Good day and thank you for standing by. Welcome to World Kinect Corporation First Quarter 2024 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, Elsa Ballard, Vice President of Investor Relations and Communications. Please go ahead.

Good evening, everyone, and welcome to World Kinect's first quarter 2024 earnings conference call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast on our Investor Relations website. I'm Elsa Ballard, Vice President of Investor Relations and Communications. With me on the call today is Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. Before we get started, I'd like to review our Safe Harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We assume no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Elsa, and good evening, everyone. Given that we just spoke several weeks ago at our Investor Day, I'm going to keep my remarks brief. We had some ups and downs in the first quarter from a profitability standpoint, and we also generated very strong cash flow. Ira will give more color on this in a few minutes, but in the meantime, I'd like to give a high-level update on the focused path we are on today, building a more ratable and leverageable business model. As you know, we have grown our aviation and marine businesses to create diversified, scalable platforms that are built to weather the dynamics of the marketplace. Within our land business today, we have a higher proportion of variability in our portfolio, and we are actively working to grow and scale those parts of the business that we believe are best suited for increased ratability and operating leverage. As we scale these ratable business activities and further sharpen the portfolio, we believe this variability will be attenuated and result in more ratable and predictable results, improve growth and solid shareholder returns. We have been disciplined about exiting relationships or business activities that we believe no longer provide acceptable returns or fit well within our future strategic plans. This is the sharpening the portfolio message we have been sharing, and a strong example of this is the recently announced sale of Avinode, which we expect to close in the next few weeks. We will continue evaluating our broader portfolio of business activities for further opportunities to drive greater profitability, whether it be by acquiring businesses that can enhance current revenue streams or exiting certain activities that may not be core or have the DNA to deliver the returns we expect to generate across our entire business platform. And of course, we will continue to simply make our core businesses as strong and as profitable as they can be. We believe we have done a good job to date of more tightly focusing on our core activities where we have built industry-leading competencies that are strongly valued by our customers and suppliers throughout the world. While it is clear that the most significant opportunities to drive growth and operating leverage may be in our land business, we have core opportunities across the rest of our businesses as well. So whether it be growing our solid cardlock and retail business activities in land, or our fantastic network of airport fueling operations across multiple continents, or new and expanded market opportunities in marine where the dry bulk, tanker, container, and crew segments are all quite healthy right now, our teams are more focused than ever in driving growth and profitability in these areas and across all of our core businesses. In our sustainability-related activities, we are still in early innings, as is the industry. But we have been building a highly talented team with significant domain expertise. And through carefully matching our talents with the evolving needs of our customers, we believe this revenue stream will blossom over time. Finally, we shared multiple financial targets with you just a few weeks ago. The timing of doing so is no coincidence as our confidence and strategic clarity in where we are headed has improved. And while we have already driven meaningful improvements in many parts of our business, we are fully aligned on the further moves necessary to realize the step change in our profitability and returns, which we believe will enable us to meet or exceed the targets we have shared. So while every quarter is important, we are focusing on building a stronger foundation for the future, and we look forward to keeping you informed as we continue down this strategic growth plan. And now, as promised, I will turn the call over to Ira, who will provide an overview of our first quarter results.

Thank you, Michael, and good evening, everyone. Great job, Mike. Before we start, I want to highlight that our first quarter non-GAAP results include about $1.1 million of pretax adjustments to GAAP results, primarily affecting operating expenses. You can find the reconciliations on our Investor Relations website and in today's webcast presentation. Now, let’s review the first quarter. Overall, our total volume, gross profit, and adjusted EBITDA saw a slight decline year-over-year. However, our commitment to careful balance sheet management led to strong operating and free cash flow, enhancing our return on capital. I will detail the performance of each business segment for the first quarter. Aviation volume decreased by roughly 100 million gallons, or about 6% year-over-year, primarily due to the reduction of a specific bulk inventory activity that was generating volume with minimal gross profit. This reflects our ongoing efforts to refine our portfolio and focus on more profitable business activities. Since early last year, we have been working on optimizing our aviation portfolio, and although we faced a volume reduction, it has been entirely compensated by more profitable business, leading to improved overall returns. Our focused efforts resulted in a 15% year-over-year increase in unit margins and an 8% increase in aviation gross profit. Looking forward to a typically stronger second quarter, we anticipate an increase in both aviation volume and gross profit. While volume is expected to remain lower compared to last year, largely due to the decrease in bulk fuel activity, we are optimistic about narrowing the gap given the robust demand in most regions. In the land business, volume rose by 2% year-over-year, supported by growth in our natural gas, power, and retail fuel activities, though somewhat countered by decreased volume in the U.K. and in our lower margin wholesale operations in North America. The share of land volume from our natural gas and power business increased to 41% in the first quarter, up from 37% in the previous quarter and 36% during the same period last year. First quarter gross profit for land declined by 12% year-over-year, mainly due to weather-related impacts in our U.K. operations and in the U.S. natural gas sector. Although natural gas volumes improved year-over-year, warmer weather, reducing prices, and less market volatility squeezed margins compared to the same quarter last year. However, these declines were partly offset by enhanced profitability in our liquid fuels division in North America. After a robust fourth quarter for our sustainability-related products and services, we saw a modest year-over-year decline in profitability during the first quarter. Nevertheless, our pipeline of opportunities in this area is promising, and we expect improvements as the year progresses. For the second quarter, while we anticipate slight sequential growth in gross profit, we expect another year-over-year decline influenced by factors that affected our first quarter performance. As discussed in our Investor Day last month, we remain committed to refining the land business by sharpening our activity portfolio, concentrating on core margins, and achieving greater operational efficiencies with the aim of reaching our medium-term adjusted operating margin targets while boosting profitability and returns over time. We remain confident that the diligent efforts by our land team will create more opportunities for improvement in the coming years. In the marine segment, volumes increased slightly both sequentially and year-over-year. However, gross profit fell by 7%, chiefly due to decreased market volatility compared to the previous year. On a sequential basis, gross profit rose by 10%, indicating our team’s focused efforts on maintaining strong returns in the current interest rate landscape. For the second quarter, we expect marine gross profit to decrease sequentially due to seasonality, but year-over-year comparisons should normalize as market volatility decreased by this time last year. Now, regarding adjusted consolidated operating expenses, they totaled $190 million in the first quarter, a 4% decline from the same period in 2023. Our expenses were lower than we expected, primarily due to reduced variable compensation and lower general and administrative costs as we continue to optimize our spending and enhance operational efficiency. For the second quarter, we anticipate adjusted operating expenses to be between $196 million and $200 million, indicating another year-over-year decrease. Our goal is to make progress towards our consolidated operating margin target for 2026 by pushing for cost efficiencies while refining our portfolio, similar to actions I mentioned in the aviation overview or the Avinode sale, which I will update you on shortly. These actions will help simplify our narrative while boosting profitability and shareholder returns. Interest expense amounted to $29 million in the first quarter, a 16% drop year-over-year as we focus on optimizing our working capital and associated cash flow. We expect another year-over-year decline in interest expenses in the second quarter and anticipate interest to remain stable sequentially. With uncertainty regarding interest rate reductions this year, we will need to continue enhancing balance sheet efficiencies to lower interest costs in the latter half of the year. Our adjusted effective tax rate for the first quarter was only 11%, significantly below our full-year guidance of 23% to 27%, mainly due to certain discrete tax benefits realized in the first quarter. While we expect the remainder of the year to align with our projected effective tax rate of 23% to 27%, the lower first-quarter rate should help bring our full-year tax rate closer to the lower end of that range. Cash flow stands out as a highlight for the first quarter, with $110 million in operating cash flow and $93 million in free cash flow. While we did benefit slightly from the extended Easter holiday weekend at the end of the quarter, we still achieved a robust result in the first quarter. This cash flow generation reinforces our strong liquidity, allowing us to invest in organic business initiatives, fund strategic opportunities, and return capital to shareholders. Our confidence in cash flow growth permitted us to announce a 21% increase in dividends during the first quarter. Our strong cash flow also enabled us to reduce net debt to $562 million, with further reductions expected in the second quarter, partly due to the anticipated closure of the Avinode transaction in the coming days. As mentioned during Investor Day, this transaction is expected to yield approximately $200 million in gross proceeds and a corresponding after-tax gain in the range of $75 million to $80 million. Delivering capital returns through share buybacks and dividends is a vital aspect of our capital allocation strategy, and we are maintaining our priorities, many of which we discussed at our recent Investor Day event. In conclusion, although our land business faced weather-related challenges in the first quarter, we are encouraged by the ongoing advancements in our core North American liquid fuels business, focusing on higher-return, consistent cardlock and retail activities. Our aviation and marine divisions performed well, with aviation gross profit increasing year-over-year and marine sustaining strong unit margins. We generated $110 million in operating cash flow and $93 million of free cash flow in the first quarter, reflecting our persistent focus on all balance sheet levers. We remain dedicated to enhancing operating expense efficiencies with a 4% year-over-year decline in expenses and a continuous focus on steering our operating margin towards our 2026 target. The Avinode sale, expected to close soon, further illustrates our dedication to refining our business activities and simplifying our narrative. We plan to utilize the proceeds from the sale to decrease our net debt in the near term, while in the long run, these proceeds will provide additional capital for synergistic opportunities in our core business, where our pipeline of possibilities continues to expand. Before we open the floor for questions, I want to reiterate our medium-term financial targets discussed at Investor Day. Whether it's advancing adjusted EBITDA growth, improving our adjusted operating margin, or generating free cash flow like we did this quarter, these remain our priorities, and if executed effectively, we expect that progress towards these targets will drive increased returns for our shareholders.

Our first question comes from Ken Hoexter from Bank of America.

I would like to ask about your outlook on the marine sector. You mentioned your thoughts on the second quarter. Does that imply a sequential decline in operating income if you're projecting it to resemble 2023? Can you please clarify this?

Yes, I think you understood correctly. We mentioned that the year-over-year comparisons have been weak for some time due to the exceptional performance of marine in 2022, which extended into the first quarter to some degree. That performance is starting to normalize. We anticipated being close to last year's numbers, but I also noted that we would see a sequential decline. This decline is not due to volume, as we expect volumes to be generally consistent with Q1; however, we are beginning to notice slight softness in margins. The team has done an excellent job maintaining margins well above historical averages, and we still expect them to remain above those averages in the second quarter. However, based on what we have observed so far in April, the margins are coming in slightly lower than in the first quarter.

And then just for my follow-up, you talked about land getting impacted by weather. I just want to understand how much kind of came post Analyst Day. And then if we delve into that, where it seemed like you had worked to eliminate seasonality from what was just U.K. to kind of balancing out the network. Should that be balanced with 1Q at these low levels, or you expect a rebound given the elimination of the weather? I just want to understand kind of your messaging on the land side.

There were two factors related to the weather. In the U.K., we rely significantly on heating oil during the winter months, and during the first quarter, it turned out to be much warmer than we had expected. This warmer weather persisted until the end of the quarter. Although Investor Day occurred just two weeks before the quarter concluded, the weather conditions remained consistent through the end of March. Domestically, the effects were likely felt from the middle to the end of the quarter. Regarding natural gas, in the U.K., there were wet conditions, including unseasonably high rainfall that affected the agricultural sector we support. There were several factors at play, some of which extended into April. Typically, the U.K. experiences a seasonal decline in demand during May and June, which should be no different this year. Natural gas usage also tends to decrease as we move into May and June. Consequently, we indicated that Q2 for land will likely mirror the first quarter's performance. There will be some growth in liquid land business in North America due to seasonal factors, but a significant portion of that will be offset by the expected seasonal decrease in the U.K.

And then just my last one, if I can. What are your thoughts on the SG&A compensation and benefits, as well as G&A? You have been working on that for a few years and discussed it extensively at Investor Day regarding what you can do. Do you feel like you are operating as efficiently as possible in that area, or is there still room for improvement?

Never.

Never. All right. Perfect.

Never as lean as we can, but leaner than where we were. And we're continuing to focus on, as we talked a lot about at Investor Day, finding opportunities to be as efficient as possible across the board. On the expense side this quarter, we picked up some wins on G&A. Some of it is basic blocking and tackling. Some of it may be a little more complicated. The variable comp piece is more of a timing depending upon where results come through quarter-over-quarter. And as we go through the year, we'll continue to look for more G&A opportunities, more opportunities to drive efficiencies across the board. That's still work in progress. So there's definitely more work left to be done. And that's why we've set a target well beyond where we finished off 2023 from an operating leverage standpoint. And we'll keep plugging away and keep reporting on our progress every quarter.

Our next question comes from Pavel Molchanov from Raymond James.

So, standard question to start. Last year, low carbon was 11% of profitability. What was it this past quarter?

12% of gross profit this quarter, what we include in that basket of Kinect businesses. So just up slightly.

Okay. Perfect. 3 months ago, one of the geopolitical headlines, I suppose it's been overtaken by other events, was the Red Sea and the logistics bottlenecks, and you had kind of a notable role in helping customers manage around that. Is that still something that needs to be managed? Or is the Red Sea issue in the rearview mirror?

Pavel, thanks for the question. It's extraordinary the resiliency of the marketplace, and certainly shipping understands how to respond to disruption. So that's settling out a bit. So while there was an impact to some extent, and certainly that had material impact and still does on the fortunes of dry cargo and container and tanker, the impact in terms of the market coming together and sort of solving for that has settled down. So not enormous impact. We got a little bit of a bump there, but that is pretty much settling down now.

Let me ask another kind of maybe more big picture question. One of the hot topics of conversation recently has been the prospect of meaningful growth in electricity demand on both sides of the Atlantic, driven by AI and data centers. Obviously not transport related specifically, but given you're kind of broadening into the electric power space, I'm curious how you're thinking about that and what kinds of customer conversations this is generating.

It's real. AI, the compute required is significant, and the energy demand associated with that is real, and there's a general increase in just power consumption. So that certainly bodes well for our growing competencies within all aspects of the power side. So whether it's development as a service for hydrogen, Power2X, solar, wind, offshore wind, its impact on the demand for marine solutions. So all of that bodes well for our products and services and our positioning, whether it's our advisory or brokerage. Every single part of the span of that power demand really maps to what we do. So in terms of where it's going from a macro perspective, that's obviously a bigger question. That's not something that we need to solve. But certainly, we are within that arena and play a role in satisfying any number of those dimensions of that increased demand.

Thank you. At this time, I would now like to turn the conference back over to Michael Kasbar for closing remarks.

Well, just want to thank our suppliers, customers, and investors for your support and partnership. And to all of our teammates around the world, thank you for what you do every day. We enjoy working. We enjoy and love what we do. So have a great and safe day and look forward to talking to you next quarter. Take care. Stay safe. Be well.

This concludes today's conference call. Thank you for participating. You may now disconnect.