World Fuel Services Corporation
Q4 2017 Earnings Call Transcript

Published: 24 Feb 2018

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services’ 2017 Fourth Quarter and Full-year Earnings Conference Call. My name is Jen, and I will be coordinating the call this evening. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Instructions on how to ask a question will be given at the beginning of the Q&A session. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President, Assistant Treasurer and Investor Relations. Mr. Klevitz, you may now begin your conference.

[Glenn Klevitz:]

Thank you, Jen. Good evening everyone and welcome to the World Fuel Services fourth quarter and full-year 2017 earnings conference call. I’m Glenn Klevitz, World Fuel's Assistant Treasurer and I will be doing the introductions on this evening's call, alongside our live slide presentation. This call is also available via webcast. To access the webcast or future webcast, please visit our website, www.wfscorp.com and click on the webcast icon. With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. By now, you should have all received a copy of our earnings release. If not, you can access the release on our 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 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 will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. And at this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

[Michael Kasbar:]

Thank you, Glenn and good afternoon everyone. We closed out the year with a lot of changes and events behind us in a clear focus for the future. I will comment more on that after Ira goes through our financial review of results, which includes of course the impact of Tax Reform and other items. Ira.

[Ira Birns:]

Thanks Mike and good evening everyone. Today we announced adjusted net income of $17 million in the fourth quarter, that’s an increase of $2.7 million when compared to the fourth quarter of 2016 and for the full-year, adjusted net income was $127 million a decrease of $20 million compared to 2016. Adjusted diluted earnings per share was $0.25 in the fourth quarter, up from $0.21 in the fourth quarter of last year and full-year adjusted diluted earnings per share was $1.86 this year compared to $2.11 in 2016. For the past several years, we have provided two or often three income in EPS measures GAAP, adjusted GAAP which simply adds back non-recurring charges and non-GAAP which additionally add back intangible amortization and stock based compensation. We have received feedback from investors that this as being cumbersome and confusing. So effective this quarter, we have simplified such reporting. We are now only reporting GAAP and adjusted GAAP. Intangible amortization and stock based compensation information will always be available on our public filings for those who find such information useful for modeling purposes. At the same time, we will now regularly report adjusted EBITDA which we find to be a very meaningful measure of our operating results and growth, as well as a common valuation metric. For this reason, we are more closely focused on this metric and looking to drive significant year-over-year improvements. Now on to the detailed review of the financial statements. Consolidated revenue for the fourth quarter was $8.9 billion, up 14% compared to the fourth quarter of 2016. The increase was principally due to the significant increase in oil prices compared to the fourth quarter of 2016. For the full-year, revenue was $33.7 billion an increase of $6.7 billion or 25% compared to 2016. Our aviation segment volume was 2 billion gallons in the fourth quarter, up approximately 130 million gallons or 7% year-over-year. Volume growth in our aviation segment was derived principally from gains in our core resell operations in North America and EMEA as well as sales coming from our required international physical fueling operations, compared to the fourth quarter of 2016. And for the full-year aviation volume was 7.9 billion gallons, up 800 million or 11% year-over-year. Volume in our marine segment for the fourth quarter was 6.1 million metric tons, down approximately 1.5 million metric tons or 20% year-over-year. The largest drivers of the volume reduction relate to our operations in the Asia-Pac region and our decision to exit certain markets we have seen continued market pressure and weakness as well as our continuous efforts to reduce activity in regions where we have not been achieving satisfactory returns on capital. While some of these efforts impacted profitability in the fourth quarter, they directly contributed to our strong cash flow performance. For the full-year volume in our marine segment was 26.5 million metric tons down 4.8 million metric tons or 15% year-over-year. This decline principally related to the previously mentioned decisions the exit markets, or scaled down certain activities. Our land segment volume was 1.5 billion gallons during the fourth quarter effectively flat with the fourth quarter of the prior year and for the full-year volume in the land segment was 5.9 billion gallons that's an increase of 600 million gallons or 11% year-over-year. Total consolidated volume in the fourth quarter was 5.1 billion a decrease of approximately 280 million gallons or 5% year-over-year and for the full-year consolidated volume was a record 20.9 billion gallons. Before I continue with the financial review, I would like to review all the non-recurring charges highlighted in our earnings release for the fourth quarter. First, we took an impairment charge of $91.9 million, nearly 85% of which related to our marine segment with the remainder principally related to writing down two underperforming minority investments. This change is a result of our annual goodwill and asset impairment tests required under GAAP. Due to continued weakness in maritime markets over the past year including reduced profitability from the sale of price risk management products to our customers, as well as our decision to exit our marine business in certain international markets. This is obviously a non-cash charge and has no impact on our financial flexibility. We also recorded a restructuring charge, of $59.6 million in the fourth quarter, principally related to our ongoing efforts to rationalize our portfolio, including completely exiting the railcar business and exiting a low return capital intensive distributor program within the land segment. These moves will result in a positive benefit of approximately $8,000,000 annually going forward. The restructuring charge also includes approximately $6 million of severance charges related to our continued cost saving initiatives during the fourth quarter, we expect to identify additional opportunities to restructure operations, exit non-core or under-performing assets or lines of businesses in an effort to more effectively deploy our resources, both capital and people to drive improved profitability. Finally, we booked an income tax charge of approximately $157 million, which includes a $144 million one-time transition toll charge on historical accumulated foreign earnings payable over eight years as a result of U.S. Tax Reform. We intend to use our U.S. net operating losses and as a result expect to only pay approximately $100 million over the eight year period with approximately $8 million due in the second quarter of this year. To assist all of you in reconciling results published in our earnings released in 10-K. We have provided a reconciliation these amounts reflecting how all of these charges have impacted our segment operating results on our website and on the last slide of today's webcast presentation. So now the following numbers exclude the full impact of all the items that I just described. Starting with gross profit. Consolidated gross profit for the fourth quarter was $230 million, an increase is $5 million or 2% compared to the fourth quarter of 2016. For the full-year, consolidated gross profit was a record $932 million an increase of $30 million or 3% compared to 2016. Our aviation segment contributed a $106 million of gross profit in the fourth quarter. That's an increase of $4 million or 4% year-over-year. However, multiple factors contributed to a significant negative impact to gross profit in the fourth quarter, which were not anticipated when we provided guidance in late October. As we have discussed in the past, our aviation customers rely on us, to provide a stable and secure supply of jet fuel at airport locations, which requires our aviation business to only fill long jet fuel to support our end user commitments. We also have a stated policy of fully hedging this related inventory position. Even with a highly correlated hedge program, we still have exposure from the shape of the market curve. During the fourth quarter, the jet fuel market was subject to increasing backwardation, driven principally by the lingering impacts of the September hurricanes and the impacts of severe weather conditions during the latter part of the fourth quarter. Because we are long inventory for the reason, I described earlier, we have resulting exposure from the shape of the price curve. Hedging in a backwardated market during the quarter, actually contributing to a negative gross profit impact of approximately $10 million. Furthermore, the sharp jet fuel price increase at the end of the quarter resulted in a timing difference between the resulting mark-to-market impact of our jet fuel hedges at year-end and the additional gross profit generated for selling fuel with a lower cost basis and higher prices in January. In dollars, this amounted to approximately $7 million and as anticipated, we recovered this full amount during the early part of this quarter. These negative impacts in the fourth quarter were partially offset by growth in our military related business operated through our NCS platform. For the full-year gross profit on our aviation segment was $441 million, an increase of $40 million or 10% compared to 2016. As we enter the annual aviation fuel tender season, our team remains focused on organically growing the core resale business with both new and existing customers. We experienced strong results in NCS in 2017, driven in great part by the strength of our relationship and our ability to deliver service excellence in extremely competitive or complex and hostile environment. As a result of such efforts we have recently been awarded a two year contract extension. Such contract does incorporate lower margins, so despite continued strong levels of volume quarter-to-date, profits related to this activity are expected to decline over the course of this year. As we look to the first quarter, with the shape of the price curve smoothing out, we expect stronger inventory related results including the $7 million recovery described earlier offset in part by lower sequential profitability from our NCS government business. In aggregate this should lead to improved aviation results in the first quarter. The marine segment generated fourth quarter gross profit of $29 million down $6 million or 16% year-over-year. The gross profit decline was principally driven by the reasons described earlier as well as a further decline in profits from the sale of price risk management products. We remain focused on driving further cost efficiencies in the marine business, which I will elaborate on further in a few moments. For the full-year, marine gross profit was a $126 million, a decrease of $25 million or 16% year-over-year. As we look to the first quarter for marine, we expect gross profit to be relatively flat, but sequential marine result should improve driven principally by the benefit of additional cost reduction activities. Our land segments delivered gross profit of $96 million in the fourth quarter that's an increase of $7 million or 8% year-over-year. The increases in gross profit and were principally related to increases in natural gas sales to our existing connect business, and the continued strong performance of our multi-service payment solutions business. However, fourth quarter results were weaker than anticipated, driven by continued weakness in our North American supply and trading platform, including lingering hurricane impacts as well as modest weakness in the UK despite what was a reasonably cold winter season. Gross profit associated with our multi-service payment solutions business were $16 million in the fourth quarter that's an increase of 25% compared to the fourth quarter of last year. Again, demonstrating the expansion of our global FinTech payments platform and the continued ability of our multi-service team to identify new customer engagements which tap into the unique value proposition which multi-service offers. For the full-year, gross profit from the overall land segment was $366 million that's an increase of $15 million or 4% compared to 2016.First quarter results for land or expected to increase sequentially driven principally by seasonal strength in our UK business as well as the benefit of additional cost reduction activities. Operating expenses in the fourth quarter, excluding our provision for bad-debt and one-time, items were $188 million that's up $6 million year-over-year. The increase was principally related to expenses of recently acquired companies and investments specific to multi-service at NCS, supporting growth initiatives in multi-service and contractual requirements at NCS. Excluding these factor, expenses were actually down slightly year-over-year. As we continue to step up our cost efficiency initiatives, we expect the operating expenses, excluding bad-debt and one-time items to be in the range of $178 million to $182 million in the first quarter, which could represent a sequential decline of approximately 4% reflecting the impact of our most recent cost reduction initiatives. We are focused on driving expense ratios in both our land and marine businesses, down by a minimum of 3% to 4% in 2018. For marine, reflecting our continued effort to rationalize spending to adjust to the realities of this business today and for land, we are focused on making greater strides and integration, reducing inefficiencies and driving stronger profitability. And under the leadership of our Chief Operating Officer Jeff Smith, we are undergoing an organizational redesign of our back office and IT operations to create a leaner cross functional team, which will leverage our enhanced technology platform. We have already made significant progress here quarter-to-date, which will contribute to our cost reduction program during 2018. Consolidated income from operations for the fourth quarter was $39,million up $5,million or 16% year-over-year. For the full-year, consolidated income from operations was $215,million up $6,million or 3% compared to 2016 and adjusted EBITDA was $60.5, million in the fourth quarter up from $57.3 million in the fourth quarter of 2017. For the full-year, adjusted EBITDA was just under $296, million up from $292,million in 2016. Again, we believe this is a meaningful metric and we were focused on driving improvement in adjusted EBITDA in 2018 and beyond. Non-operating expenses, which is principally comprised of interest expense was $19 million in the fourth quarter. This represents an increase of $5,million compared to the fourth quarter of 2016, principally relating to higher borrowings associated with increased working capital requirements, which were driven by higher fuel prices during the fourth quarter as well as higher average interest rates compared to the fourth quarter of 2016. At the end of December, the recently announced Tax Reform bill provided us the opportunity to repatriate a significant amount of cash, held by our foreign subsidiaries. We immediately took advantage of this opportunity and we repaid nearly $215, million of debt prior to year-end, with further debt reductions during January. This reduction offset impart by expected increases in borrowing rates through the year 2018, should enable us to reduce annual interest expense by somewhere around $10, million in 2018, on a year-over-year basis. With that being said, I would assume interest expense will be in the range of $13 million to $16, million in the first quarter. The Company’s effective tax rate in the fourth quarter were 18.3% compared to 28.8% in the fourth quarter of last year. As we look to 2018, our effective tax rate will be negatively impacted by Tax Reform. Most specifically, the new Global Intangible Low Taxed Income or Guilty Provision of the Tax Reform bill, is expected to increase our effective tax rate. This is based on our expectations that consistent with prior years, the majority of our income will be generated by foreign entities in foreign jurisdictions, which also have a low level of foreign appreciable assets. Therefore, we believe our 2018 effective tax rate will likely increase to the mid-20s, significantly higher than our historical effective tax rate. Now considering Tax Reform is less than two months old and many elements of the new tax code are still being interpreted, we continue to analyze all relevant changes and their impact on our business with the goal of arriving at the most efficient tax structure possible. Potentially with an effective tax rate lower than the estimates I just provided. While our tax rate maybe higher than our historical rates in 2018, there is great value in the freedom to move capital across our business which significantly reduced restrictions and the lower U.S. corporate tax rate provides us with the potential for greater returns related to our pipeline of strategic investment opportunities, which most significantly resides in the United States. On our balance sheet, accounts receivable was $2.7 billion at the end of the year, which is an increase of approximately $360 million year-over-year. This is principally due to higher fuel prices. Despite the increase in fuel prices, our working capital initiatives, including the marine initiatives referred to earlier, have been paying off and contributed to operating cash flow generation of a $160 million for the fourth quarter. We remain focused on maintaining a strong balance sheet and generate consistently healthy cash flows as we have done for the past several years. While 2017 was a challenging year for us, we started taking important steps towards driving meaningful change throughout the organization. We are building a more efficient operating model which would facilitate greater opportunities, both organic and strategic investments with the objectives of driving solid cash flows and improved operating results in 2018 and beyond. I will now turn the call back over to Mike to add some additional remarks.

[Michael Kasbar:]

Thank you, Ira. If we look back at the origins of our business, our roots when creating value as a reseller in fragmented markets through price location credit and information arbitrage. It seemed like one big endless summer where we were looking for the next big waves of value to the marketplace at the time and of course, gross profit. Cost really wasn't a critical part of the equation within that simple business model. Today, almost everything has changed in energy finance, information and technology. Now we have shale oil and shale gas, we have rode that constrain crude oil a while it lasted in North Dakota, but that came crashing down. We have low costs of money, low price, ample supply of almost everything in a highly transparent and consolidating marketplace. Our value proposition is now increasingly as a specialized distribution and service network, providing comprehensive and easily accessible solutions. Low cost and scalability are key as it is the right mix of activities to serve a more demanding customer in competitive marketplace. As such, the three pillars around which everything we do revolves are one, a continuous cost management culture; two, a discipline sharpening of the portfolio; and three, driving aggressive organic growth complemented with selective acquisitions. Of course, an intense focus on the market, talent and culture is foundational for any successful organization. Our approach to cost management is comprised of utilizing a digital and agile business team methodology to leapfrog manual processes and accelerate the integration of people and approved processes and problem solving. The nature of work is changing and so are we. We have started to restructure parts of our business utilizing this approach. Telemetry, telematics, logistics optimization, increased spans and reduced layers, co-location, shared service centers, empowered end-to-end agile teams, consolidated procurement, elimination of data centers and aggressively moving to cloud based solutions will overtime materially change our cost structure. We are at the early stages of this process, but expect material impact over the next 24 months. In 2017, we exited our rail [seashore] (Ph) a small scale LNG joint venture and a low return distributor program and are aggressively reviewing all discrete activities to test for return, runway and relevance to our markets and vision. Our diversified aviation services network and distribution platform continues to perform well and is a model for land and marine. Our right sized marine business should yield better returns and it's poised in the longer term to capitalize on the continuing need in the market for a comprehensive service and distribution partner. We are well positioned to provide any solution for 2020 when Low Sulphur Regulations commence. Our land business should perform better in 2018 as we transition the business mix on the East Coast from a wholesale to retail recurring revenue model and drive efficiencies in the UK and U.S. platforms. The North American market which represents around 21% of global liquid energy demand is attractive to grow and leverages our maturing organization and the appeal of Tax Reform. We fully expect our Kinect Energy Group will deliver a material EBITDA run rate by 12, 2019. This is a sizable and growing market and we are committed to grow organically and through strategic investments. Multi-service growth is accelerating, we remain bullish about its prospects for using its specialized expertise to solve complicated business problems with payments as well as driving synergies across our global platform. To drive growth across our enormous population of existing and potential customers, with a broad product and service offering across an enviable geography, we are embarking on an aggressive zero touch enterprise deployment of salesforce.com, which will be fully installed in 2018. We expect this initiative to be transformational in itself. The market has transformed significantly and technology will continue to change almost everything we do. We are leveraging the world's best technology partners to accelerate our transformation and create greater value in the markets we serve. And certainly time of tremendous change, but our organization has a burning desire to leverage our broad energy logistics and FinTech capability using exciting new tools and methodologies to continuously manage costs, sharpen our portfolio and drive growth with an exceptionally valuable set of products, services, and integrated solutions. I'll now turn over the call to our operator to begin the question-and-answer session.

[Operator:]

Thank you. [Operator Instructions]. And our first question comes from the line as Ken Hoexter from Merrill Lynch. Please go ahead.

[Ken Hoexter:]

Hey, good afternoon. Michael and Ira and Glenn. Looks like, I guess you have made about a 17 or up to 20 acquisitions over the past decade. Today we are hearing a lot about I guess cost cuts, trimming charges. Is there still more integration that you need to occur here? Maybe you can take a step back. Michael, you sounded like you want to take a step back and talk about kind of what you started as, are there are too many disparate businesses here or do you still feel like you head in the right direction with these acquisitions, now that you are stepping back with the cost cutting program?

[Michael Kasbar:]

Listen, I think that, I don't, I don't really have any regrets. All the businesses we bought were good businesses with good people. I think if I had to turn the clock back I do a couple of different things, because I think we were taking intelligent diversification steps. I think I would have dropped some people and done a little bit different. So I think, we are a lot smarter now in terms of how to acquire, how to integrate cultures, brands, technology. We sort of let the folks alone the what the technology alone and, now we have got I think a much stronger view on how to move a lot more quickly. Technology is the name of the game and within our U.S. land platform, we have got disparate number of systems. We are moving them to the cloud which will accelerate our ability to deal with that. Jeff Smith obviously is going to be instrumental in doing that. And with Kinect to a massive amount of data. I mean Kinect alone had 30 terabytes themselves, so incredibly data intensive business. So, the technology side of it is crucial, I mean we seek for the end of the game with growing businesses, but it's a big, big part of it and we are not really where we needs to go. So that's something that we have to move very quickly on. Mike Crosby on the line side and his team, I think are doing an excellent job in the U.S. we are optimistic and bullish in terms of our ability to bring that together and brand that properly. So, I feel good about what we are doing, cost is a whole different ballgame today, it's not an event, it's something that is continuous. So, we are serious about it, we have an outside view, we have outside people helping us and teaching us some new tricks. So it's important, it’s very difficult and when you look at Marine aviation, obviously marine has its own issues, but we are working through them. If you look at aviation, they have got a platform we spent a lot of times years ago and created an end-to-end solution. So we have got the people, the process and the technology and that is what allows them to scale. We don't exactly have that in land. Land is a conglomeration of a number of different businesses and systems and technologies and we are bringing those together and as that comes together and it is coming together, we are going to see a better result, a more predictable results, recurring revenue. We went through, debt commodity cycle, we started out exploiting the inefficiencies in the marketplace. That was our first cycle, we rode the commodity side, Q4 of 2014, Q1 of 2015, it came crashing down. We should have pivoted faster, but okay, it is what it is and now we are smarter and it heads down to basically go after that.

[Ken Hoexter:]

Let me just follow-up. Ira, you talked about biding back for NCS. Maybe you can talk a little bit more about that, I mean obviously I presume you view it as still profitable, but why chase that business at that lower margins, does that highlight how competitive the market has become or I guess as Michael keeps talking about on technology that others can provide this kind of service and should we expect continual degradation of margins going forward on new business given that contract renewal?

[Ira Birns:]

So, listen, we have been in the government business and government contracting business since the late 80s and it's really helped our Company tremendously. I have compared it to Formula One racing for passenger cars where you really have to deal with the contracting and logistics. It's serious requirements and it's really helped our Company, in these commercial activities. So that's a two year contract and we will have obviously the uncertainties of what the volume may be, but that is a contract, so that that margin shouldn't change. But, we will continue to develop our capability, we already are expanding that in different geographies, taking it where ever different governments have an interest in our contracting and logistics capabilities. So that margin is locked in for at least two years within the possibility of extensions.

[Ken Hoexter:]

And additional opportunities that you mentioned as well.

[Michael Kasbar:]

Yes, that's right and we are in sort of the pole position for when there are other requirements that come up in that area or other areas. So as Ira commented in the script, we have got an excellent relationship with them and we have got a fantastic reputation for performance. So it's important part of our area of our business and we leverage that within our commercial area. I think I mentioned with the Exxon Mobile acquisition we would use the physical logistics competencies of our military personnel to handle those into planes deliveries in those seven countries around the world. We set up a center of excellence on logistics and that worked out for us extremely well.

[Ken Hoexter:]

Just a quick one. Ira, did you say that the hedges now are back in proper format as far as going from backwardation or is that continuing into the 2018?

[Ira Birns:]

That backwardated curve smoothed out, I would say by the middle of January it was back to way more normal levels. It was really, one of the most severely backwardated markets that we have seen in many, many years in the fourth quarter, but thus far where we sit today it's been very calm and the issues I described do not seem to be repeating themselves during this quarter.

[Ken Hoexter:]

Great, I'll stop there and turn over. Thanks for the time guys.

[Michael Kasbar:]

Thanks Ken.

[Ira Birns:]

Thanks.

[Operator:]

And our next question comes from the line of Kevin Sterling with Seaport Global Security. Please go ahead sir.

[Kevin Sterling:]

Thank you, good afternoon, Mike, Ira and Glen, how are you guys doing?

[Michael Kasbar:]

Welcome back,

[Ira Birns:]

Welcome back Kevin.

[Kevin Sterling:]

Yes, thank you, it’s good to be back, nice to talk to you all again. So the marine volumes we saw in Q4 of 2017. Should we expect something similar in the first quarter of 2018 or do you have more markets to exit?

[Michael Kasbar:]

I don't know if we have more of the markets to exist. We are being mindful of returns. So there has been some changes that is not a surprise to folks that have been following the marine business. So, we are looking as I said to model or physical business. I think, aviation asset right in terms of the third-party, the inventory, the distribution, the technology side of it. So it's certainly not in a robust place, if we can't get the returns then we are going to be focused on that financial discipline. We certainly want to support our client and, we are still committed to the space. So I don't think we see aggressive growth in volume. So I would say it's more likely to be flat.

[Kevin Sterling:]

Okay. Thanks Mike. That helps. And as you have exited those marine markets. Are you deploying those resources elsewhere?

[Michael Kasbar:]

In some cases, yes. In some cases we are just reducing cost.

[Kevin Sterling:]

Okay. Ira, it looks like you guys paid down a good chunk of debt in the quarter. Do you expect to continue to delever in 2018, is that the plan?

[Ira Birns:]

assuming that we have already got pretty much paid down all the debt we could with the cash that became available to us, because of the Tax Reform. We have had a pretty good track record or an excellent record of consistently generating operative and free cash flow year-in and year-out. An you may note that interestingly enough we generated the exact same amount of operating cash flow in 2017 as we did in 2016 by coincidence. So to the extent we continue to do that we can now more likely use that cash to delever further, assuming prices stay in the same ballpark and of course if prices move up that may require some more capital or if we decide to go after some of the strategic opportunities that are in the pipeline that remains very robust for us. Obviously we would use some cash there too. So it depends on a few factors, but the cool thing now Kevin is that we could have generated a lot of cash in a given quarter, but historically, if it was all generated overseas, we couldn't use any of that cash to delever. So while Tax Reform is quite likely hurting us on a tax rate side, it's giving us a lot more flexibility to move capital around where we need it and keep debt at below lowest levels possible. So we have always had a growth stuff balance sheet, if you will, with hundreds of millions of cash and then a larger sum of debt. Those days are unfortunately over, we will still hold on with some cash on our balance sheet to cover our day-to-day business, but we don't need to cover, to carry any one than that anymore. So, as I said in my script, that we are making investments, Tax Reform and the lower corporate tax rate makes U.S. investments a lot more attractive. So, anyway, I hope that answered your question.

[Kevin Sterling:]

Yes, it does. Thanks. And so speaking of like those investments and stuff and you guys have taken a little bit of a hiatus from M&A, how does your pipeline look right now? And, as you kind of, I guess reinvent yourselves if you will, can we see it back on the M&A train as you take advantage of your lower debt levels and the tax rate?

[Michael Kasbar:]

Yes. People tell me that they prefer short answers. So the answer to your question is Yes.

[Kevin Sterling:]

I know that maybe much shorter than that Mike. But the pipeline is pretty robust.

[Michael Kasbar:]

Yes, certainly the land, as I said before, it's a very sizable market. Our intention obviously is to build density, particularly when you are in a distribution business that's critically important. We have, perhaps a unique feature that we have the global network. There are too many folks in the world that have our spread of geography where we truly understand the markets and certainly the distilled of markets by virtue of our jet fuel, in some of the different countries. So we are still bullish on going global, our Kinect business is truly a global business and marine and aviation, multi-service is active in more and more countries, their clients look to take them in more countries. So at any case, land certainly sizable, I would love to acquire within the FinTech space with multi-service, if I had to turn the clock back, we would have bought, three, four, five companies within that and bulk that business up. Kinect we feel very bullish about in that area, marine so interesting, we feel like we could look at that in many number of different ways and aviation still has a good amount of runway in it, we are happy with all of the acquisitions we have done there. And I think if you want to look at going back to Ken's question, having a platform makes all the difference and so, we are getting a lot more serious about our land platform, it’s very high on our list of priorities but kind of tough to really get the value out of businesses if you can't do the plug and play. But now you have made me give you a long answer Kevin, but in any case, there is no shortage in organic growth opportunities that are intelligent. When you look at our business, we have a fairly broad chassis, we have got a broad geographies, so our opportunity for growth and profitable growth is good, but we have to do a couple of things before we could do that the right way, we are building it step-by-step.

[Kevin Sterling:]

Got you, thank you, Mike, I like your long answers, its good detail for me. So thank you. Another point, and if I’m remembering correctly, a few years ago, you guys had a similar issue, you had in aviation this quarter where I think at the end of the quarter, fuel spiked and you kind of got caught on the wrong side and your head just didn't work. Am I thinking about that right, I think it's happened to you before. And then point number two, do you still - is it black oil futures you sell, as your hedge against jet fuel inventory.

[Michael Kasbar:]

No its a heating oil. So historically heating oil and jet fuel are very tightly correlated and heating oil is the liquid market to hedge, because there is no real liquid market to hedge, jet fuel directly. What you are referring to Kevin, is true. It's actually happened several times in 10, 11 years that I have been here and it's not that the hedges didn't work, at least that the $7 million item that I referred to, it’s simply because of the inventory methodology we utilize, we wind up with hedges that are intended to cover our risk being on the wrong side, because in this example prices spike. The assumption is that you are covering your risk from prices going down and your inventory being valued too high when you are trying to sell it off to customers. This is the opposite side, so the assumption is that you have got some extra profit on your inventory. So you have got a liability on the hedge side, right. The problem is the liability of the hedge side happens at the end of the year when, mark your hedges to market and the pickup, because all this happened at the very end of the year. You don’t see that until you start selling that inventory a few weeks later, which has a lower cost basis, so make the profit back because prices are higher. Right. So that's something that we are still exploring, there are potential opportunities to change the inventory of methodology that we utilize today, which could reduce that risk going forward. There is some technological requirements to do that and we may actually get there in 2018 and more news to follow there. So we always have run the risk of that happening historically. The good news is those aren't the last dollars, right. The dollars tend to come right back when the inventory is sold, which is exactly what happened in this case.

[Kevin Sterling:]

Got you. Okay. That makes sense. Thank you, Ira and Mike. Good to talk to you again and thanks for your time. I appreciate it. Thanks again.

[Michael Kasbar:]

Thanks Kevin. Really good conference.

[Ira Birns:]

Thanks Kevin. Good luck.

[Kevin Sterling:]

Alright, thanks.

[Operator:]

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

[Michael Kasbar:]

Well, thanks for joining us and look forward to talking to you next quarter. Take care.

[Operator:]

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.