Good day, and thank you for standing by. Welcome to the Kirby Corporation 2023 First Quarter Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kurt Niemietz. Please go ahead. Good morning, and thank you for joining us. With me today are David Grzebinski, Kirby's President and Chief Executive Officer; and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer. A slide presentation for today's conference call as well as the earnings release, which was issued earlier today can be found on our website at www.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. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2022, and in other filings made with the SEC from time to time. I will now turn the call over to David.

Thank you, Kurt, and good morning, everyone. Earlier today, we announced first quarter revenue of $750 million and earnings per share of $0.68. Included in the results are two offsetting one-time events, one-time costs related to strategic review and shareholder engagement activities of $0.04 per share which were offset by interest on our delayed IRS refund of $0.04 per share. The net $0.68 compares to 2022 first quarter earnings per share of $0.29. Both of our segments performed well during the quarter, delivering significantly higher revenue and operating income year-over-year. The first quarter results reflected steady market fundamentals in both Marine Transportation and Distribution & Services, partially offset by significant weather and navigation challenges for Marine and continued supply chain constraints in Distribution & Services. During the quarter, we remained focused on operating as safely and as efficiently as possible and delivered solid results even with these headwinds. In Inland Marine, our first quarter results were heavily impacted by delay days. Throughout the quarter, our operations were challenged by high winds and heavy fog along the Gulf Coast and lock delays on the Illinois and Mississippi Rivers. These weather and navigational related issues significantly slowed transit times and impacted the financial performance of our contracts of affreightment. Overall, delay days increased 31% compared to the first quarter of 2022 and 33% compared to the fourth quarter. From a demand standpoint, customer activity was strong in the quarter with large utilization rates running in the low to mid-90% range throughout the quarter. Tight market conditions due to strong demand and limited supply of barges, coupled with continued inflation, put upward pressure on prices with spot prices up in the low to mid-single digits sequentially and in the 25% range year-over-year. Term contract prices also renewed higher with low double-digit increases versus a year ago. Overall, first quarter inland revenues increased 22% year-over-year and margins were in the low teens range. In coastal, market fundamentals continued to slowly improve with our barge utilization levels running in the mid- to high 90% range. During the quarter, we saw solid customer demand and limited availability of large capacity vessels, which resulted in low double-digit price increases on term contract renewals and low 20% increases on new spot deals. As noted in the fourth quarter, however, our results were adversely impacted by planned shipyard maintenance on several large vessels. Additionally, our operations on the Gulf Coast were hindered by extensive fog throughout the quarter. Overall, first quarter coastal revenues decreased slightly year-over-year and operating margins were negative in the low single digits. In Distribution & Services, demand remained strong across our markets with growth in new orders and high levels of backlog. In manufacturing, revenues were up sequentially and year-over-year, driven by healthy demand for our environmentally friendly pressure pumping equipment and power generation equipment for e-frac. However, as expected, significant supply chain issues delayed many new equipment deliveries during the quarter. We continue to work diligently to manage these supply chain challenges. In our commercial and industrial market, overall demand remained solid across our different businesses with growth coming from the marine repair, power generation and on-highway sectors. In summary, our first quarter results reflected continued strength in market fundamentals for both segments despite meaningful weather and supply chain issues. The inland market is strong and rates are pushing higher while our coastal revenue is challenged near-term by planned shipyards; industry-wide supply and demand dynamics are favorable. Our barge utilization is good, and we are realizing rate increases. Strong demand in distribution and services is contributing to further growth in the segment. And while supply chain bottlenecks are expected to persist for the foreseeable future, the outlook for the market is strong. I'll talk more about our outlook later. But first, I'll turn the call over to Raj to discuss the first quarter segment results and the balance sheet.

Thank you, David, and good morning, everyone. In the first quarter of 2023, Marine Transportation segment revenues were $412 million, and operating income was $43 million with an operating margin of 10.4%. Compared to the first quarter of 2022, total Marine revenues increased $57 million or 16% and operating income increased $26 million or 154%. Compared to the fourth quarter of 2022, total Marine revenues, inland and coastal together were down 2% and operating income decreased 8%. Inland was up while coastal was down and I'll add more color on this in a minute. As David mentioned, fog and high winds along the Gulf Coast produced a 33% sequential and 31% year-over-year increase in delay days and negatively impacted operations and efficiency, while planned shipyard activity and weather impacted the coastal business. These headwinds were offset by solid underlying customer demand and improved pricing. First, I'll discuss the inland business in more detail. The inland business contributed approximately 82% of segment revenue. Average barge utilization was in the low to mid-90% range for the quarter, which is slightly better than the utilization seen in the fourth quarter of 2022 and compares to the mid-80% range in the first quarter of 2022. Long-term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 55% of revenue, with 60% from time charters and 40% from contracts of affreightment. Improved market conditions contributed to spot market rates increasing sequentially in the low to mid-single digits and in the 25% range year-over-year. Term contracts that renewed during the first quarter were up on average in the low double digits compared to the prior year. Compared to the first quarter of 2022, inland revenues increased 22% and primarily due to higher term and spot contract pricing and increased barge utilization. Despite higher pricing, inland revenues were flat compared to the fourth quarter of 2022 due to the aforementioned unfavorable navigation and operating conditions. As such, inland operating margins were also flat sequentially driven by the impact of a 33% sequential increase in navigation delay days, which was offset by higher pricing. Now moving to the coastal business. Coastal revenues decreased 4% year-over-year as downtime from planned shipyards and poor winter weather conditions along the Gulf Coast were partially offset by higher contract prices and improved barge utilization. Overall, coastal had a negative operating margin in the low single digits and was impacted by the increased shipyard days and adverse weather during the quarter. The coastal business represented 18% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid- to high 90% range, which compares to the low 90% range in the first quarter of 2022. During the quarter, the percentage of coastal revenue under term contracts was approximately 75%, of which approximately 90% were time charters. Average spot market rates were up in the low to mid-single digits sequentially and renewals of term contracts were higher in the low double digits on average year-over-year. With respect to our tank barge fleet, for both the inland and coastal businesses, we have provided a reconciliation of the changes in the first quarter as well as projections for 2023. This is included in our earnings call presentation posted on our website. At the end of the first quarter, the inland fleet had 1,043 badges, representing 23.2 million barrels of capacity. On a net basis, we currently expect to end 2023 with a total of 1,053 inland barges, representing 23.4 million barrels of capacity driven by a modest number of reactivations. Coastal Marine is expected to remain unchanged for the year. Now I'll review the performance of the Distribution & Services segment. Revenues for the first quarter of 2023 were $338 million, with operating income of $23 million and an operating margin of 6.7%. Compared to the first quarter of 2022, the Distribution & Services segment saw revenue increase by $83 million or 32% with operating income increasing by $12 million or 107%. When compared to the fourth quarter of 2022, revenues increased by $31 million or 10% and operating income increased by $6 million or 34%. In the oil and gas market, favorable commodity prices and increased rig and completions activity contributed to a 38% year-over-year and 15% sequential increase in revenues. We experienced strong demand for new engines, transmissions and parts throughout the quarter. As David mentioned, we continue to navigate supply chain bottlenecks, especially in our manufacturing business. Despite these issues, the manufacturing business experienced continued favorable trends in new orders and backlog. Overall, oil and gas represented approximately 44% of segment revenue in the first quarter and had operating margins in the mid-single digits. On the commercial and industrial side, strong activity contributed to a 28% year-over-year increase in revenues with improved demand for equipment, parts and service in our marine repair and on-highway businesses. Power generation was also up year-over-year. Compared to the fourth quarter of 2022, commercial and industrial revenues increased by 6%. Our Thermo King business continued to experience delays due to supply chain constraints that impacted revenue growth. However, this was offset by increased activity in marine, power generation and on-highway repair. Overall, the commercial and industrial businesses represented approximately 56% of segment revenue and had an operating margin in the high single digits during the first quarter. Moving to other items. Total general corporate expenses for the quarter were $3.5 million higher year-over-year, driven by one-time costs associated with our recently completed strategic review and shareholder engagement activities. These one-time higher costs were offset by a similar amount of interest income due on our delayed IRS refund. Please note that this shows up in other income. Now turning to the balance sheet. As of March 31, we had $27 million of cash with total debt of around $1 billion and our debt-to-cap ratio improved to 25.9%. During the quarter, we had net cash flow from operating activities of $16.5 million. First quarter cash flow from operations was impacted by a working capital build of approximately $100 million driven by underlying growth in the business. We continue to target unwinding working capital as the year progresses. We used cash flow and cash on hand to fund $73.2 million of capital expenditures or CapEx primarily related to maintenance of equipment. During the quarter, we also used $3.2 million to repurchase stock at an average price just under $68. As of March 31, we had total available liquidity of approximately $420 million. For 2023, we continue to expect to generate net cash flow from operating activities of $480 million to $580 million. Our CapEx range is high and wide this year as a number of factors are at play. First, we have a heavy shipyard schedule this year for both our inland and offshore fleet. As you know, there is a large industry maintenance bubble occurring this year and next in the inland industry due to the timing of regulatory requirements. A similar regulatory situation related to ballast water treatment systems is impacting the offshore sector. Our typical maintenance CapEx for both fleets is around $160 million to $180 million. This year, it will be in the $230 million to $250 million range. In addition to this higher level of spending, we have some compelling strategic marine projects for specialized equipment that will add approximately $40 million to our marine CapEx. Finally, we expect to invest up to $100 million this year in electric tracking systems that will release to key customers. The returns related to these systems are accretive and provide long-term and stable income streams for the distribution and services business. So in summary, our CapEx guidance for 2023 is expected to be in the $300 million to $380 million range. It is important to note that even with the anticipated higher level of capital spending, we expect to generate $150 million to $200 million in free cash flow. We are committed to a balanced capital allocation approach, and we expect to use most of this free cash flow to repurchase stock. I will now turn the call back to David to discuss the remainder of our outlook for 2023.

Thank you, Raj. Although first quarter results were materially challenged by bad weather and marine transportation, we exited the quarter in an excellent position, and we anticipate improved results in Marine as we progress through the remainder of 2023. In Distribution & Services, despite supply chain constraints, demand for our products and services is strong, and we continue to receive new orders in manufacturing. Overall, we continue to expect our businesses to deliver improved financial results in the coming quarters. While all of this is encouraging, we are mindful that challenges related to economic slowing and additional headwinds due to higher interest rates are possible. Also, labor constraints and inflationary pressures continue contributing to rising costs across our businesses, although some of this is starting to moderate. With these uncertainties in mind, we will continue to focus on costs and drive strong cash flow from our operations. In inland marine, steady demand, driven in large part by high refinery and chemical plant utilization should continue to support higher barge utilization. Limited new barge construction and high industry maintenance requirements for the next two years, combined with lingering inflationary pressures are expected to further support inland rate increases. Barge availability is also very constrained. These factors are expected to contribute to our barge utilization running in the low to mid-90% range for the foreseeable future. These favorable supply and demand dynamics are expected to drive further improvements in spot market prices which represent approximately 45% of inland revenues. We also expect continued improvement in term contract pricing as renewals occur throughout the year. Overall, we expect inland revenues will grow approximately low double digits for the full year and expect near-term inland operating margins to average in the mid-teens and to gradually improve throughout 2023, ending the year close to, if not at 20%. In coastal, market conditions are expected to steadily improve as the industry is getting closer to supply and demand balance across the fleet. Even if there is some market softness, Kirby's coastal barge utilization is expected to remain in the low to mid-90% range. Full year 2023 coastal revenues are expected to be flat year-over-year. Good fundamentals in our core liquid cargo business and higher coal shipments in our offshore dry cargo business are expected to be largely offset by the company's planned maintenance and ballast water treatment installations which are projected to almost double maintenance days this year compared to last year. Operating margins are expected to be near breakeven to low single digits on a full year basis. Looking at Distribution & Services, we continue to have a favorable demand outlook for equipment, parts and service across the segment. In the oil and gas market, high commodity prices, stable rig counts and growing well completions activity are expected to provide strong demand for manufacturing and OEM parts, service and products in the distribution business. In manufacturing, we added new incremental orders in the first quarter, and we expect this trend will continue. As I mentioned earlier, we expect the supply chain issues and long lead times from OEM equipment which, in some cases, are extending beyond a year to remain a challenge. These issues are likely to contribute to some choppiness with new product deliveries, which could potentially shift between quarters within 2023 and perhaps even some into 2024. In commercial and industrial, we expect steady demand on on-highway parts and service driven by increased on highway and municipal repair work. We expect continued improvement in bus ridership and increased demand for Thermo King refrigeration products. Again, all of this may be offset a bit by supply chain delays. In power generation, new backup power installation parts and service activity are expected to remain solid as demand for electrification and 24/7 power continues to grow. Marine repair is also expected to be strong with increasing activity in the Gulf of Mexico and improved commercial markets on the East and West Coast. For the 2023 full year, we continue to expect revenue growth in the low double-digit range for commercial and industrial. While supply chain issues are expected to continue impacting new product and equipment deliveries in Distribution & Services, we expect 2023 segment revenues will increase by 10% to 20% for the full year, with commercial and industrial representing approximately 60% of segment revenues and oil and gas representing the remainder. We expect segment operating margins will be in the mid- to high single digits for the 2023 year. To conclude, overall, we're off to a solid start in 2023. Both our segments performed well during the quarter, delivering improved revenue and operating income, and our team executed well on near-term objectives. Our balance sheet is strong, and we expect to generate significant free cash flow despite higher CapEx this year, and we expect to use the majority of that free cash flow to repurchase shares. Although we see favorable markets continuing and expect our businesses will produce improving financial results in 2023, we are closely monitoring the potential for a recession and any impact that may have on our businesses. Having said that, as we look long-term, we are confident in the strength of our core businesses and our long-term strategy, we intend to continue capitalizing on the strong fundamentals we're experiencing now and driving shareholder value creation with returning some capital to shareholders.

This concludes our prepared remarks.

Thank you. Good morning. I wasn’t going to start here, but you kind of ended here, so it’s kind of natural progression. Petrochemicals and refined products have historically been very economically sensitive. And everything we've heard from an earnings season thus far has been pretty negative on the macro, and most economists are calling for a full-blown recession, soft hard landing somewhere in between for the second half. How do you contemplate your traditional cyclicality of those two core businesses with the guide you've laid out? I know you're watching it but any kind of magnitude you can give us just some historical context on the impact recession could have mainly on inland utilization.

Sure. Yes. Typically, Jon, and you've tracked this for years. You know that when GDP is down, generally, our volumes go up and down with GDP. So let's just say we get a mild recession at a couple of percent negative GDP. That might take a couple of percent off our utilization. But as you heard, we're... I don't want to say we're rocking, but we're really busy. We're almost fully sold out. As you know, you can't really get much better than 95% utility. So we're really bullish. I would tell you there are a lot of reasons for that. A lot of it is on the supply side as well. We're very, very busy. The industry is very active. There’s this huge maintenance cycle that’s happening because a lot of the barges in the industry are up for regulatory maintenance, and it’s going to be really heavy for all of '23 and all of '24. That's soaking up some capacity just on its own. And then nobody is really building new equipment because the cost of new equipment is still very high. So the supply side is the best we've ever seen it. So that does make it more of a demand picture. You can see some of the refiners, one in particular announced strong earnings recently. And the refiners are doing well. The chemicals have pulled back a little bit. However, the way I like to think about it is the U.S. chemical industry is probably the most efficient in the world. Certainly, we have more secure feedstocks than Europe and a better operating environment than South America and Latin America and certainly don't have the issues that Asia has. So I like to think of the chemical industry is that if they're going to run the plants, the most efficient plants are the ones in the U.S., and they’ve got the most secure feedstocks. So they're going to continue to run them. We do worry about the recession pulling back on refined products in gasoline, diesel, and jet fuel. But in my opinion, if you go into a recession, maybe it's people not spending money on capital goods, but coming out of COVID, I think the last thing they're going to want to cut is their travel plans, whether it’s flying or driving. So that may be a little optimistic, but it feels like if demand pulls back, it won’t be a lot in our trade lanes. And even if it's a couple of percent, that shouldn't impact our ability to keep pushing pricing and margin. Now that said, if it's a really deep recession and it’s negative 10% GDP, that's a different story. But I really don’t think that's going to happen. The structural fundamentals are pretty solid. Inventories are low, customers are making good money, and demand seems to be holding up. You can track the airlines and vehicle miles driven. So I remain very optimistic.

The capacity context is very useful in understanding the differences we might see. My second point is more optimistic in tone. The weather in the first quarter is always a factor, but it seemed particularly extreme this time, and you still achieved a low teen margin. As we look ahead towards possibly reaching 20% by the end of the year, do you expect a significant increase in Q2 followed by a gradual rise through the second half of the year as weather and operating conditions normalize? Or do you anticipate a steadier progression from Q1 through to Q4 as contracts are renewed?

Yes. I mean I think we will see a pretty big step-up in Q2, and then Q3 is almost always our best quarter. So we're going to come out of the blocks pretty well here in Q2 and then progress through the remainder of the year. That’s kind of how I see it. I like steady, though. But the construct is about as good as we’ve ever seen. Use a baseball analogy, we’re just starting the third inning here, and it’s going to run for a couple of years. And I think if there is a recession that’s short-lived, and with the supply and demand balance, I think we’ve got multiple years here in front of us, and we’re eager to improve our margins to where they need to be, and we’re working hard on that every day.

You can call me whatever you want to call me. David, Raj, I hope you guys are well. I have a couple of questions. A few questions that came up as you're going through things, if I can. So the first is on the coastal side. It sounds like there’s pretty good fundamental momentum in that area and you just aren't able to realize it because of the shipyard side of things. I'm curious if it's possible, just as we think about this longer-term, to frame what is potentially the revenue uplift and what margins would look like if there weren't all of the shipyard dynamics this year? How much upside would there be in a normal environment?

Yes. I think 5% to 10% kind of margins. Look, you know this, Ben, we’ve got five ballast water treatment systems to put in remaining. We’re 75% to 80% through our fleet. So we’re almost at the tail end of this. A typical ballast water treatment adds anywhere from 30 to 60 days to a shipyard, and it can be really painful, and those are lost revenue days. So we're almost at the tail end of it. We've got two ballast water treatment systems that will be delivered or finished this quarter being the second quarter, and that will just leave us three. As you heard, we lost a little money in coastal this first quarter. Some of that was weather-related, but a lot of it was shipyard-related. We think we'll end up the year in low to mid-single digits for margins for coastal. I think we'll hit '24 running, and I'd be surprised if we don't hit high single digits in '24 and maybe even exit '24 in double digits in coastal. The same dynamic is happening there. You got the industry that has to deal with all these shipyards and ballast water treatment. Nobody's building new capacity in the offshore business. And even if you were to, like, say, put an order in to build a new offshore unit, you probably wouldn't see that unit until 2026. So we’re now inflecting right now in terms of pricing adjustments. You heard that our prices are up kind of double digits and supply and demand are in balance now. So we are at the inflection point on coastal, and I think it's going to start to be a good contributor in '24 and even more in '25 as we continue to raise rates and there’s no new capacity out there.

And if I could add, Ben, I think you'll also see that there will be planned retirements happening in the next couple of years; that's also going to help that supply dynamic in the coastal side.

Okay. That's all helpful. For my second question, I want to ask about the leasing of the fracking units. However, the more pressing issue for me is regarding Page 7, which shows 16 barges on the inland side that are being reactivated or newly built. I'm curious if you can clarify whether my impression that almost nothing was being built by you or anyone else is accurate. Are these primarily reactivations? Have we seen anyone actually take the risk to build new?

So Ben, in my prepared comments, I talked about some strategic marine projects around $40 million that was allocated to that. Most of that is related to reactivations of barges that we had laid up. For us, given the tightness in the market that we're seeing right now, those barges are going to be ready to work. So we're not building new. We're just reactivating barges that we've laid out.

Yes. We don’t really see anybody building new now. I think there’s maybe a handful of new construction out there. I mean, it's 10 to 20 barges max being built now. We're just not seeing any building, which is good. We had some equipment on the bank that we laid up that needed a little more maintenance dollars and we laid it up during COVID and now it makes sense to bring that off the bank and reactivate it. Once we're complete with this, I think we'll add 10 more between now and the end of the year. And then we're pretty much done. We won't have much that we can reactivate. But that is part of the CapEx picture. And you did mention e-frac. Just to put that in context, we said about $100 million. We're really excited about our offering there. We started building electric tracks in 2014. We're now on our fifth generation. The new stuff is really advanced technologically; we're talking in excess of 6,000 horsepower on one trailer, and it's super-efficient for our customers and their customers. That's really driving a lot of interest in this area. Given the technology component of it, we want to control that for a while. Are we going to spend a lot more? No, I think this is kind of it for a while, but we're really excited about it. It takes out some volatility. It will provide us with smoother earnings in our KBS for a few years, and it allows us to control that really good technology for a while. So anyway, that’s just to add on to that.

And I think, Ben, it’s important to note that even with this higher CapEx year, we're still going to generate $150 million to $200 million of free cash flow, and most of that is going to be dedicated towards share repurchases.

Man, you’re just baiting me. I want to keep going, but I know that Greg and Jack and everybody will be a little ticked off at me if I did. So I’d better turn it over, but I appreciate it.

Thanks, Ben. I’m close to Greg and Jack, but thanks. So David and Raj, following up on a few points. The effect of all the refinery maintenance in the first quarter pulled forward, yet your utilization was still in the low 90s. Was pricing, in hindsight, influenced by that? I'm trying to understand what happens in Q2, if there's any lingering effect as you get things up and running. Does that smooth out the process and impact pricing? Or is it still tightening and improving? If so, what remains to be repriced?

Yes, it's more the latter than the former. Weather does help by tightening up utility. It slows everything down, which contributes to our barge utilization, even though we don't get paid for it under the contracts of affreightment. That being said, I would say that the momentum and pace in spot pricing are gaining, not decreasing, even as the weather improves. The market is really tight. This industry bubble of maintenance is real and it is going to be tight for at least two full years. The momentum is strong and is actually gaining, not waning.

So I have a couple of quick questions that should have simple yes or no answers. Regarding coastal utilization, based on your discussion with Ben about the market, if we are still seeing negative margins in the near term, can you clarify why that is? It seems like you are reducing capacity, and I find it hard to believe that in a market with utilization in the low to mid-90s, you wouldn’t be able to adjust pricing to match that near-term demand. Is the issue simply that your contracts are too long?

Yes. I don't mean to cut you off. But in coastal, it's 90% contracted. Those contracts are typically one year. So it just takes a full year cycle. The contracts that renewed in the first quarter and coastal were up in the 20% range, so it's happening. We're inflecting right now. The issue is just because of the contract nature; there's a lot less spot in the coastal market versus the inland market.

Yes. It just seems like we've been talking about this for a while in terms of your challenges. And lastly, I’ll just throw out Ben's last question on the assets. Maybe just the $100 million you're talking about; is this doubling down in terms of your thought on D&S keeping it in the company if we're now adding to the balance sheet?

No, we’re not doubling down. I would just say that this is just special. It’s really good technology. The returns are very high. It’s going to be very accretive in terms of EPS. But we’re probably not going to grow that portfolio. This is kind of where we’re at right now. And we’re pretty excited. Ken, you can imagine it smooths out earnings for the longer term, and it’s going to be very high margin for earnings.

So Raj, regarding the factors influencing the CapEx guidance, you mentioned the $100 million frac investment and the $40 million barge investment. When we consider the range of $300 million to $380 million, what factors determine whether we reach the lower or upper end of that range? And if we end up at the lower end, does that mean a significant portion of that CapEx will carry over into 2024?

Yes, Greg. The reason for providing such a wide range is primarily due to the shipyards. David mentioned the Coast Guard regulations affecting the entire industry. Additionally, we need to consider the impact on the supply chain, which we often discuss in the D&S business. The supply chain is also affected by the maintenance we conduct on our fleets, which is why I provided a broad range. There is a possibility that some delays may extend into next year. I anticipate that this maintenance surge will likely last for about two years, partly influenced by the supply chain conditions we are observing.

I think the good news, though, Greg, is once we get through the bubble, the free cash flow will really jump. You'll start to see a jump in '24, and then '25, our CapEx will be back down to what it... typically, is.

Yes, absolutely. I wanted to mention that when discussing margin progression in inland with Jonathan, it appeared that it wasn't moving in a favorable direction. For C&I and D&S, the forward guidance seems to indicate mid to high single digits, and we are already at that level in C&I and D&S. Can you elaborate on whether the C&I business might be more vulnerable to recession, or do we have enough clarity in those sectors that margins will likely remain stable for the remainder of the year?

Yes. There are two aspects to consider. First, the commercial and industrial (C&I) sector, and then the oil and gas and manufacturing sectors. C&I's margins were in the mid to high single digits, while manufacturing, oil, and gas had lower margins, generally in the low to mid-single digits. Overall, our average margin for D&S was around 6.7%. The main factor hindering margin improvement is the supply chain. Missing components disrupt the efficiency of our manufacturing facilities, affecting the speed and productivity of our assembly lines. The supply chain issues are considerable. It could be anything from a camshaft for an engine to a variable frequency drive or even something like an electric box. These shortages negatively impact efficiency, subsequently hurting margins. We are noticing some improvements in the supply chain, but it remains a daily struggle. As conditions improve, we expect to see margin growth. I would be disappointed if we did not reach high single digits in D&S in 2024.

And then Greg, if I could add to that. As we work through the supply chain issues, you should also see the inventory unwinding progression even get better; you’ll notice that in Q1, we had a build of working capital because business was good, and we built working capital, but the target here is that as the supply chain works its way through the system, we should start to unwind that inventory position.

Yes. And Raj, just to be clear, that’s not part of the cash flow analysis that would be in addition, right?

Yes.

We're hearing the same things, obviously, on rate momentum and supply-demand tightness. It also seems like rates are really a long way off still from building new being economically feasible. So David, I was wondering if you could kind of paint a picture for us of how far off we really are? And then at any point along the way, are there any concerns over rates increasing so much that it actually hurts the competitiveness of marine transportation versus rail or other types of onshore alternative transportation methods?

Yes. Let me address the last part first. Barging remains significantly more cost-effective than both rail and trucking in terms of cost per ton mile. We are still competitively positioned in that regard. To provide some context, you would need to generate $11,000 to $12,000 a day to make the investment in new builds worthwhile. Moreover, while we often overlook it, the cost of compliance with regulations, including Coast Guard standards and Subchapter M for inspected towboats, has been rising, along with insurance costs. When considering all these factors, we are still quite far from achieving rates that would justify new builds.

Got it. That's very helpful. And then along the same lines for the yards, say one day we get there, there's a spike in rates that make it make sense, right? Can you comment on the state of the yards and what the process would eventually be like for them to scale up if new build orders eventually come in? How much inertia is there? And how difficult would it be for them to satisfy an influx of orders if they came?

Yes. There are two parts to the shipyards. There’s the repair and maintenance type shipyards, and there’s – there’s a fair number of them. Now they’re all very busy right now, and shipyard capacity is very tight. Yes, they’re experiencing everything everybody else is where labor is tight, getting labor is tough. They’re working extra shifts. So the repair side of the shipyard situation is very tight. They’re trying to ramp up as much as they can in terms of the number of ships and working evenings and nights. We obviously being very large, have some really good relationships with some top-notch yards. So we’re not particularly worried about it for our repair work. So that’s the maintenance side of the shipyards. But in terms of new builds, there’s really one, what I would call 800-pound gorilla out there, and that’s Arcosa. They have the ability to take capacity or to produce barges, and they could do easily 100 to 200 barges a year if they converted some of their dry cargo barge lines over to liquid barge lines. I just don’t see that happening because the price of new builds are still high. But Arcosa has the ability to ramp up if the demand is there. There are a handful of other ones that can build liquid barges. But again, Arcosa is the big one. That said, Arcosa is very busy with dry cargo barges right now, not liquid barges. The dry cargo business is in need of some barges and they’ve been building dry cargo barges, which are a lot cheaper and a lot easier to build than a liquid barge.

Okay, great. Congrats. So I guess, David, if I could go back to the CapEx and D&S and I think that's really interesting as you sort of think about smoothing out the earnings power there, when would you expect to maybe start seeing accretion from that investment? Is that something that's going to hit in '24? Could that be in the second half of this year? And I guess, how long are the contracts that you're signing related to that?

Yes, there are contracts under construction now. Typically, they’re going to run for about three years. So you're going to start delivering those throughout this year, probably in the second half. You’ll start to see some accretion in probably in the fourth quarter, and then you’ll see some really nice accretion in '24.

Okay. But it doesn’t sound like much if any of that is in your earnings outlook or the sort of the line item guidance you gave. Is that fair?

Yes, that's fair. They are currently under construction. Typically, they'll run for about three years, so it's going to be a really good deal.

Yes, absolutely. It's great to see that you have market-leading technology and it's rewarding to see that recognized. As a follow-up question, as you consider the cash flow ramp into next year with profitability improving, and with capital expenditures decreasing, cash flow should significantly increase. Are you seeing potential for additional mergers and acquisitions, or is the focus more on accelerating the buyback? How do you view capital allocation with the expected increase in cash flow?

Yes, I think that’s a great question. Look, there’s a couple of deals that one of our smaller competitors was bought by another competitor recently. There are some consolidating acquisition prospects out there. But I would tell you that price expectations are pretty robust. And you know this, Jack, from following us; we’re going to stay very disciplined. And I would tell you that the best barge company to buy right now is Kirby. So the short answer is we’re really focused on buying back stock. Kirby is probably in the best position we’ve seen it for a long time, and we’re pretty bullish.

Thank you. At this time, I would now like to turn the call back over to Kurt Niemietz for closing remarks. Thank you, and thank you, everyone, for participating on the call today. As always, feel free to reach out if you have any questions.

Okay. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.