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Operator: Goo day and thank you for standing by. Welcome to World Kinect Corporation First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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 Communication. Please go ahead.

Elsa Ballard: Good evening everyone and welcome to the 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, VP 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 I 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 risk that could cause 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 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 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 Q&A period. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

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, we also generated very strong cash flow. I 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 focus paths we are on today building a more readable 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 readability and operating leverage. As we scale these readable business activities, and further sharpen the portfolio, we believe this variability will be attenuated and result in more readable and predictable results, improved growth, and solid shareholder return. We’ve 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’ve been sharing and a strong example of this is the recently announced sale of Evernote, 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 will 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 and land, or our fantastic network of airport fueling operations across multiple continents are 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 a 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. That’s right, Ira. Keeping my promises.

Michael Kasbar: Thank you, Michael. And good evening, everyone. Good job, Mike. Before we begin, please note that our first quarter non GAAP results reflect approximately $1.1 million of pre-tax adjustments to GAAP results. And as you all usually ask, I’ll tell you upfront that effectively all of these adjustments were to land operating expenses. Reconciliations are as always on our Investor Relations website, and also in today’s webcast presentation. Now, let’s go to the first quarter overview. On a consolidated basis, our total volume gross profit and adjusted EBITDA were all down slightly year-over-year. But our continued focus on prudent balance sheet management helped drive strong operating and free cash flow, contributing to a further improvement in our return on capital.

I will now walk through each of our business segments performance for the first quarter. Aviation volume was down approximately 100 million gallons, it’s about 6% year-over-year. This was principally related to recently winding down a specific bulk inventory activity, which had been generating approximately 100 million gallons of volume per quarter with very little related gross profit. This is yet another example of our continuing efforts to sharpen our portfolio, enabling us to focus our efforts on our business activities that are generating solid returns. As you know, in addition to the bulk activity just mentioned, we have been more broadly focused on rationalizing our Aviation portfolio since the first half of last year, with the related volume reduction being completely offset by more profitable business, resulting in improved overall returns.

This focused effort has yielded a 15% year-over-year increase in unit margins and an 8% year-over-year increase in Aviation gross profit. As we look to the seasonally stronger second quarter, we expect an uptick in both Aviation volume and gross profit. While volume is still expected to be down year-over-year, again, driven principally by the wind down at the bulk fuel activity, we expect to narrow the gap considering the very strong demand environment we are currently experiencing in most parts of the world. In the land business, volume increased 2% year-over-year, driven by increased volumes and our natural gas power and retail fuel activities, offset in part by decreased volume in the U.K., as well as in our lower-margin wholesale activities in North America.

The percentage of land volume associated with our nat gas and power business was 41% in the first quarter, that’s up from 37% in Q4 and 36% in the first quarter of last year. Land’s first quarter gross profit declined 12% year-over-year, primarily related to weather-related declines in both our U.K. business, which experienced unseasonably warm weather conditions during the quarter and our natural gas business in the U.S. While nat gas volumes were up year-over-year, warmer weather conditions, declining prices, and reduced market volatility compressed margins when compared to the first quarter of 2023. All these declines were partially offset by increased profitability in our Liquid Fuels business in North America. After a very strong fourth quarter for our sustainability-related product and service offerings, we experienced a moderate year-over-year decline in profitability in these activities as well during the first quarter.

Though our pipeline of opportunities here remain strong and we therefore expect improvement in this area as the year progresses. Looking to the second quarter, while we expect modest sequential improvement in gross profit, we expect another year-over-year decline, driven by many of the factors that impacted our first quarter’s results. As discussed at our Investor Day last month, we remain focused on refining the land business by further sharpening the portfolio of business activities in which we engage, focusing on core margins and of course creating greater operating efficiencies, with a goal of making progress towards land’s medium term, adjusted operating margin target, and driving increasing profitability and returns over time. We believe that the tremendous ongoing efforts by the land team should continue to deliver greater opportunities for improvement over the next few years.

In Marine, volumes were up slightly both sequentially and year-over-year. Gross profit, however, decreased 7%, driven principally by the reduction in market volatility when compared to what we experienced through 2022 and into the first quarter of 2023. Sequentially, however, gross profit was up 10%, demonstrating our team’s continued focus on driving solid returns in the current interest rate environment. As we look to the second quarter, while we expect Marine gross profit to decline sequentially, principally driven by seasonality, year-over-year comparisons start to normalize, as market volatility it tapered off by the second quarter of last year. So, we are expecting second quarter results for Marine to be generally in line with the prior year based on what we’ve seen quarter-to-date.

Now, let’s turn to adjusted consolidated operating expenses. That came in at $190 million in the first quarter, down 4% from the first quarter of 2023. First quarter expenses were lower than anticipated, driven principally by a reduction in variable compensation expenses, as well as lower GNA expenses as we remain focused on optimizing spending, and driving operating efficiencies across our business. For the second quarter, we are expecting adjusted operating expenses of $196 million to $200 million, representing another year-over-year reduction. As we remain focused on making progress towards our — I’m sorry, we remain focused on making progress toward our 2026 consolidated operating margin target. We will get there by continuing to drive cost efficiencies in our business, while also further sharpening our portfolio of business activities, including actions like the one I described during the Aviation overview, or the Avinode sale, which I’ll update you on in a moment.

These types of actions should enable us to continue to simplify our story, while achieving increased profitability and greater shareholder returns. Interest expense was $29 million in the fourth quarter — in the first quarter sorry, down 16% year-over-year as our team remains focused on optimizing our working capital position and related cash flow. We expect another year-over-year decline in interest expense in the second quarter and expect interest to be generally flat sequentially. With more doubt surrounding any interest rate reductions this year, we will need to continue driving balance sheet efficiencies in order to further reduce interest expense in the second half of the year. Our adjusted effective tax rate for the first quarter was only 11%, which is well below our full year guidance of 23 to 27% due to the impact of certain discrete tax benefits realized during the first quarter.

Our expectations for the balance of the year remains in that 23% to 27% effective tax rate range that we projected going into the year, the lower first quarter rate should reduce our full year tax rate closer to the lower end of that range. Cash flow was clearly a highlight for the first quarter, as we generated $110 million of operating cash flow and $93 million of free cash flow. While we did benefit a bit from the extended Easter holiday weekend that occurred in many parts of the world right at quarter end. Regardless, we still delivered a very strong result in the first quarter. This cash flow generation further supports our strong liquidity profile, which provides us with the capital we need to invest in organic business activities, funds strategic investment opportunities, and return capital to our shareholders.

Our growing competence in our cash flow generation allowed us to announce a 21% dividend increase during the first quarter. Our strong cash flow performance also enabled us to reduce our net debt to $562 million with an anticipated further reduction in net debt in the second quarter, driven in part by the anticipated closing of the Avinode transaction within the next several days. As mentioned at Investor Day, this transaction holds results in gross proceeds of approximately $200 million and a corresponding after-tax gain, which we still expect to be in the range of $75 million to $80 million. Delivering capital returns through share buybacks and dividends remains an important part of our balanced capital allocation framework and there are no changes to our related go-forward priorities, many of which we shared at our Investor Day event last month.

So, in closing, while our land business experienced weather-related challenges during the first quarter, we are very encouraged by the continued progress we are making in our core North American Liquid Fuels business centered around higher return ratable cardlock and retail activity. And our Aviation and Marine businesses perform well. With Aviation gross profit up year-over-year and Marine maintaining strong unit margins. We generated again $110 million in operating cash flow and $93 million of free cash flow in the first quarter, demonstrating our continued focus on all balance sheet levers. And we remain focused on driving greater operating expense efficiencies with a 4% expense reduction year-over-year, and literally a daily focus on driving our operating margin in the right direction towards our 2026 stated goal.

And the Avinode sale announced during the first quarter, which again should close very soon, again demonstrates our commitment to sharpening our portfolio of business activities and simplifying our story. We plan to use the proceeds of the sale to reduce our net debt in the short-term, but longer term, these proceeds provide additional capital to invest in synergistic opportunities in our core business, where our pipeline of opportunities continues to grow. Before we take your questions, I just want to reiterate the medium term financial targets we shared at Investor Day, whether it’s driving adjusted EBITDA growth, improving our adjusted operating margin, or generating free cash flow as we did this quarter, these all remain priorities. And if we execute well, progress towards these targets should drive increased returns for our shareholders.

Thank you. And I would now like to turn the call back to our operator to begin Q&A.

Ken Hoexter: Hey, great. Good afternoon Ira and Michael.

Michael Kasbar: Hey Ken.

Ken Hoexter: Just want to talk to you about the Marine — your outlook on Marine, you gave second quarter thoughts, does that mean you’re going to decline sequentially on the operating income? So, when you say it’s going to be like 2023 or I just want to understand if you can clarify that a little bit? Thanks.

Ira Birns: Yes, I think he got that right or you did get that right. We, we said we’re going to be closer — the year-over-year comparisons had been weak for a while now, because of the phenomenal year that Marine had in 2022, which really lasted through the first quarter to some extent. So, that’s starting to normalize. So, we said we’d be pretty close to last year’s number. But you’re right, we also — I also said we’d be down sequentially. That’s not a volume. I think volumes will be generally consistent with Q1. But we’re starting to see a little bit of softening in margin. The team has done a great job in keeping margins well above historical norms. We still expect them to remain well above those norms in the second quarter. But from what we’re seeing so far, in April, they’re coming in a little lighter than they did in the first quarter.

Ken Hoexter: And then just for my follow-up, you talked about land getting impacted by weather, I just want understand how much kind of came post Analyst Day? And then if we delve into that where it seemed like you had a limit work to eliminate seasonality, right from what was just U.K. to kind of balancing out the network, should that be balanced with 1Q with 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?

Ira Birns: Yes, so there were two elements of weather. As you know, we have a bit of reliance in the U.K. on heating oil in the winter months and first quarter was a quarter where it was a lot warmer than we anticipated or remain warmer through the end of the quarter. Obviously, Investor Day was only two weeks before quarter end. But the weather conditions it continued through the end of March. On the domestic side, it was also probably — the impacts are probably from middle of the quarter through the end of the quarter on the nat gas side of the equation. There was — actually going back to the U.K., there was wet weather, also there was unseasonable amounts of rain, which impacted the agricultural segment, which we support in the U.K. So, there were several moving parts there, some of those continued into April.

But normally, the U.K. drops off seasonally when you get into May and June, which is going to be no different than we would normally see. And nat gas often drops off a bit as well as we head into, as we head into May and June. So, that’s why we signaled that Q2 for land will be pretty similar to the outcome in the first quarter. You’ll get — you get some more uptick in the liquid land business in North America, there’s some seasonal growth there. But a big chunk of that it’ll be offset by the seasonal decline in the U.K.

Ken Hoexter: And then just my last one, if I can just your thoughts on the SG&A comp and benefits G&A all wrapped-up, right, you’ve kind of been working on that for a few years, you talked about that a lot of Analyst Day in terms of what you can do, do you feel like you’re running as lean as you can on that? Or do you ever feel like there’s room–

Ira Birns: Never.

Ken Hoexter: All right, perfect.

Ira Birns: 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 — bit of 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 and 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 a — from an operating leverage standpoint. And we’ll keep plugging away and keep reporting on our progress every quarter.

Ken Hoexter: Great. Appreciate the time. Thanks.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Pavel Molchanov from Raymond James.

Pavel Molchanov: Thanks for taking the question. So, standard question to start last year, low carbon was 11% of profitability. What was it this past quarter?

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

Pavel Molchanov: Okay, perfect. Three months ago, one of the geopolitical headlines I suppose it’s been overtaken by other events, was the Red Sea and 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?

Michael Kasbar: Pavel, thanks for the question. It’s extraordinary the resiliency of the marketplace and certainly shipping understands how to respond to disruptions. So, that’s settling out a bit. So, while there was 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. Got a little bit of a bump there, but that is pretty much settling down now.

Pavel Molchanov: 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 by given your 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.

Michael Kasbar: 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 power to x, 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 to that increased demand.

Pavel Molchanov: Got it. Thank you very much.

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

Michael Kasbar: 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.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.