change: Our next question comes from the line.
Speaker Change: Ben Nolan of Stifel. Your <unk>.
Speaker Change: <unk> Please Ben.
Ben Nolan: Alright, Thanks Lucy.
Ben Nolan: So I've got a couple, but but first of all well actually.
Ben Nolan: I'll start on the.
Ben Nolan: The results in the quarter you came in to the guidance range, although it was a little bit on the lower end.
Ben Nolan: One on the guidance range Thats one of the things I think also help you guys to implement <unk>.
Ben Nolan: Boy has done a fantastic job so hats off to answer but can you maybe talk through a little bit.
How things moved or maybe shifted you a little bit closer to the lower end of that range or maybe what came up as a surprise relative to what you had originally expected.
Speaker Change: I Love you.
Speaker Change: Yes.
Speaker Change: It's up like $1 million.
Speaker Change: $1 million variance nothing.
Speaker Change: It was hard to answer that question, because I would say maybe.
Speaker Change: The best of the three aviation was maybe a $1 million shy of what we had forecast.
Speaker Change: Everything else came out pretty much in line with what we expected so the midpoint of our guidance versus where we were I think it was about one.
Speaker Change: $1 $2 million difference or something like that.
Speaker Change: So.
Speaker Change: Really.
Speaker Change: It doesn't happen every day, but.
Speaker Change: If you saw our internal forecast the actual results were close on every line of the variances were interest came in better than expected going into the quarter and tax came in a bit higher but in terms of gross profit and operating income.
Speaker Change: Both of those numbers were almost exactly where we expected expenses were exactly what we had guided.
Speaker Change: Projected as well, but.
Speaker Change: Give you the fact that we were up by $1 million.
Speaker Change: No NOL.
Speaker Change: I was really asking sort of as a way to complement also there but.
Speaker Change: Yeah.
Speaker Change: The my next question relates to in this.
Speaker Change: Brazil, I know it was a problem last quarter and there was a little bit of a.
Lag factor or rollover into this quarter, which you guys had noted.
Speaker Change: Three months ago.
Speaker Change: You talk a lot about.
Speaker Change: The opportunity for growth in the land business, but that is almost always when I hear you are may be exclusively always north American.
Speaker Change: <unk>.
I know you have the operation in the UK and there is Brazil do you do you see those international land businesses as.
Speaker Change: As core or is that not how you view them.
Speaker Change: Yes.
Speaker Change: It's really about focus when you look at the size of the market.
Speaker Change: You can't compare right, so where is the runway.
Speaker Change: In the U S market.
Used to be 26% of global energy consumption I'm not exactly sure where it is today, but.
Speaker Change: That U S market is sizable.
Speaker Change: And.
Speaker Change: So clearly there is a greater opportunity for growth there is a much bigger runway.
Speaker Change: So that's got to be the priority for us.
Speaker Change: Certainly our.
Speaker Change: Our global logistics capability I think is just quite unbelievable in terms of where we came from.
Speaker Change: Two the level of global expertise, we have in inventory management distribution digital.
Speaker Change: In terms of third party, our own physical inventory distribution and our digital capability for fulfillment.
Speaker Change: I think is quite extraordinary.
Speaker Change: But once you get into.
Speaker Change: Physical markets you want to make sure that they've got a certain amount of size.
And clearly there is no comparison.
Speaker Change: From the U S market to other markets, we do fulfill.
Speaker Change: Inducement, let's say.
Speaker Change: Somewhat opportunities Opportunistically.
Speaker Change: Our large aviation footprint, where we have our distribution assets.
Speaker Change: But the focus is really the U S. That's where there's the biggest runway.
Speaker Change: We're pretty excited about the Flyers platform.
Speaker Change: And our team is doing a great job and thats going to give us the ability to acquire do tuck ins.
Speaker Change: To eliminate cost and have EBITDA drop which is what we're really looking forward to.
Speaker Change: So we're certainly open we are a global business, we are doing business in lots of places as you know, but it's consolidating.
Speaker Change: And looking at markets, where there is an opportunity to be worth the chase.
Speaker Change: I don't know if you want to add some more color to that.
Speaker Change: I think I'd be saying something very similar so I don't want to be repetitive, but again, we've got.
Pretty much double digit market share globally in aviation Marine and in North America, our market share and land is still very very small and as Mike mentioned, it's a massive market and we haven't necessarily hit it out of the park historically, we know that so.
Speaker Change: Mike and I, both agree that we've got a lot of heavy lifting to do in North America alone before we spend a lot of time.
Speaker Change: Diving into other international opportunities there may be some niche opportunities that Mike referred to that will always makes some sense, but it's really all about north if anything I think our focus is going to.
Speaker Change: In the short shorter to medium term going to move to a higher concentration of North America, where we are today as opposed to vice versa.
Speaker Change: And as we get that machine running in a similar fashion to marine and aviation, we'll have more time to think about focusing on opportunities in other parts of the world. We've got plenty to chew on in the U S. That's for sure.
Speaker Change: Right Okay.
Speaker Change: And then lastly on the marine business the margins were.
Speaker Change: Improved even though the volumes were down a little bit.
Ben Nolan: I think IRA you mentioned that part of the reason for that was.
Speaker Change: You had some wins or some growth in the physical some of your physical.
Speaker Change: Facilities.
Speaker Change: <unk>.
Speaker Change: It seems like it's a little bit of a departure from I don't know.
Speaker Change: Historically, we were mostly just a back to back seller.
Speaker Change: Is that an area that youre looking to do.
Speaker Change: Have a greater presence in an actual physical marine market.
So Ben.
Ben Nolan: Listen we got into physical in a real way and I think it was 2004.
Speaker Change: We acquired.
Speaker Change: Our UK company call Tramp oil and that was our first four wet foray into marine physical.
Speaker Change: They were doing it in a very interesting manner, we brought a good amount of discipline.
Speaker Change: And that was.
Speaker Change: That was.
Speaker Change: Good.
Speaker Change: For us.
Speaker Change: We expanded we ended up buying shell's all of their assets lock stock and barrel and I think it was 2010.
Speaker Change: In Gibraltar, you got 110000 ships that pass through the Gibraltar straights.
Speaker Change: So that looked like a pretty good idea.
Speaker Change: And now we've got a network.
Of about I think 12 locations.
Speaker Change: And its niche locations.
Speaker Change: Not dissimilar to what we have.
Speaker Change: Aviation, which by the way when you look at the growth in aviation Youre seeing a greater interest there is a big demand and Europe. There was an article in the journal.
Speaker Change: Yesterday, the day before a couple of days ago in terms of.
Speaker Change: Cabin fever from Covid is continuing people are wanting to travel and they're wanting to travel to new locations, which is generally favorable to us.
Speaker Change: Our network tends to have those locations, but back on marine.
Speaker Change: <unk>.
Speaker Change: When you look at the story from a broker to a reseller is really underwriting we took financial instruments and I think we're extremely creative and more on one of the Mavericks in terms of embedding those into physical instruments.
Speaker Change: And then.
Speaker Change: Distribution, while we first took inventory with a large airline.
Speaker Change: In 2002, and then developed that capability and then our physical.
Speaker Change: Distribution assets most notably.
Speaker Change: With.
Speaker Change: With our Odyssey acquisition Exxonmobil acquisition, many years ago, but the thing is is that we've really become.
Speaker Change: Quite.
Speaker Change: I think an effective.
Speaker Change: The distribution business.
Speaker Change: So inventory management, we're in dozens of countries with our own personnel and the combination of that third party network, our own physical inventory and distribution assets our digital fulfillment.
Speaker Change: Combination of all of that is kind of a heady brew.
It really is very effective and it allows us to dial in what is the right method of fulfillment and gives us that sort of optionality as well as the customer and optionality to be able to come with a fulsome <unk>.
Speaker Change: <unk> solution.
Speaker Change: So.
Speaker Change: We like that it is a good business mix and it could offset.
Speaker Change: Obviously.
Speaker Change: If you look at manufacturing I mean, we're not likely to buy a refinery anytime soon.
Speaker Change: Do have.
Speaker Change: A lot of.
Speaker Change: Companies that are making the product they don't necessarily want to distribute it so that is a great value add.
Speaker Change: For our producers and then you've got a lot of our customers that want a specific solution. So there are certain parts of the market that can't get a solution and they actually come to us to ask us to basically set up a physical operation to deal with their specific requirements. So we've got that ability to fulfill that.
Speaker Change: And it really sets us.
Speaker Change: Apart from some of the companies that don't have that capability.
Speaker Change: They are looking for companies that they can trust that has a solid counterparty that they understand the quality that they're going to get in the level of service and I'd say I'm very proud of the team and our physical operations team.
Speaker Change: It really does a phenomenal job, it's really quite impressive.
Speaker Change: It's definitely a transformative story.
Speaker Change: And that is a part of the mix and.
Speaker Change: Kudos to the team.
Speaker Change: That has developed that and we now have the ability.
Speaker Change: In niche markets typically.
Speaker Change: Where we are now a physical participant.
Speaker Change: Okay.
Speaker Change: That does it for me I appreciate it.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: I would now like to turn the conference back to Michael <unk> for closing remarks, Sir Okay, well. Thanks, Thanks, everybody for participating and thank you to our team and Elsa. Good luck to you so everyone be safe and look forward to talking to you next quarter Bye.
Speaker Change: Bye bye for now.
This concludes today's conference call. Thank you for participating you may now disconnect.
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