Thank you for waiting, and welcome to World Kinect Corporation's Second Quarter 2024 Earnings Conference Call. All participants are currently in listen-only mode. After the presentation, we will have a question-and-answer session. I will now turn the call over to Elsa Ballard, VP of Investor Relations and Communications. Please proceed.

Good evening, everyone, and welcome to World Kinect's second 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, VP of Investor Relations and Communications. With me on the call today is Michael Kasbar, our Chairman and Chief Executive Officer; and Ira Birns, our EVP 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 certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website. We will begin with several moments of prepared remarks, which will then be followed by a Q&A period. I would now like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Elsa, and good evening, everyone. While we faced challenging market conditions in our Land business this quarter, we remained focused on increasing our percentage of core recurring revenue activities and driving improved operating efficiency to deliver our medium-term targets, which we shared with you at our recent Investor Day. As I've highlighted over the prior few quarters, our management team's focus is on building a more ratable and leverageable business model across all of our businesses. Aviation is a great example of this. Our Aviation business continued to deliver strong performance and has excellent momentum heading into the second half of the year. Our optimized scale platform provides consistently high operating margins, and we continue to demonstrate our value to customers around the world in both business and commercial Aviation. Aviation generated a very strong operating margin in the second quarter and continues to be a model of efficiency. Advancing our objective of sharpening the portfolio, the strategic divestiture of the Avinode business within the quarter further enhanced our liquidity and created economic value well beyond what we were able to achieve by retaining the business in our portfolio. This was followed by a tuck-in acquisition in Business Aviation that we signed today. This transaction will expand our bulk fuel distribution network by adding nearly 300 customers, including 100 FBO locations. Our market-leading Business Aviation distribution platform will be able to bring additional supply and solution capabilities to these locations as well as outstanding customer service and comprehensive operational support. While not initially a significant earnings contributor, this acquisition is an example of the type of synergistic and strategically complementary deals we will continue to seek. While not at the ratability of Aviation and while results were down year-over-year, our Marine platform remains highly efficient and working capital light. Because Marine is more of a spot business, it can deliver outsized results when market conditions are favorable, but creates value even in less beneficial environments. It is a consistent cash generator with minimal capital requirements and significant potential upside. We continue to appreciate the diversification and return profile of this business. Land is clearly where we are highly focused on building similar efficiencies. Unfortunately, in the second quarter, we experienced an unusual situation in which several of our market forces negatively impacted several parts of the Land business. Ira will cover this in more detail in his comments. We are actively working to grow in scale those parts of the Land business that we believe are more ratable, have a better return, are less susceptible to market conditions, and provide the best platform for increased operating leverage. Last week, I participated in a two-day management offsite with 50 of our key leaders. We focused exclusively on accelerating the transformation of our core U.S. Land business. There is little doubt in my mind that we have assembled and organized the best team we've ever had with a clear focus on flexing the capabilities we have across the company and a sense of urgency to install the processes and tools necessary for growth and operating leverage. Before I return the call to Ira, I want to stress that we believe that improvements in our Land business remains a critical element of meeting our medium-term financial targets. The Land result this quarter was clearly a disappointment, but in no way alters our commitment to attain our Investor Day objectives or impacts our confidence in our ability to achieve these objectives. If anything, the result underscores the need to move more quickly. To reiterate, we are committed to consolidating our offers and reallocating capital to improve operating leverage. This is our number one management priority, and we will be updating progress towards this objective quarterly. Now I'd like to thank our fantastic global team for their consistent dedication to our business. Your passion for what we do shows, and in an uncertain world, our customers, suppliers, and partners know that they can rely on us as they have for nearly 40 years. Thanks for listening. And now Ira will give a financial and detailed business update.

Thank you, Michael, and good evening, everyone. Before I begin, please note that our second quarter non-GAAP results reflect approximately $88 million of pretax adjustments. This is primarily due to a $96 million pretax gain on the sale of Avinode, which was completed in early May, offset in part by certain restructuring costs and a single investment-related impairment. The after-tax gain on the Avinode sale was approximately $87 million, contributing $1.45 to GAAP diluted earnings per share for the quarter. Congratulations again to our team for successfully completing this transaction during the second quarter. Reconciliations of our non-GAAP measures are available on our Investor Relations website as well as today's webcast presentation. So now getting into the second quarter details. Consolidated results were clearly impacted by weaker-than-expected performance in our Land segment, which was offset in part by solid results in Aviation. Despite the underperformance in Land, our expenses again declined year-over-year, our tax rate was lower than anticipated, and we generated strong cash flow, which contributed to a further reduction in interest expense. I'll now provide more color on the second quarter segment-by-segment results. Starting with Aviation, where, as a reminder, results were modestly impacted by the Avinode sale, which we completed on May 1st. Aviation volume was down slightly year-over-year. This was principally related to a reduction in low margin activity over the past 12 months, including a 100 million gallon per quarter reduction in bulk activity that we discussed last quarter, offset by volume growth in much of our core Aviation activities. Our efforts to improve returns in Aviation contributed to a near-record 53% operating margin for the quarter. Aviation gross profit was generally flat year-over-year with the benefit for margin improvements generally offset by the impact of the Avinode sale. Just to note, since Avinode was a service business with no underlying volume, the divestiture will impact unit margins in Aviation by approximately $0.005 per gallon going forward. As we look to the third quarter, if we exclude the impact of the Avinode sale, gross profit should be up meaningfully year-over-year, reflecting improved operating leverage from our growing global supply network. One of the numerous examples of year-over-year growth would be an expected incremental contribution from the Paris Olympics as we added Paris-Vatry Airport to our network earlier this year. And looking towards the fourth quarter, we expect the Aviation tuck-in transaction that Mike discussed earlier to be a strong strategic fit for our Business Aviation segment. While not a significant earnings contributor day one, this transaction will be modestly accretive, and we expect it to close in the fall, subject to customary closing conditions. In our Land business, while commercial and industrial retail and natural gas volumes actually increased year-over-year, overall volumes decreased slightly, principally driven by unfavorable market conditions in our North American wholesale activities. The percentage of Land volume associated with our natural gas and power business was 33% in the second quarter, down from 41% in Q1 and modestly up from 31% in the second quarter of last year. While volumes were generally flat, Land's second quarter was quite weak from a margin perspective, resulting in a 28% year-over-year decline in gross profit. The principal drivers of this decline were unfavorable supply dynamics in the renewable fuels market, principally on the West Coast, an oversupplied natural gas market, where inventories were 20% above the previous five-year average at the end of June, driving near-record low prices and virtually no market volatility during the quarter. And even Brazil, where exponential growth in cargo imports, which started impacting us in the first quarter, has further driven down local market prices, resulting in further pressure on margins. And finally, while up sequentially, gross profit from our core sustainability-related offerings declined year-over-year, we are seeing growing opportunities for the second half of the year and beyond in many parts of this exciting business throughout the world. One example for the second half relates to renewable credits, where demand generally strengthens in the latter part of the year when customers firm up their carbon requirements before closing out their fiscal years. In summary, Land's second quarter was clearly a bump in the road. We had made it clear that the work necessary to achieve our medium-term targets for Land specifically would not be a straight upward arrow. So while we certainly aren't pleased with the second quarter outcome, we're confident in our ability to achieve these targets, and we remain very much committed to doing so. What are we doing here? Well, we remain focused on continuing to sharpen our portfolio of activities in Land and significantly improving operating efficiencies. With the continued goal to migrate more and more of the business to higher margin, higher return, more leverageable and ratable activities, such as our cardlock and retail distribution networks. We also have the ability to utilize our strong liquidity position to capitalize on a growing pipeline of synergistic investment opportunities in these areas of our business, which should enable us to accelerate profitable growth and returns in the Land business over time. In the short term, while we are currently seeing a reversal of some of the unfavorable trends that impacted the second quarter, which should result in overall sequential improvement in Land, third quarter gross profit is still expected to be down when compared to an extremely strong third quarter in 2023. However, we should return to year-over-year gross profit growth in the fourth quarter, while remaining focused on driving greater opportunities for growth and increasing returns in '25 and beyond. Moving on to Marine; while volumes were essentially flat year-over-year, gross profit decreased about 13% driven principally by lower market volatility than experienced in the prior year period. While we anticipated a sequential margin decline heading into the second quarter, the actual decline was a bit more than it had been anticipated. As Mike mentioned earlier, while Marine profitability is down from the highs of 2022, it remains an extremely efficient capital model and allows for strong returns and contributions to cash flow each quarter. As we look to the third quarter, we expect Marine gross profit to be effectively flat when compared to the third quarter of 2023 as year-over-year volatility comparisons finally seem to be normalizing. To help better frame our comments, unexpected year-over-year gross profit performance, segment-by-segment we have decided to begin providing color on consolidated gross profit for the third quarter and going forward. With the backdrop of the related segment gross profit comments I've just shared, we expect consolidated gross profit to be in the range of $265 million to $274 million in the third quarter. Hopefully, this will be helpful for modeling purposes going forward. Now let's go to consolidated operating expenses. That was $192 million in the second quarter, down 7% from the second quarter of 2023 and below our guidance range provided last quarter. Second quarter expenses were lower than anticipated, principally by reduced variable compensation but also lower G&A expenses, serving as evidence of our ongoing efforts to carefully manage all cost categories and across the entire business. The elimination of Avinode-related expenses was already reflected in the expense guidance we provided last quarter, so the Avinode sale did not contribute to our expenses being lower than forecasted for the second quarter. For the third quarter, we are expecting adjusted operating expenses to be in the range of $193 million to $197 million, another year-over-year reduction, in this case benefiting in part from the elimination of Avinode expenses. We remain focused on our medium-term consolidated operating margin target. We discussed efforts in our Land business earlier, but we also focused on driving cost efficiencies across the business, including our corporate back office functions. There were numerous ongoing initiatives aimed at further improving our cost structure. Interest expense was $27 million in the second quarter. That's down about 15% year-over-year as our team remains focused on optimizing our working capital position and related cash flow with additional benefit from last year's low coupon convertible notes issuance and the cash proceeds from the sale of Avinode this past quarter. As we've demonstrated over the past few quarters, we've been successful at reducing our quarterly run rate of interest expense by 25% from the peak level reached in the fourth quarter of 2022, and we expect another year-over-year decline in interest expense in the third quarter to $26 million to $27 million with our full-year '24 interest expense on track to come in 10% to 15% below fiscal year '23. Our adjusted effective tax rate for the second quarter was only 6% as our effective tax rate was positively impacted by a discrete tax benefit realized in the second quarter, resulting in an effective tax rate significantly lower than anticipated heading into the quarter. Based on what we know today, we expect our effective tax rate for the second half of the year to be down to approximately 19% to 22%, resulting in a forecasted full-year rate of 15% to 18%. We generated $68 million of operating cash flow and $53 million of free cash flow in the second quarter. This cash flow performance was positively impacted by our continuing efforts to drive efficiencies in our working capital model, resulting in a net trade cycle at just over two days for the second quarter. And our strong cash flow performance also enabled us to reduce our net debt to $355 million and our net-debt-to-adjusted EBITDA to below 1x. Returning capital through share buybacks and dividends, as always, remains an important part of our balanced capital allocation framework, and there are no changes to our priorities going forward. To underscore that commitment, in addition to our quarterly cash dividend, we repurchased $30 million of stock or approximately 1.2 million shares during the second quarter. So in closing, yes, our Land segment had a weak quarter due to a confluence of factors, which negatively impacted an unusually large number of business activities within a single quarter. And as already stated, while this was an unfortunate bump in the road, we remain focused on improving Land operating efficiencies and profitability going forward, both by continuing to sharpen the portfolio of activities in which we participate, while significantly improving our cost structure is something we're focused on each and every day. Our Aviation business performed well as our team continues to deliver on our strong value proposition globally, and we see strong momentum heading into the second half of the year. We generated $68 million in operating cash flow and $53 million of free cash flow in the second quarter, plus approximately $200 million from the Avinode sale, further strengthening our liquidity profile. Interest expense again continued to decline from peak levels of interest in late '22, and we were once again able to reduce operating expenses year-over-year by remaining laser-focused on cost controls. We repurchased approximately 2% of our outstanding shares, demonstrating our continued commitment to returning value to our shareholders. And finally, we remain focused on driving our EBITDA and operating margin towards our 2026 stated goals, which should deliver increasing levels of cash flow and an improvement in our overall return on capital. Nothing has changed there. We remain equally committed to achieving those goals. There's lots of work to be done, but our team remains relentlessly focused on driving towards these critical goals over the next several months and quarters to come. Thank you. I'll now turn the call back to our operator to open up the Q&A session.

Our first question comes from John Royall of JPMorgan.

Hi, good evening. Thanks for taking my question. So my first question is on Land. Can you talk a little more about the headwinds in renewable fuels on the West Coast that Ira spoke about for 2Q? And then what you're seeing in terms of the recovery there into the third quarter?

Yes, thanks for the question, John. To put it simply, we have faced logistics-related challenges that have affected our ability to transport volume on the West Coast cost-effectively. This has meant that pipeline terminals have been slow to convert to renewable diesel. Consequently, in several areas, we are required to move more product via rail and truck, which is not as cost-efficient. This has impacted us from both a volume and margin standpoint. Looking ahead, we are engaging in discussions and activities daily that we hope will enable us to achieve greater efficiencies in that network, although it may take a couple of months before we see any significant improvements. There have been new refineries coming online that have influenced the market, so various factors combined have significantly impacted us, which is why we mentioned it as a consideration in the second quarter.

That's really helpful. Thanks. And then my follow-up is just a housekeeping question as I don't think we have the 10-Q yet. Can you talk about what's been received in cash on the Avinode sale and when the tax bill will be paid if it hasn't already? And should we think about the tax portion as just the $87 million gain times tax rate?

Actually, the tax on that transaction is for all sorts of reasons, it's a relatively small number. So for starters, almost exactly $200 million is what came in, in May, you'll see that on the cash flow statement. And the related tax that would go out the door, I would say most likely in Q3 is only about $9 million. So net-net, it has a positive after-tax benefit from a cash perspective of about $190 million.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Ben Nolan of Stifel.

Thanks. A couple. First, just quickly, you talk about the tuck-in acquisition on the Aviation side. Any context on how the capital outlay for that?

Thanks for the question. The capital outlay for that, is that the question?

Yes. Right.

Yes, the total purchase price was around $45 million, with several million dollars being deferred for a period of time. Therefore, approximately $40 million will be spent when we close that transaction, which is expected to happen around the end of the third quarter.

Okay. Perfect. I wanted to explore the Land side a bit more. It seemed like some factors should have been reflected in the first quarter as well. I'm interested in whether that involves the West Coast fuels, Brazil, or any of the other factors you mentioned. I'm eager to understand what changed from your previous outlook on the business compared to how it actually unfolded during the quarter, particularly in contrast to the first and second quarter performance.

Sure. So great question. Thanks. So in the first quarter, thinking back, the largest year-over-year variance really related to weather issues that impacted both the U.K. that had a weaker quarter year-over-year and our natural gas business. So we highlighted those on something like Brazil, we did have an impact on the first quarter. But in terms of the overall year-over-year variance, it wasn't quite as significant. That situation deteriorated a bit further this quarter, and it became meaningful enough to call it out. But we were impacted by that one in Q1 as well. We weren't impacted as much on that renewable piece of the puzzle that I just described to John. And in terms of nat gas, we called nat gas out last quarter and this quarter, right? So I think those are the principal moving parts. So again, the biggest factors last quarter were the weather impact in Europe and the U.S. In this quarter, you had more significant impacts.

There's a little bit of sustainability this week.

Yes. And then in this quarter, it's just our sustainability-related products and services, as I alluded to, were off a little bit. So we mentioned that as well, but somewhat different than what we experienced in the first quarter.

Got it. All right. Appreciate it. Thank you guys.

Thank you. Our next question comes from Graham Price of Raymond James.

Hey, good afternoon guys. Thanks for taking the questions. Maybe firstly on Aviation. Given that we've seen a lot of problems in the airline industry with the outages and whatnot, just wondering if there's any impact from that that you're seeing on Q3 guidance specifically?

So far none. We know some of the airlines that got impacted. Obviously, capacity is a little bit more than what is optimum, and adjustments are being made, but really no impact. Our network continues to increase and expand. So being able to grab market share as the locations increase is a favorable development for us. But no impact, not expecting an impact. And if there is one, we're not expecting it to be impactful. So I think it's steady as she goes, and we'll sort of ride that. A lot of our business there is contractual. We do have a good amount of ad hoc is what we call it in the Aviation market. So there's always the possibility, obviously, but that's not presently in our forecast. It's the opposite.

Great. Good to hear there. And then just a housekeeping question for my follow-up. What was the second quarter percentage of EBITDA from low carbon energy, I guess, the Kinect businesses?

In the second quarter, the percentage of that part of our business was about 8%. The EBITDA percentage this quarter was much lower due to the significantly weaker performance in the natural gas sector. But it was about 8% of gross profit.

Got it. Okay. And that GP number, that 8% compares to, I think you told us 12% last quarter.

That's right.

Thank you. I would now like to turn the conference back to Michael Kasbar for closing remarks. Sir?

Well, thank you, everyone for listening this afternoon, this evening. Appreciate the interest and look forward to speaking to you next quarter. Be safe. Take care. Bye-bye.

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