Ladies and gentlemen, thank you for standing by. Welcome to the World Fuel Services 2016 fourth quarter and full year earnings conference call. My name is Scott 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]. This conference is being recorded. And I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President and Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you Scott. Good evening everyone and welcome to the World Fuel Services' fourth quarter and full year 2016 earnings conference call. I am 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 this 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 the 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. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you Glenn and good evening everyone. Needless to say, we are very disappointed with our overall fourth quarter results. Once again, our aviation segment delivered strong results but our land segment fell way short of our expectations driven by seasonally warm weather patterns in the U.K. and generally poor market conditions in the U.S. aided and abetted by the Colonial Pipeline disruption. While our volumes and market position grew significantly, these events negatively impacted our mutual advantaged supply position. Our marine business also experienced further weakness driven by the continued malaise in the shipping and energy markets and an unusually large write-off related to a well-publicized customer failure in Asia. While we were certainly not satisfied with our weak finish to 2016, we remain highly optimistic about our prospects for 2017 and beyond. Our aviation segment has remained resilient and we remain focused on organic business development throughout the course of 2016. Our global aviation platform is a meaningful participant in every important dimension of commercial, business, general and military aviation fuel and related services. Our team has performed well and continues to do so. As we enter 2017, we are engaged in building out our physical logistics service offerings at more than 80 airports in Canada, Europe, Australia and New Zealand through the previously announced acquisition of fueling operations. Our land segment is evolving from a primarily supply driven wholesale business to a national and international platform aligned with a deeper emphasis on end-user demand to create more ratable and predictable earnings. PAPCO and APP form the East Coast and West Coast foundations of our C&I end-user business. They have given us a loyal end-user client following and a C&I sales and supply platform to blend with our supply wholesale and retail businesses. While you will see the…

Thank you Mike and good evening everyone. Consolidated revenue for the fourth quarter was $7.8 billion, up 16% compared to the fourth quarter of 2015. The increase was due to higher oil prices as well as increased overall volume. For the full year, consolidated revenue was $27 billion, down 11% compared to last year. The decline in our annual revenue was due to lower fuel prices we experienced principally at the beginning of 2016 compared to the prior year. The lower revenue was offset in part by increased total aggregate volume. Our aviation segment volume was 1.9 billion gallons in the fourth quarter, up 238 million gallons or 14% year-over-year. For the full year, aviation segment volume was a record 7.1 billion gallons, up 785 million gallons or 12% year-over-year. The aviation segment is now at an annual volume run rate of nearly eight billion gallons, an increase of 300% from the lows of 2009. Volume growth in the aviation segment has been almost entirely the result of organic business development, displaying the strength and resilience of our aviation business as well as the global need for our growing line of products and value-added service offerings. Volume in our marine segment for the fourth quarter was 7.6 million metric tons, down approximately 400,000 metric tons or 5% year-over-year. Brokered business activity for the quarter was approximately 11% of total marine volume as compared to 12% in the fourth quarter of 2015. For the full year, our marine segment volume was 31.4 million metric tons, down 1.3 million metric tons or 4% compared to 2015. Throughout the year, the marine segment continued to face the challenges of decreased demand and oversupplied market, low fuel prices and lack of any material price volatility and at this time, we do not see any…

[Operator Instructions]. Our first question is from the line of Jon Chappell with Evercore ISI. Please proceed.

Thank you. Good evening guys.

Hi Jon.

Hi Jon.

All right. So Ira, I will start with you. First question on the guidance. I think it's great that you are trying to provide some level of transparency which is, I think, always been a little bit of a struggle here, but just given the large amount of variables to the business and the fact that you haven't done this before and quarters like the fourth quarter showed that one or two things can really kind of throw the whole period out of whack, how confident are you in the range you are providing right now? How you stress tested this? And what are some of the other variables that can maybe throw this either well above or well below the guidance range that has been provided?

Sure. Thanks for the important question, Jon. So I would say, obviously we are doing this for the first time and being careful we provided a pretty wide range. As you indicated, there are a lot of things that could happen over the course of the year that could impact EPS by $0.05, $0.10, $0.15 a share or more. So we try to take all of those things into account. We looked at our plans across our three businesses. We made a lot of core assumptions, some relatively conservative but none overly aggressive and then we factored in the cost saving element as well. We looked at Odyssey and the realities of that ExxonMobil transaction, which we called Odyssey in terms of what we expect that to produce in 2017. As you can imagine, currency rates have gone against us in a big way from the time that we announced that deal. So we have made some conservative assumptions there. Our borrowing costs are increasing because we have more debt and interest rates are higher. So we have factored that in, I would say, conservatively. While our government business has remained remarkably resilient over the last few years when we told you guys a few years ago that it looks like it was about to go away, we have made some conservative assumptions there as well, I would say, in terms of know what that will contribute and those assumptions are below the contributions that business generated in 2016. If I go across the three businesses, some of the core aspects that we have factored into the guidance that we gave are worth repeating. If I look at marine, as I indicate on the call, we don't expect significant uptick in activity there. We will get the benefit of the…

All right. That's incredibly helpful. Thanks Ira. And then my follow-up then would be on that cost saving initiative. You had mentioned that the "restructuring" of marine has basically been completed. So that $20 million or $15 million for this year, $20 million overall. It sounds like it's not going to fall in that category. So two parts then. Where primarily are those savings going to come from? And second, what kind of confidence do you have that you are not cutting muscle or bone at just like a knee-jerk reaction to some difficult market conditions that could potentially stunt growth when the market conditions to become favorable again?

So two additional solid questions coming from you, Jon. So thank you. So first off, let me describe for all of you what the additional savings are and that will probably answer a great part of part two to your question, Jon. So there are three principal areas that add to the $15 million to $20 million that we announced in the earnings release and on the call. One of them is, as you can imagine, we have a lot of IT related activity that goes on in this organization as it does in many organizations around the world, which involves cost of third-party contractors, ultimately depreciation from the capitalized portion of those projects. We did a lot of heavy duty analysis and we had a bit too much of that type of activity going on. So we are cutting back there a bit in the least critical projects that should not have any meaningful impact on the results that we could drive with this company over the next couple of years. So that's a piece of the savings. While we already talked about marine, we are looking at additional restructuring activities across the business beyond what we have done in marine. But we are certainly not looking to cut any muscle. We are focusing on fat first. So we are very careful about what those actions may entail. But we have certain areas of the business where we have the opportunity to do just that and we are embarking upon that over the next several weeks and couple of months. And then third, we have indirect procurement savings which include costs associated with things like data subscription services, IT related services, travel and various other products and service costs where we are spending a tremendous amount of money and didn't necessarily have our eye on the ball in terms of optimizing those particular costs and we found opportunities to reduce costs in many of those areas with a fairly new team that's sole purpose in life is to focus on improving our execution in the area of indirect procurement where we spend hundreds of millions of dollars a year. So I would say, this is only the beginning. I think there are opportunities to save more beyond this. But this is what we have identified so far and what we were prepared to share and include in the guidance range that we shared today.

All right. well, I appreciate the thorough answer. Thanks a lot, Ira.

[Operator Instructions]. We have a question from Jack Atkins with Stephens Inc. Please proceed.

Hi. Good afternoon guys. Thanks for the time.

Hi Jack.

I guess starting off and thinking about the bad debt expense for a moment, Ira, you explained sort of what was driving the elevated expense on a year-over-year basis. But if we about commodity prices being up on a year-over-year basis throughout 2017, would you expect to have higher levels of bad debt expense as the receivable balance creeps up here? Or would you expect it to return to more normalized levels that we have been seeing over the last several years?

Without any surprises, Jack, I would say that the latter I would expect it to, assuming that prices don't go through the roof because if they do, just mechanically we want to, preserving greater numbers based on a higher receivable balance, but barring that event, we expect that level of bad debt would be more in line with historical levels in 2017.

Okay. And then when we think about the marine segment in the fourth quarter minus the nonrecurring items, it was just barely profitable on a year-over-year basis or just barely profitable in general. Well, I guess when we think about that segment now, if we are not assuming much improvement in activity levels going forward, would you expect us to be running at the sort of just above breakeven level for the next several quarters? Or do you think we are going to return more to that $10 million level of operating income there going forward? Just trying to think about how to model that particular --?

Thanks for that Jack. One of the things I believe I said in my prepared remarks was that what we have seeing so far, I know we are only five or six weeks in, the last five or six weeks lot more like Q3 than Q4. Q4 posted a breakeven principally because of Hanjin and obviously there was some one-time items in there. So if you exclude that, they were not that far off the $10 million number, but we seem to be running more in line with $10 million plus outcome on a quarterly basis this year benefiting in part from the restructuring and I also mentioned we get into the summer we have a few million dollars of traditional seasonal pickup as well. So I think we are more likely to see a result, at least as solid as Q3 as compared to what we saw in Q4.

Okay. Thanks Ira. And then just for my last question here. When we think about the net debt to EBITDA ratio, we have seen net debt sort of creep up here over the last several quarters as you have been making these acquisitions and of course the EBITDA has been under pressure. But how should we think about your comfort level around net debt to EBITDA as we move forward here, especially if the receivable balance is may be going up?

Well, another good question. I think of course if prices go up then the receivable balance goes up, the payables balance goes up as well, but of course our investment in working capital would go up a bit, but it's unlikely barring, again, is significant increase in price that would have a massive effect on our net debt position and if we saw that coming, there are things that we could do that we done in the past when prices started skyrocketing to mitigate that risk. So we are a little over one times net debt to EBITDA. We are not at all uncomfortable with that. We are not necessarily looking for that number to increase dramatically. So we are very focused on our cash flow profile. And this was the first quarter in over four years that we actually used any cash. We weren't too happy about that, right. We wanted to keep that streak going. But we were just slightly in the negative again, 100% because of price in the fourth quarter. But going forward, if we could continue generating cash on a regular basis as we have in the past, we should be able to keep that number in check in that general neighborhood going forward. That's certainly our intention.

Okay. Thanks again for the time guys.

Our next question is from Ben Nolan with Stifel. Please proceed.

Yes. Thanks. So I had a couple of questions. The first is, you mentioned that --

Ben, I am sorry. We can't hear you, Ben.

Sorry. Is that at all better?

Much better.

Much better. Thanks.

Okay. So you had mentioned on the land business that the disruption in the Colonial Pipeline had a negative impact and I guess I am just trying to understand exactly how the dynamics of that work and what the impact was?

You want to take that, Ira?

Sure. So we could quantify the impact at somewhere around $7 million to $8 million and there was a twofold impact. The larger piece of the pie relates to the fact as the Colonial had its issues, a lot of product was redirected to Explorer Pipeline, which basically serves the Midwest region where we have our greatest concentration of activity today in that part of our business. So that created significantly oversupplied market and drove margins down pretty significantly. So that was probably 60%, 65% of the impact right there. And then in the East Coast you had the inverse problem. Along the Colonial, where product was scarce, that's where PAPCO is, for example one of our recent acquisition, prices went up, leaving us with some high-priced inventory. And then once the pipeline sorted out all of its issues, you had a pretty sharp drop in price and we got impacted by that as well and that cost us a few million dollars. So in total, it was a pretty significant driver of the year-over-year delta from what we produced in the fourth quarter of 2015 versus what we produced in the fourth quarter of this year.

Okay. Thanks for that color. It's very detailed. I appreciate it. My next question, actually my last question is, obviously the fourth quarter saw higher oil prices and as you mentioned that it impacted your cash flows and so forth. But one of that benefits, I suppose of higher oil prices, in the past you have been able to have customers looking to do price hedging, have those conversations at all started again? Are things at least moving in that direction yet? Or is it still far too early for that?

It's pretty sluggish. I think everyone's watching OPEC trying to move the price up. They have got $2 trillion IPO that they would like to realize. But the shale oil revolution, that's one of four major energy events in the last 100 years and OPEC just doesn't have what it used to. So I don't think that people are, we just know this for a fact, you can see it in the 10-Ks and Qs, there's just not as much hedging activities as there used to be. So that was an area that obviously we created a lot of value-add. But no, it really has not picked up.

Okay. All right. Thanks guys.

Thanks.

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

Okay. Well, thanks for the support of all of our long-term shareholders and customers and suppliers and as I said earlier, we have got a fantastic organization here. We have got folks that really have a burning desire. We have had for a long period of time to succeed. So we believe that we are on the right path and we feel good about what the future holds. So we look forward to talking to you next quarter and thanks for all your support.

Ladies and gentlemen, that does conclude the conference call for today. Thank you for your participation. I ask you to please disconnect your line.