Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services 2015 First Quarter Earnings Conference Call. My name is Thadius, and I will be coordinating the call this evening. During the presentation, all participants will be in a listen-only mode. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you, Thadius. Good evening, everyone, and welcome to the World Fuel Services first quarter earnings conference call. My name is Glenn Klevitz, World Fuel's Assistant Treasurer, 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 the webcast or future webcast, please click on our Web site www.wfscorp.com 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 Web site. Before I 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 Form 10-K for the year ended December 31, 2014, 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 other 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 Web site. 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, Glenn, and good afternoon everyone. Today we announced adjusted first quarter earnings of $59 million or $0.83 per diluted share. During the quarter, we once again demonstrated the resilience of our diversified business model and delivered solid results despite the vagaries of today's marketplace. In the first quarter, our land segment was driven by the strong seasonal performance of our U.K. based Watson Petroleum business. Our aviation and marine segments performed well and we improved our returns on working capital assets and equity. Our balance sheet remains very healthy and we generated more than $100 million of operating cash flow during the quarter. And our aviation segment where we saw the expected seasonal decline in certain regions, our commercial aviation team continue to conclude valuable business with blue chip airlines and expanded our service offerings to new locations. Our growing global business and general aviation platform performed well during the first quarter aided by an increase in deicing activities and our integration efforts continue to materialize synergies. In our marine segment, we continued to grow market share posting the highest quarterly volumes total in the history of the segment at nearly 7.7 million metric tons. Although, we witnessed weakness in some higher margin specialty markets and locations as well as the continuing headwinds in the dry bulk markets, our team remained focused on profitable growth while delivering premium services to our expanding global platform. In our land segment, the very strong seasonal performance from our recently acquired Watson Petroleum business was the principal contributor to the segments solid result in the first quarter. Although, the land result was offset by a drop-off in our domestic wholesale business from a very strong fourth quarter, the team continued to perform well and we are very optimistic about our ability to…

Thanks Mike and good afternoon everybody. Before I review our financial results, please note the year-over-year and sequential comparisons will exclude certain items that were disclosed in the first and fourth quarters of last quarter as well as a charge related to the previously disclosed retirement of our former aviation segment President of $3.8 million or $2.3 million after-tax and an acquisition related deferred revenue accounting adjustment of $2.1 million or $1.1 million after-tax of the minority interest, which were reported in our most recent quarter. So now on to the financials. Consolidated revenue for the first quarter was $7.3 billion down 25% sequentially and 30% compared to the first quarter of 2014. Our aviation segment generated revenues of $2.9 billion down 26% sequentially and 32% year-over-year. Our marine segment revenues were $2.3 billion down 25% sequentially and 33% year-over-year. And finally, our land segment generated revenues of $2.1 billion down 23% sequentially and 25% year-over-year. All of these year-over-year declines were due to substantially lower oil prices by certain part of the increase volumes and the sequential declines were also due to lower oil prices offset by higher volume in the marine segment only. Our aviation segment volume was down 3% sequentially to 1.45 billion gallons driven principally by fewer selling days during the quarter. Year-over-year aviation segment volumes grew 10% or 125 million gallons. Volume in our marine segment for the first quarter was a record 7.7 million metric tons up more than 500,000 metric tons or 7% compared to last quarter and up approximately 1.6 million metric tons or 27% year-over-year. Our marine team has done a great job growing market share over the past two quarters with volume now up more than 18% since the third quarter. Fuel reselling activities constituted approximately 86% of total marine…

Thank you. [Operator Instructions] Today's first question comes from the line of Jon Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon guys.

Hi, John.

Hi, John.

My first question on the marine side, so record volumes that's great. But then pretty sizeable sequential decline in the gross profit. So what I'm trying to get my hand around is, how much impact from OW and we talked about this last quarter, was there a potential volume benefit from OW that also translated and maybe into spread from some of that business, was there a boost to the fourth quarter profitability because of OW that kind of normalize in the first quarter. Just trying to rectify how one can jump so big while the other drops in the short period of time when this kind of big underlying issue is happening in the industry?

Well, Jon, you are a good student of the marketplace as we all know. So certainly in the fourth quarter, we have a number of different issues. We certainly helped a number of suppliers and customers that were a bit stranded in the marketplace and that certainly gives a little bit of a pop in our volume activity. We also had significantly strong quarter in the fourth quarter; it's totally unrelated to OW. The OW impact I think is then pretty drastically exaggerates to certain extent. We had the drop-off in pricing which as a somewhat of an impact on margin activity. When you look at pricing in the marketplace, some of the offshore market that the offshore business has some offsets that's softened the demand there, rig mobilizations are down. So combination of a number of different things, a lot of those folks from OW has ended up in other companies. They have been distributed. They haven't left the marketplace. I think our team did pretty good job in terms of building volume and generating a reasonably good margin considering the growth in volume. So the volatility that some folks have talked about and some have equated this to 2008. It's really dramatically different. We have got a massively oversupplied marketplace, demand is still not strong. So you get a lot of folks on the fence in terms of the derivatives activity, inventory levels are as high as, I think that's been about eight years. So it's still kind of a sloppy market and I think our team did a super job of building volume. We feel very good about where we are going. And I think it's just the ups and downs of the marketplace.

If I can ask my one follow-up here, before my second question. If I'm trying to – I guess I kind of grew up understanding the business that tend to the blue chip customers maybe don't face much because they have a better kind of risk adjusted counter-party I guess. So could we maybe read into the first quarter, am I completing this, interpreting this that volume is much stronger maybe the spread was down because there is more of a focus on kind of counter parties and credit rates and like you said you have added significant volume, sales teams had a good job. But, maybe on risk-adjusted basis, it's been pretty good, which is unfortunate for the sequential margin side.

Yes. That's part of it. We certainly will take all the blue chip volume we can get have focused on that. We acquired and I'm pretty sure we have mentioned this in our last call that we picked a brokerage operation a former brokerage company from Williamson Marine called WMS, offices in Singapore. So have increased our brokerage volume there which now has an impact on margin. And also lower pricing does impact it, it improves our returns. But it does have a little bit of an impact on the margin side. And the prices dropped on average quarter-to-quarter about 33%. So you are going to see some impact there.

Okay. My second Mike, in your prepared comments a lot of things you said was really in early stages of leveraging some of the capabilities that you either acquired or developed organically. Second, two parts to this, one, how much of the early stages, first or second? Then, you kind of sort of sustaining some of these capabilities and I guess, the second part of that would be how else do you develop this, I mean, this have to be further developed organically, do they need to be developed through kind of bolt-on acquisitions, how do you kind of foresee that?

Listen, thanks for the question because it gives me really an opportunity to talk about something that I got a lot of passion for it. And it think is one of the coolest things about our company, we have been doing this for a long, long time. And I'm pretty proud that we have a lot of smart and talented people have been here for a long time building this from nothing to what it is today. But, when we look at the marketplace of energy, logistics and the value-added services that we are providing to commerce and transportation. And now broadening to energy with natural gas and power, we are building up our lubricants business. We have 39 different products and inventory in 14 countries. We operate about 4000 individual physical assets – logistics assets. So the company really as grown tremendously and the market continues to open up for us. The downstream market is huge. I have mentioned in the past we today have about 1 million barrels a day. We touch significantly greater percentage of that. So as we continue to grow organically and grow through acquisition and build out our capabilities within the value chain, it's just tremendously exciting. We have got people in so many different countries around the world connected to one system; it's truly a global team. So some of the [indiscernible] and obviously it all takes time. It's taken a life time to get to this point. But, as we look at the land space in particular we look at the marine space, we have gone selectively into some physical markets on the niche side, OW obviously the lot of that. We do that very selectively. On the marine lubricant side and the land lubricant side that's an enormous business. Natural gas is a huge part of the energy complex. And we are providing advisory on the power side. So these are just huge, huge markets and they all really fit into our capabilities and competencies. It's not that much different. So having that risk management platform. Having that back office capability, the technology capability, really allows us to intelligently and strategically and selectively look at these markets and how we can bring value to a broadening customer base or government activity is interesting, military activity I said it before, I don't think world peace is going to break out any time soon. So our ability to go in there and provide advanced logistics to various different entities, different branches of the military NATO, DLA, foreign governments. We continue to grow that. So the possibilities are there, obviously we have to do and intelligently step by step but that's a little bit of what I meant by those comments. So I will stop there.

That's very helpful. Thanks a lot Mike.

The next question is from the line of Jack Atkins with Stephens. Please go ahead.

Good afternoon, guys, and congrats on a nice quarter here.

Thanks Jack.

I guess, just to start-off, I would like to maybe start-off with a question on M&A. It's been a little while since you guys made size of element acquisition, I know that you guys have made some tuck-in, but recently. But, could you give us a feel for what the M&A environment is like currently. And I know the cash balance is growing because you have good cash flow. As you look at in terms of the things you could acquire, what types of business are you targeting in terms of your three segments and how should we think about the M&A environment going forward?

I will tell you what, I will answer this question a little differently than how I have answered it in the past. Certainly within all of this spaces that we are in, our core business activity we see acquisitions as very much a key manifestation of our strategic evolution. So significant or organic growth is what we have had in a number of our businesses. But, we will continue to grow through acquisition in all of our spaces and I will just say that I would be surprised and disappointed if we didn't have significant acquisition or acquisitions in this year.

I will leave that then and there. And then I guess sort of shifting gears, we have seen a lot in the press recently about potential settlement fund for the victims of the Lac-Mégantic tragedy in Quebec a couple of years ago and it's notable that World Fuel and Canadian Pacific are not members of that settlement fund, just sort of curious if you could maybe give us some sets for how the process was being adjudicated and sort of – at what point do you think you are going to get some clarity on resolution as matter from your perspective.

Okay. I think I will let Ira handle this, he has been following this.

Yes. I'm not sure I'm going to throw you with my answer a bit. Jack, I mean to be honest all we could tell you is that we clearly can't comment on the status of the settlement discussions beyond what we have included in our filings and that does include updates that are reflected in the 10Q, which we filed about an hour ago today. So there is some updates in there beyond that we really aren't in a position to comment right now.

Okay. I kind of figured what you said. And then, just a couple of housekeeping items for follow-up, could you give us if you planning on give this, the gross profit from the multi-service business in the quarter that impacted the land base business. And then over the land volumes, I didn't catch that?

$12 million is the GP for multi-service and land volume was 1.1 billion gallons.

Okay. Thanks again for the time.

Thanks Jack.

The next question is from the line of Gregory Lewis with Credit Suisse. Your line is now open.

Hi. Good afternoon.

Hi, Greg.

Mike, you kind of touched on it, so what's the outlook on acquisitions, I guess my question is, as we look at the balance here right now that's close to $400 million of cash on it. When we think about cash being released in Q2 and Q3, it looks like that's going to swell even higher. Ira as we think about being efficient metrics, I mean what is sort of an ideal amount of cash that we should be thinking about having on the balance sheet to keep World Fuel efficient. And then I guess on the back end of that, real quick, how much of that cash is not in the U.S., it is overseas?

So two answers, on the first one, it's stopped to nail down an exact number Greg. But, I would say years ago and dating myself, the answer to that question would be $100 million to $150 million. The business has grown a bit. We clearly have a lot more cash on the balance sheet for a very long period of time. What I could tell you is, is 391 certainly is not the optimal number. It's more than that we need – it's more than company of our size would need to symbolically reflect a very strong balance sheet. So some of that cash flow ultimately pay down some debt, some of them maybe used for acquisitions as Mike described. But, we are not necessarily looking to increase that number dramatically from where it is today. Now, your second question hit on one of the factors involved in that. The comparison of cash to debt because on a net basis we only have $310 million of debt today even though we got close to $700 million gross debt part of that's because only a bit less than $100 million of that 391 is in the U.S. and the rest of it is sitting offshore. And not all of that is – some of that could have effectively been – be brought back to the States and some of it is a bit complicated. So that's part of the story as well. The good news is we have a lot of investment opportunities not only here in the U.S. but outside of the U.S. as well Watson is a good example of that which happened last year. We could use that cash to invest both organically and by acquisition offshore.

Okay, great. And then just my other question, just – in regarding that the land volume, I mean clearly volumes were relatively stable – EBIT was up in land. Was there any – were there any seasonal impacts that sort of kept a lid on land this quarter? I mean if I sort of remember the land was typically seasonally weak in Q1, it didn't look like that actually happened this quarter?

Well, there is a few factors. So yes, you are right about that land is generally seasonally weak in the U.S. in the first quarter, which is – it clearly was this quarter probably a bit more than normal. Last year, the seasonal weakness was massed a bit by the pole of Vortex where we had a pretty big pick up namely in our natural gas business, which obviously, we didn't have again this year. And then, you have the seasonal strength of Watson which was on the flip side of that, the seasonal strength in Watson was stronger than what we would have expected. So net-net we were down a few million dollars with very – with dramatically different factors with Watson higher than expected and the seasonal weakness in land in U.S. a bit lighter. And also, it was coming off of fourth quarter that was exceptionally strong in the U.S., so we made the comparison from Q4 to Q1 even greater.

So as we think about Watson, it's almost like it's a nice counter balance for the seasonally weak first quarter, so Watson is more of a stabilizer for your land?

That's right. Once again, good to mention it again, while everyone is listening, when you get to the second and third quarter that's where you start to see some improvement hopefully domestically but the Watson business drops off dramatically because they are so heavily oriented to the winter season. So net-net we will see a drop-off in land next quarter because of that and that will come back in a biggest way in the fourth quarter.

Okay. Thank you very much.

The next question is from the line of Kevin Sterling with BB&T Capital Markets. Please go ahead.

Thank you. Good evening, gentlemen.

Hi, Kevin.

Hi, Kevin.

Mike talking a little bit about OW and I hear you I think it's probably bit overblown, but let me ask that question in a different way. Have you seen some customers come to you maybe raising their hand like, look, we want to do business with World Fuel, we see your strong balance sheet. We see your opportunities source fuel. We want to be a partner with you kind of given some of the – obviously, the volatility in oil but also maybe some of the disruptions among some of your competitors.

Yes. That's certainly that has – that's our brand. Being a transparent public company our balance sheet liquidity compliance all of those factors are very much ingrained in who we are and what we do. Then like OW just reinforce that. So we definitely experience some of that. The market is amazing in terms of it's memory, it very quickly forgets things too. But, we certainly benefited from that and from a supply perspective, suppliers really value, solid counter party and distribution platform from them. Suppliers want to buy and sell a fuel oil and energy products and whether it's the marine side, the land side, aviation natural gas power, we represent that strong counter party. But, events like OW certainly underscore that and it's a great opportunity for us to promote that aspect of our company.

Got you. Thank you, Mike and makes sense. And Ira I got a question for you, as we look at your record volumes in marine this quarter as we model going out, should we assume maybe some – maybe some slowness in this volumes or should we assume the type of growth that we saw usually on the first quarter on the volume side continuing in Q2 and the rest of this year.

I would say that I would not expect the rate of that volume increase to continue. But, we hopefully should be able to hold on to all that volume that we picked up for most of the volume that we picked up over the last couple of quarters. Remember marine is a spot business, so some business does come and go. But, as I mentioned earlier on the call, 18% increase in two quarters hopeful we are not going to give much of that back. But, we are not going to continue to grow most likely in that clip going into Q2 and Q3.

Got you. That's very helpful. Thank you. Thanks for your time gentlemen. I appreciate it.

Thank you.

[Operator Instructions] The next question is from the line of Ken Hoexter, please go ahead with Merrill Lynch.

Good afternoon, Mike, Ira and Glenn. Just following up on the cash flow which is great as prices fall, does it change the business at all, does it change your payable terms so they get extended, what changes to the business do you see as prices come down, is it just you start seeing increased volumes, just want to get from your perspective?

Well, if you are focusing on the cash, Mike may want to answer the question from the standpoint of day to-day business activity. But on the cash side of the equation, it doesn't spur a change in terms in many ways, certainly it gives us some greater flexibility to grab some business by planning with some terms a little bit because the cash impact does not – is half what it would may have been when prices were double. But generally, that doesn't change materially and that's why we are generating the cash that we are generating because effectively to see less cash to run the business unless you are growing volumes significantly and therefore, are investing that growth. So generally that's really why aside from the derivative issue, which I described in the last couple of quarters, we always generate cash from a way down is a bit of lag that occurs. So in the first quarter since prices dropped from the beginning of the quarter, we are able to recoup pretty reasonable reduction there in addition to the pick up on the derivative side. I don't know Mike do you want to add anything beyond that if that's what you are after.

No. That was perfect. Don't want to cut-off Mike if you want to say something –

You carry on Ken.

Okay. Second question would be just I think Greg was trying to get just before on the land side but one of the thing, I get the what kind of growth you get from an acquisition in the fourth and first quarter. But, it seemed like in your statement that domestic land saw a decrease maybe if you could flush that out a little bit more in terms of what drove that downtick maybe I missed it from the answer you gave before. But, I just – it seem like a little bit weaker than I would have expected given the seasonal bump from the acquisition.

Sure. Well, you got the seasonal bump which is Watson, right? So if you focus back on the domestic side that's where you had the drop-off. There are a bunch of different pieces of the puzzle there. One example maybe Canadian Rail where sometimes we benefit from the hour between the U.S. and Canada, moving gas and diesel by rail, sometimes we don't. We had a much stronger outcome in the fourth quarter than we did in the first. You also have the drop-off related to the crude joint venture is going away. So some of that profitability was there in the fourth quarter that's no longer there. We do there is a bit that we get from a post acquisition standpoint, it doesn't compare to what we were generating earlier. And then the weather certainly impacted our dealer business which is predominantly in the Midwest and even the bit of our wholesale business as well, which is a spot business and we performed very well in Q4 and we just see the same level of activity. So was a lot of different things. But if you summarize it, Q4 was pretty strong across the board in the U.S. and the seasonal first quarter slowdown was just a bit more extensive in the fourth quarter that we normally would see.

Is that a statement on the economy in terms of seeing that slowdown, are you – would you read into that a little bit more given the statement there?

No, Ken. I think it's really is a statement on our business mix. And you know that our company is very much oriented towards satisfying end users and demand. What we have done by aggregating this enormous amount of demand is we enter the value chain on the supply side. That supply side has got some amount of variability to it certainly driven by price but certainly driven by just way the oil markets work. So we will work some odds, we will generate some profitability of moving products around and working the logistics. So the way it turned out between the fourth quarter and the first quarter as Ira commented is that we had a variety of different things that didn't hit. So our business model as you know is diverse. We are involved in lots of markets. We are involved in lots of products, so lots of geography. We are not dependent on any one area. I would like to believe that as we continue to grow and develop, our business is going to be noise canceling. We are going to continue and I think we have done a pretty good job of being able to deliver consistent results. But, we are still growing the business. We are certainly oriented towards more sustainable, predictable business activity as opposed to the highly volatile type of activity. You look at for example our multi-service business, this is a very long sales cycle business but when you get that business, it sounds like an annuity. That business sticks around for 10, 15, 20 years. But, it takes a long time, it sort of a slow burn. Our spot business, while there is a good amount of ratability to it, it gives us the ability to pivot but the market so with that – you look at our land business, it's our youngest trial, still growing up. It's relatively new. We have only really been in that business in earnest since 2008. So as we build up that scale you are going to see a believe more ratability there and less volatility to those earnings.

I know it's all helpful. If I could just get a clarifying on one thing you said Mike, which is, I just want to go back to your original comments. Just to clarify, did you say that you are taking physical ownership in areas outside of crude, I think you mentioned lubricants and other stuff, is that a shift in strategy, does that increase rates or –

We have been doing that in – basically we are a very much niche player. I mean at the end of the day we are looking to satisfy and delight our customers and suppliers. So we will enter a marketplace that is underserved. I mean the reason we exist is because we are satisfying demand that's not whatever satisfied through marketplace. So in certain markets where there is – its under serving and certain airports, if we didn't have inventory it would be in jet fuel. So we will do this in select markets, but it's very select.

Okay. Helpful. Appreciate the time, gentlemen. Thank you.

Okay.

Thanks Ken.

And Mr. Kasbar, there are no further questions at this time. I will turn the call back over to you for your closing remarks.

Thank you, everyone, we appreciate the support and interest in our company. We feel good about where we are and where we are going. And look forward to talking to you next quarter.

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