Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services 2020 First Quarter Earnings Conference Call. My name is Kevin, and I will be coordinating the call this evening. [Operator Instructions] As a reminder, this conference is being recorded Thursday, April 30, 2020.I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President, Treasurer and Investor Relations. Mr. Klevitz, you may begin your conference.

Thank you, Kevin. Good evening, everyone, and welcome to the World Fuel Services first quarter 2020 earnings conference call. I'm Glenn Klevitz, and I'll be doing the introductions on this evening's call alongside our live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit the World Fuel Services website and click on the Webcast icon. With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. By now you should have all received a copy of our earnings release. If not, you can access the release on our website.Before we get started, I would like to review World Fuel's Safe Harbor statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information. A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's most recent Form 10-K and other reports filed with the Securities and Exchange Commission.World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes certain non-GAAP financial measures as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website. We'll begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. As with prior conference calls, we ask that members of the media and individual private investors on the line participate in listen-only mode.At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Glenn, and good evening everyone.We are speaking to you today, as you all know much of the world remains under some form of quarantine, with dramatically slower activity in most parts of the market with worldwide passenger travel shutdown or severely curtailed. The impact from the coronavirus pandemic is affecting everyone and every business globally in one way or the other.Before I go further, I want to say how proud I am of how our global team has continued to operate our day-to-day business activities safely and flawlessly with nearly all of our employees working from home or on the front line delivering fuel. Our global physical logistics team has actually improved their performance metrics, that's commitment. In times of change, great change, it's also a time of great learning.It's ironic that being separated from each other has brought us closer together and driven efficiency. Am I a little bit too low here? Can we increase the volume? Okay, sorry about that. So as I said, the times of great change are also times of great learning. It's ironic that being separated from each other has brought us closer together and driven efficiency.Our level of engagement and productivity has skyrocketed amongst ourselves and with our customers, suppliers and partners. Being headquartered in Miami with annual hurricane preparation, we are very familiar with business continuity planning. Investments we have made in technology over the past couple of years have also facilitated our ability to very effectively run our business remotely. So a big thanks to our tech team.We benefited from starting our global response in January, led by our Head of Global Security and Resilience, and in February started requiring self quarantining for anyone that was exposed to a suspected high-risk environment. I am happy to report we have…

Thank you, Mike. Good evening, ladies and gentlemen.As Mike just mentioned and everyone is experiencing in their own ways, these are unprecedented times to the world as well as our company. Although the future is uncertain, the ability of our company to continue operating our business effectively with most of our employees working from their living rooms, kitchens, and home offices has been remarkable and gives me a real sense of pride to be part of such an amazing team.I would like to thank all of our employees for their tremendous support over these past unprecedented six weeks, getting the job done for us, our customers, suppliers and other stakeholders, while taking the appropriate steps to protect themselves and their families.And now, joining you from my own dining room table, I will provide you with our financial update. At the time of our last earnings call only nine weeks ago with two months under our belt and continuing the momentum from a strong 2019, we were feeling rather optimistic about our opportunities for the first quarter and the full 2020 year.Obviously, while we still performed quite well in the first quarter, much has changed since February and considering the unique circumstances we find ourselves in, I will provide more color than usual to help you better understand what we are experiencing in the marketplace today and how we believe it impacts our near-term outlook, including the actions we are taking to reduce expenses and maintain a strong liquidity position.As usual, please note that the following figures exclude the impact of pre-tax non-operational items in the first quarter as highlighted in our earnings release, the non-operational expenses in the first quarter, principally related to restructuring and acquisition-related items. To assist you in reconciling results published in our earnings release the breakdown…

[Operator Instructions] Our first question is from Ben Nolan with Stifel. And that line is open.

You missed a fantastic question. Now I'm going to screw it up, I'm sure. So, I did want to ask, first of all, I appreciate the additional guidance that was given with respect to volumes and margins, that's very helpful on my end. Did want to ask how you or how you would - how you are seeing or how you would envision operating margins in this kind of an environment? Obviously, in normal circumstances when demand has diminished you can maybe also anticipate there being - a pressure on operating margins, but these aren't normal circumstances. So any thinking, maybe segment-by-segment whether or not there might be any compression of those operating margins?

It's going to vary, Ben. So, as you know by now, it's a diverse business model and we got a lot of things going on all for the purpose of supplying energy globally to a diverse group of end customers, but with the commonality being moving that liquid or gas or power whoever the case may be, third-party, our own inventory distribution assets or using e-com or fuel cards or online transaction processing. So it's going to be really across the board.There are a lot of different requirements that folks have in terms of different disruptions to the supply chain, some parts of the supply chain are overstressed and there is significantly greater demand in some areas, not a lot, obviously. So in some cases, there are going to be increases of demand where supply chains are going to be stressed that generally implies some higher margins.You've got some other parts of the market where there is an evaporation of demand and excess of supply, and there's certainly plenty of that. There are some opportunities where you are going to have some compression and coming out of this, which we will come out, the main airlines will fly, cruises will cruise, people will want to take a cruise. I'll take a cruise, I'll be flying around. The world wants to get back to its life. So you are going to see, I think coming out of this, perhaps fewer stronger companies with demand as it will gradually come out, you've got an oversupplied market, you've had that for quite some time.So it is going to be a scenario of the companies that are lean - the companies that have used automation that they've got efficiencies and certainly this experience has shown us a lot of efficiencies in terms of what…

Sure. Well, I think Ben's probably familiar with where we were heading in. Obviously, some of the metrics I shared, Ben, on Q2 would obviously imply that those margins are going to be impacted significantly in the short term. But assuming the world starts moving again, we see those metrics starting to improve hopefully in the second half of the year. I would say Marine will probably be impacted the least in that regard because it's a lean and mean highly centralized business with more of an impact in Aviation and Land. I will say though that Land would be remiss not to repeat the fact that Land had a phenomenally strong quarter in Q1, probably one of the best quarters they've had in a very long time.So I think Land, which has been underperforming from a operating margin perspective was starting to catch up. And I think despite the short-term setback impacted by corona that Land will likely come out of this stronger from an operating margin perspective, whether that's in the third quarter, the fourth quarter, none of us really know at this point.But I believe a lot of the things that we've been doing to help drive improvements and efficiencies in the Land business in rationalizing the related portfolio have started to kick in. And again, unfortunately bad timing for land in terms of the pandemic, but I think coming out of it, Land's operating margin should be stronger.

And then, I just had two more quick questions. The first is with respect to capital allocation. You may - you guys made a point of calling out the need for liquidity, which is absolutely understandable in this kind of environment. But I think Mike, you might have or Ira, you might have talked about that as we come out of this, you could see - envision an environment where there are fewer competitors to make sense, but is this the kind of environment where you are sort of value-shopping a little bit? If somebody - doesn't have the same liquidity or balance sheet that you do, and maybe opportunity to do some countercyclical acquisitions? Or is it really just protect the balance sheet, no matter what?

We're always open for business. There will be opportunities without question. We've been exhibiting some forbearance with our clients that we believe will survive. I'm just going to take the opportunity to talk about the transformation from underwriting and being a market maker to being a strategic and - I'd like to believe and I think it is true one of the more sophisticated physical operators in the market today and that has given us a better portfolio.So our counterparty risk is enhanced because of working the portfolio as we add - you saw our Marine business volume go down, because we've been more selective and the same with Aviation.So as it relates to folks within the supply chain that for whatever reason think that the future may be better not being a private owner of a company or if there are other opportunities in the marketplace that people for whatever reason didn't have similar sort of balance sheet or capability, we certainly would consider that. It's not obviously top of the list. Top of the list is safety of our employees, its liquidity, it's protecting the franchise and the enterprise, but there will be opportunities that will make sense. So, we'll certainly evaluate them as we would any opportunity.

And then lastly for me and I'll turn it over. Speaking of the situations that developed one of the big Singapore-based or really probably the biggest Singapore-based marine fuel bunkering company is going through some restructuring now and all sorts of crazy things going on over there. I know that in the past when some of your competitors in the Marine side have gone through these situations that either created opportunities or risks. I was curious if you have any color with respect to that ocean tankers business in Singapore, whether or not there is any exposure or opportunity?

Yeah, virtually none, so de minimis very, very de minimis. So we did a lot of business within their - I think the third largest supplier there. So we wish them best. They provided a good service so - but for us virtually no exposure.

Next question is from Ken Hoexter with Bank of America. Please go ahead.

So during the Great Recession you talked about kind of managing the days sales outstanding and for some customers you would shrink the payable days. And ultimately if need be maybe even kind of prepay some of the fuel. Maybe can you talk a bit about how you're reacting to the customers? Have you started to look at that? Have you shrunk any kind of days sales outstanding? And how have you reacted to the market change? Thanks.

Well, it's a little bit different this time around. A little bit different this time around and certainly on the Aviation side, we've managed to have excellent engagement with our aviation clients. I think that we're very encouraged and when you look at how the world deals with these from 9/11 to '08, there's a lot more experience in the world. I'd made reference to our annual hurricane preparation business continuity but central banks, the Fed, SBA.There's been just an incredible and quick response whether that's a good thing that we're - the world is getting better at dealing with these shocks. I think it's been encouraging within the larger airlines that we deal with and now the government support that they're having so we've managed to deal with them in the appropriate way. So it necessarily means that we're reducing our DSO because a lot of them aren't flying.So a lot of it is understanding what arrangements are being made for us to continue to support them. We are a strategic and valuable partner and supplier for many of these companies. We deal with their physical operations, so it's a little bit of a different story from what it used to be. We've transitioned significantly to be a strategic and operational partner to these clients. And there's a certain co-dependency which is not a terrible thing.So as it relates to the rest of our portfolio it has not been really bringing in the terms, in terms of days. We've certainly looked at credit as you know the credit lines are significantly lower because of the price of oil so our exposures have shrunk significantly because of that.So that's a good thing. So this one is just a little bit different. This is not the Financial Crisis. It was a health crisis that turned into an economic crisis where you had an instantaneous evaporation of demand combined with good measure with an oil war. So it's pretty crazy but we've managed to navigate with that and really deal with the exposure. So it's less about the terms and it's really about understanding what our exposures are. And who are the folks that we're going to continue to support through the downturn.So I think we've done a very good job. Our underwriting team I think is superb. So it's gone to the opposite direction. And Ira, maybe you want to give a little bit of color in terms of how that's working through just the balance sheet, and the P&L and all of that. Do you want to give Ken a little bit more color on that perhaps?

Yes, you've provided him with a lot. So I won't add that much Ken. But obviously, the period you are referring to was a period when oil skyrocketed to $147 a barrel and everyone was using a lot of cash from working capital. Right now working capital is shrinking because of price and activity. So as Mike indicated very different set of circumstances.So it's really more about working with our customers that may owe us some money that are not necessarily operating right now and helping as best we can. And there are there are certainly situations where there are business is still operating, the credit profile have changed and we may bring in terms here and there but it's nothing like what we experienced back in 2008. I mean, literally today's fuel price is 10% of what it was during that crisis in 2008.So a very different set of circumstances. So working capital should continue to decline over the next few months or until the world starts to come back online. So that's a positive. That's the one positive to us from a liquidity standpoint regardless of what terms are just purely because of price and volume.

Great. Thanks for that. Now, thinking about your second quarter outlook Ira, appreciate all the thoughts and guidance you provided there. Maybe just talk a little bit about your assumptions in that, a little bit more and then your thoughts on cash generation in the second quarter, right? So if I look at cash from ops even excluding UVair would you expect to be, you mentioned operating income breakeven. Would you then expect to be cash flow negative in the second quarter given that?

No, so if that's the principal part of your question. We should generate cash again. You've got much lower volumes expected as I articulated in my script in Q2 and assuming prices remain, they jumped up a little bit this afternoon. They were $13 this morning and crude was $18 by the end of the day. But assuming prices remain in this very low environment the combination of low price and low volume should reduce our working capital position pretty meaningfully.Obviously, we still have some of the impacts of payments not coming in as quickly as they would under a healthier set of circumstances. But despite that, we should generate cash in the second quarter. I can't tell you exactly how much because that's a moving target. But we expect to be cash positive despite not necessarily generating any operating income.

Okay. And then maybe just delve into the Marina a bit. Maybe your thoughts on the spread between [indiscernible] probably just a follow-on I guess trying to figure out if - Mike was mentioning that the GAAP has narrowed. So does that mean this run in strength of profitability has ended or is that irrespective of kind of that GAAP? I just want to understand maybe you could just walk us through a little bit on that the spread of fuel prices and what that means for your profitability and business?

Well, you're going to have - go on, Ira.

So Marine is the one business that has a much larger spot portion of its portfolio, meaning we're out there slugging away for business every day. There was obviously a bunch of volatility around the transition on the first of the year and we were transitioning to a fuel type that was running at $500 to $600 a ton which was substantially higher than the fuel we were selling before.So combination of the volatility around the change and the substantially higher price evolved - all that contributed to profitability and the strength that we saw in the first quarter. I would say that that's kind of been squashed to some extent by everything else going in the world. There's been less conversation and focus on those dynamics.But the one certainty is that because of the significant drop in crude, the price of low-sulfur fuel oil has collapsed too. I think it was $220 yesterday so hundreds of dollars less per ton than where we started at the beginning of the first quarter. So that combined with cruise lines not sailing and other parts of the markets that we serve and Marine being impacted by the pandemic. All that will contribute to a fairly meaningful sequential decline in Marine in the second quarter.

With everything Ken there's pluses and minuses all over the place. And while lower price obviously is going to have some impact and lower demand that's going to be offset to some extent by some risk premiums. Because it's all about counterparty risk and it's all about counterparty risk within the supply chain. There are lot of small and medium sized companies and private companies. So I think people are going to be pretty careful in terms of how they do business, who they do business with them and there's still obviously material amount of risk in the marketplace.

Appreciate that guys. Just my last one Ira, I just want to make sure.

Sure.

I understand what you were saying before when you said obviously some of our covenants are based on EBTIDA, were you talking about the shrink to your available liquidity or were you suggesting to pay back some of the debt, I just want to understand maybe if you can just clarify for me what you meant by that that comment?

Yes. In the principal covenant that we live by day in and day out, which governs the amount of liquidity that we technically have available under the covenants is of the level of debt we have relative to our EBITDA, right? So if our EBITDA shrinks, which it clearly will in 2020 that has an impact on our overall liquidity.Now, the glass half full is that we should be generating cash from reduced price and volume environment to offset a lot of that, but you know obviously it depends on how much EBITDA does decline, right? It's pretty, pretty common covenants amongst just about anyone that has a general banking facility that they utilize to run their business.

Yes. No, understood. I just want to understand what you were mentioning there. All right, guys, appreciate the time.

There are no further questions. I'll turn the call back to you.

Okay. Well, thank you everyone for listening. It's certainly the craziest of times. I'm optimistic certainly about the world. You've got hundreds of thousands of researchers and doctors, medical professionals working on this New York Times Global Crossword Puzzle of solving this crisis and we will get through this and there will be the other side, so we're optimistic. We feel like we'll come out stronger, having gone through it. If it doesn't kill you, it makes you stronger.So I started my Marine career in 1985 and it was the worst shipping market and it was the worst energy market. And it actually taught me a lot about what to do and how to get through thing. So we've been through these before. Not exactly like this one. But we'll come out of this and we'll continue to obviously focus on the short-term imperatives, but we're not going to lose sight of what the agenda is.Certainly our sustainability initiatives are important. Some ways you're seeing that sustainability has gotten the B-12 shot. A lot of people are sort of thinking about that, and all of the rest of the initiatives we're committed to, ESG all of those we will continue to focus on. Obviously, we've got an urgent issue right now, and that's what we're focused on. It's everybody at battle stations. So our company is working well.Once again, I just want to thank our tremendous team. It's been wonderful to be working more closely. It's ironic that we're working more closely than ever before. So anyway, stay healthy to our investors and shareholders and all of our supporters. We really thank you for all your support during this. And to our customers, we've had great conversations, great engagement. So we'll all get through this. We're all looking forward to getting back to our lives. It will happen.And in the meantime, stay safe. And we look forward to talking to you next quarter. Thanks very much.

That does conclude our conference call for today.