Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services 2017 Second Quarter Earnings Conference Call. My name is Collin 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 begin your conference.

Thank you, Collin. Good evening everyone and welcome to the World Fuel Services' second quarter 2017 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 risk 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. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Glenn and thank you to everyone on the line for taking the time to join us. Today we announced first quarter adjusted earnings of $34 million or $0.50 adjusted diluted earnings per share. Our aviation business performed well as the aviation industry continues to experience healthy passenger growth globally as more people gain access to air travel throughout the world. It's an impressive statistic that 82% of the world's population has never flown. Furthermore air cargo activity has also started recovering after a lengthy period of depressed demand. World Fuel has been a beneficiary of these macroeconomic trends as a consequence of our geographically diversified platform and our emphasis on strengthening our global footprint through strategic distribution acquisitions as well as organically expanding our strong global supply and logistics network. These factors combined to drive the aviation volume to its highest level ever exceeding an 8 billion gallon annual run rate in Q2. Relatively stable supply dynamics throughout Q2 particularly in North America made for improved supply efficiency, minimizing some of the incremental cost associated with supply disruptions that have been periodically experienced in certain prior quarters and can potentially arise at any point in time. Furthermore Q2 experienced stable demand in our government business. Despite the volume increases costs remained flat to the prior year demonstrating the scalability of our aviation platform. While intensive competition in the current low price environment resulting from an abundance of supply is expected to continue for the foreseeable future. Nevertheless we believe our aviation segment is well positioned to maintain competitiveness. Organic growth in existing locations, ancillary service revenue and increasing earnings contribution from our recently completed acquisition and subsequent network expansion facilitated by this acquisition should enable us to leverage our industry leading platform. In our marine business the global…

Thank you Mike and happy birthday by the way.

Thank you Ira.

Consolidated revenues for the second quarter was $8.1 billion up 22% compared to the second quarter of 2016. The increase was due to a 6% increase in oil prices as well as increased volume principally from an 18% volume increase in the aviation and land segments. Our aviation segment volume was 2 billion gallons this second quarter, up 300 million gallons or 18% year-over-year. Volume growth in our aviation segment was derived principally from gains in our core resale operations in North America as well as from the sales coming from recently acquired international fueling operations. Our aviation segment continues to deliver strong organic growth and has now reached 2 billion gallons of quarterly volume for the first time ever. Volume in our marine segment for the second quarter was 6.8 million metric tons down approximately 1.5 million metric tons or 18% year-over-year. The largest driver of the volume reduction relates to our core operations principally in Asia. Our land segment volume was 1.5 billion gallons during the second quarter, up approximately 230 million gallons or 18% from the second quarter of 2016. And total consolidated volume for the second quarter was 5.3 billion gallons, an increase of approximately 150 million gallons or 3% year-over-year. Consolidated gross profit for the first quarter was $231 million, an increase of $12 million or 6% compared to the second quarter of 2016. Our aviation segment contributed $111 million of gross profit in the second quarter, that's an increase of $12 million or 13% compared to the second quarter of last year. The principle drivers of the gross profit increase in aviation came from increases in our core resale business in North America and profit from our recently acquired international fueling operations. As we look to the third quarter which has traditionally been the…

Thank you. [Operator Instructions]. Our first question comes from the line of Gregory Lewis with Credit Suisse. Your line is open. Please go ahead.

Yes, thank you and good afternoon.

Hey Greg.

Hey Ira. So as we think about aviation I mean, clearly Q2 was pretty strong. Heading into Q3 usually it's sequentially a better quarter and I guess over the last three years we've seen volumes up anywhere from about 7% to 10% on a sequential basis. I guess we are a few weeks already into the third quarter. Is there any -- how are we thinking -- how should we be thinking about the outlook for aviation in Q3 and in the back half of the year, should we expect normal seasonal patterns or just pick, just want to get a little color around there?

Sure, I would certainly expect traditional patterns where we, as I said in my prepared remarks Greg should see some increases in the third quarter both sequentially and year-over-year in volume and gross profit. So we expect to make a few million dollars more on an operating income basis in Q3 versus Q2. Which again is traditionally we had a really strong Q2 so the delta between Q2 and Q3 may not be as large as it's been in previous years. But we should still see an increase and then when you get to Q4 that number drops back down to a number similar to Q2 or maybe even a little below. So I would say Q3 and Q4 combined if you take the average of those two quarters you can have a result very similar to the second quarter.

Okay, great and then as we think about the guidance, you provided the updated guidance, thank you for that, how should we think about -- I guess what drives guidance to the low end of the guidance and then on the flip side of that what should we be thinking about as potentially getting to the high end of the guidance, what needs to happen if you could sort of bracket those two?

Okay, so that's a good question. The marine business obviously has been pretty challenged, more so then I think we had expected. So volatility is pretty [indiscernible] not that that's a complete indication of what goes on in our specific world but I guess it's the lowest in 23 years. And I don't think anybody sees a lot of risk, disruptions don't disrupt any more. So, I think we feel like we've sort of bed rocked on marine. We had a little bit of breakage there in terms of the right sizing of the organization. So, some improvement in the marine businesses, I'm not sure that we don't expect anything there. It's really going to be our performance there. The East Coast is pretty challenged with that market. All the refineries in the Gulf Coast are essentially supplying South Americas so that are where we were making a good amount of money on the East Coast, it is very much challenged. So some relief there I think. A big part I think of our business is really pivoting from taking margin from some of the commodity side that we had and really getting the operation to be a lot tighter. So I think that we've got our work cut out for us. Markets like this really is stress test for management and your business model. The government activity is always a wild card. We never really know what's going to happen there. It's all requirements there so that potentially could be a surprise on the upside or down. So other than that I think those are really sort of the guardrails there, are if you have any other commentary on that Ira.

Yeah, I think again when I provided the guidance Michael really alluded to a lot of this, so it may be slightly repetitive. But I qualified to say that even the revised guidance assumes expected contributions from recently acquired businesses. We've talked about PAPCO and APP and the ExxonMobil transaction. So we've made expectations for those businesses for the second half of the year, ExxonMobil is kicking in and starting to step up. So, we need that to happen to hit the reasonable let’s say midpoint of the guidance. If that accelerates further we've got some upside there. Also said that it assumes that we continue to deliver on our cost saving initiatives if we could outperform there, we have the ability to outperform on the guidance and move towards higher end of the range. Mike mentioned government, that could go either way but we've seen that that's been very resilient so there are opportunities for us to do better than expected. It's certainly possible that could contribute to a better result. And then finally the winter weather right, so we’re assuming -- we're not assuming a warm winter or a frigid winter, we're assuming something in the middle of the road to the extent winter conditions in the UK in particular even in the U.S. where we've got a growing natural gas platform that's somewhat seasonal. That weather impact could help us or hurt us a bit and that's why the range is relatively wide. That's why we provided a $0.30 range similar to what we did, let's go around. So our goal is to try to do as well as possible and focus on maximizing our opportunities in all those areas of rest of our business globally.

Okay, perfect guys. Thanks for all the color. Have a great night.

Thanks Greg.

Our next question comes from the line of Jack Atkins with Stephens. Your line is open, please go ahead.

Hey guys, this is actually Andrew on for Jack. Ira, I am going to start with -- in your prepared comments you mentioned an incremental $15 million of cost cuts that you think you -- you've identified for 2018. Can you add some color on to what areas of the businesses or areas of the business you have talked her in and is there a reason that you would need to wait till 2018 before you start to realize some of the benefit from these?

So just to be perfectly clear and slightly correct what you just said, we had announced in February $15 million to $20 million worth of cost savings. At the time we said we expect to realize approximately 15 of that amount in 2017 which implies that the balance wouldn't be achieved until 2018. So it is basically reconfirming that, saying that we expect that this year we will benefit by the 15 and we already have plans in place that would give us the additional 5 but, we won't see it until 2018. And then we found effectively an additional 10 which will generally benefit us in 2018. So why not sooner, I mean a lot of it are -- there are a lot of pieces to the puzzle that have tiny elements that can't necessarily be executed on a moment's notice. There needs to be -- there's some planning involved in some of the things that we're doing. To the extent we could, it's a Greg Lewis' question, to the extent we can move some of those things up we will and that would only improve upon our expectation. But for now I think it was fair to say that we’ll pick up that 15 million if we get a little bit of it this year great, if not we've got a $15 million improvement as we turn the clocks on New Year's Day.

Sounds good, thanks for clarifying that. And then Mike can you provide some color on your M&A pipeline today and kind of your appetite for the rest of the year for potential M&A, I know you guys just wrapped up the aviation deal, so I was just wondering is there anything for the -- what your appetite would be for the second half of the year?

So, I mean we are always open for business and we have I think both the organization and the focus and the balance sheet to drive growth organically and to selectively be able to whet opportunities as they come through. So, the name of the game is to be this diversified energy management fulfillment, and payments business. And while these businesses seem like they are dramatically different and there are certainly some nuances to them, there's a lot of similarity, there's a lot of synergies. So, the name of the game today in today's reality is you've got to be in exceptionally sharp operating company. And if you get some value out of the marketplace that becomes optimization. So as it relates to M&A there's a lot of stuff on the market and it's really understanding what's worth buying versus growing organically. So, our capability is I think pretty strong. I think we've demonstrated that we've got the ability to handle a lot of capacity. So it's something that we just take under review but we're not shut for businesses. It's really just what is the wisdom based on whether we've got an organic opportunity to grow in this space or whether it becomes a property that brings us things that we can do ourselves. It's capability, extensions, all of the common logic that you would apply to those investment decisions. So, we're mindful of pacing. I think I mentioned last quarter that we got a good amount that we're not digesting now but we've got the best team we've ever had in the organization. I think I said in the last quarter that despite the results not being what we would ideally like, the company is healthier than it ever has been. So from that perspective acquisitions are always going to be part of the purview. So, I wouldn't say that it's something that we're aggressively looking at, it's just something that we're always open for business.

Good deal, thanks for that. And then last one from me, Ira just to clarify what did -- what was -- on the operating expense guidance you said 173 million and I didn't catch the top end of that?

177 million, so you got a little bit of a pickup as we were closing parts of the policy before the ExxonMobil into the second quarter. So we have a little more incremental expense there, that's really what represents the step up from the second quarter.

Perfect, thank you guys.

Thank you.

Our next question comes from the line of Ben Nolan with Stifel. Your line is open, please go ahead.

Yeah, thanks. So, hey guys, obviously the marine businesses it's kind of stuck in no man's land a little bit here but I am really a little bit more curious about the aviation and land businesses and how you guys think about that from a longer-term perspective with respect to your ability to organically grow those, are they sort of I don't know a target rate at which you think that you're going to be able to grow those two businesses?

So, aviation I think speaks for itself certainly. Exceedingly good track record and I think the thing that's instructive there is, it took a long time to get there. Unfortunately things take time and a little bit of money. But the aviation journey has been, a 25 year journey. It's highly specialized and the aviation team should be exceedingly proud of what they've been able to achieve and accomplish. The part that I think is really cool about our business is while they're different industries I guess and they're different products, they do have similarities. So the aviation platform and the aviation story is a great model. Certainly for the land story there's a lot of commonality between land and aviation. The land marketplace is perhaps 10 times the size of aviation so it's got an enormous runway. Land as I had sort of indicated does not have the platforms we've integrated the companies but I guess there's levels of integration and we still have that in front of us in terms of the processes, the organization, the technology platforms in the U.S. and globally. But that's pretty exciting in terms of the level of organic growth that we could get. Certainly there's plenty of opportunities on inorganic growth within that land space. So there's a lot of collaboration amongst all of the different core growth segments. John Rau I think is doing a great job of working with the marine team to reposition the business for today's market. And I'm confident that we're going to be able to navigate that business to more enhanced value prop that addresses the needs and realities of shipping companies today. So, right now the market share in land, I mean probably can't even measure it, it’s like a millionth of a percent. So…

Great, thanks Mike and as a Chicago guy I’ll take an Analyst Day or an Investor Day in the winter any time.

So we are looking in Chicago for the venue.

So my second question relates to the cost side of it and obviously it sounds like you guys are making pretty good progress on the cost savings especially on the OPEX side. I was curious if there's much work to be done or any factor to be trend on the G&A side as well?

We're covering every single line item on the P&L that ends with the word expense, whether it be compensation, whether it be real estate, whether it be professional fees. Our General Counsel are sitting in here, looking at me. So, we're leaving no stones unturned. Obviously both G&A and compensation are really large numbers for hundreds and hundreds of millions of dollars. And we're very focused on OPEX as a percentage of GP. And our current level of gross profit every 1% improvement there is almost $10 million. So with our first two rounds of cost savings we have effectively taken out about 3% in that number on a pro forma basis I would say. And we're focused on trying to continue to drive that number in the right direction and that's -- again that's every line item there are IT related costs as we create more efficiency through integration. We should be able to reduce those types of expenses so we've got a lot of different initiatives going on internally, all aimed at the same single end goal of making us more efficient and improving our cost leverage going forward.

Great, thanks a lot. I appreciate it guys.

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

Thanks everyone. We appreciate you sticking around and we look forward to talking to you next quarter. Thanks again, best to everybody.