Good day and thank you for standing by. Welcome to World Kinect Corporation First Quarter 2024 Earnings Conference Call. [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 Communications. Please go ahead.

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, Vice President 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 we get started, I'd like to review our Safe Harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We assume no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes non-GAAP financial 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 question-and-answer period. At this time, I would like to introduce our Chairman and Chief Executive Officer, 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 down in the first quarter from a profitability standpoint, and we also generated very strong cash flow. Ira 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 focused path we are on today, building a more ratable 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 ratability and operating leverage. As we scale these ratable business activities and further sharpen the portfolio, we believe this variability will be attenuated and result in more ratable and predictable results, improve growth and solid shareholder return. We have 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 have been sharing, and a strong example of this is the recently announced sale of Avinode, 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 or have the DNA to deliver the returns we expect to generate across our entire…

That's right, Ira.

That's right, Ira. Keeping my promises.

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 pretax 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 a seasonally stronger second quarter, we expect an uptick in both aviation volume and gross profit. While volume is still expected to be down…

[Operator Instructions] Our first question comes from the line of Ken Hoexter from Bank of America.

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 when you say it's going to be like 2023? Or I just want to understand if you could clarify that a little bit.

Yes. I think you got that right, or you did get that right. We said we're going to be closer -- the year-over-year comparisons have 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, 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's 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.

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

Yes. So there were two elements of weather. As you know, we have a bit of a 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. It remained warmer through the end of the quarter. Obviously, Investor Day was only 2 weeks before quarter end, but the weather conditions 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 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 get some more uptick in the liquid land business in North America. There's some seasonal growth there. But a big chunk of that will be offset by the seasonal decline in the U.K.

And then just my last one, if I can. Just your thoughts on the SG&A comp and benefits, G&A all wrapped up. You kind of have been working on that for a few years. You talked about that a lot at 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 feel like there's room --

Never.

Never. All right. Perfect.

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. So 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 an operating leverage standpoint. And we'll keep plugging away and keep reporting on our progress every quarter.

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

So, standard question to start. Last year, low carbon was 11% of profitability. What was it this past quarter?

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

Okay. Perfect. 3 months ago, one of the geopolitical headlines, I suppose it's been overtaken by other events, was the Red Sea and the 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?

Pavel, thanks for the question. It's extraordinary the resiliency of the marketplace, and certainly shipping understands how to respond to disruption. So that's settling out a bit. So while there was an 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. We got a little bit of a bump there, but that is pretty much settling down now.

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, but given you're 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.

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, Power2X, 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.

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

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.

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