Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services First Quarter 2021 Earnings Conference Call. My name is Joelle, and I will be coordinating this 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. As a reminder, this conference is being recorded. 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, Joelle. Good evening everyone, and welcome to the World Fuel Services First Quarter 2021 Earnings Conference Call. My name is Glenn Klevitz, and I will be doing the introductions on this evening's call, alongside our slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit the World Fuel Services Corporation website and click on the webcast icon.

Thank you, Glenn and good evening everyone. Thank you for joining us. I hope you're all well and I hope you are as optimistic as I am about the medium and long-term future market opportunities. We opened the year with a strong first quarter, once again demonstrating the resiliency of a well-diversified portfolio. And considering current market conditions, all of our businesses performed well. Our balance sheet and cash flow has never been stronger. We believe, we had a significant medium and long-term opportunity to deploy capital in our North American C&I meaning commercial and industrial liquid fuel business and globally in fuel, gas, power, carbon and renewables to serve our aviation, marine and land customers and drive the energy transition. As I mentioned last quarter, the work we have done over the last few years in talent, culture and leadership is having a positive impact. We are converging our organization and business solutions in line with the transitioning marketplace. Combining functions and the business itself is creating greater efficiencies and effectiveness, as well as greater mobility and career opportunities for our global teams.

Thank you, Mike, and good evening ladies and gentlemen. I hope you are all doing well and finding ways to return to some sense of normalcy. Although, the pandemic continues to present significant challenges across businesses globally there has certainly been some encouraging developments, which has many of us a bit more optimistic about the prospects of increased levels of business activity. I am extremely proud of how well our team has performed in the face of a multitude of ongoing challenges. And our results this quarter are a testament to the value of our diversified business model, our expertise in the markets we serve and the dedication of our global team.

Thank you. Our first question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question.

Hi. Great. Good afternoon, Michael, Ira and Glenn and kind of looking forward to this continued rebound, which is looking great so far. But on the cash flow typically a rising fuel environment negatively impacts free cash flow. You mentioned the robust free cash you're still seeing. What are your thoughts on cash flow going forward? And given the huge $700 million in cash is there a likelihood you start to buy back sooner? And what should we expect from that? Thanks.

Sure. Thanks, Ken. So yes as I said on the call there was a -- as I said earlier there was a 35%, 36% increase in average prices in the first quarter. And we managed through that very well. Part of it is mix of business currently. And part of it was our ability to sell some more receivables during the quarter under our receivables program. So you put all together. We had a really significant increase and we had some recovery as well and our net working capital barely moved. I'm not sure, we can continue to replicate that every single quarter, but we're doing our best to manage working capital in our net trade cycle as effectively as possible. So depending upon the rate of recovery in volumes, depending on what happens in price that could have meaningful impacts on what our cash flow would be over the next several quarters. In terms of the cash, $735 million I believe Glenn is a record for us for a given quarter. As we've repeatedly said the first priority for us is investing in our business both organically and inorganically as there are a lot of opportunities in the pipeline today most specifically in our land -- in many parts of our land business. But we'll also always include a portion of our capital to repurchase shares again principally to offset the dilutive impact of equity awards and also look at our dividend as well which as I mentioned we increased in January.

Just to add Ken on price. I think I mentioned this last time. It does have a salutary effect on our results because we're leveraging our underwriting most notably in aviation and marine, so high prices obviously have a price to it so to speak. But we do get some return on that because the value of our balance sheet and counterparty increases. So were that lower prices and stable prices not so much. So there is the other side of the coin on that.

Great. So good job on the land. Marine was a bit soft. Aviation was in line. Maybe Ira or Mike if you could just walk us through on the gross profit per gallon the impacts there. Marine was down 50% why such a sharp drop? And land down 10%. Is that now a good run rate? Obviously up significantly sequentially. Is that because of the UK? And then aviation what's the impact as commercial business rebounds? Thanks.

Well once again the credit equation a combination of different things higher quality credit lower prices, not a whole lot of volatility not as much demand on our credit or underwriting. So that sort of dynamic means that those value-added services are not getting pressed into the equation so to speak. And that would apply most notably to marine but also to some extent on aviation. You've got a good amount of business mix within aviation. So that's going to vary. I mean we're dealing with unusual times. So getting back to historic norms I think you're going to see a revert to mean, when business activity starts to normalize whenever that's going to be. In the meantime, it's a combination of the mix of business activity most notably within aviation as you're not seeing international passenger cargo will come back so strong. So I think that's the end of my comments. I don't know if you had any other color. You want to add to that to Ira?

Yes one -- couple of highlights. So I'm not repetitive. On marine remember year-over-year you're comparing to the extraordinary Q1 which is when the IMO implementation happened and that would explain the substantial year-over-year decline, but the results aside from that is not that far off where we had been trending over the past few quarters. And as I said on the call earlier for marine, that number has been moving up a bit in the first few weeks of April. In aviation, when you compare our margin to last year were up that's principally as Mike said because of mix because we have way less lower margin high-volume commercial passenger business and more of a mix is of cargo business aviation et cetera. So that's contributed to year-over-year improvement in margin. And in the land business you probably have multi-service in your numbers last year which would affect that year-over-year comparison. Their margin in the first quarter in land was a bit higher again driven by the really strong results in the UK and in that gas business. So from a trend standpoint going forward aviation may trend down a little bit as the mix begins to shift towards more commercial passenger business green again should be -- we're open to be up a little bit. And land should trend down a little bit again coming off the extraordinary results in the first quarter.

All right. Great. And then those are my two questions. My one follow-up quickly would be Afghanistan just in aviation. Can you describe how much is left in the results? I know you've got commercial that will rebound and offset some of that. But is there a way just we can counter with what is left in the number?

Yes. I can say that when you look to the second quarter we'll be down to about 7% of gross profit that remains coming out of that business. And based upon the announcements coming out of the White House and NATO obviously that number will decline quite possibly to 0 by the end of the year. So you've got the complement to two factors right? That's most likely going to decline. There's still some funkiness on priming and there may be some lingering activity. We don't know yet. And at the same time you've got the core aviation recovery going on that likely will continue to improve that over the balance of the year. Again the improvement plus or minus will be tied to what happens in Europe for example when that starts coming back. So on an overall basis, aviation should start trending up a little bit maybe not as much as it otherwise would have if the Afghanistan activity continues. And by the way that's 7% just to clarify in the second quarter. A little bit of that is in land too. So that's a consolidated number. I would say 5% aviation 2% relates to land.

5% of aviation or 5% of total gross profit?

No, no total 7% is the percentage of our total consolidated gross profit. Most of that 80% of that is in aviation and about 20% of that is land.

The only note I'll give on that Ken notwithstanding timing clearly through better or worse global tranquility, it's not going to break out anytime soon. So, we're committed we've been in the space for many, many years. So, there is different locations. We do have activity not to the extent of the concentration within Afghanistan, but so we will be seeing that. We already do have activity there. So, in any case, and that's a business we continue to be committed to, it's good business. It gives us a great sort of capability that we leverage into our commercial activities. So that, of course, will be combined within our other business operations until such time that it becomes sizable that we would actually break it out.

Great. Appreciate the time. Thanks, Michael, Ira.

Thanks, Ken.

Thank you. Our next question comes from the line of Ben Nolan with Stifel. Please proceed with your question.

Yes. So, first of all, I appreciate the breakout on the Afghanistan stuff there. That was helpful. I wanted to stick with aviation for a moment if I could. And obviously, here in the US we're seeing a lot more passenger air freight moving and people on vacations and that kind of thing. But as you said in the prepared remarks, you're not necessarily seeing that in other places around the world like Europe and Asia. I was curious if you might be able to break down sort of what your business mix is, how much of what you do is domestic here versus other parts of the world? And how do you think through sort of what that means with respect to the cadence of normalization?

Yes. That's a lovely question, Ben, from a standpoint of looking at that at different points in time. Historically, 70% plus of our aviation business would be commercial, with something close to 50-50 split between North America and parts of the world. But that's varied over time. That's probably pretty close to where we've trended historically. Now you have different type of business though, right? I would say the piece of business internationally on average would be higher-margin, because that's where we have more of a physical presence again driven by our Exxon related acquisition a few years back we're operating in over 100 airports today, where we have infrastructure and we're not "just the man in the middle". That type of business, which hasn't come back yet, because of all the lockdowns and restrictions in Europe is generally higher-margin where the domestic larger volume type customers and that type of business in the US is generally at the lower end of the margin spectrum, right? So, you may be 50-50 on volume, but you have an increasing amount of profitability over the last few years coming from our international operations.

Okay. That's helpful. And then, secondly for me, sort of a similar question, but as it relates to land. And especially, as we look back into the last quarter, it was a pretty good number, especially without a multi-service in there. And some of that, I think is as you say, UK normal seasonality, but then there was also the natural gas business, which helped by weather and everything else. At this point, how much of the land business is natural gas? That's kind of my question. And how much of what we saw in the first quarter might have been just sort of weird weather versus what is a normal run rate?

Yes. It's still been running at a relatively small level on a run rate basis of land's overall profitability. There was probably an extra $7 million or $8 million of profitability beyond the norm that contributed to land results in the first quarter. If you back that out and look at the results, short of that we still had somewhat better than normal Q1, again, because of the strength in the UK.

Right. Okay. That's great. And then I guess for my follow-up or third question or however. On the marine side, hopefully, I think in July, they'll start running cruise ships again. Can you maybe talk to how big of a deal that is to the marine business? I know obviously you guys are located right there in the cruise side of the world, right? But how much of the business is cruise, or maybe more importantly how much of that gross profit is ordinarily derived from the cruise business for you guys?

Yes. Historically -- Ben, good question, that's only been about 10% of our marine profitability over the years. Now, it's accelerated a bit as we added some new locations in the year or so, year or two prior to COVID, maybe it's 11%, 12%, but it's somewhere between 10% and 12% historically. So, it's enough to have a few million dollars of profitability on a quarterly basis going forward when that does come back. And it seems like, it should start coming back around the end of the year. Now, just because you're sailing in the fall, if that's going to happen, the number of ships sailing are going to be nowhere near where they were pre-pandemic day one. So it's going to be a relatively slow ramp for that business unfortunately for them. I'm sure they're happy they're all happy to be getting on the seas again even if they're not running at 100% of their capacity.

Sure. All right. Well, that is my three questions. Appreciate. Thanks guys.

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

Well, thanks everyone for listening in. And thanks to all of my colleagues around the world. You're doing a great job. It's great to work with you every day. Thanks everybody. And we'll talk 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.