Kirby Corp Q3 FY2023 Earnings Call

Good morning, and welcome to the Kirby Corporation 2023 Third Quarter Earnings Conference Call. I would now like to turn the conference call over to Mr. Kurt Niemietz, Kirby's VP of Investor Relations and Treasurer. 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. 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 our 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 third quarter revenues of $765 million and earnings per share of $1.05. This compares to 2022 third quarter revenue of $746 million and earnings of $0.65 per share. Both of our segments continued to perform well during the quarter despite facing some temporary challenges. In Marine Transportation, pricing on spot and term contracts continued to benefit from strong demand and limited availability of barges, but results were impacted by the Illinois River lock closure and several refinery outages during the quarter. Distribution and Services delivered improved margins even as we continue to work through supply chain challenges during the quarter. Overall, our earnings increased sequentially and year-over-year, and we continued to repurchase stock during the quarter. In Inland Marine Transportation, our third quarter results reflected continued improvement in pricing, partially offset by the headwinds from the Illinois River closure that I mentioned, as well as the refinery outages in the quarter. From a demand standpoint, customer activity remained strong in the quarter with barge utilization running in the high 80% range. Spot market prices continue to progress higher and were up in the mid-single digits sequentially and in the mid-teens range year-over-year. Term contract prices also renewed at higher rates with high single-digit increases versus a year ago. Margins were in the high teens. In Coastal, market fundamentals accelerated with solid customer demand and limited availability of large capacity vessels, resulting in spot prices increasing in the mid-single digits sequentially and in the low 30% range year-over-year. During the quarter, our barge utilization in Coastal continued to run in the mid-90% range. As mentioned before, our results this year are being impacted by planned shipyard maintenance on several large vessels, which led to an overall decrease in third quarter Coastal revenues and operating margins just below breakeven. In Distribution and Services, demand remains strong across our markets with steady levels of service and repair work combined with high levels of backlog. In our commercial and industrial market, overall demand remains solid across our different businesses with growth coming from the marine repair, power generation, and on-highway sectors. In oil and gas, revenues were down as we continued to manage through persistent supply chain issues, particularly with electrical and electronic componentry, which delayed many new equipment deliveries during the quarter. We continue to work diligently to manage these supply challenges; even with the decline in revenues, operating income in oil and gas was up both sequentially and year-over-year, driven by favorable product mix and operating efficiencies. Overall, revenues were up 7% year-over-year and operating margins improved to just under 10%. In summary, our third quarter results reflected ongoing strength in market conditions for both segments. Despite the temporary headwinds in the quarter, the Inland market is strong and rates continue to push higher, helping to offset lingering inflation, while our Coastal revenue remains challenged near term by planned shipyards. Industry-wide supply-demand dynamics remain very favorable. Our barge utilization is good, and we are realizing healthy rate increases. Steady demand in Distribution and Services is contributing to further growth in the segment, and while supply chain bottlenecks are expected, the outlook for the market is strong. I'll talk more about our outlook later. But first, I'll turn the call over to Raj to discuss the third quarter segment results and the balance sheet.

Thank you, David, and good morning, everyone. In the third quarter of 2023, Marine Transportation segment revenues were $430 million, and operating income was $64 million with an operating margin of 15%. Compared to the third quarter of 2022, total Marine revenues decreased by $3 million or 1% while operating income increased $22 million or 52%. Increased pricing and improved operating efficiencies in the Inland market were partially offset by lower Inland utilization due to the Illinois River closure, some refinery outages and coastal shipyards. Compared to the second quarter of 2023, total Marine revenues, Inland and Coastal together increased 1%, while operating income was flat. Looking at the Inland business in more detail, the Inland business contributed approximately 82% of segment revenue. Average barge utilization was in the high 80% range for the quarter. With the reopening of the Illinois River, our utilization has moved into the low 90% range as we begin the fourth quarter. Long-term Inland Marine Transportation contracts, or those contracts with a term of 1-year or longer, contributed approximately 55% of revenue with 66% from time charters and 34% from contracts of affreightment. Tight market conditions contributed to spot market rates increasing sequentially in the mid-single digits and in the mid-teens range year-over-year. Term contracts that renewed during the third quarter were on average up in the high single digits compared to the prior year. Compared to the third quarter of 2022, inland revenues increased by 2% primarily due to higher term and spot contract pricing. Inland revenues were up 1% compared to the second quarter of 2023, as higher pricing was partially offset by lower utilization, given the Illinois River closure. Inland operating margins were in the high teens during the quarter with the benefit of higher pricing partially offset by lower utilization. Now moving to the Coastal business. Coastal revenues decreased 13% year-over-year and were up 1% sequentially as downtime from planned shipyards was partially offset by higher contract prices and improved barge utilization. Overall, Coastal had near breakeven operating margins as improved pricing was offset by increased shipyard days. The Coastal business represented 18% of revenues for the Marine Transportation segment. Average Coastal barge utilization was in the mid-90% range, which compares to the low to mid-90% range in the third quarter of 2022. During the quarter, the percentage of Coastal revenue under term contracts was approximately 90%, of which approximately 90% were time charters. Average spot market rates were up in the mid-single digits sequentially and in the low 30% range year-over-year, and prices on term contract renewals were up in the low double digits 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 third quarter as well as projections for the remainder of 2023. This is included in our earnings call presentation posted on our website. At the end of the third quarter, the Inland fleet had 1,071 barges, representing 23.6 million barrels of capacity. On a net basis, we currently expect to end 2023 with a total of 1,073 in Inland barges, representing 23.6 million barrels of capacity, driven by a modest number of reactivations in the fourth quarter. Now I'll review the performance of the Distribution and Services segment. Revenues for the third quarter of 2023 were $335 million, with operating income of $33 million and an operating margin around 10%. Compared to the third quarter of 2022, the Distribution and Services segment saw revenues increased by $22.1 million or 7% with operating income increasing by $10.9 million or 49%. When compared to the second quarter of 2023, revenues decreased by $15 million or 4% and operating income increased by $3 million or 11%. On the commercial and industrial market, strong activity contributed to a 28% year-over-year and 17% sequential 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. Overall, the Commercial and Industrial business represented approximately 63% of segment revenue and had an operating margin in the high single digits in the third quarter. In the oil and gas market, revenues were down 16% year-on-year and 27% sequentially. We continued to manage through supply chain bottlenecks, especially in our manufacturing business which led to shipment delays in the quarter. Despite these issues, the manufacturing business experienced continued favorable trends in new orders and backlog driven by our eFrac units and associated power generation equipment. Overall, oil and gas represented approximately 37% of segment revenue in the third quarter and had operating margins in the low double digits. Now I'll turn to the balance sheet. As of September 30, 2023, we had $42 million of cash with total debt just over $1 billion. During the quarter, we increased our debt balance by $69 million, and our debt-to-cap ratio increased to 25.3%. During the quarter, we had net cash flow from operating activities of $96.3 million. We used cash flow and cash on hand to fund $104 million of capital expenditures, of which $50 million was related to maintenance of equipment, and the remainder was directed to growth CapEx in marine and eFrac. We continued to return capital to shareholders in the quarter and repurchased $23.3 million of stock at an average price of around $80.31. As of September 30, we had total available liquidity of approximately $451 million. With respect to cash flow, depending on the timing on working capital, we would likely expect to generate close to $475 million to $525 million of operating cash flow and $100 million to $150 million in free cash flow this year. We are committed to a balanced capital allocation approach, and we expect to use most of this free cash flow to continue to repurchase stock. I will now turn the call back to David to discuss the remainder of our outlook for the fourth quarter.

Thank you, Raj. We had a good quarter with both our businesses performing well despite some temporary headwinds. Refinery activity remains at high levels. Our barge utilization is strong in both Inland and Coastal, and rates are steadily increasing. While we expect some near-term issues in the fourth quarter related to low water conditions on the Mississippi River, increasing delay days due to normal seasonal weather, and high levels of shipyard activity in Coastal, our outlook in the marine market remains strong. In Distribution and Services, despite ongoing supply chain constraints and delays, demand for our products and services is good, and we continue to receive new orders in manufacturing. Overall, we expect our businesses to deliver improved financial results in 2024. While all of this is encouraging, we are mindful of challenges related to a slowing global economy, geopolitical unrest, and additional economic weakness due to high interest rates. Even with these uncertainties, we remain very positive and expect to drive strong cash flow from operations going forward. Diving into the businesses in more detail. I'll start with Inland. Favorable conditions are expected to continue going forward, driven by the combination of high refinery and petrochemical plant utilization and minimal new barge construction across the industry. Kirby expects these strengths to be partially offset by increasing delay days due to normal seasonal weather that we generally see in the fourth quarter. We also expect the low water conditions on the Mississippi River to have an impact. Furthermore, there are some inefficiencies remaining with some lock maintenance in Louisiana. The company still expects further improvement in spot market prices, which currently represent approximately 45% of Inland revenues. Term contracts are also expected to continue to reset higher. Overall, fourth quarter inland revenues are expected to be roughly flat sequentially with a modest improvement in margins, and we still expect to end the year close to 20%, if not at a 20% margin. In the Coastal market, conditions have tightened considerably and the industry is close to supply and demand balance across the fleet. As we've discussed, our Coastal revenues and operating margins continue to be impacted this year by an approximate doubling of planned shipyard maintenance days and ballast water treatment installations on certain vessels. Kirby expects steady customer demand through the balance of the year with barge utilization in the low to mid-90% range. Rates are expected to continue improving as the availability of equipment is tight across the industry. For the fourth quarter, Coastal revenues are expected to be up in the low to mid-single digits compared to the 2023 third quarter as we continue to progress through major shipyards. However, there is some possibility of the shipyards extending into early 2024. Coastal operating margins are expected to be near breakeven to low single digits on a full year basis. Moving to Distribution and Services, steady demand in commercial and industrial and favorable oilfield fundamentals are expected to continue throughout the remainder of '23 and into 2024. In commercial and industrial, steady markets are expected to remain in the fourth quarter with incremental activity in power generation, marine repair, and on-highway. This activity should be partially offset by lower rental equipment activity as the hurricane season winds down. That will create a slight headwind to margins. In the oil and gas market, despite the near-term volatility in commodity prices and rig counts, we expect continued demand for manufacturing as well as for OEM parts, products, and services. Within manufacturing, the company expects demand for environmentally friendly pressure pumping and eFrac power generation equipment to remain strong with new orders and increased deliveries of new equipment for the remainder of the year and into 2024. Supply chain issues and long lead times are expected to persist in the near term, contributing to some volatility of deliveries and potentially shifting some deliveries from the fourth quarter into next year. Overall, the company expects fourth quarter segment revenues to be up in the low to mid-single digits sequentially with lower operating margins impacted by mix and dropping into the mid- to high single-digit range from the almost 10% range we had this quarter. To conclude, both our segments performed well during the quarter in the face of some temporary challenges, and our team executed well on near-term objectives as well as on our long-term strategy. Our balance sheet is very strong, and we expect to generate significant free cash flow in coming quarters. We expect to use free cash flow for share repurchases, debt repayment, as well as opportunistic growth projects. Although we see favorable markets continuing and expect our businesses will produce improving financial results as we head into 2024, we are closely monitoring the potential for a recession as well as the potential short-term weather and low water-related impacts in our Marine business. Having said that, as we look long term, we are confident in the strength of our core businesses and our long-term strategy. Our Marine businesses are in the early innings of a multi-year recovery, and demand remains solid in Distribution and Services despite recent macro headwinds. We intend to continue capitalizing on strong market fundamentals and driving value for the shareholders. Operator, this concludes our prepared remarks. We are now ready to take questions.

Our first question comes from Ben Nolan of Stifel.

David and Raj. For my first question, I wanted to ask a little bit on the inland side. Well, actually inland and Coastal. We've gone through a number of years now with very little in a way of ordering activity. And I know that you guys have been pretty vocal about saying the economics for new equipment still don't line up. But at some point, the industry is going to need some replacement CapEx. Can you maybe put a little color around that and how you think about it with respect to your own fleet?

Yes, Ben, thanks for the question. The cost of new equipment has nearly doubled in the last five years. Prices for steel, labor, paint, skilled welding labor, and electronics for boats have all increased significantly; high-performance lines on towboats are up 60% to 70%. This means that for a two-barge tow, costing $4 million per barge, plus an additional $6 million to $7 million for a towboat, you’re looking at about $15 million in total capital equipment. To achieve a return of 10% to 12% on that investment, you'd need to charge more than $13,000 a day. Given the current economic environment, it doesn’t make sense for anyone to build right now until rates rise. We're still battling inflation, which is keeping builders from investing until those rates improve. Additionally, the cost of borrowing has increased significantly. It used to be around 3% to 4% for secured financing, but a smaller company might now face interest rates above 10%. With the loss of bonus depreciation, building equipment becomes increasingly challenging, potentially pushing the necessary daily rate well above $13,000, possibly even reaching $14,000. That said, we are starting to see some equipment tied up during COVID come off the bank, though some may never be reactivated. We’re nearly finished reactivating our laid-up fleet, and while we can expect to see a few pieces of equipment come off the bank if the numbers make sense, it’s likely only about 2% to 3% of that equipment. Looking ahead, I don't expect any new building for another year or two unless rates rise quickly. Recently, we noted an increase in the number of barges being built this year, from 22 to 27. However, retirements are also expected to be high this year due to maintenance needs, as many older pieces of equipment may be deemed not worth the cost of repair. This could lead to retirements exceeding $75 million, though we lack a comprehensive view of what the entire industry is retiring. In summary, I don’t see anyone ready to build in the near future, given the current economic conditions.

And Ben, I'll just add on the Coastal side, to David's point, we're not seeing any building. And if you were to build, the lead times are going to take you into the 2027 timeframe.

Right. Well, I appreciate that. You guys answered a lot of questions in that one question there. My second one, though, if I could move over to the D&S side. It seems like some of these supply chain issues are persistent, and we're not hearing that as much from other places. I'm curious if that is pushing sales into next year and sort of what line of sight you have for the D&S business going into 2024, appreciating that you haven't given guidance on that yet. But just looking to understand how you feel about sort of what's already in the bag for next year. And then maybe, David, I know that you and I have talked about the VoltaGrid stuff a little bit. Curious how that is playing out? And if maybe you could give a little color on that within D&S?

Sure. In terms of the supply chain, I don't want to exaggerate the issues, but it's somewhat inconsistent. We sometimes encounter delays in getting variable frequency drives, but then the situation improves for a bit before potentially becoming problematic again. Similarly, we may have difficulty obtaining certain electrical components, though they eventually start to arrive. While there has been some improvement in specific areas, we might see setbacks after a few months. For instance, some of our engine suppliers won't be able to deliver engines until 2025 in certain cases, so we are still facing significant challenges. On the positive side, we’re noticing improvements in parts for engines, and as you know, we handle a lot of repair work. Overall, things are somewhat better than before, but we are still experiencing some impacts. As mentioned in our prepared remarks, it's possible that some shipments intended for the fourth quarter could shift into 2024. Overall, things are pretty much the same, but you might see some fluctuations.

Okay. And on VoltaGrid if you can...

Yes. VoltaGrid, for those not familiar, VoltaGrid is one of our customers. We don't like to talk about direct customers, but they provide power by the hour, not only to the frac space but other places in the industry. We build a lot of their equipment. They continue to expand and to build. We continue to get orders from them. They're a world-class organization and growing well, probably best for me not to give you much more detail than that.

Our next call comes from Ken Hoexter of Bank of America.

This is Nathan Donlin for Ken Hoexter. Congratulations on the great quarter. My question is on the Inland Marine side. So seeing that ton miles are down 3Q 11% on partly some of the factors the team has mentioned. I noticed the call-out on the Mississippi water levels and some of the lock delay days based off of weather. I just wanted to get a scale on what that represents in terms of an operating challenge from a volume perspective? Should we assume somewhat of a similar level of decline this quarter versus the last?

Thank you for your questions, Nathan. Your observation about ton miles is insightful, and I’d like to expand on it. As you are aware, the Illinois was closed, which is significant because we typically transport barges from the Gulf Coast to Illinois and sometimes to Chicago. This is a lengthy journey that creates a substantial amount of ton miles, and the closure of the Illinois has considerably reduced those ton miles. Additionally, we transport a significant amount of crude and condensate from Northeast regions like the Utica and Marcellus, which are gas-rich areas. When gas prices drop, production of condensate declines, leading to fewer crude shipments from the Ohio Valley to the Gulf Coast and hence fewer ton miles. That said, we remain quite active, as demonstrated by our good utilization rates. Revenue per ton mile has increased due to operations in other areas of our system. We also engage in cross-channel movements, which may involve transporting a barge within Houston. These moves can occupy the barge for several days, generating considerable revenue though covering minimal miles. Therefore, one needs to interpret ton miles in relation to revenue per ton mile carefully. As you pointed out, the Illinois closure affected these metrics, but now that it is reopened, we began deploying barges in October, and we expect ton miles to improve. However, it does take time to mobilize the equipment and get it back up river. We’re also facing lock delays, particularly with a significant lock closure in the New Orleans area, leading to detours and some system slowdowns, but we are managing through those issues, which is a typical part of our operations. The unique situation right now is the record-low water levels on the Mississippi River. Recently, we received some rainfall in the Ohio Valley, which may provide some relief. Historically, record low water levels have cost us between $0.02 to $0.05 per quarter. This time we anticipate the impact will be less, although it’s challenging to predict at this point. We’re monitoring the situation closely, and it’s likely to fall in that same $0.02 to $0.05 range, but given the recent rainfall, it’s uncertain. Predicting weather and its implications is inherently difficult. I hope this addresses your concerns, Nathan.

No, that does. And I guess my next question is just sort of a little more big picture. Trying to understand how the team is looking at the contract exposure side of things, particularly in Inland. I see that you've mentioned that it's currently more or less around half the book right now. But historically, this could trend well into the 80s. I mean, we're talking about historically tight vessel capacity and strong demand. Could we see this sort of locking in of current rates kind of ramp gradually higher into the next couple of years?

Yes, that's a good point. As you've pointed out, our exposure is approximately 55% term and 45% spot. We intentionally maintain a significant spot exposure, especially in a rising rate environment. Recently, we observed Inland rates increase by mid-single digits sequentially, while year-over-year spot rates rose by mid-teens. We're satisfied with our spot position. Regarding your observation, customers are aware of the maintenance challenges, and we're noticing a trend towards extending contracts or securing longer spot agreements. Instead of short-term contracts of a month, they are considering agreements of three or six months as they become more cautious about the maintenance situation, given the current tightness in the spot market.

Our next call comes from Jack Atkins of Stephens Inc.

Okay. Great. David, I’d like to revisit Ben’s first question from a different angle. Historically, there’s been a significant focus on new barge construction in relation to retirements and how that affects capacity. However, an important aspect of capacity is also the challenge of getting enough mariners to crew the boats. Can you discuss that as a capacity constraint? From what we’re hearing, hiring qualified personnel to operate your boats is just as challenging as constructing new barges. So, that's another limitation for capacity, and I’d like to hear your thoughts on it.

No. I mean, that's an excellent point. Horsepower, as you know, is how we move the barges, and we've got to crew these vessels, and we've seen a very, very tight labor market. It's been hard to get crews. Fortunately, Kirby has got our own school. So we anticipated some of this and started the school basically almost 2 years ago ramping up even as COVID was going on. We're doing okay. We're short mariners. I'll be honest, we're short mariners, but we're able to crew our vessels right now. A lot of mariners are working a little overtime to help do that, which is good. They're good team players. But it is absolutely a factor in the tightness in the market. There is just not a lot of available horsepower, which is making it really tight. So you've got tight barge availability and tight boat availability. And that just, as you would imagine, makes it even more difficult to get moves going. So thanks for bringing that up. It's a good point. We don't talk about it a lot, but it is a major factor. And that's part of the inflation picture, right? I mean, there's some labor inflation. We've been dealing with that, and part of it is because we're short mariners in the whole ecosystem.

Yes. Okay. No, that makes sense. I just wanted to kind of get your thoughts on that piece. And then, I guess, just as we kind of think about the bigger picture, this is maybe a 2-part question, but both as it relates to sort of your fourth quarter outlook and then kind of longer term going into 2024. I guess, when you think about relative to 3 months ago, has the fourth quarter outlook changed at all? And if so, is that really kind of tied purely to the water levels? Or is there anything else going on there in terms of customer demand that maybe that will give you a chance to talk about just the output that you're seeing from some of your key customer groups within Inland?

No, the outlook for the fourth quarter hasn't changed significantly. If anything, it has improved slightly because we are tighter than expected. Weather is always a factor in the fourth quarter, and we're beginning to experience that now. Fog is particularly challenging; it can hinder operations more than low water levels because the Mississippi River only accounts for about 20% to 25% of our volume. However, in the Gulf Coast region, where we operate extensively, a day of fog can considerably slow down our fleet. This is something we usually experience in the fourth quarter. Weather also impacts efficiency, making operations less effective. Overall, I would say the situation is as anticipated, potentially a bit better since we're tight on spot capacity. With Illinois reopening, low river conditions present some challenges as we have to manage lower drafts and coordinate with dredging efforts. All these factors are influencing our current outlook. It's worth noting that we are entering a contract renewal period in the fourth quarter, which typically involves a significant number of renewals. The market is tight, and our customers are aware of this tightness as well as the ongoing maintenance challenges. Therefore, we feel quite positive about our outlook. While it's still early to discuss 2024, we feel optimistic heading into these major contract renewals.

Our next call comes from John Daniel of Daniel Energy Partners. We're heading into a contract renewal period in the fourth quarter, which is typically a busy time for contract renewals. The market is tight, and our customers are aware of this situation and the maintenance bubble. We're optimistic about the outlook. While it's too early to discuss 2024, we feel positive going into the major contract renewals at this moment.

David, thank you for including me. I got just one question on the environmentally friendly Frac equipment. Would you characterize the interest, not orders, the interest as accelerating or stable right now? And then also, is it coming from a broader customer base? Or is it the same customers?

It is broader. I would say accelerating may be too strong of a word, but improving. I wouldn't say accelerating because that makes it sound like it's a huge ramp, but it is improving. The interest is improving. I mean, John, you know this better than anybody, the efficiencies you get with eFrac are so pronounced and so good for not only our customers, the pressure pumpers, but the E&P companies, and the savings are there. Obviously, everybody likes the ESG benefits, but the operational savings are so significant. I think, and you should tell us because you know the customers as well as we do, but I think you're just going to see continued building of eFrac and conventional Frac; you won't see much of going forward in terms of new builds.

Would you be willing to share which markets are the most interested? I understand you don't want to.

I think it's the Middle East.

Yes. Okay. Fair enough. On the supply chain constraints, the electronic components, do you have any more color you could add us, like what's really driving that? Are they diverting supply to other sectors? Or they just can't make it fast enough?

Yes, it's the latter. They can't make it fast enough. We buy variable frequency drives, for example, from a Scandinavian area, and they just can't produce them quickly enough, which is an interesting dilemma. Sometimes enclosures get backed up, and you wouldn't think that would be an issue, but it happens; different electric components and things related to electronics also seem to be experiencing delays. John, you know this; if you consider all the data centers being constructed and the rise of technologies like ChatGPT and AI, we've seen another surge in demand for backup power, whether in data centers or elsewhere. We use the same equipment to generate electricity for the frac spreads. So there is a significant amount of demand in the system, and that's what is happening. It's mostly related to electrical or electronic items.

Our next question comes from Greg Wasikowski of Webber Research & Advisory.

David and Raj, I wanted to check in on that chunk of term contracts that rolls over in Q4. I know it's early days here, but I wanted to see how would you characterize your initial expectations and your level of confidence when looking into Q4 right now, say, versus your expectations and level of confidence last year and the year before?

Yes. Last year, we were still in the process of recovering from COVID. This year, the environment is much better compared to last year. While last year was good, we were uncertain about whether COVID had truly subsided and if the market was coming back along with the river volumes. We did witness a recovery. In the first quarter of this year, we faced some challenging weather conditions. Overall, I would say that contract renewals feel better this year. I hesitate to say significantly better, but they certainly feel improved. It's a competitive market, and the maintenance needs are very real. Our customers have substantial volumes to transport. The share buybacks among our customers indicate how well they are performing. For them, the cost of barge transportation for moving refined products or chemicals is minimal, and they should be generous.

Understood. Okay. And then can you talk a little bit more about your power generation fleet in Q3 and Q4 so far? I'm just curious how demand compared to last year relative to the severity and the frequency of storms of last year versus this year? Maybe remind us operationally, do customers essentially have standing annual rental agreements regardless of what the storm activity really is? Or would increased storm activity drive demand higher real-time within the quarter?

Yes, every customer is a little different. Typically, there's a standby fee during hurricane season, and if we deploy, the rates significantly increase. Fortunately, it was a mild hurricane season this year, which has an effect on our Marine business. However, we remained quite busy with rental fees as customers have become more proactive about keeping equipment on standby. As we move out of the hurricane season, that activity decreases as expected. The main point is that companies now understand the necessity of having power available 24/7 and are increasingly savvy about ensuring backup power options. We provide backup power generation equipment to data centers, banks, financial institutions, and hospitals. This demand is positively impacting our Power Generation business as we manufacture and deliver equipment to organizations that cannot risk being without power.

Yes, understood. I hope you're doing well with your situation.

Well, you know the answer to that question. But at least it's another Texas team that's in, yes.

As there are no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Kurt Niemietz for any closing remarks.

Thank you, Corey, and thank you, everyone, for joining us on the call today. If there's any follow-up questions, please reach out to me any time today.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.