World Kinect Q3 2024 Earnings Report

World Kinect EPS Results

• Actual EPS: $0.62
• Consensus EPS: $0.62
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.58

World Kinect Revenue Results

• Actual Revenue: $10.49 billion
• Expected Revenue: $11.77 billion
• Beat/Miss: Missed by -$1.28 billion
• YoY Revenue Growth: -14.30%

World Kinect Announcement Details

• Quarter: Q3 2024
• Date: 10/24/2024
• Time: After Market Closes
• Conference Call Date: Thursday, October 24, 2024
• Conference Call Time: 5:00PM ET

World Kinect (NYSE:WKC) (NYSE: WKC) is an energy management company that provides fuel, energy and related services to customers in the aviation, marine and land transportation industries. Its offerings include the sourcing, marketing, distribution and delivery of conventional and alternative fuels, as well as energy procurement and risk-management solutions.

The company serves commercial airlines, business and general aviation operators, shipping companies, trucking and transportation businesses, government entities, utilities and other commercial customers. Its operations support customers across North America, Europe, Asia and other international markets through a global network of suppliers, terminals, storage facilities and logistics capabilities.

World Kinect was formerly known as World Fuel Services Corporation and adopted its current name in 2024. The company is headquartered in Miami, Florida. Michael J. Kasbar serves as chairman and chief executive officer.

World Kinect Q3 2024 Earnings Call Transcript

Key Takeaways

• The Aviation segment delivered double-digit operating margin growth, with core commercial revenue offsetting the Avanode sale and a tuck-in fuel distribution acquisition set to integrate by year-end and expand its network.
• The Marine business achieved an 8% year-over-year gross profit increase and a 4.5 basis-point margin expansion on its scalable, low-capital platform, underlining its role as a diversified cash generator.
• The Land segment rebounded sequentially in Q3 but still saw a 16% year-over-year gross profit decline amid North American fuel and Brazilian market headwinds, prompting a plan to unify operations on a single technology platform by 2025.
• Capital returns accelerated with $28M of share repurchases in Q3 (totalling $57M YTD) and a $200M boost to buyback authorization, while interest expense dropped 16% year-over-year.
• Operating cash flow was negative $39M in Q3 due to seasonal aviation working capital needs, but management expects a positive cash flow quarter in Q4 and to maintain 2025 free cash flow targets.

Presentation

[Operator]

Thank you for standing by, and welcome to World Kinect Corporation's third quarter twenty twenty-four earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Braulio Medrano, Senior Director of FP&A and Investor Relations. Please go ahead.

[Braulio Medrano, Senior Director of FP&A and Investor Relations at World Kinect Corporation]

Good evening, everyone, and welcome to World Kinect's third quarter twenty twenty-four 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 Braulio Medrano, Senior Director of FP&A and Investor Relations. With me on the call today is Michael Kasbar, Chairman and Chief Executive Officer, and Ira Birns, Executive Vice President and Chief Financial Officer. I'd like to take a moment to announce that Elsa Ballard will be leaving World Kinect after this earnings call. We would like to recognize and thank Elsa for the fantastic job that she has done with our investor relations efforts by improving communication channels, driving greater transparency, and improving the quality of our materials. As she moves on to new opportunities, we want to wish her the best in her future endeavors. Thank you, Elsa.

[Braulio Medrano, Senior Director of FP&A and Investor Relations at World Kinect Corporation]

And now 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 certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website.

[Braulio Medrano, Senior Director of FP&A and Investor Relations at World Kinect Corporation]

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.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Thank you, Braulio, and thank you, Elsa, for all the great work that you did for us. We really appreciate it, and best wishes on all your future endeavors. Good evening, everyone. Last quarter, we spoke about challenging market conditions in our land business, and even though some of these headwinds persisted in the third quarter, our land segment rebounded from the second quarter as expected. Our overall business also performed in line with the guidance provided last quarter, highlighting our progress towards more predictable financial results. Consistent with my messaging in prior quarters, our management team remains focused on implementing a more leverageable business model across all of our company's operations. Our capital allocation strategy remains consistent, prioritizing opportunities that drive more predictable returns within an acceptable risk profile, all while leveraging our last half-mile value-added energy distribution solution platform. That's a mouthful, but that's what we do.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

This disciplined approach to return, risk, and cost management is the key to achieving the operating efficiency targets we shared with you at our Investor Day earlier this year. Our commercial business and general aviation platform continues to be a great example of this strategy, and we marked another quarter of excellent momentum. This scalable platform of diversified, yet highly complementary offerings, combined with robust summer demand in both the passenger and air cargo sectors, propelled aviation to double-digit growth and operating margin. Operating margin aviation also benefited from the strategic sale of Avinode last quarter, as growth in core revenue contribution more than offset the income from Avinode, but with a lower expense profile.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

As we noted last quarter, we reallocated some of the proceeds from the Avinode sale to the acquisition of a tuck-in bulk aviation fuel distribution business, which was completed at the beginning of the fourth quarter and is expected to be fully integrated into our aviation platform by year-end, expanding our distribution network and customer base. While relatively small, this strategically complementary acquisition is a great example of the core investments we will prioritize to drive operating leverage, growth, and returns. Our global aviation business is well positioned to capitalize on the long-term growth trajectory in aviation. Although more cyclical than aviation, our marine business also operates on an efficient and highly scalable platform, delivering outsized financial results from small improvements in market conditions, while still creating value and contributing cash flow, even in less favorable economic environments.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

So in the third quarter, while marine generated an 8% year-over-year increase in gross profit, marine operating margin improved by 450 basis points, demonstrating the power of the platform to create operating leverage. Marine continues to represent a valuable diversification component of our portfolio, a business with minimal working capital requirements and significant potential upside under the right conditions. As I stated in my opening remarks, land rebounded significantly in the second quarter of this year as market conditions improved in our North American fuel business, as well as natural gas, where prices and volatility edged upward from the uncharacteristically low levels experienced in the second quarter. Ira will share more details in his comments. As discussed in New York in March, growing and scaling the more predictable offerings in our land business is our largest opportunity for value creation.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

In our North American liquid fuel business, we now have a clear path to improving operating efficiency and margins by consolidating and standardizing on a single technology and operating platform, much as we have done in our aviation and marine segments. We will be completing this migration over the course of 2025. Not only should this initiative increase the profitability of our existing North American fuels business, but it will establish a vehicle for effective integration and synergy capture. Rapid and efficient acquisition integration has been an effective growth strategy for our aviation and marine segments that will finally be replicated in our land business. Doing so, in what is still a relatively fragmented land space, a market significantly larger than the combined marine and aviation markets, is a key driver, as we discussed at our Investor Day, to accelerate attainment of our medium-term operating margin target.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Finally, as always, we wouldn't be here without our outstanding global team. It's their passion, innovation, and dedication to serve our customers, suppliers, and partners with the essential energy and logistics supply assurance that they require, that makes us who we are and what we are. Thank you for what you do every day. It is truly a pleasure to serve with you. Ira will now provide a detailed financial and business update. Ira?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Thank you, Michael, and one last time, thank you again, Elsa, and good evening, everyone. Before I begin the core financial review, please note that our third quarter non-GAAP results reflect approximately $3.2 million of total after-tax adjustments. This includes approximately $2.1 million associated with an incremental tax expense related to the sale of Avinode, and approximately $1 million principally related to an impairment charge within our land segment. Reconciliations of our non-GAAP measures are always available on our investor relations website and also in today's webcast presentation. On a consolidated basis, our aviation and marine segments delivered solid year-over-year results, and our land segment made meaningful improvement sequentially, as certain market conditions that impacted us in the second quarter improved.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Total volume of 4.4 billion was down slightly year-over-year, and consolidated gross profit declined 5% from last year's third quarter to $268 million, in line with the guidance we provided last quarter. The year-over-year decline was primarily due to lower gross profit in our land segment, partially offset by higher gross profit in both aviation and marine. Our aviation volume was down approximately 16 million gallons or just about 1% year over year. Again, this was impacted by our decision to exit certain low-margin bulk fuel business during the fourth quarter of last year. If you exclude the impact of exiting this bulk fuel activity, volume was up approximately 4% year over year, and also 4% sequentially benefiting from summer seasonality.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Aviation gross profit increased $3 million or 3% year over year, positively impacted by stronger physical inventory-related profitability in our core commercial business when compared to the third quarter of 2023. This is offset in part by the sale of Avinode, which contributed approximately $10 million of gross profit in last year's third quarter. Also, as Mike mentioned, we recently closed a small tuck-in acquisition in business aviation. This transaction will expand our network of FBO and aviation fuel card customers in the United States. As we look to the fourth quarter, we expect a sequential seasonal decline in gross profit. We also expect a year-over-year decline in gross profit in aviation, driven principally by the impact of the Avinode sale.

[Ira Birns, EVP and CFO at World Kinect Corporation]

In the land business, volumes decreased 3% year over year, principally driven by decreases in our North American wholesale and retail business activities, offset in part by increased natural gas and power volume. Natural gas and power represented 33% of volume in the third quarter, flat with the second quarter, and up from 31% in the third quarter of 2023. In land, while our core North American fuel and natural gas businesses improved from the soft second quarter, contributing to a 26% sequential increase in gross profit, on a year-over-year basis, North American fuel activity was still lower. This, combined with the continuation of the unfavorable market conditions in our Brazilian operations that we discussed last quarter, contributed to a 16% year-over-year decline in gross profit for the overall land segment.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Looking to the fourth quarter, land results should continue to improve on a year-over-year basis, with gross profit expected to be flat to up slightly year over year. As we have discussed throughout the year, we remain focused on refining and optimizing the portfolio of activities within our land business. As we head towards twenty twenty-five, we have identified several opportunities to significantly improve the profile of this business, which should drive improved margins and returns, benefiting the broader business and strengthening our foundation to achieve our medium-term financial targets. We hope to share more details by the time of our next earnings call in February. In marine, volumes were down 3% year-over-year, and gross profit increased approximately 7%, principally driven by strong performance in our core resale business activities, including year-over-year growth at several of our physical locations throughout the world.

[Ira Birns, EVP and CFO at World Kinect Corporation]

As we look to the fourth quarter, we expect marine gross profit to be effectively flat sequentially, but lower year-over-year, principally related to reduced market volatility and somewhat lower bunker fuel prices compared to the fourth quarter of 2023. As you look to the fourth quarter on a consolidated basis, and with the backdrop of the related segment gross profit comments shared a moment ago, we expect consolidated gross profit to be in the range of $253 million-$260 million. That's $253 million-$260 million. Now let's turn to adjusted consolidated operating expenses, which were $195 million in the third quarter, down 6% year-over-year, also consistent with the guidance provided last quarter.

[Ira Birns, EVP and CFO at World Kinect Corporation]

For the fourth quarter, we are expecting adjusted operating expenses of $194 million-$198 million, generally consistent with the third quarter, and a decline of approximately 5% year-over-year, impacted in part by the elimination of Avinode-related expenses, offset in part by expenses associated with the recent Aviation tuck-in acquisition. We remain focused on our medium-term consolidated operating margin target. As mentioned earlier, ongoing efforts in sharpening our portfolio of activities and greater operating efficiencies in our land business should be a significant factor in making progress towards this target. But we also remain focused on driving additional efficiencies across the broader business, which should contribute to the achievement of this target as well.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Interest expense was $24 million in the third quarter, down about 16% year-over-year, and below the guidance provided last quarter, as we benefited from the recent interest rate reduction, and we also had lower utilization under our liquidity facilities during the quarter. We expect another year-over-year decline in interest expense in the fourth quarter to $23-$25 million, with our full year 2024 interest expense on track to come in approximately 18% below fiscal year 2023. Our adjusted effective tax rate in the third quarter was 24.7%. That's slightly higher than anticipated and up slightly year-over-year. Based upon what we know today, our adjusted effective tax rate for the fourth quarter should be in the range of 20%-23%, resulting in a full year 2024 adjusted effective tax rate of 17%-19%.

[Ira Birns, EVP and CFO at World Kinect Corporation]

In the third quarter, operating cash flow was actually negative $39 million. The use of cash in the third quarter was principally related to increased capital requirements associated with seasonal increases in business activity, most specific to our aviation business. As we work through the fourth quarter, we are focusing on every opportunity to drive a solid cash flow outcome to finish the year. Also, during the third quarter, we repurchased an additional $28 million of shares, increasing total year-to-date repurchases to $57 million. And we also announced a $200 million dollar increase to our share repurchase authorization, further demonstrating our commitment to returning capital to shareholders. In closing, I want to leave you with a few thoughts.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Aviation delivered solid year-over-year results, driven by strong performance in our core commercial business, offset in part, again, by the impact of the sale of Avinode, and we recently closed the small tuck-in acquisition, which further expands our core offerings in the United States. Our land segment rebounded nicely from the significant weakness experienced during the second quarter. We remain highly focused on driving greater ratability across our business by continuing to carefully sharpen our portfolio of business activities, including the refinement and optimization of activities within our land business. Marine also delivered year-over-year growth, principally related to higher profit contribution from our core resale business activities. And again, we repurchased $28 million of shares during the quarter, increasing year-to-date repurchases to 2.1 million shares. Finally, we remain highly focused on making progress towards our medium-term financial targets, which we shared in March.

[Ira Birns, EVP and CFO at World Kinect Corporation]

The achievement of these targets will further strengthen our balance sheet, enhance profitability, and improve our return on invested capital, all driving greater shareholder value. Thank you. I will now turn the call back over to our wonderful operator, Latif, to begin the Q&A session. Latif?

[Operator]

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ken Hoexter of BofA. Your question, please, Ken.

[Ken Hoexter, Managing Director at BofA]

Great. Good afternoon, Ira, Michael.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Thank you.

[Ken Hoexter, Managing Director at BofA]

... I'll throw my thoughts in. Also, thank you for the discussions over the time. Ira, maybe just looking at the business review you just talked about, and now your cost focus is, is there any other Avinodes out there that you look to monetize? Or, are there other pieces that you look to refine as you review the businesses?

[Ira Birns, EVP and CFO at World Kinect Corporation]

I wouldn't necessarily put anything in the Avinode category, because that was obviously an outstanding achievement, considering the valuation that we got for that business. But yes, there's certainly other opportunities to you know to look at pieces of the business that you know we may be able to you know move on from and reallocate capital into our core businesses. There's lots of discussions around you know those topics. But again you know Avinode was you know a great but an outlier in terms of not necessarily you know part of our core.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Now we're more focused on, you know, our core activities and where, you know, where accelerating investment makes sense, and also where it may make sense to either pump on the brakes or even, you know, consider exiting certain activities. You know, which in land, in particular, should. You know, the goal is to simplify the land story, improve our operating margins and profitability, and simply allow us to focus more of our time on what, you know, what really matters, which, you know, should only benefit our efforts to drive, you know, greater levels of growth across the business.

[Ken Hoexter, Managing Director at BofA]

So let me take the flip side of that, 'cause when, you know, years ago, you kind of-- when we launched coverage, you were very, very acquisitive over time, and, and that seems to have decelerated. So I guess alternatively, given the elongated freight recession, is there-- is it creating any additional sellers, like the tuck-in one you announced this quarter? Is are you seeing more opportunities like that?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Yeah, you know, well, there's a few things. Obviously, we were digesting a... You know, we lived through COVID. We were digesting a very large acquisition in Flyers, and interest rates were skyrocketing, which didn't favor M&A for anyone, really. Flyers is integrated. We're actually, you know, benefiting from their very efficient platform within our North American fuels business, and rates are starting to come down, which I would say are bringing more opportunities, you know, out of the woodworks. I would say there's greater opportunity today than there has been in a while to find, you know, opportunities to grow inorganically, but we're always very, very, very careful about, you know, where we make those investments and, you know, take our time to make those decisions.

[Ira Birns, EVP and CFO at World Kinect Corporation]

But I would say the pipeline and opportunity set is growing, and we have greater confidence in our ability to quickly integrate those types of businesses, because we've, you know, our team has worked phenomenally hard on, you know, moving to a platform that's highly leverageable, something we didn't have many years ago.

[Ken Hoexter, Managing Director at BofA]

Great, appreciate that. Let me wrap up with the core business, right? So you talked about land, maybe being a little disappointing in terms of performance. I just wanna understand, you kind of listed a bunch of things. Is it was it more seasonality than you thought? Was it just, you know, I guess, different things impacting the business? Maybe can you walk through that a little bit more?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Yeah. A lot of the things that we talked about last quarter, which was, you know, very weak on a comparative basis, you know, year over year, you know, started to improve. You know, one of the things we talked about last quarter was nat gas, because you had, you know, an oversupplied situation, extremely low prices. That market is stabilized, and we, you know, we did much better this quarter. On the flip side, you know, we talked about Brazil and, you know, Russian imports and, you know, single supplier market aside from those imports, and that hasn't improved. So the year-over-year comparison there remains weak. And then last quarter, we talked about our fuels business in North America. Specifically, we talked a bit about what was going on in the West Coast.

[Ira Birns, EVP and CFO at World Kinect Corporation]

That hasn't changed that much, but we did see improvement in other parts of the country, so we certainly had a better outcome in our North American fuels business in this quarter than, you know, than we did last quarter, but still down a bit from, you know, from last year. So I think, as we enter into 2025, I think with, you know, your previous question, and market conditions hopefully continuing to move in a better direction and maybe reshaping the portfolio a bit more, the land has an opportunity to perform, you know, certainly at a higher level next year.

[Ira Birns, EVP and CFO at World Kinect Corporation]

We need that, right, to start moving more significantly towards the targets we've shared for operating margins, in particular, and even our EBITDA target.

[Ken Hoexter, Managing Director at BofA]

Great. Appreciate the time. Thanks, guys.

[Operator]

Thank you. Our next question comes from the line of John Royal of J.P. Morgan. Your line is open, John.

[John Royall, Executive Director at JPMorgan]

Hi, good evening. Thanks for taking my question. So I think you both touched on it a little in the opener and sounds like maybe we'll get some more details soon, but I was hoping you could dig in a little on the path from here to the 30% operating margin you're targeting in land. How much of the bridge from where you are today, these headwinds coming back and normalizing, and how much is maybe some of these more controllable levers that you've discussed?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Look, the market conditions normalizing could only help, but to be honest, the part two, which you've nailed, is even bigger, right? There are things that we control, that you know, and strategic moves that we can make that could provide us with significant progress towards that goal, relatively quickly. None of it is an overnight exercise, and that's why, you know, we've given ourselves till 2026 with the targets we shared, but you know, we have some businesses that significantly outperform the operating margin target in our portfolio, and unfortunately, we have some that significantly underperform that target. Simply by doing less in the underperforming category, your number and you know, that metric moves in the right direction, right, so we're focusing on things like that.

[Ira Birns, EVP and CFO at World Kinect Corporation]

And also the right type of M&A could help as well, because if you look at the, you know, the cardlock business, for example, you know, that operates at a premium to our target operating margin, right? Because that's an extremely low cost, you know, higher margin, low cost operation. So there's multiple levers, right? You know, rebounding in the existing business that you mentioned, things within our control that we could change or stop doing. And then, you know, strategic M&A right up in the middle of the fairway, that could drive growth and synergies with our existing platform.

[Ira Birns, EVP and CFO at World Kinect Corporation]

So there's a lot, a lot of that umbrella of items that I described is within our, I would say, is within our control. And we're spending a lot of time focusing on, you know, moving in that direction, and we're really hoping we'll have more tangible details to share by the time we get to the February call.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Just to add a little bit of color to that, John. It's, it's more of less, that has less variability into it, you know, in terms of its market profile. So again, distribution. You know, listen, we come from the commodity side, and we're pretty good at it. But disproportionate, and the variability of it, obviously is not kind to results, and then platform. So, the Flyers platform is what we're going to consolidate under, and that is gonna make all the difference in the world. So, the right portfolio selection with the right profile and the right, both commercial and financial, you know, dynamics, and the right team, you know, with the right platform.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

So the combination of all of those, and as Ira has said, and is working on, is stopping and the rest of the team, stopping and exiting some of the parts of the businesses that, well, you know, are okay, are not necessarily additive. And there's some, you know, amount of, you know, trading activity that, you know, is perfectly good, but variable, but they've been disproportionate. And it's been, you know, difficult, obviously, to, you know, have predictable results and to be able to communicate, then they don't really fit, you know, with, with where we're going. So there's a clear focus, there's a clear plan. The platform is gonna be transformative. So hopefully that gives you a little bit of color.

[John Royall, Executive Director at JPMorgan]

Yeah, it's a really helpful color. Thank you. And then my follow-up is just on working capital. It was a pretty sizable headwind, over $100 million in 3Q, and I know Ira mentioned some seasonality there. So given that seasonality, is there a natural reversion there where we could see some offsetting tailwinds in future quarters? And then, relatedly, was there any of that headwind in 3Q? Was any of it price related?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Yes and yes. So we certainly, our goal is to recover from our first, you know, negative cash flow, you know, quarter in a while. It was a strong seasonal quarter from on the aviation side, so we had some investment in working capital. We had some, you know, customers coming to us asking for temporary increases in their credit line because of the expected strong summer, which, you know, came to pass. So that increased some of our receivable requirements. So, yeah, that was part of it. And then there are some price related timing differences that, you know, that we encounter from time to time on our inventory positions around the world. So, you know, that impacted us a little bit as well.

[Ira Birns, EVP and CFO at World Kinect Corporation]

So we're shooting for a positive cash flow quarter in Q4, and we remain confident that we should be delivering in the approximate range that we shared longer term, you know, on an annual basis in 2025 and beyond, from an operating and a free cash flow standpoint.

[John Royall, Executive Director at JPMorgan]

Thank you.

[Operator]

Thank you. Again, to ask a question, please press star one one on your telephone. Our next question comes from the line of Pavel Molchanov of Raymond James. Your question please, Pavel.

[Pavel Molchanov, Analyst at Raymond James]

Yeah, thanks for taking the question. A standard question to start, low carbon was 12% of gross profit in Q1, 8% in Q2. What was it in the most recent quarter?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Gross profit was 11% this quarter.

[Pavel Molchanov, Analyst at Raymond James]

Okay, clear. As you look at SAF, you've had a series of announcements along those lines over the past few months. Any... I mean, still not huge volumes, obviously, in the grand scheme of things, but on a percentage basis, you know, how much more volume do you think you'll do in SAF, this year versus the year before?

[Ira Birns, EVP and CFO at World Kinect Corporation]

Well, you know, it's the law of small numbers because we're still only doing a few million gallons. So on a percentage basis, arguably, it could be a pretty high percentage, but that doesn't contribute millions and millions of gallons, but it is additive and generates, you know, incremental gross profit. And you know, you also made reference to a couple of announcements. One of them is a bit larger than the other. Depending on the timing and how that pans out, that could further accelerate some growth here in the U.S. So again, if you're only doing a few million gallons a year, you know, a million gallon increase would be a 25% increase, so it's tough to give you an exact number, but the-...

[Ira Birns, EVP and CFO at World Kinect Corporation]

The pace of growth has definitely picked up little by little each year, and, you know, hopefully, that'll accelerate as we, you know, head through 2025 and 2026 compared to where, you know, where we, where we've been in the past.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You're being a little blasé.

[Ira Birns, EVP and CFO at World Kinect Corporation]

I'm being blasé?

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Yeah.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Mike's going to-

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You know, we've been at this for about 15 years, and you know, we're one of the largest distributor of SAF in the U.S. and the world. And we've got tremendous capability to not only deliver it, source it, but also integrate and help our clients, you know, understand all of the technical, regulatory, you know, attributes to it. We have some of the most, you know, accomplished people, you know, in the space. It is the only solution for decarbonizing, you know, the aviation industry. You know, combined with the incentives in the U.S. and the regulatory in Europe, is going to become, you know, a materially bigger part of what we do.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

So it's strategically important, as is all of the, you know, renewables. You can't really talk about energy without talking about the renewable space. And we certainly have a significant competitive advantage, you know, compared to most other participants. So drop-in fuel and it's strategically important. There's virtually no conversation that we have about jet fuel that there isn't a discussion about SAF. So it's an important part of what we do, and you know, from the digital book and claim, physical distributions, we basically do it from soup to nuts. So you know, there will be more of that in our future because it's where the market is heading to.

[Pavel Molchanov, Analyst at Raymond James]

Yeah, if I, if I can follow up on, on natural gas, so kind of a macro question. You know, we're seeing a lot of rhetoric about data centers' appetite for nat gas, you know, as particularly with, with the, AI build-out. Is that something you're observing, in your conversations with enterprise customers?

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You know, data centers are, you know, backup energy is something that we've developed a certain capability at. And, you know, within the various hyperscalers, you know, we're engaged with conversations, you know, on the data center side. So it's a perfect combination. I mentioned this in our Investor Day. You know, energy consumption is just going to, you know, continue. You know, there's no GLP-1 semaglutide, you know, solution for energy consumption. You know, the more energy that you're using, the more that you want seems to be the name of the game.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

So, cutting across, you know, all of those sources of energy, you know, our ability to participate is pretty broad, from advisory, to brokerage, to services, to digital, to merchant, to logistics, and we cut across practically every single source of energy. So we're extremely well-positioned within our platform, and we're engaged within data center operators and hyperscalers in a broad range of different activities. So, obviously, it's focus. You can't do a little bit of everything, but the beauty of our orientation is, you know, there isn't really any part of the energy spectrum where we can't provide some type of service. So, in any case, I don't want to take too much time on that, but, you know, that's that gives you hopefully a fulsome, you know, a fulsome answer.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

And, I think that's the beauty of our participation model. Clearly, you know, when you're looking at, you know, physical activity, and density, and location, you know, there are, you know, cost structures based on that. And, you know, having the appropriate platforms and the focus so that we can leverage is what we're highly sensitive to, so that we're able to have a discussion, but, our participation model is clearly focused on what is leverageable.

[Pavel Molchanov, Analyst at Raymond James]

Got it. Thank you very much.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Pavel, I'm just gonna go back to SAF for a second 'cause, you know, Mike was right. I wasn't, I wasn't bullish enough. But it is. They are small numbers, but I'm not gonna give you a going-forward number, but our volume year to date this year is 40% above what it was last year. So the growth is accelerating, albeit, you know, I'll say it for the fifth time, a small base, but, you know, we're seeing that number continuing to increase. So, you know, you have that metric at least.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

And it's just gonna be more and more important, because, you know, the aviation segment. There's really no other solution at this stage of the game. And, you know, while it represents somewhere about 3% of global emissions, as, you know, the rest of the market decarbonizes, you know, you're going to see aviation stick out as a larger percentage, so there's going to be a greater demand for it. So we're extremely well positioned to play that distribution service, understand the data required, and provide really, you know, a full last half-mile solution from soup to nuts, both on producers and consumers. So again, it fits within our model.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

It's a drop-in fuel, so moving molecules is what we do, regardless of whether they're fossil or renewable. We're dealing with today's reality of a broad-based energy diet, and we're understanding, you know, the electrons and renewable electrons. And as you're seeing data centers go to nuclear, you're now going to see, you know, that opening up P2X with different types of renewable molecules, which once again, we're well positioned to be able to take advantage of. In any case, hopefully, that gives you a little bit of color in terms of how we think about it and how we're positioning the company for the future.

[Pavel Molchanov, Analyst at Raymond James]

Appreciate it.

[Operator]

Thanks, Michael. Thank you. Our next question comes from the line of Ben Nolan of Stifel. Your question please, Ben.

[Ben Nolan, Analyst at Stifel]

All right. Thanks, Latiff. So I've got a couple, but first of all. Actually, I'll start on the results in the quarter. You came into the guidance range, although it was a little bit on the lower end. While I'm on that guidance range, that's one of the things that I think Elsa helped you guys to implement, and boy, has she done a fantastic job! So hats off to Elsa. But can you maybe talk through a little bit of how things moved or maybe shifted you a little bit closer to the lower end of that range, or maybe what came up as a surprise relative to what you had originally expected?

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

I love you, Ben. You're hitting this up like a million, a million-dollar variance. Nothing really, I mean. And basically, it was hard to answer that question because I would say maybe, you know, the best of the three aviation was maybe $1 million shy of what we had forecast. Everything else came out, you know, pretty much in line with what we expected. So, you know, the midpoint of our guidance versus where we were, I think it was about, you know, like a $1.2 million difference or something like that.

[Ben Nolan, Analyst at Stifel]

Okay.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Really, you know, doesn't happen every day, but, you know, if you saw our internal forecast, the actual results were close on every line. The variances where interest came in better than expected, going into the quarter, and tax came in a bit higher. But, in terms of, you know, gross profit and operating income, you know, both of those numbers were almost exactly where we expected. Expenses were exactly, you know, what we had guided and projected as well. But I will, you know, give you the fact that we were off by $1 million.

[Ben Nolan, Analyst at Stifel]

No, no. Well, I was really asking sort of as a way to compliment Elsa there. But, my next question relates to, and this, Brazil, I know was a problem last quarter, and there was a little bit of a lag effect or rollover into this quarter, which you guys had noted three months ago. You talk a lot about the opportunity for growth in the land business, but that is almost always when I hear you, or maybe exclusively, always North American land. I know you have the operation in the UK, there's Brazil. Do you see those international land businesses as core, or is that not how you view them?

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You know, Ben, it's really about focus. When you look at the size of the market, you know, you can't compare, right? So where's the runway? I mean, the U.S. market, you know, used to be 26% of global energy consumption. I'm not exactly sure where it is today, but that U.S. market is sizable. And so clearly, there's a greater opportunity for growth. There's a much bigger runway, so you know, that's got to be the priority for us.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Certainly, you know, our global logistics capability, I think is just quite unbelievable in terms of where we came from to the level of global expertise we have in inventory management, distribution, digital, you know, in terms of third party, our own physical inventory distribution, and our digital capability for fulfillment, I think is quite extraordinary. But, you know, once you get into physical markets, you wanna make sure that they've got a certain amount of size, and clearly, there's no comparison, you know, from the U.S. market to other markets. We do fulfill, you know, on inducement, let's say, or somewhat opportunistically, you know, off of our large aviation footprint, where, you know, we have our distribution assets, but the focus is really the U.S.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

That's where there's the biggest runway. You know, we're pretty excited about the Flyers platform, and, you know, our team is doing a great job, and that's going to give us the ability to acquire, do tuck-ins, you'll be able to eliminate costs and have EBITDA, you know, drop, which is what we're really looking forward to. So we're certainly open. We are a global business. We're doing business in lots of places, as you know, but it's consolidating, and looking at markets where there is an opportunity to be worth the chase. So, I don't know if you wanna add some more color to that, Ira?

[Ira Birns, EVP and CFO at World Kinect Corporation]

No, I think I'd be saying something very similar, so I don't wanna be repetitive. But, you know, again, we've got pretty much double-digit market share globally in aviation, marine. In North America, our market share in land is still very, very small, and as Mike mentioned, it's a massive market, and we haven't necessarily, you know, hit it out of the park historically. We know that. So, you know, I think Mike and I both agree that we've got a lot of heavy lifting to do in North America alone before we spend a lot of time, you know, diving into other international opportunities.

[Ira Birns, EVP and CFO at World Kinect Corporation]

There may be some niche opportunities that Mike referred to that will always make some sense, but it's really all about North America. If anything, I think our focus is gonna in the short or medium term, gonna move to a higher concentration of North America than where we are today, as opposed to vice versa. And as we you know get that machine running in a similar fashion to marine and aviation, we'll have more time to think about focusing on opportunities in other parts of the world.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

We got plenty to chew on in the U.S., that's for sure.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Right. Okay, and then lastly, on the marine business, the margins were improved, even though the volumes were down a little bit. I think, Ira, you mentioned that part of the reason for that was you had some wins or some growth in the physical, some of your physical facilities. It seems like it's a little bit of a departure from, I don't know, historically, where you're mostly just a back-to-back seller. Is that an area that you're looking to have a greater presence in, in the actual physical marine market?

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

So, Ben, you know, listen, we got into physical in a real way in, I think it was 2004. We acquired a U.K. company called Tramp Oil, and that was our first foray into marine physical. They were doing it in a very interesting manner. You know, we brought a good amount of discipline to it, and that was, you know, a good earner for us. You know, we expanded. We ended up buying Shell's all of their assets, lock, stock, and barrel in, I think it was 2010, in Gibraltar. You know, you got 110,000 ships that, you know, pass through the Gibraltar Strait, so that looked like a pretty good idea.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

And now we've got a network of about, I think, 12 locations, and it's niche locations, not dissimilar to what we have in aviation. Which, by the way, you know, when you look at the growth in aviation, you're seeing, you know, a greater interest. There's a big demand in Europe. There was an article in the Journal, I think yesterday or the day before, a couple of days ago, in terms of, you know, cabin fever from COVID is continuing. People are wanting to travel, and they're wanting to travel to new locations, which is generally favorable to us, because our network, you know, tends to have those locations. But back on marine, you know, when you look at the story from a broker to a reseller is really underwriting.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

We took financial instruments, and I think we're extremely creative and more, one of the mavericks, in terms of embedding those into physical instruments. And then, you know, distribution. Well, we first took inventory, you know, with a large airline, you know, in 2002, and then developed that capability, and then our physical, you know, distribution assets, most notably, you know, with our Watson acquisition, our ExxonMobil acquisition many years ago. But the thing is that, you know, we've really become, you know, quite, I think an effective distribution business. So inventory management, we're in, you know, dozens of countries, with our own personnel, and the combination of that third-party network, our own physical inventory and distribution assets are digital fulfillment.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You know, the combination of all of that is kind of a heady brew. It really is very effective, and it allows us to dial in what is the right method of fulfillment, and gives us that sort of optionality, as well as the customer an optionality, to be able to come with a fulsome solution. So we like that. It is a good business mix, and it could offset, you know, obviously, you know. If you look at manufacturing, I mean, we're not likely to buy a refinery anytime soon. You do have, you know, a lot of, you know, companies that are making the product. They don't necessarily wanna distribute it. So that is a great value add, for producers.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You've got a lot of our customers that want a specific solution. There's certain parts of the market that can't get a solution, and they actually come to us to ask us to basically set up a physical operation to deal with their specific requirements. We've got that ability to fulfill that, and it really sets us, you know, apart from some of the companies that don't have that capability. They're looking for a company that they can trust, that is a solid counterparty, that they understand the quality that they're gonna get and the level of service. I'll tell you, I'm very proud of the team. You know, our physical operations team really does a phenomenal job. It's really quite impressive. It's definitely a transformative story, and that is a part of the mix.

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

You know, kudos to the team that has developed that, and we now have the ability in niche markets, typically, where we are now a physical participant.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Okay. Yeah, that does it for me. I appreciate it.

[Operator]

Thank you.

[Ira Birns, EVP and CFO at World Kinect Corporation]

Thanks.

[Operator]

I would now like to turn the conference back to Michael Kasbar for closing remarks. Sir?

[Michael Kasbar, Chairman and CEO at World Kinect Corporation]

Okay. Well, thanks, everybody, for participating, and thank you to our team and Elsa. Good luck to you. So everyone be safe, and look forward to talking to you next quarter. Bye-bye for now.

[Operator]

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

Participants

Executives

• Michael Kasbar, Chairman and CEO
• Braulio Medrano, Senior Director of FP&A and Investor Relations
• Ira Birns, EVP and CFO

Analysts

• Pavel Molchanov, Analyst at Raymond James
• Ken Hoexter, Managing Director at BofA
• John Royall, Executive Director at JPMorgan
• Ben Nolan, Analyst at Stifel