Good morning, and welcome to the Kirby Corporation 2021 Fourth Quarter Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Eric Holcomb, Kirby's Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us. With me today are David Grzebinski, Kirby's President and Chief Executive Officer; Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer; and Bill Harvey, Kirby's Executive Vice President of Finance. 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 at kirbycorp.com. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section under Financials. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors, including the impact of the COVID-19 pandemic on the company's business. A list of these risk factors can be found on Kirby's Form 10-K for the year ended December 31, 2020. I'll now turn the call over to David.

Thank you, Eric. And good morning, everyone. Earlier today, we announced 2021 fourth quarter GAAP earnings of $0.18 per share, which included a one-time charge of $0.09 per share related to a change in Louisiana state tax law. Excluding this charge, adjusted earnings for the quarter were $0.27 per share. The quarter's adjusted results improved sequentially by $0.10 per share, reflecting improved results in Marine Transportation, primarily driven by higher barge utilization and pricing in inland. These improvements were partially offset by reduced earnings in distribution and services as a result of seasonality in the commercial and industrial markets and supply chain delays in manufacturing. Looking at our segments, in Marine Transportation, the inland business experienced improved market fundamentals and increased volumes as the economy recovered from the impact of the Delta variant and refineries and chemical plants in Louisiana resumed operations following Hurricane Ida. These factors contributed to our barge utilization increasing into the mid- to high-80% range with rates near 90% for much of December. With improved markets, spot rates increased both sequentially and year-on-year and term contracts renewed higher for the first time since the start of the pandemic. However, the quarter was not without some modest headwinds. In December, our inland operations were challenged by poor weather conditions, which ultimately led to a 55% sequential increase in fourth quarter delay days. Escalating cases of the COVID-19 Omicron variant also impacted our operations, resulting in crewing challenges. The Omicron impact is estimated to be $0.01 to $0.02 for the quarter. Despite these challenges in the quarter, inland revenues significantly increased with operating margins approaching 10%. In coastal, market conditions were stable during the quarter. Our barge utilization increased into the 90% range, primarily due to the retirement of idled tank barges in the third quarter. Operating margins were near breakeven. At the end of the quarter, we completed our exit from Hawaii, and we ended the year with 31 tank barges in the coastal fleet. Going forward, we will be focused on key markets with our most efficient and cost-competitive equipment, and we expect to generate significantly improved earnings and favorable returns for the company as this market recovers. In distribution and services, our markets remain strong, and we continue to build backlog. However, as mentioned and expected, fourth quarter revenues sequentially declined due to seasonality in commercial and industrial and ongoing supply chain constraints in manufacturing. In oil and gas, strong commodity prices and increasing rig counts contributed to strong demand for new transmissions and increased orders for new environmentally-friendly pressure pumping equipment and e-frac power generation equipment. However, as highlighted last quarter, significant supply chain issues in our manufacturing business delayed many of our deliveries into 2022. As a result, our oil and gas businesses had a sequential reduction in revenues and operating income. In commercial and industrial, overall demand remained solid, but we experienced normal seasonality in Thermo King and with the power generation fleet, which resulted in a sequential reduction in revenues. The marine repair business was also impacted by seasonality, but this was mostly offset by increased part sales. Early in the quarter, we acquired the assets of a small energy storage system manufacturer, and we are now offering its products under the trade name Adaptive. Their ESS products and technology have been key to the development of our new power generation solutions for electric fracking equipment. This acquisition represents a key step in our ESG journey and will be important as we develop new energy storage solutions for the oil field and other commercial and industrial applications. In summary, our fourth-quarter results point to improving fundamentals in our business despite normal seasonality, COVID challenges and supply chain issues. We see continued improvement in our markets and momentum across the company as we enter 2022. In inland, favorable market conditions resulted in strong barge utilization and improved term contract pricing for the first time in nearly two years. In coastal, we are now focused on our best assets and end markets, setting the stage for better earnings in the future. In Distribution & Services, our markets are strong and our backlog continues to grow, which is expected to result in significantly improved earnings in 2022. In a few moments, I'll talk more about our outlook, but first, I'll turn the call over to Raj to discuss the fourth-quarter segment results and the balance sheet.

Thank you, David. And good morning, everyone. In the fourth quarter of 2021, Marine Transportation revenues were $350.6 million with an operating income of $25.7 million and an operating margin of 7.3%. Compared to the third quarter, Marine revenues increased $12.1 million or 4% and operating income increased by $8.8 million. These improvements were primarily due to increased refinery and chemical plant production following the impact of Hurricane Ida as well as improved barge utilization and increased spot market pricing seen in the inland market. Compared to the fourth quarter of 2020, Marine revenues increased $51.2 million or 17%. This was primarily due to improved barge utilization and inland spot market pricing. Higher fuel rebuilds, seen in both the inland and coastal businesses, also contributed to the revenue increase as we saw the average cost of diesel fuel approximately double in price. These increases were offset by lower pricing on inland term contracts that had renewed prior to the fourth quarter. Marine operating income declined $3.5 million year-over-year, primarily due to lower inland term contract pricing from the peak COVID period. During the quarter, the inland business contributed approximately 77% of segment revenue. We saw average barge utilization improve considerably. Barge utilization was in the mid- to high 80% range as compared to the low 80% range in the third quarter and a high 60% range in the fourth quarter of 2020. Long-term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 65% of revenue with 57% from time charters and 43% from contracts of affreightment. Term contracts that renewed during the fourth quarter on average were encouragingly up approximately 10%. Spot market rates also increased in the middle single digits sequentially and the high single digits year-on-year. Compared to the fourth quarter of 2020, inland revenues were up 20%, primarily due to increased barge utilization, fuel rebuilds and spot market pricing, partially offset by reduced pricing from term contracts that renewed earlier in the year. Compared to the third quarter, inland revenues were up 6% as a result of increased barge utilization and improved spot market pricing. During the fourth quarter, the inland business was impacted by the Omicron variant. As David mentioned, we estimate the Omicron impact to be between $0.01 to $0.02 per share due to crewing challenges and other associated costs. Despite Omicron, inland operating margins improved sequentially and approached 10% in the quarter. Now moving on to the Coastal business, the Coastal business represented 23% of revenues for the Marine Transportation segment. Revenues declined 4% sequentially due to planned shipyard activity. Compared to the fourth quarter of 2020, revenues increased 7%, primarily due to higher fuel rebuilds. Overall, Coastal had a breakeven operating margin in the fourth quarter. Average coastal barge utilization improved to the 90% range, driven primarily by the retirement of idle tank barges in the third quarter. This compares favorably to the mid-70% range in the third quarter and the fourth quarter of 2020. Average spot market rates and renewals of term contracts were stable. During the quarter, the percentage of Coastal revenue from term contracts was approximately 80%, of which approximately 85% were time charters. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes in the fourth quarter as well as projections for 2022. This is included in our earnings call presentation posted on our website. Now I will discuss the performance of the Distribution & Services segment. Revenues for the fourth quarter of 2021 were $240.7 million with an operating income of $7.5 million. Compared to the third quarter, revenues declined $19.7 million or 8%. The sequential reduction was primarily due to supply chain delays in manufacturing and typical seasonality in commercial and industrial. This, in addition to integration costs related to our ESG-related energy storage technology acquisition known as Adaptive, led to segment operating income declining by $3.5 million during the quarter. When compared to the fourth quarter of 2020, the Distribution & Services segment saw a revenue increase of $50.3 million or 26%, with operating income improving by $10.4 million. These improvements are primarily due to more favorable economic conditions, which have raised demand in the commercial and industrial market as well as increased demand for new transmissions, parts and service in the oilfield. We've also seen increased orders and manufacturing deliveries of new environmentally-friendly pressure pumping equipment and power generation equipment for e-frac. On the commercial and industrial side, increased economic activity contributed to a 2% year-on-year increase in revenues with improved demand for equipment, parts and service for on-highway and power generation. We continue to see stable year-on-year Marine repair revenues. Compared to the third quarter, commercial and industrial revenues declined 1% due to seasonality in the Thermal King Business and lower activity in the power generation rental fleet. Marine repair activity was also impacted by seasonality but was sequentially stable with increased spot sales. The commercial and industrial business represented approximately 63% of segment revenue and had an operating margin in the mid-single digits. In oil and gas, favorable commodity prices and increased rig and completions activity contributed to a healthy 110% year-over-year increase in revenues. The most significant improvement was in our distribution business with increased demand seen for new transmission, parts and services. Our manufacturing businesses also experienced substantial increases in new orders for pressure pumping and e-frac-related power generation equipment. Compared to the third quarter, oil and gas revenues declined 16%, primarily due to supply chain issues that resulted in delayed shipments of new equipment. Finally, oil and gas represented approximately 37% of segment revenue and had an operating margin in the low-single digits. I will now move on to discuss the balance sheet. As of 31st December, we had $34.8 million of cash with total debt of $1.16 billion and our debt-to-cap ratio declined to 28.7%. During the quarter, we had cash flow from operations of $41.2 million, and we repaid $45 million of debt. We also used cash flow and cash on hand to fund capital expenditures or CapEx of $26 million. In 2021, we generated $224 million of free cash flow, defined as cash flow from operations minus CapEx. We continued our focus on reducing debt and repaid over $305 million during the year. As of 31st December, we had total available liquidity of approximately $888 million. Looking forward into 2022 with the forecasted increasing activity across much of our businesses, CapEx is expected to increase. For the full year, we expect CapEx of approximately $170 million to $190 million, which is primarily comprised of maintenance requirements for our marine fleet. Despite the increased capital spending, we expect strong cash flow from operations of $400 million to $480 million with free cash flow of $210 million to $310 million. At these levels of free cash flow and our balance sheet position, we remain extremely confident in our ability to repay debt while also being able to fund any potential attractive investment and acquisition opportunities. Before I close, I would like to discuss income taxes. During the fourth quarter, we had a one-time deferred tax provision of $5.7 million or $0.09 per share. This was related to a recent change in Louisiana tax law, which became effective on the 1st of January. This change eliminated the income tax deduction for federal income taxes paid and lowered the corporate tax rate by 0.5%. The net result was an increase in the effective Louisiana state income tax rates, which required a remeasurement of Kirby's Louisiana and U.S. deferred tax assets and liabilities in the quarter. As we look into 2022, we expect our effective income tax rate to be in the 26% to 28% range. I will now turn the call over to David to discuss our 2022 outlook.

Thank you, Raj. Looking into 2022, our outlook is very positive, driven by the ongoing economic recovery, growth in volumes, favorable barge in oilfield markets and strong demand for our products and services. For the first time in many years, all of our businesses are poised to deliver meaningful improvement in profitability. While all of this is very positive, there are still some challenges around COVID-19 that are providing some near-term headwinds. As we noted earlier, our marine operations were challenged by the Omicron variant during December, resulting in crewing challenges, lost revenue and increased costs. These issues have increased through January, particularly with crewing throughout the marine business. While we believe the Omicron issue will subside relatively quickly, we currently estimate that our first-quarter results could be negatively impacted in the range of $0.05 to $0.10 per share. Looking at our businesses in more detail. In inland marine, we expect a strong market in 2022 driven by continued economic growth, increased volumes and minimal new barge construction. This should contribute to further improvements in the spot market with our barge utilization ranging in the high-80% to low-90% range for the year. Term contracts that renewed lower throughout much of 2021 are expected to continue the reset that started in the fourth quarter. For the full year, we expect inland revenues will grow 10% to 15% with progressive growth throughout the year as business improves and term contracts renew. However, the first quarter is expected to be more modest with sequential low-single-digit revenue improvement due to winter weather and ongoing challenges related to the Omicron variant. Inland operating margins are expected to range in the low-double-digits to the mid-teens during the year with the first quarter being the lowest due to seasonality and the headwinds related to COVID with the positive pricing environment building throughout the year. In coastal, market conditions are expected to modestly improve but remain challenging with underutilized barge capacity across the industry and a weak pricing environment. Despite the industry weakness, Kirby's coastal barge utilization is expected to be strong in the 90% range. Full year, coastal revenues are expected to be down in the mid-single digits compared to 2021, driven primarily by the company's exit from Hawaii and anticipated reductions in coal shipments being partially offset by dry cargo business. In the first quarter, increasing cases of COVID and crewing issues have resulted in lost revenue and increased costs. With respect to maintenance, we expect increased shipyard activity in the second through fourth quarters due to the timing of regulatory surveys and ballast water treatment installations on certain vessels. Overall, coastal operating margins are expected to range between the negative low-single-digit to near breakeven for the year. Looking at Distribution & Services, we maintain a robust outlook. Increased oilfield activity and strong manufacturing backlog will result in material year-over-year growth in revenue and operating income. In the commercial and industrial, we anticipate growth in on-highway with strong trucking and municipal fleet miles, some improvement in bus repair and increased demand for Thermal King refrigeration products. In power generation, new backup power installation parts and service activity are expected to grow further as demand for electrification in 24/7 power intensifies. Marine repair is also expected to grow with increased oil and gas activity in the Gulf of Mexico and improved commercial markets on the east and west coasts. Overall, we expect full year revenue growth in the low-double digit percent range for commercial and industrial. In oil and gas, we expect current commodity prices will contribute to increased rig count and frac activity during 2022. Industry analysts have predicted rig counts will rise to near 650 by year's end, and if so, that would represent a full-year average increase of approximately 30%. Similarly, the active average frac crew count is expected to climb to as many as 250, which would represent a 10% to 20% increase over 2021. As a result, we expect to see higher demand for transmissions, engines, parts and service and distribution. In manufacturing, we start the year with a strong backlog position and we expect continued order growth for our environmentally-friendly products. However, due to ongoing supply chain issues, new equipment deliveries are expected to progressively ramp up through the year with the first quarter being the lowest of the year. Overall, in Distribution & Services, we expect 2022 revenues will increase 30% to 40% year-over-year with commercial and industrial representing approximately half of segment revenues and oil and gas representing the other half. We expect segment operating margins will improve to the mid-single digits as the year progresses with the first quarter being the lowest or at slightly below the 2021 fourth quarter due to timing of projects and ongoing supply chain constraints. We do expect a normal seasonal reduction during the fourth quarter. Before we wrap up, I'd like to take a moment to say thank you to Bill Harvey, who will be retiring from Kirby in the next couple of weeks after four years as Kirby CFO. Bill has been an integral part of the Kirby team and has helped guide us through several large inland marine acquisitions, the integration of Stewart & Stevenson and the historic COVID downturn. Bill's contributions to Kirby's success and his help to maintain our financial strength through difficult times has been significant, and he will certainly be missed. Bill, we wish you all the best in your well-deserved retirement and may your golf handicap go down.

Thank you, David. I will certainly miss working with you and the whole Kirby team. You can tell a lot about a company and its culture as to how it deals with adversity, and the Kirby culture deals with challenges exceptionally well, whether it is preparing and dealing with Category 4 or 5 hurricanes, an oil price collapse, or a pandemic that reduces utilization to unprecedentedly low levels, the Kirby team aggressively responds. There is no 'we can't' in the Kirby vocabulary. I'm proud to say that I was a member of that team. I'm also pleased that I'm retiring as Kirby is entering what I expect to be an exceptionally strong market for all of its businesses over the next few years. I'm certain that Raj will fit in well with the Kirby culture, and I look forward to watching Kirby significantly improve profitability, grow and create tremendous shareholder value over the next few years. You can also be sure of one thing, my golf handicap will move just not in the right direction.

Thanks, Bill. To close out, 2021 was a difficult year that began with weak barge markets, had continued COVID challenges and was greatly impacted by unprecedented weather events. Like many, we are ready for better days. As we look into 2022, while COVID remains an issue for at least the near term, we see better days with stronger revenue and profit growth for the full year. In inland, volumes continue to improve, barge utilization is strong and pricing is moving higher. From a supply standpoint, the price of a new barge is at historical highs, and there is extremely limited new barge construction on the horizon. All of this is very positive for our inland business and is expected to contribute to significant earnings improvement and what we expect is the beginning of a multi-year up cycle. In Coastal, the market still needs more time to recover, but we expect strong utilization with our smaller, more efficient fleet. Our efforts to right-size the fleet and reduce the cost structure of this business pave the way for significantly reduced near-term losses. In Distribution & Services, a strong economy and increasing demand throughout the marine repair power generation on-highway sectors will drive continued growth. Oil field fundamentals are favorable and activity is expected to continue to grow with the current commodity price environment. With E&Ps and service companies continuing to advance their ESG strategies, we are benefiting from a strong backlog of environmentally friendly equipment, which we expect will continue to grow and to expand. And finally, our balance sheet remains strong. As Raj mentioned, we generated strong free cash flow of $224 million in a very difficult year, and we made significant progress in paying down debt. We expect 2022 will be another strong cash flow year. We will use this cash flow to further reduce debt, but we will also be looking for attractive acquisition opportunities that align with our strategy and create positive returns for the company and our shareholders. Operator, this concludes our prepared remarks, and we are now ready to take questions.

We will begin the question-and-answer session. Our first question comes from the line of Ken Hoexter with Bank of America. Your line is open.

Hey, great. Good morning. And Bill, good luck and always great to chat with you, happy to hit the course whenever you want. Raj, welcome to these calls. Dave sounds like a true inflection point on marine and particularly in the margins that we've been kind of waiting for the past year. In the past, you've talked about getting to mid-20s on the margins, and given the time it takes to turn the carrier around and get in this direction and the time it took rates to finally aid margins, what gets you back to that mid-20s or create headwinds kind of when you think about the scaling of the market you've done? Maybe throw in kind of your commentary, thoughts on pricing there, how fast do you think we can see this accelerate? Thanks.

Yes, thanks for the question, Ken. No, look, it's been a tough couple of years. Our barge utilization hit the lows during the pandemic; we're down into the 60s. But as you've seen and watched over the last several quarters, Ken, our utilization has improved and the industry's utilization has improved. In the fourth quarter, we were in basically the mid- to high 80s the whole quarter, and we finished December in the high 80s and mostly around 90. So, pricing improved. As you saw, spot pricing was up sequentially mid-single digits and year-over-year kind of high single digits. Contract pricing, which is the most important, were up about 10% year-over-year in the fourth quarter. So that's helped the margins. I think this continues throughout 2022 and 2023. And we've said, our margins would be good start in the double digits and then get to the mid-teens throughout 2022. I think we get to 20% in 2023. And here's why, I think, supply and demand are not only tight now, but are going to tighten some more. Let's just take each of them separately. Demand continues to grow. We still got some chemical plants coming on. And as you know, demand for liquid volumes typically goes up with GDP. We're looking at a pretty good GDP number this year and probably next year. I know the Fed's dampened that down a bit, but with GDP and chemical plants coming on, demand looks pretty good. I would tell you, supply, that picture is even better. With barge pricing a new 30 is probably $4.1 million to $4.2 million for a brand-new 30,000-barrel barge. That's the highest we've ever seen. And a lot of that is steel price and some labor costs, but at those prices, we're not seeing much new builds if any at all. I think there may be six barges that are carried over from 2021 into 2022, and barge retirements are still going on because the equipment is getting older. So, when you put supply and demand together, this is about the best we've seen in a long, long time, and we think it's a multi-year kind of upswing, which should put margins on a good track this year and probably into that 20% normalized range in 2023. What could go wrong? Another pandemic or a continuation of this pandemic that gets worse. But our feeling is that pandemic is burning itself out or at least that's our hopeful view. Maybe a global conflict, but even if there was a global conflict, whether it's Ukraine or China or Taiwan, domestic production should be pretty important. So, when we put all that together, we're about as optimistic as we've been, Ken.

No, that's definitely evident. I appreciate that insight. I guess my follow-up would just be on your last comment talking about maybe looking at attractive acquisition opportunities. If you had your choice and given your improving cash flow and margins and the like, so you're going to have that cash flow and continue to reduce debt. What would you like to focus on? Would it be more on the barging side and increase that ownership? Would it be more manufacturing to gain scale on that business? Maybe just.

Yes. No, I would say we've always liked the consolidating acquisitions on the inland side. We'd probably stay away from coastal in favor of the inland side in terms of another consolidation move. But you did see in the fourth quarter, we bought a small battery manufacturing company. As we look at electric fracking and grid, micro grid equipment that we're building now, that battery manufacturing component is a very nice add and fits really well. But let me scale the capital there. That was under $5 million for that acquisition. So, we think we will add stuff that adds to our ESG capabilities on manufacturing and distribution, but the scale of those types of additions are relatively minor. I would say the only other caveat would be offshore wind. We're working on some things there. If some of those come, that could add to our capital expenditures if we do some vessels to support offshore wind. So that kind of gives you the picture of where we deploy dollars, but I've always built and we've had good luck with the inland market consolidation. I think that's where we got a lot of leverage when we bring it in just our ability to absorb and spread cost. That said, again, we're trying to be very judicious and smart about what we invest in to increase our ESG profile.

Wonderful. Appreciate the time and insights. Thanks. Best of luck.

Thank you.

Thank you. Our next question comes from Jon Chappell with Evercore. Your line is now open.

Thank you. Good morning, everyone.

Hey, good morning, Jon.

David, first one for you. I feel like we ask this kind of every quarter, but it's probably even more important this time given the inflection point on the term pricing. What percentage would you estimate of your inland term portfolio has been kind of mark-to-market for this improvement in the spot market? And as you anniversary some of these kind of deeper pandemic impacted renewals that you had in maybe late 2020, early 2021, is that upside to that contractual part of the portfolio still around the 10% that you noted for 4Q? Is there even potential greater upside just kind of mark-to-market?

Well, let me start with – look, contract pricing was at the bottom. We're just now coming off the bottom. So, in the fourth quarter, we had contract pricing up 10%, but again, that's off the bottom. So, it's still got a ways to go. I would tell you, in terms of contract renewals, you know the fourth quarter is usually the heaviest quarter with the other three quarters being lighter. It was probably 20% of our portfolio repriced off the bottom in contracts. Now remember, 35% of our portfolio is spot and that's contracts that are less than a year. So, they could be anywhere from one week to nine months. On average, it's probably three to four months for those spot contracts. So, they can repurchase pretty rapidly, as you would expect, because the duration of those contracts are lower. I would tell you that does give some upside, but it is factored into our thinking for 2022. But when we look at it with barge pricing where it's at now with the inflationary pressures that are out there, the cost of just doing business has gone up. And then if you look at how tight the horsepower market, just running the towboats and tugboats has gotten tighter. Crewing has been tougher. Omicron and the COVID has not helped that situation. So, all of that makes pricing a lot tighter and the market a lot tighter. So, we're optimistic and we think 2022 out of – continue the trend of what we saw in the fourth quarter. Supply and demand is there and the need to get pricing up is there as well.

Okay. Great. And then just shifting gears to D&S for a second. I'm just curious as the oil price has been really strong, maybe the public guys are a bit more reluctant to start producing more because of shareholder pressures, but the private guys certainly are. What's the M&A environment like in D&S today? And I ask that from the angle of are there any pieces of your D&S business, probably primarily in oil and gas, that you would consider noncore that maybe you could look to monetize as this industry comes off the bottom.

Yes. It's a great question. I would tell you, for D&S, we've got the two pieces of commercial and industrial and then the manufacturing piece. And most of the oil and gas exposures in that manufacturing piece, we've made a lot of frac equipment over the years. But I would tell you, looking at our inbound over the last six to nine months, it's been all electric frac related or power generation equipment that's being used on electric frac sites, not necessarily equipment we build on the electric pumping side, but the power generation side, we're getting into making micro grids basically in equipment that can support that. That's why the little battery manufacturing company was an important addition. So when we look at it, yes, there's some oil and gas exposure for sure, and the transmissions and parts that we do are there, but we're pivoting pretty hard towards electrification as everybody goes to 24/7 electric power. To your core question, I mean, is there a divestiture or an acquisition? I'd say not right now. We're pretty happy with our portfolio. We're running it as hard as we can. But as you know, we're always open-minded for opportunities, whether it be divestiture or acquisition based on adding shareholder value. But to predict that and forecast, that's obviously difficult.

Yes. I got it. Thanks a lot David. And best of luck Bill.

Thanks, John.

Okay. Well, evidently, we're having some technical issues with the Q&A. So, I'm just going to talk for a few minutes about the company. I think you heard much of what we wanted to say in our prepared remarks, but I would tell you, we're pretty optimistic about where the company is right now, given that both our Distribution & Services business and our Marine businesses are improving. A lot of that is demand-driven, with GDP going up. But crude and refineries, the inventories are low for refined products and crude, and the refineries and petrochemical plants are ramping up production, there are still new chemical plants coming on. I think it's interesting to note that crude is approaching $100 a barrel, which could spur more moves in the Marine side and more U.S. production, which I think would be good for both of our businesses. So, we're watching that carefully. I think we may have the Q&A.

We have a new operator. Crystal, are you there?

Yes, sir I’m here. We'll take your next question from Ben Nolan from Stifel. Your line is open.

Great. I'm glad to open back up again. That was a nice covering there but...

We're not sure what happened there, but we're happy we're back.

And it gives me a chance to wish Bill well and tell him I appreciate him always making me feel like I was a good fisherman. So thanks, Bill.

He was a bad fisherman.

No, he just made me feel like a good fisherman. But anyway, I – let's see, I guess my first question. It goes to what you're just talking about just now, David, on the inland side and just in general about more activity, more petrochemicals, more refining happening. But I think one of the nuances around that is the impact of U.S. exports, which had – with refinery utilization and everything, it hadn't been as high as it was, but that was a major trend a few years ago. If we get back towards that in the next year or two, what does that do? How does that help, I mean, on the inland side? Or does it help as barrels or chemicals start leaving our shores and going elsewhere?

Yes. It helps because a lot of the export volumes clearly are refined products, gasoline, diesel, maybe to a lesser extent, jet fuel. But when they have ships going out of, say, the Houston Ship Channel to go abroad or to Latin America, South America or Asia, they often put blending components in with those, and they have different compartments within these big oceangoing ships. So that often leads to barge moves. We may take some of those blending components from one of the refineries over to, say, like a Kinder Morgan or a big tank farm. And so, export volumes do help barging because it's just more liquids moving on the system. I would tell you that they're still not back up to where we'd like to see them. They are improving. We can see more volumes moving to Mexico, for example, now. Now, some of the Mexican moves we do are actually not to ships, but actually we go down the inner coastal or way down to towards Brownsville and Corpus. And there are some distribution points there that we get involved with. But those export volumes are not fully back up. I do believe that adds to kind of our demand picture as we look into 2022 and 2023. The world is – still, there are a lot of parts of the world that are shut down still with COVID. So, we view that that will reverse itself at some point and add to those export volumes. But to the point of your question, those export volumes are important to demand, and I think our view is, the good news is, demand is pretty solid right now and that would only add to the demand picture for us going into this year and next.

Okay. That's helpful. I appreciate that. And then for my follow-up, switching gears over to D&S, 30% to 40% revenue growth is a lot. But just kind of backing into the math, I mean you're almost talking about a doubling of revenue on the oil and gas side. I know that you guys had pared down that business quite a bit in the downturn. Is there much risk, do you think, of being able to move up that quickly on that scale? I mean just in terms of hiring people, and equipment and everything else. Obviously, there are supply chain challenges at the moment, but setting those aside, how easy is it to pivot that quickly and that much?

Yes. No, that's a great question. I would tell you, as everybody knows, hiring people now is more challenged than it has been. We are still able to bring in new technicians, new assemblers. It's getting more difficult. I would tell you, though, our biggest problem is the supply chain. We're having problems getting key componentry. One of our major suppliers of a key component for what we're doing on electric frac, basically just in the last month has told us that lead times have gone from 32 weeks to 52 weeks and that's all supply chain driven. Supply chain has been the bigger constraint for us to deliver than labor, but we're not pollyannish. The labor situation is tight, turnover is up and finding new candidates is more difficult. But all that said, we're able to fill those positions. I would tell you, on the marine side, the decision we made last year to start up our school in January in anticipation of kind of a rebound in demand has paid off. I think we hired and trained over 250 deckhands last year with our school, and so that really helps. We kind of seeded the pipeline, so to speak. We did a little bit of that on the KDS side, but we wanted to be judicious about it. But your question is a good one. It is getting harder and harder to find labor, but so far, we're doing okay.

Okay. And obviously, you just gave the guidance, so you're entirely comfortable with being able to solve supply chains and labor and everything else and hit on that growth number?

Yes. No, based on what we think deliveries will be is what's in our – component deliveries is what's in our guidance now. Could that shift to the right a little bit? We put a little bit of room to shift a little bit to the right, but if it shifts a lot more, it could put us at risk. Now I think we're getting good feedback from our OEMs and the people that we do business with in our supply chain. We are getting some deliveries. So, it's happening, but the supply chain is an issue. I think, and I'd love to hear other people's opinions on this and you can listen to the pundits on CNBC and whatnot, but I think the supply chain sorts itself out over the next nine months. That's kind of my view. We kind of incorporated a little bit of that into our guidance.

Great. Thanks for taking my questions. So, I guess, David, maybe if I could kind of start with coastal. Obviously, the economy is doing fairly well. Oil prices are elevated. We walk through all that. I guess what's the scenario that we really need to see to get coastal back solidly profitable? And sort of what's the timeline do you think for that sort of unfold?

Yes, that's a good question, Jack. Look, what's happening in coastal is the same thing that happened in the inland market, but it's taken a little longer for it to get back on track. Let me describe it a little bit. In the inland market and in the coastal market, we were moving a lot of crude and that crude oil was a lot of demand. There were over 500 barges moving crude oil in the inland side, and what ended up happening, pipelines came on and we had to absorb all the – all those barges through GDP growth and petrochemical growth, and so the petrochemical growth helped absorb all that excess supply on the inland side. In the coastal side, what happened is the same thing. There were a lot of barges built for crude moves, and at one point, in Kirby's 50 barges, we had 11 moving crude, and then they changed the export ban. You remember it used to – you couldn't export crude, and then they changed it and you could and so our – the number of barges moving crude for us went from 11 kind of at its peak down to one. So we've got one barge moving crude now, and that happened throughout the entire coastal market, but unlike inland, there was – there's not a lot of petrochemical moves on the coastwise business. It's really just refined products moves. So, the demand growth there needed to offset the overhang and supply has been slower to come, but it's coming, and then the retirements are coming. You saw us retire quite a few barges in the third quarter. So we're getting back to balance in the coastal market. When you look at some of the consultants that do work on supply and demand forecasting for coastal, they think it's about two years out when you start to see prices rising meaningfully enough to start getting earnings back in the solidly positive range. I wouldn't disagree with that. We are tighter. Now our coastal utilization, as you heard in Raj's remarks, is about 90%, a lot of that's because we retired a lot. Other people are retiring coastal barges now, too. So we're getting a lot more constructive on it. I think the other thing about coastal, and you know this, is it takes a long time for new equipment to come in, right? If somebody wanted a new coastal barge, it's probably three years out right now. So I don't see any new supply coming on. And even if somebody announced it today, it's three years out before we'd see it. So I think the elasticity of pricing is going to be really strong in coastal and will probably hit in two years or so is what I would say. Meanwhile, we're edging up pricing just a little bit. It needs to go higher and it's gone up a little bit for us. Not enough, but I think that trend will continue into 2023, and then we'll turn the corner in a meaningful way.

Okay. No, that's helpful color, David. Thank you for walking through that. And I guess for my follow-up question, just going back to inland for a moment. Pricing is coming off the bottom, which is very encouraging, but obviously costs have been rising fairly steadily over the last 1.5 years, two years, even when prices were going down. So I guess is there a way to maybe think about where we stand today in terms of – I don't know if you want to think about cost per ton mile for your inland business relative to your revenue per ton mile. How has that sort of delta changed? And do your customers understand that to the point that there could be a catch-up here over the next couple of quarters, maybe a year to help get you hold? Because I think obviously this is a highly inflationary operating environment out there right now?

Yes. Well, Jack, I'm going to let Raj give you some of the components on inflation, and then I'll tie it together with what we're seeing on the pricing. Raj, do you want to give him some details on what we're seeing in terms of cost inflation?

Absolutely, David. So Jack, yes, inflation is real. We all know that it is driving up costs. So if we look at our key components, right, supplies, food, crewing costs, they're all up in the mid-single digits. We've seen wage inflation. David's talked about that. That's really – that's a real impact to us. Fuel costs have also risen sharply, but on the fuel side, we have mechanisms in place for us to recover it from our customers. We also do have some mechanisms in place with – good mechanisms in place with our contracting that help us recover some of this inflationary impacts. But I think the final result is going to be what we are seeing right now, which is pricing trending upwards, pricing becoming a bit – becoming firmer to address this inflationary – the inflationary aspect that we're seeing right now.

Yes. When we have conversations with our customers, they understand the inflation's there, and they're frankly seeing it with their cost, too. So Jack, it is helping the pricing momentum, frankly. We're doing our best to manage it. You can imagine crude transportation costs are up. As Raj mentioned, food prices are up almost double digits. And we were joking the other day that maybe we should have with the price of pork and meat that we should have our crews go to vegetarians, but we didn't think that would work. But nonetheless, we're working on containing costs. But to your point, Jack, it is helping drive pricing because everybody understands that the inflationary pressures are real and crew shortages are real. So – and demand and supply are in balance. So it is helping the narrative, and it has to happen. All of us have to get higher prices to cover these costs. So it's a long rambling answer. Hopefully, got what you needed to out of that, Jack.

Well, it was a long rambling question, so I think that makes sense. Thanks again, David. Really appreciate the time. Thanks, Raj.

Alright. Thank you, Jack.

Thank you. Our next question comes from Randy Giveans from Jefferies. Your line is open.

Gentlemen, how is it going?

Good Randy. How are you?

Doing well. Two questions here. First, you mentioned the higher rates on the term inland barge contract renewals for the first time, basically since the start of the pandemic. For those contracts signed in December, they're about 10% higher than December 2020 levels, but how far below the December 2019 levels were those rates?

Yes, that's a good question. I'm trying to do the math in my head while we do it. We're still below December 2019. You'll recall, Randy, we said this in our commentary several calls ago that in the first quarter of 2020 before Omicron, excuse me, the COVID started to hit, we had a month where inland margins were up in the 20% range. So we were almost there. So, I would tell you, we're still 10% to 15% below where we were in the fourth quarter of 2019. So that tells you how far we've got to go. We're just coming off the bottom. But I think the key point is that the inflections happen and there is true pricing momentum. It has to happen anyway, just as we talked about to cover inflation, but supply and demand is tight. So it's set up, but we've got a long way to go. We've got to get rates back up to cover our costs and then obviously to cover returns on capital.

Sure. Certainly heading in the right direction here. And then second question in terms of D&S. You mentioned 30% to 40% revenue growth overall. I guess how much of that is driven by maybe expected oil and gas new ordering versus kind of what you currently have on the order backlog? And then, in terms of margins, how does new pressure pumping or e-frac equipment compare with the margins on, say, on-highway or marine repair?

Yes. No, that's a great question. A lot of the revenue growth in 2022 is from backlog. We entered the year with a pretty healthy backlog, albeit with supply chain constraints that we talked about. That said, we do believe that we could be around a one or better book-to-bill for 2022. So we've got a lot of backlog and that's driving a big part of that revenue growth. But we're also seeing revenue growth in commercial and industrial. The off-highway and on-highway markets are both doing better in commercial and industrial. So that's part of the revenue growth that we see. But make no mistake, the backlog for e-frac and electric equipment is a big part of that revenue growth. I do think it will continue to grow. We're still seeing good interest in it. To your margin question, a lot of this equipment is new and generally speaking, kind of the first versions of new equipment have lower margins just because there's re-engineering and things. So that is in our forecast and in our margin guidance, we factored that in. That said, the margin should be higher in that over time. We've just got ways to go because this e-frac market and the electric generation equipment market is very innovative and evolving. So there's some pretty heavy engineering upfront costs, and we're – that's all in our guidance, but that's a long way of saying the margins will start lower and ramp higher. I would hope to get D&S got into the high single-digit margins in the next 12 to 24 months.

Sure. Good deal. Thanks again. Congrats on the retirement, Bill, and we'll talk soon.

Alright. Take care, Randy.

Thank you. Our next question comes from Greg Wasikowski from Webber Research. Your line is open.

Hey, good morning guys. How are you doing?

Well, Greg. How are you?

Great. Doing well, thanks. For the first question, just wanted to see, have you noticed any disparities between the 30,000 and the 10,000 market? Just thinking about rates, newbuild prices and then particularly utilization, any differences in how that's trending now versus historically?

Yes, I would say, this is on the margin, the 10K is a little tighter just a little. There's more small lot chemicals in the 10K more refined products in the 30,000, but it's not meaningfully different. And the pricing of 10K barges and the pricing of 30K barges are both up significantly. One is not any cheaper than the other on a proportional basis. So yes, not a big difference but a slight difference, I mean, it's really driven around small lot chemicals more than anything else.

Got it. Okay. Thanks. Sorry, go ahead.

No, no, you go. That's all I had to say.

Okay. Yes, for my follow-up, just keeping going off of the D&S backlog and thinking about supply chain and kind of what that does to the revenue cycle. So like can you frame it for us of how the whole product cycle, the whole revenue recognition cycle has changed? Where does it stand now, given the supply chain constraints versus where it's been a couple of years ago? And really, what I'm getting at is if we think about the 2022 backlog now or as of 12/31, how many more months do we have for you guys to keep building that backlog that would actually be at what point does it start to shift into 2023, whether that's now or three months or six months from now?

Yes. No, that's a good question. We used to turn backlog on just regular fracs in probably six to nine months, and I would tell you now it's more like six to 12 months. I would expect, we'd still turn the backlog within 12 months. The supply chain has certainly stretched that in order to use percent of completion accounting. I'm looking at Raj here; I think you got to have it be longer than a year in order to use it. He's nodding yes. So we're not able to use POC. It's almost completed contract type accounting. So all that said, we still think we can turn the backlog within 12 months, but it's not at six-month level like we used to have, it’s more like the 12-month. And those are gross averages, right? Every project is a little different and got different componentry or different engineering requirements or different customer requirements. So it's a gross generalization. Anything to add, Raj?

Yes. So we're going to control what we can control from a supply chain perspective. I think that's a key message that we want to leave with you all. To David's point, the supply chain is stretched, but at the end of the day, I think the plan that we have in place is the backlog that we have right now, the plan is to convert that backlog in the current year. And what we are forecasting for 2022 is to have a book-to-bill at one or slightly more than one. So replenishment of the backlog and executing to the current backlog that we have as we enter the year is what we are targeting.

Yes. I mean I'd just add to that is if we take orders, let's say, in this first quarter, likelihood is that probably wouldn't ship until next year. So really, a lot of the revenue growth we've been talking about is backlog driven.

Okay. That's pretty helpful Thanks. Thanks, David and Raj and congrats again, Bill. Best of luck on the link.

Thank you, Greg. Take care.

Alright. Chris, so we're going to run long and take one more question.

Thank you. And we'll take our last question from Greg Lewis from BTIG. Your line is open.

Hey guys. Thanks for squeezing me in on the end of the call. Bill, before I forget, congrats. It's been a pleasure. I did want to touch a little bit about higher oil prices, and thanks for the guidance on inland. I'm kind of curious, as we think about the higher oil price environment, realizing that it's funny that it feels like crude is kind of WTI kind of quietly climb the $90, and it's happened really quickly. How does that impact your operations, i.e., your fueling? Like how does that work with customers? Any kind of way how we should be thinking about in a higher price – fuel price environment, what that should do to – I mean, I have to think it has to be highly supportive of higher rates. Is there a way for Kirby to benefit from those higher fuel prices?

Yes. In general, we try and work fuel to be a pass-through. We don't try and make money on fuel. It's just a cost for our customers, and we like to pass it through. If you think most of our customers are large energy companies anyway, right, the big oil integrated oil companies or big refining companies, so they understand the fuel markets better than we do. So we tend to just pass the fuel on. It does – as you know, from an accounting standpoint, we have to recognize it as revenue. So it does actually dilute the margin a little bit, right? Because higher revenue, all associated – not all of it, but the revenue associated with higher fuel kind of dilutes margin. All that said, though, I think a higher oil price is good. It's good for our customers. It's good for our chemical customers. It's good for our refinery customers. It's good for our oil – integrated oil customers. So that also will drive volumes. So it's generally good just from – more from a demand standpoint than a price leverage standpoint. And then the cost of transportation as a percent of cost of their product goes down, so they get a little less price sensitive on that, which is good. So generally, higher oil prices are better for us than lower, and – but we don't really profit off the actual fuel cost. Now that said, we do, do well in KDS, right? A higher oil price generally drives demand for our pressure pumping customers and – and we're seeing that. That said, they do have more capital discipline. You know this, Greg, you cover it. We're seeing our oilfield customers be very, very disciplined with capital, which probably is helping drive the oil price up a bit. Anyway, that's again another long rambling answer, sorry.

No, no, that was great. And then as I think about CapEx, I mean, it went off. I assume some of that was kind of carryover or kind of carry-forward from, I guess, holding back some money last year. But I guess in the press release, you did call out $20 million to $30 million around the D&S business and some technology upgrades. That CapEx, is that kind of being used for – you mentioned electrification a few times on the call. Is that kind of how we should be thinking about that, that CapEx for D&S? Or is that just once again, maybe we didn't invest as much as we should have last year, and it's kind of a little bit of catch-up?

Yes. It's a little bit of catch-up, as you said. We, on Marine in particular, during COVID, we did the necessary maintenance and there's a little catch up as we do more to get our barge fleet better. So we're spending a little more maintenance CapEx. But – and we've also got ballast water treatment, as you know, in the coastwise business we're having to spend probably $5 million to $7 million per barge to put ballast water treatment on. We're about 65% through our fleet, but there's probably $30 million to $40 million of ballast water treatment capital in the next year or so. I think it's $50 million over the next two years. So ballast water treatment is part of that. But then on the KDS side, we have invested in the KDS side. Really incremental small stuff, but we did add to our power generation rental fleet. That's part of our budget. As you know, power – backup power is just crazy and everybody wants it. Everybody knows they need power 24/7. So we do a lot of backup power generation rental equipment. So we added a bit to that fleet in KDS as well as a few improvements to our KDS manufacturing area in our branches.

Perfect. Thank you all for the time, everybody. Have a great day.

Alright. Thanks, Greg.