Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services 2018 Third Quarter Earnings Conference Call. My name is Jose 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. And I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President, Treasurer and Investor Relations. Mr. Klevitz, you may begin your conference.

Thank you, Jose. Good evening everyone and welcome to the World Fuel Services third quarter 2018 earnings conference call. I am Glenn Klevitz 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 webcasts, please visit the website 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 on 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. As with prior conference calls we ask that members of the media and individual private investors on the line participate in listen-only mode. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you Glen and good afternoon everyone and thank you for joining us today. As I've said over the last few quarters we continue to focus on three pillars driving our value creation strategy. Institutionalizing and continuous cost management culture, sharpening our portfolio to ensure that we're allocating our capital and talent to develop durable profit streams that generate returns in excess of our cross capital and achieving aggressive organic growth. The results that I will be sharing today will attest to the focus and commitment we've had to these core drivers and our continued commitment to them. I'll pass the call over to Ira to walk us through the financials and then I'll share some additional insights before we begin our Q&A session.

Thank you Mike and good evening, everyone. Our business performed very well in the third quarter posting record results in our aviation segment and our highest level of profitability in our marine segment nearly three years resulting in consolidated and adjusted EBITDA of more than $100 million for the first time. Adjusted net income was $42.5 million in the third quarter up$1.6 million or 4% when compared to the third quarter of 2017 and adjusted diluted earnings per share with $0.63 in the third quarter, up $0.03 or 5% compared to the third quarter of last year. Consolidated revenue for the third quarter was $10.4 billion. That's up $1.9 billion or 22% compared to the third quarter of 2017 again this was principally due to the significant year-over-year increase in fuel prices. WTI which reached the highest $74 per barrel during the third quarter average $70 per barrel for the quarter an increase of $22 or 45% year-over-year. The pricing impacts were offset impart by lower volume in both the marine and land segments. For the quarter our aviation segment volume was up approximately 30 million gallons or 2% year-over-year to 2.1 billion gallons. Solid volume growth in our international fueling operations principally in Europe drove the positive year-over-year volume growth. Volume in our marine segment for the third quarter was 6 million metric tons down approximately 850,000 metric tons or 13% year-over-year principally due to discontinuing certain low margin activities during 2018. Sequentially margin segment volume increased approximately 100,000 metric tons representing a sequential volume increase for the second straight quarter. Our land segment volume was 1.3 billion gallons during the third quarter down approximately 150 million gallons or 10% compared to the third quarter of 2017. The decline in land segment volume was principally related to our decision…

Thank you Ira. As I alluded in my opening remarks. We are focused on rationalizing our portfolio of businesses in order to shift more of our capital and talent towards businesses that produce more predictable and sustainable profit streams. We were also focused on leveraging our global platforms to drive increased customer penetration and accelerated customer acquisition both of which translate into organic profit growth. Our commitment to continuous cost management is aimed at ensuring that a higher proportion of our organic growth flows through to earnings resulting in improved operating leverage. Our third quarter performance was further evidenced that we're successfully executing in all three fronts. Our aviation segment produced record gross profit and operating income in the quarter supported by organic growth driven by the continuing expansion of our global supply network. Our aviation team has done an excellent job of leveraging the assets we acquired in early 2017 to enhance our supply capabilities to our existing customer base as well as building upon these assets to further expand our footprint to an addition 17 new airport locations, increasing our ability to bring value to perspective customers and enabling further organic growth. Moreover we continue to widen our portfolio of service offerings to the aviation market as a complementary fuel supply to the extent that services in the third quarter constituted 20% of our total aviation gross profit. Our margin business performed well following rigorous management of cost which drove our OpEx ratio from 86% to 66%. We sharpened our portfolio of market segments and locations which enhanced margins and we expanded physical operations which are reaching critical mass and driving organic growth. Our land business experienced an improvement in operations in North America largely due to cost management and gains in our commercial and industrial businesses APP…

[Operator Instructions] and our first question comes from line of Ben Nolan from Stifel. Please proceed with your question.

So my first question has to do with the marine business obviously. That one was bit of a surprise on the outside at least to me and I know that you've said that there's high grading of the customer base and improvable demand. Wondering if Michael you are yet seeing any maybe flow through the IMO 2020 regulations. Are people looking to hedge is that having an impact or you know are more people focused on working with you guys instead of going straight to the suppliers or just curios whether that's helping to contribute to the improvement there?

Well I wouldn't say that there is any particular impact on this quarter's results relative to IMO 2020 that I think that I'm going take all the credit for our team. John [indiscernible] and all the rest of the marine team I think gets all the credit for this quarter's results. Obviously higher prices little bit of credit constraint, balance sheet constraint that was a function of cost management that we benefited from and being rather selective in the marketplace. In terms of IMO 2020, there's certainly a lot of talk, certainly folks have some of made their decisions in terms of exhaust gas scrubbers, there's been it's obviously the topic [indiscernible] not only in the marine world, but just you're seeing it everywhere. Some folks are taking hedging positions, but that is the minority for sure and everyone is trying to figure out what they're going to do, some are just going to go straight to distil it. You certainly have some issues relative to the availability of high sulphur fuel oil, the supply and logistics, the compatibility. So it's going to be definitely a different type of market. Certainly that will benefit us from a perspective of the expertise that we bring in terms of sourcing different qualities of fuels and making sure that it's available. So it's going to be a bit more work for the marine team without question, but it's right up our ally and we're well positioned for it. I don't know want to over blow what the impact is going to be because there is going to be some risk out there as well. We're prepared as I've said before, whatever it maybe. Whether it's distilled, certainly we benefit from our land position. We understand the technical aspects of it and the logistics aspects of it, but we're not really seeing a whole lot of impact now. It's a little bit premature.

Okay and then just switching gears a little bit to the land segment. That one seems like it's still at least in some areas kind of the most in terms of work in progress. We're curious though I know that you're incubating a few projects specifically things like the Connect business. And I think early you said that, in that particular business had finally gotten to the point where we're starting to generate a little bit of profitability. I'm curious as we look out in 2019, is are things like better that business in particular. How important could they be and sort of improving the margins of the business or is it possible to maybe frame in how much gross profit or something like that might be able to throw off for you guys.

So I'll just make sort of a general comment here on land to try to give a little bit of color. It's pretty much an aggregation of a number of different businesses. Brazil is its own story, you got complexity there simply because of everything that's going on there. We are rationalizing that as we've been rationalizing a lot of the activity within land. UK is somewhat whether implicated or constrained we've got improved execution there. So those areas have their own sort of dynamics. Within North America, as I - commented on there's been material cost take out we've got improvements in our C&I, our commercial and industrial business. Those are doing well PAPCO is rebounding coming back from just the change in the trade flows and the supply flows there. We've rationalized the some of the supply and trading that's cost us a little bit of gross profit there, but giving us improved return. So that was a sensible thing to do. We've been existing small business even though they're okay, really just trying to focus the energy on businesses that we're going to scale. Where if the last sort of tranches of existing our preferred supplier program as I think we commented in previous calls. Connect is interesting. I think we're looking at 20% of gross profit this year and we're optimistic. It's small. Mainly we talked about these things because they're distinct but we think being involved in gas and power is a sensible thing. It brings us an interesting commercial and industrial client there. Multi-service is doing well. You know they've changed their program to go after large, small or medium-sized business. So we're optimistic. I mean we've got a more aggressive outlook for land in 2019. We conglomerated a bunch of different businesses and we haven't done the best job in terms of creating platforms there in the same way that we have done in aviation. So you need to have that then that's going together. We're not firing all of the cylinders there, but we do see that as a part of the future program and it is coming together, it is taking longer than we would have liked.

Okay, now that's helpful. I appreciated. I turn it over. Used my two questions. Thanks guys]

And our next question comes from the land of Ken Hoexter from Merrill Lynch. Please proceed with your question.

If Michael, if I could just kind of I'll guess I'll take Ben's follow-up question before I ask a question but on the land side. You mentioned eliminating some non-core trading. I just want to understand maybe if you could give us percentages I've asked this on prior calls for different parts of the business, but what percent of the land is now providing fuel to gas stations. You mentioned the 12% that goes to the card 20% is Connect. So just wondering, what is the simple business of providing fuel to gas station and then what is left in trading still that you can still look to eliminate?

Trading it is a wholesale business. Wholesale business is not a bad thing to have, as long as you've got it sized appropriately. The non-rateability of it obviously is not something that fits within our quarter-by-quarter results and you can get varying degrees of return. So we've opted to reduce that significantly. So we've done that, so we still have some of it. So that was sum of what the rationalization of the portfolio is. The core pieces of North America is the wholesale distribution to gas stations, that's about 25% of our gross profit in North America and then the other part of that is our commercial and industrial business where we're delivering by truck and tank wagon to our customer's we're delivering it into whatever commercial, laundries, you name it aggregate companies and that's our commercial and industrial business and that's the other sizable part of that North American business activity.

So those, is that another 25%.

Yes, Ken its Ira. Retail is about 25% of our global GP in land and then you got the 20% that Mike referred to earlier in Connect. You've got multi-service which rolls up into land and that's about another 20% odd percent and then the rest of it, sprinkle around. We have our commercial, industrial business which is a little lower than that because it's a fairly new business for us and we've got a little bit of GP coming through in Brazil and then the rest is in the UK. We can give you the more detail percentages if you want.

No that's helpful that just describes kind of the what you're focused on right the 40%, 50% that's in the distribution and C&I and then you have the other kind of sub core, so that it's interesting to see that split. So just on the cost cutting side, I guess that's my question on the - you mentioned the program is done but then Michael kind of sprinkled in on the land that there may still be more kind of rationalization to go. So how do you think about this, this is just - Ira you mentioned the 290 basis point improvement. Are we done with the cost cutting focus portion of that overall or is there still more focus on pulling cost out and creating even further efficiencies?

I don't think we'll ever be done, as we point in the concept of continuous cost management. I think our principal former programs. There's been three are essentially completed some of those cost savings benefits won't be achieved until maybe the first half of 2019, but we're continuing to look for more opportunities. But we're continuing to look for more opportunities. If you look at our cost ratios, we've done a phenomenal job of improving the marine cost ratio as Mike alluded to aviations cost structures and is in pretty good shape. We still have more work to, in land and a lot of work that we did this year is in the corporate side of the house where a very significant portion of that has been done. We're always seeking out additional opportunities. Mike doing this like migrating to the cloud as part of our IT infrastructure is going to generate savings for us overtime and there are lots of other areas on the IT side, I've restructured my finance organization this year, which is reducing the cost of that 600 plus person organization worldwide. So we've got lot going on and we're continuing to focus on it. But I would say, most of the low hanging fruit, where all of low hanging fruit is behind us. But that doesn't mean we're not going to continue try to find ways to be more efficient and drive that cost ratio lower. You remember our operating margin was 23% last year, we told everyone we're going to try to get up to 25.5% this year and 28% by next year. I would say we're little bit ahead of schedule in getting closer and closer to that target of 28% versus the 23% last year. So there's a lot more heavy lifting to do, but we made a significant amount of progress already.

And Ira, just I guess my last one on marine. You kind of mentioned the ramp up in volumes and demand. Is that changing how you address the business or is the business was it just rebounding operations. Maybe you can just dig into your thoughts on that.

I think the message on marine it's not a big volume story. Our volumes are actually down year-over-year. The guys have done a great job moving away from some business that probably didn't make a whole lot of sense for us in the first place businesses that require a lot of working capital and generate a very low returns. So we've done a nice job and the core business has recently benefited from the sharply rising price environment. We've always talked about marine having a much higher correlation of margin to price because it's principally a spot, a business as opposed to aviation which is more contract oriented which provides us opportunities overtime as prices increase and we saw a lot more that this quarter than we've seen in a very long time. How sustainable that is, it's yet to be seen and then again to, Ken's question again [indiscernible] closer to 2020. So I would say we've more optimism in marine today than we did six months ago. The team did a great job in right sizing the cost structure and now we're taking advantage of more opportunities in the marketplace with a much lower capital investments or return on capital in that business has improve substantially year-over-year so hopefully that answers your question.

No it does, I definitely saw that the volume is down 12%, but the gross profit per ton up almost 60%, so I was just asking if that was a shift in customer strategy or in terms of the winds or if it's - but you just mentioned it's more the moves with spot. So does that concern you as crude rolls over a little bit or have you shifted that business a bit?

No whether the price is moving up, pricing is moving down. It's not a very swift move in terms of the impact on margins. Price has been going off for quite a while and it took a while for us to see the increase because they drop down to where they were a year ago overnight probably not, they'll move around a bit subject to price. Crude prices as you've noted come down a little bit but not enough to make a massive difference. So early part of the fourth quarter we're seeing margins, a little bit lower than where they were in the third quarter, but not materially lower and that's why we made the statements about where we expect the fourth quarter to come out.

Great. Appreciate the time and thoughts. Thanks guys.

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

Okay well. Thanks very much to all the shareholders on the phone. Appreciate the support and thank you to all of my colleagues and all of our colleagues around the world. For all the hard work you do every day. It's a pleasure working here and let's keep doing it, so thanks very much everybody and we'll see you next quarter.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. And this time you can disconnect your line.