Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services First Quarter 2022 Earnings Conference Call. My name is Jerome, and I'll be coordinating the call this evening. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, there’ll be a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President, Treasurer, and Investor Relations. Mr. Klevitz, you may begin your conference.

Thank you, Jerome. Good evening, everyone, and welcome to the World Fuel Services first-quarter 2022 earnings conference call. I am Glenn Klevitz, and I'll be doing the introductions on this evening's call, alongside our live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit the World Fuel Services website and click on the webcast icon. With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. By now, you should have all received a copy of our earnings release; if not, you can access the release on our website. Before we get started, I would like to review World Fuel's Safe Harbor statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information. A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's most recent Form 10-K and other reports filed with the Securities and Exchange Commission. World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes certain non-GAAP financial measures as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. As with prior conference calls, we ask that members of the media and individual private investors on the line participate in listen-only mode. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Glenn. And thank you, everyone, for joining us this evening. I want to start by recognizing our global team for their tremendous individual and team effort and execution during these turbulent times. First with COVID, then supply chain disruptions, and now coupled with historic fuel price volatility arising from geopolitical events. During all of it, we have continued to deliver on our commitments to our customers and suppliers each and every day, with extraordinary skill and expertise. Remaining calm in the face of what was in essence a perfect storm of logistical complexity and difficulties and market dynamics. A big thank you to all of you. I've always said that our company’s diversified business model is uniquely positioned to deliver during times of uncertainty in the markets we serve, and that when taken together complement each other during times of heightened volatility. This quarter's solid overall result is a perfect example of that. In our aviation segment, commercial passenger business aviation and cargo volumes were all up year-over-year with commercial passenger volume approaching 80% of 2019 pre-pandemic levels globally. Our aviation services and technology offerings also delivered strong year-over-year growth. While our core aviation business performed very well, aviation results were negatively impacted by historic fuel price changes, which Ira will explain in greater detail shortly. At the same time, our marine business performed extremely well, navigating a sharply rising bunker fuel price environment where average bunker prices increased 30% sequentially. Unlike our aviation business, most of our marine transactions are executed on a spot basis and we earn higher returns on the back of higher prices, resulting in extraordinary performance when compared to recent periods. As credit capacity variably tightens in high-price markets, the scale of our business and the strength of our balance sheet differentiate us in a volatile pricing environment. We can continue to provide our customers with the products, services and credit they require when they need it most. Simply put, this served us well in the first quarter. With the backdrop of high container and dry bulk rates, strong commodity demand, capacity constraints, rising interest rates, supply chain efficiencies, and sustainability, we have expanding opportunities to play an important role in the success of our marine customers. Lastly, our land business performed well in the first quarter; we experienced seasonably strong results in our UK heating oil business and solid contributions from our natural gas and power activities, which serve to further augment the immediate benefits from the addition of the Flyers Energy operations for our overall land business. With Flyers Energy, we are better positioned to build a more ratable and leveraged national platform with a myriad of growth opportunities ahead. Now I will turn the call over to Ira for his review of our financial results.

Thank you, Michael. Before I walk through our first quarter results, please note that the following figures exclude the impact of non-operational items, which are highlighted in our earnings release. These items include acquisition-related expenses and integration costs, which can aggregate were only $500,000 after tax in this year's first quarter. To assist you in reconciling results published in the earnings release, the breakdown of the non-operational items can be found on our website, and in the last slide of today's webcast presentation. Furthermore, before getting to the numbers, as Michael already mentioned, this was a quarter which clearly demonstrates the value of our diversified business model, with aviation negatively impacted by unprecedented market pricing dynamics, while marine significantly benefited from the sustained high price environment and land delivered strong results with Flyers now on board. I will get into the details shortly, but I thought it was important to start by pointing this out. Consolidated revenue in the first quarter was $12.5 billion, up more than 100% year-over-year, and putting us on a $50 billion annual run rate for revenue for the first time in our history. Volume continues to improve across all of our business segments, as commercial aviation passenger volumes continue to recover, contributing to a 26% year-over-year increase in consolidated volumes. Adjusted first quarter net income and earnings per share were $26.8 million and $0.42 per share respectively. Adjusted EBITDA for the first quarter was $75 million, an increase of $14 million, or 23%, compared to the first quarter of last year. With regard to second volumes, aviation volume was 1.7 billion gallons in the first quarter. That’s down 2% sequentially from a seasonally strong fourth quarter, but an increase of 45% compared to the first quarter of 2021. The year-over-year volume increase resulted principally from the ongoing recovery in commercial passenger activity. Volume in marine for the first quarter was 4.7 million metric tons, a decrease of 3% sequentially, but an increase of 11% year-over-year. As stated on last quarters call, continued increases in our core resale activity, principally in the container and dry bulk markets and physical operations drove the expected improvement in year-over-year volume. Land volume was 1.6 billion gallons or gallon equivalents during the first quarter, an increase of 16% sequentially, and 22% year-over-year. Year-over-year volume increase was principally driven by volume associated with the Flyers acquisition as well as continued growth in our natural gas and power activities. Consolidated volume was 4.5 billion gallons or gallon equivalents that’s up 3% sequentially, and 26% over last year. Consolidated gross profit in the first quarter was $231 million, an increase of 7% sequentially and 21% year-over-year. Before I discuss aviation gross profit, I would like to provide some backdrop. As you know, backwardation occurs when oil futures forward prices trade at lower levels than current spot prices. During the first quarter, future forward prices were trading significantly lower than spot oil prices, which resulted in the most severe level of backwardation since future prices have been tracked. Many have actually referred to this as super backwardation. Why has this happened? Short-term supplies have dwindled, and as most economies have bounced back from COVID-19, supply growth has simply not kept up. Additionally, Russia's invasion of Ukraine has increased supply concerns and driven up current prices, with longer-dated futures much lower, as the market clearly does not expect these dynamics to last. What does this mean for us? The impact on our results is most pronounced in aviation, where we carry higher levels of inventory with the longest cycle times and we hedge our price exposure with heating oil derivative contracts, as heating oil is the forward market commodity that is most closely correlated to jet fuel. When heating oil futures prices trade significantly lower than the spot market, since we hedge our inventory with futures contracts, it is difficult to avoid losses. This materially impacted aviation's margins and net results in the first quarter. While the fundamentals of our aviation business remain strong, with commercial passenger, business, and cargo activities all posting solid growth versus last year, the segment's gross profit contribution declined 42% sequentially and 16% year-over-year, with the sequential decline driven principally by the inventory issue and seasonality, while the year-over-year decline was driven by the inventory impact and the exit from Afghanistan during 2021. As we look ahead to the second quarter, we expect the core business to benefit from the continuing recovery and seasonality, with a sequential seasonal increase in volumes likely to be 15% or greater. However, with the market remaining steeply backwardated, it is likely that aviation gross profit will continue to be significantly impacted by the effects of backwardation and our physical inventory positions. With most of our aviation contracts renewing at the end of the second quarter, as we enter the third quarter, we have more opportunities to mitigate or eliminate this risk, should a steeply backwardated market continue into the summer months or beyond. On a more positive note, the Marine segment performed extraordinarily well, generating first-quarter gross profit of $47 million. That’s an increase of 55% sequentially and 85% year-over-year. As noted earlier, the strong result this quarter was driven by increased returns in our core resale business in a tightening credit environment caused by the significantly elevated price of bunker fuel during the quarter. As we look ahead to the second quarter, we expect marine gross profit to remain strong as the price of bunker fuel remains at or above first-quarter averages. If this trend continues, second-quarter marine results should again be materially ahead year-over-year and relatively consistent with the results delivered in the first quarter. Our land segment delivered record gross profit of $120 million in the first quarter, up significantly both sequentially and year-over-year, principally as a result of the recent Flyers acquisition, which performed very well in its first quarter since we closed the transaction in early January. Additional highlights in land include strong seasonal strength in our UK operation, which delivered record results in the month of March. While our natural gas activity was down from last year's record performance, which benefited from extreme weather conditions in last year's first quarter, performance was still solid, and our power business delivered strong year-over-year growth as well. Looking ahead to the second quarter, land gross profit should experience a sequential seasonal decline, but should be up materially year-over-year, driven largely by the impact of Flyers. On to expenses. Core operating expenses were $187 million in the first quarter, slightly higher than the top end of the range provided in last quarter's call. Looking ahead to the second quarter, we expect core operating expenses to be similar to Q1, in the range of $185 to $190 million. Bad debt expense in the first quarter was only $2 million, that's down about 40% sequentially and year-over-year. As our team continues to manage our accounts receivable extremely well at a time when volume growth and higher fuel prices have increased the size of our overall receivables portfolio to $3.5 billion. Adjusted EBITDA in the first quarter was $75 million, that's up 36% sequentially, and 23% compared to last year's first quarter. Our interest expense was $14.3 million in the first quarter. As we mentioned in the last quarter, interest expense increased principally due to higher borrowings related to the recent Flyers acquisition, increased working capital, and rising interest rates. With rates forecasted to rise further, this quarter we expect second-quarter interest expense to be in the range of $15.5 million to $16.5 million. On another positive note, our adjusted effective tax rate continues to decline, with the first-quarter rate at 19.6%. The rate for this year’s second quarter is expected to be even lower. For the full year, we currently expect our effective tax rate to be in the range of 19% to 22%, which is down significantly from 2021. During the first quarter, operating cash flow was negative $72 million, which principally relates to a 50% increase in average fuel prices from December to March, driving a 50% or $1.15 billion increase in accounts receivable in the first quarter. We mitigated the working capital impact of higher fuel prices during the first quarter by maintaining our net trade cycle at a near record low. As announced a few weeks ago, on April 1, we amended our banking facilities, increasing the size of the facility to $2 billion and improving terms, which further enhances our liquidity profile and extending the facilities maturity date to April 2027. This demonstrates the strength of our relationships with our global bank group and their confidence in our longer-term opportunities. All in all, our balance sheet remains strong and we remain committed to disciplined capital allocation to support our ongoing business activities and strategic investments in our core business, all focused on driving long-term shareholder value. Finally, we repurchased 500,000 shares of our common stock during the first quarter, demonstrating our continued commitment to driving additional shareholder value through buybacks and dividends. In summary, despite near-term headwinds in our aviation business, we delivered a solid overall result in the first quarter. Our land business is larger and stronger than ever, following the recent Flyers Energy acquisition. And our marine business once again demonstrated its ability to contribute to results handsomely during periods of market and price volatility. Overall, our business is now significantly more ratable than before with a much-refined portfolio of business activities, providing greater opportunities to drive operating efficiencies, EBITDA growth, and higher returns going forward. Now I’d like to turn the call back over to Mike for his closing remarks.

Thank you, Ira. As I mentioned earlier, over the last several decades, we have designed a business model that we believe is built to be resilient through times of adversity. Since our operating model was not constrained by a single method of fulfillment, our physical operations are just one component of what we call 3PV, our third-party physical inventory and logistics and virtual modes of fulfillment. It is our global network of third-party supply and service partners, together with our physical inventory and distribution capability, which is further supported by our evolving virtual or digital capability that manages costs and creates operational integration with our customers and partners, and has become a bona fide technology and software business. The combination drives strong value creation, that deep commoditizes this energy to provide real value add to the market. As you know, we have reshaped our land portfolio and Mike Crosby gets a lot of credit for that, and I will be forever grateful for his contributions. As a result of his work and many others, I believe the quality of our earnings, and the diversity and complementarity of our portfolio will help us drive more durable, readable and repeatable results. The rollout of our common operating model under John Rawl, combined with the arrival of our long sought-after liquid land platforms and world connect Sustainability Solutions, better positions us for operating leverage, taking market share and embracing transitions. As mentioned earlier, the resiliency of our business model allows us to pivot and respond to the inevitable gyrations of energy logistics and the endless amount of geopolitical and societal issues that impact local, national and global commerce. Our revolution from simple intermediaries to a sophisticated underwriter of risk and an omnichannel participant speaks volumes about our potential. Our evolution continues to be a source of pride for our team. It's what motivates and animates us in our mission to support global commerce each and every day. I'm optimistic about the opportunities we have across all of our end markets, and I'm increasingly confident in our ability to execute our 3PV growth plan with a growing suite of highly desirable energy solutions. I'd like to now open the call to Q&A operator.

Our first question comes from the line of Ken Hoexter from Bank of America. Please proceed with your questions.

Great, good afternoon, Michael and Ira. And phenomenal results if not for the inventory issue. So let’s hit on the aviation for a quick second. And I guess more on the inventory side? Ira, are there things you can do in the interim? I don't know, maybe not take possession of as much and move away from the downside and just do the reselling, is that an opportunity to avoid some of these backwardation issues? Or is it something you have to do to get price certainty and understanding the market at any given time? Maybe just walk us through your thoughts on that?

Yes, and I'm going to pass it to Ira, and he'll fill in with some details. So, just a short history lesson. We got involved in the physical part of the market, particularly in aviation, I think it was 2003. It took us a little while to develop expertise there, and we certainly have it today. I'm very proud of what we do every day to keep aviation and a lot of other folks supplied. We're an extraordinarily responsible counterparty. So, we have extended that model to many locations. If not for our inventory, in some locations there wouldn't be reliable supply. There is the cost of that. Because there is no perfect hedge within jet fuel, and we're a conservative company, we're a risk management company, and we like to mitigate risks. There are not really perfect hedges for jet fuel. In this crazy market, these were not effective, as Ira suggested. We've been revisiting some of our deployment of those physical locations and we're also reviewing some other things in terms of pricing structures on buy and sell. We can turn on a dime; that is the nature of the business. It's a contractual business with commitments, and we uphold those commitments, and we always have. We've reviewed that as we do with all of our businesses during these extraordinary times. We believe that we'll have some ability to moderate, but those will not really kick in until Q3. Ira, do you want to add some more color to that?

No, I think Mike said it all. Clearly, we're trying to optimize and hold no more inventory than we need. Also, as Mike mentioned, as we get into the third quarter, we have some more flexibility in terms of pricing structure and trying to find ways to reduce the specific risk as much as we can. However, once again, Mike said it doesn't turn on a dime; you can't do it overnight. But it's something we're heavily focused on managing through the short term.

And Ira just to clarify, or Mike, this is completely different than a few years ago, where you got caught in terms of hedging and pricing went the other way, where you could have made money, right? So you got out of the hedges. This is just a factor of taking ownership of that, to like you said, Michael, to ensure you had inventory at specific locations?

I think it's really a question of scale, and extremity. So certainly, we broke out the business, and we're significant global participants. The business has grown and the severity of the movements in a short period created the impact. There’s other comments you want to make, Ira?

Yes, no, I mean, this is different than what you're talking about; this is purely about the inventory that we have to support the core business. Because of the structure of the market, it’s just very difficult to avoid the losses right now. Again, there are many things we're focused on. We’re trying to shorten the amount of transit times that we have, which creates more risk in some cases by buying in location rather than buying in the Gulf Coast and then being locked in for several weeks as the fuel travels up the pipeline. This is a little different; the market has never seen this level of backwardation before, meaning next month’s price versus the spot price, and that difference is just extraordinary. Hence, we're working on focusing on how we can mitigate some of those impacts. As time goes on over the next couple of months, the chances increase significantly that we’ll be able to do that.

Great. And just one other follow-up from me, and then I'll hand it over. You mentioned, Ira, in your remarks the change in cycle terms. I think I've only seen you rein it in during weaker economic times, where you were concerned about bad debt and potential for bankruptcies. So maybe walk through your process there on how you do have to wait until contracts are renewed to change those cycle times, or walk us through where it is now versus where it is historically?

Yes, I think you’re talking about the trade cycle, and that might be in terms of understanding the context.

Yes, sorry, yes.

That's something we've worked on religiously for years. The tighter you can manage that trade cycle, the better your longer-term cash flow profile is going to be. There’s a little bit of risk mitigation there as well. We've been bringing that down over time; some of that is the mix of business, and some of that is just smarter business. We're great trading partners, but maybe in some cases, we're a bit too great, and historically offered too much flexibility, such as extended terms beyond traditional trade terms. We've got much less of that now. We have been pretty consistently running at about a seven-day trade cycle for several years, and we've continued to work at that every quarter. Now it's just a little over four days. I don't think we could bring it down much lower than that, but we’re looking to maintain that level between four and five days, which compared to a lot of other businesses and industries is a very respectable metric. It reduces the overall risk; think about it: we have a run rate of $50 billion revenue, and we only have about $700 million of net working capital. That’s a pretty good comparison. We work at it every day, managing receivables, payables, and inventory days to find the lowest net number possible.

Great, thanks, Mike. Thanks, Ira. Great job on the marine and certainly the land side and on Flyers. Thanks for the time over to Ben.

Thank you. Your next question comes from the line of Ben Nolan from Stifel. Please proceed with your question.

Thanks, Ken. I've got a couple here. First is, I forgot one of you, Ira might one of you talked about the impact on the business in a rising interest rate environment. And how that has historically been positive. Obviously, we are in a rapidly rising interest rate environment. Can you help me just walk through maybe each of the segments or just in general how that does impact the business in the margins and volumes and everything else? And how big of a determinant is it in how the business does?

Yes, so the greatest impact, Ben, is in marine, because as we've mentioned on many occasions, marine is a spot business. That means pricing for transactions occurs every day, as opposed to aviation, where we're heavily locked into contracts for the year at a time. Even in parts of the land, we're locking many contracts for multiple years at a time. I would say the interest rate is secondary, but important. I list that because the principal driver this quarter, in particular, is just the substantial increase in flat price or the price of a metric ton of bunker fuel, which rose to more than $800. If you combine that with rising interest rates, you've got many market participants who may come up against the market without the scale of our balance sheet. They need more capital, and capital is becoming more expensive. This naturally makes them a little less competitive, or in some cases, a lot less. It gives us a greater chance to win based on our global scale and strong balance sheet. This has historically provided greater opportunities for us in the market, as it did this quarter, leading to much stronger results. This isn't the first time we've seen that. Less of an impact in the other businesses, though the interest factor could impact everyone participating in a commodity in a sharply rising price environment. In the short term, we see the greatest impact in marine since we're reacting and bidding on business on a day-to-day basis, without long-term commitments, so to speak. As a result, in this environment, you’ve seen the greatest positive impact in marine. Still, there are parts of land. For example, we've also saw improvement in results there. We saw that with Flyers in our first quarter as they outperformed our expectations driven in part by this phenomenon, and even our land UK business. In my prepared remarks, I noted that March was a record where they also improved their results, indirectly tied to this issue as well. Hopefully, that answers your query across the business.

Yes, that's helpful. I appreciate it. Speaking of Flyers, the land numbers are pretty good. Really good. You'd mention that Flyers are sort of outperforming, and I know there's a degree of seasonality there. But, a quarter into the deal now, does it feel like you hit what you originally outlined in terms of your expectations for accretion and how the impact on the company? Does it feel like given this solid quarter, it might have been a little conservative yet?

Yes. They were a bit conservative by design; when you're venturing into something new, you don't want to rush ahead until you fully understand the situation. We had a strong start in the first quarter, and historically, the first quarter has been the weakest seasonally for that business. We saw our performance there, and while it's uncertain if we'll experience the same seasonality in the second quarter, it’s possible. Overall, based on our current position, things could vary. They are certainly performing above our initial expectations, which is wonderful. They are an exceptional team and have been diligently working to integrate into the World Fuel platform. We have gained a lot from them; while we are the larger company, we learn from them daily, just as they learn from us. We've certainly made a solid start and hope that continues throughout the year.

All right. And then last, well, if I'm limited to three, maybe I'll have one little tiny palm. Heating oil was one of the things on the land side you called out as having a strong impact. Natural gas prices, especially in Europe with LNG and everything else, are just crazy. A lot of people are looking for alternatives to meet their thermal energy demand. Are we in an environment here where maybe there's an opportunity to continue to see a little extra benefit for whether it's heating oil or fuel oil, or whatever, just people looking for a higher margin for you as an alternative to an expensive natural gas price?

No, I don't think that is necessarily the case. Anything we did, as you pointed out, we did very well in the heating oil season in the UK, a combination of weather, and just volatility in the marketplace. However, that season is about to end. While we did great in April, getting into May and June, the level of activity wanes. Although, what you're describing may have a positive impact as we approach the fall. I’m guessing if I said that would be the case. Despite the craziness going on in many parts of Europe, our team has hunkered down and really delivered very solid results, and Chris and the rest of the team in the UK really nailed it. We look forward to nailing it again next winter season in that part of our business.

Great, well, they're probably a few pints in the UK at this point, but the…

Just a little clarity, when you talk about some switching between heating oil and natural gas. I'm not sure they do quite that as well.

That's right, just because natural gas is so high, maybe there’s a little more persistent demand for heating oil; that’s kind of the...

Yes, you know, I'm going to have to say, I don't know the answer to that question, but I’ll research that.

Okay, the last, and this is just a little modeling type question, maybe for Ira. There was a little over a $5 million other income item that had an impact on net income; can you provide any color on where that came from?

Yes, of course. So, I knew you were going to ask that question. We got the answer. There’s a area where we've done a much better job over the last several years, managing foreign exchange risk. We actually have a couple of new folks that we brought on board that focus on that day in, day out to ensure we don't have any unnecessary losses. In this particular quarter, with all the volatility, we couldn't avoid generating some gains. We recorded a couple of million dollars of foreign exchange gains in regions that are very difficult to hedge, and markets moved in the right direction. Additionally, we had more than our average income from minority investments; we have a couple of those. One of them relates to the Exxon deal in aviation that we did several years ago. As markets in Europe rebound, we generated more profitability there. We also had a few other miscellaneous buckets, but most of it was tied to equity earnings and a couple of million dollars of foreign exchange gains. This helped offset the growing interest expense, which was great.

Okay, well, I appreciate that color. And thanks for letting me have an extra half question there.

Yes, I don’t know you’re still listening; we know you will have another question.

Mr. Kasbar, there are no further questions at this time. I'll now turn the call back to you for closing remarks.

Well, thank you. I really want to say thank you to our incredible, dedicated, talented, passionate team that really makes our company what it is every day of the week for our customers, our partners, our shareholders, and the communities. Thank you very much, and I look forward to talking to you next quarter. Thanks very much for all your support.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.