Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services 2018 fourth quarter and full-year earnings conference call. My name is Mike and I will be coordinating this 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, Treasury and Investor Relations. Mr. Klevitz, you may begin your conference.

Thank you Mike. Good evening everyone and welcome to the World Fuel Services fourth quarter and full-year 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 World Fuel Services Corporation 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 plan 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. 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 Glenn. Good afternoon everyone. Thank you for joining us today. We are pleased with our finish in 2018 as we delivered solid earnings in the fourth quarter and further strengthened our balance sheet. 2018 was a year of continuing transformation World Fuel and our actions throughout the year advance our value creation strategy of continuous cost management, sharpening our portfolio and accelerating organic growth to drive enhanced returns. We continue to combine our sourcing and underwriting capabilities with energy logistics to better manage complex supply chains not only with respect to liquid fuels, but also natural gas and power. In doing so, we are reduced our reliance on nonratable wholesale business in favor of end-user demand to drive value share and recurring revenue across all three of our segments. Ira will give a detailed review of our financials and I will follow-up with some additional comments before we get into some Q&A. Ira?

Thank you Mike and good evening everyone. We shared our plans to drive improved financial discipline and financial performance in 2018 when started the year last year. And I am pleased to report, we executed very well on such plans driving a very strong result in 2008. Here are some highlights before I get into all the related details. We delivered more than $1 billion of gross profit for the first time. Our aviation segment delivered record gross profit which exceeded $500 million. Full-year consolidated adjusted EBITDA increased 20% to $360 million, significantly enhancing financial flexibility. We improved our operating expense ratio by 425 basis points, far exceeding the 250 basis point target we shared at the start of the year. We generated $188 million of cash flow from operations, excluding $370 million impact due to change in classification of the cash proceeds received from a beneficial interest in receivables sold to cash flow from investing activities on our cash flow statement. We reduced total debt by more than $200 million and out net debt to adjusted EBITDA ratio fell to 1.4 times the lowest levels since 2015. Adjusted earnings per share increased by 13% to $2.11 and our return on invested capital was 8%, an increase of nearly 100 basis point year-over-year. And now on to the details. Consolidated revenue for the fourth quarter was $10 billion, up $1.2 million or 13% compared to the fourth quarter of 2017. The year-over-year increase in revenue was principally driven by higher average fuel prices during the quarter. For the full-year, revenue was $39.8 billion, an increase of $6.1 billion or 18% compared to 2017. Our aviation segment volume was two billion gallons in the fourth quarter, up slightly year-over-year. Volume growth in our core resale operations drove the year-over-year volume increase.…

Thank you Ira. As I noted in my opening remarks, in 2018, we focused on rationalizing our portfolio and shifting our talent and capital deployment towards businesses that produce more predictable, sustainable and scalable profit streams. We will continue to do so in 2019. We will also look to continue leveraging our global platforms to serve our existing customers in new locations with a broader suite of products and services as well as using those platforms to drive new customer acquisition, both of which will translate into more organic profit growth. We have embraced a continuous cost management culture to reduce our operating expense ratios to ensure a high proportion of our organic growth flows through to earnings. Our aviation team has excelled in leveraging the assets we acquired in early 2017 to enhance our supply capabilities to an existing customer base while adding new locations for this acquired footprint to further expand our network. This makes us a more attractive supplier to both current and prospective customers. Our government business also performed well, delivering strong results from increased activity throughout the year. Our marine segment rebounded significantly in 2018, delivering solid results following 2017 when we reach retrenched our operations to those markets and customers where our solutions provide the most value. Vigorous cost discipline drove improvements in operating leverage and market segmentation enabled an increase in gross profit despite an 11% decline in volume. Sharpening the portfolio reduced the amount of working capital tied up in lower margin activities, resulting in improved financial returns. John Rau and our fantastic marine team deserve a lot of credit for this turnaround. Looking forward, our marine segment will continue to selectively expand its supply footprint and it is well-positioned to assist customers in managing the supply challenges of fuel availability, quality…

[Operator Instructions]. The first question comes from the line of Ben Nolan with Stifel. Please go ahead.

Yes. Thanks. Hi guys. Next quarter. Well, I guess I have two questions and one follow-up. My first question is, obviously, it looks like some of the high-grading that you have been trying to do in the land business is working. Volumes are down but margins are up. As you look out, I was hoping that maybe you could be a little bit more granular. Where are areas within the land business that you feel like meet the return hurdles that you are aiming for with respect to the opportunistic expansion in that area?

Thanks Ben. So we have stated previously, our retail business has performed well for us in terms of supplying under contract to retail gas stations. That is still is a good business and is performing well. We have had growth there. And as we have expanded our geographic footprint, we have taken the strength that we have had in the Midwest and we have expanded that to the Northeast and the Southeast. So we feel pretty good about that. Long-term growth of that market is not fantastic but it's a sizable market and it continues to perform well. So we will continue to stay in that business in both the branded and unbranded basis. Our commercial and industrial business has done an extremely good job and we feel very optimistic about that. We have got a very small market share there. So there is a tremendous amount of white space within that marketplace. And there is a calm in our customer base within our liquid, diesel and gasoline and natural gas and power business. So there is some good synergies there. So we feel pretty good about that. We feel pretty good about North America. Our U.K. business is doing well and we believe that we have got significant opportunities in the U.S. but opportunities beyond that. Any color you want to add to that, Ira?

No. I think, as Mike said, at the end of the day the key point is the commercial and industrial market is one that we really only got into two-and-a-half years ago, principally with the PAPCO and APP acquisitions. We had a little bit of a slow start with one of them but that's come around as we reshaped their portfolio and gotten away from the supply and trading aspect there. But we are still very small player in that space, I would say, but we are growing. We did around 500 million gallons this year and that market is well, well in excess of that obviously, billions and billions of gallons. So I think there are a lot of opportunities for us to grow in that space over the next few years.

Okay. So that helps. And along those lines, as you said, a few of the growth initiatives that you have undertaken there haven't gone as smoothly as you probably would have liked. What do you feel like you can take from that in terms of layering over, hopefully a little bit more robust growth in terms of the bottom line?

I think, it's not east to give you a number but if we got a question for it, Ben, I think there is, if we play it right, we invest wisely and we generate the efficiencies that we believe we can which drives more available liquidity for growth, there is a substantial growth opportunity in that space for us. We have got [indiscernible].

Right.

And as I stated in my comment, we have got double-digit growth organically within our C&I business. So that business is doing extremely well. Mike Crosby and Jeff Smith and the rest of the legacy technology team, I think, are doing an excellent job there. So the people, the process, the technology is coming together. The team has come together. So we feel pretty good. We feel like we have got something that is going to hunt well in 2019. So that's why I made those statements in terms of double-digit organic growth. And we are open for business selectively on M&A there as well. So we took a break as everyone, I am sure, has noticed and that was good to do a little bit of repositioning, as we commented on. So feel good about that. That land business is an important part of the business. It certainly dovetails into 2020 with the distillate action there and it's a global business. So we grew up global. We are a native global business. All of us that started out in the aviation and marine business, we knew nothing except the global market. So the land business is global and we are developing great synergies between those businesses. That's kind of exciting. But certainly North America is where the strength is and the thing that you learn is profit from the core and build from the strength and leverage your density. We certainly do have a global network and our third-party reselling is something that also applies to the land business, not exactly the same but with some of the technology that we have developed, we feel pretty good about that. And that also leverages our off of our Kinect platform, which is truly a global business. So they all come together. There is some internal synergy. So we feel pretty good about what we are calling land and now we are calling it a global land.

Okay. All right. Well, that's helpful. And then lastly for me, if you call it a follow-up or however you do it. You, Ira, I think mentioned that leverage is down to 1.4 times and it is the lowest it has been four or five years and it sounds like maybe you are open to acquisition but you are not actively pursuing things. What are you thinking with respect to capital allocation at this point, given where leverage is, given your growth profile? What's the best use of cash or cash flow generation from your perspective at the moment?

Great question. Never the easiest one to answer, but I will try my best, right. So look, we have several options of where to allocate our capital every day that we come to work. We could invest organically in our business. We could explore strategic investment opportunities. We could pay down some debt which we have obviously done, as you have seen with our debt reduction in 2018 which has gotten a bit more expensive. So that's a good thing. We could buy back our shares. So a lot of different things we could do. I would say, our priority remains investing in our business, both organically and strategically. Mike mentioned clearly that we took a bit of an M&A holiday as we had a lot of heavy lifting to do during 2018. But I think opportunities are returning and we are obviously kind of back in business there and looking at the right opportunities. We will always consider something like buybacks but as we said before, we generally do so for purposes of offsetting the dilutive impact of employee stock awards, which we did as we always do which we did during 2018. So I would say, investing in the business where it makes sense, where we could get synergies. We started driving returns up in the right direction. It's not somewhere where we would like it to be at 8% ROIC but we think if we use the capital that we have available to us to invest wisely, we could start bringing that number more closer to a double digit number over the next couple of years.

All right. I appreciate it. Thanks guys.

Thanks Ben.

The next question comes from the line of Ken Hoexter with Merrill Lynch. Please go ahead.

Great. Good afternoon, Mike, IRA and Glenn. Ira, I just wanted to, I guess, a couple of quick follow-up to start. I think you said aviation, we should expect flat going forward. I just want to understand, the 1% volume growth we have seen, I guess, have been without acquisitions. Should we tie that to global trade? What should we look for that growth rate on just the aviation volumes?

Yes. I think it's the comment I made on profitability being generally on par with Q1 of 2018. Volume, I would expect, similar growth in 2019 to 2018, just a couple of percent. That's our take on aviation right now. We are focusing, whether it be aviation, marine or land, as you could see, we are down about a billion gallons in 2018 overall. But we significantly increased profitability and that's it's all about. Obviously, we look for growth opportunities where we could find them but principally our number one goal is to grow profitability and increase return. So I would say, for aviation, a couple percent and marine probably a bit more than that and land also a few percent growth in 2019.

There is a significant presence that we have rather than just simply chasing volume, it's really a focus on being selective, working the cost structure, looking for those opportunities and really looking for value share within our clients and then again value the kind of services that we are providing.

Okay. And I am sorry, did you throw in, were there new business lines you mentioned in marine? Ira, did you say that during the opening comments?

Just new markets, identified opportunities, a couple of new ports over the last year and that's added a few million dollars of profitability. So look, the marine team has done, we can't overstate it, a phenomenal job. Before things started getting a bit better, they hunkered and took out a lot of cost proactively which set us up at least to continue riding up the storm. And then the last few quarters, they have been performing a lot better and we have been selectively identifying opportunities to pickup some new business in areas where we didn't participate in the past that involve a little bit of capital investment, but not much. And that's also contributed to the turnaround we saw in marine in 2018.

The color that I will add to that, Ken, marine is following aviation. Aviation, to a certain extent, is a model for future state of the business. We have been in both of those businesses for about 30 years. Marine, obviously, went through hell for a while. But that's been a great story. There is tremendous internal synergies certainly on the supply and logistics side and almost in every aspect of all of the businesses that we are involved with. So John and the aviation team and the supply team have done a great job and Mike Crosby and the logistics side. So there is lot of synergy between marine, aviation and land and we are certainly tapping into that. And you are going to see some benefit from 2020, I think, coming from some of the capabilities that just across all of those businesses.

Can you just follow-up on that, Mike? What changes with 2020? Is it getting the different fuel from wherever to the port or from the port to the vessel? Maybe you could walk us through how that's going to change over the next year?

Well, you are going to see a pull on diesel, that's for sure. Already, you have got a significant amount of growth in diesel consumption in the world. And now as you are switching to low-sulfur fuel, the vast majority of the marketplace is going to use low-sulfur fuel while some of the marketplace is going to be switching to diesel. So you are going to see a significant pull on that. And considering that we have got a significant position there, that gives us greater capability to source that diesel. In fact, supply it over the water. And there is a fairly close relationship between diesel distillate and jet fuel. So there is a commonality. I mean all of this liquid fuel is coming from the same sources using some similar logistics capabilities. So there is a lot of internal synergies and capabilities and competencies that we are tapping into. So from that perspective, there is good internal synergy within the organization. There is a lot to talk about with 2020 in terms of who is prepared, who is not, all of the different complexities that you are going to have with storage. There is going to be a lot more planning ahead. There is going to be more frequent bunkering. Some folks are going to be exposed to risk just because of what's expected to be higher prices. You may have some compatibility issues on some technical services that are going to be required. But our marine team and almost every marine team, ship owners are going to be pretty busy around the world sorting out 2020. The oil industry is pretty organized. They have been preparing for this for quite some time but there is still going to be a lot of folks that haven't been prepared and it's going to be a little bit chaotic for a short period of time. It will settle down after a while, but we think that we will benefit from that to some extent.

That would be great. Thank you for that one. And obviously, you always benefit from that volatility. On the CapEx side, Ira, you mentioned investing internally. CapEx jumped pretty significantly this quarter. Maybe you could talk about what you are buying and is that part of getting to the 250 OpEx improvement goal?

Yes. Some of it is. Yes, our CapEx is principally increased because of the fact that we have gotten a little more physical, most specifically in our aviation business post the Exxon acquisition a couple years ago, right. So we have got more trucks on the ground and things like that. So I would say, there is nothing overly significant beyond that. Obviously, we have a lot of IT related CapEx. I would say, those numbers are probably pretty similar year-over-year as we continue to invest in technology. We have been migrating pretty heavily to the cloud. So some of that winds up on the CapEx line. But I would say, the delta year-over-year, I think our net PP&E jumped about $20 million. That's really principally things like trucks, supporting our operations at nearly 100 airports around the world. And a little bit on the land side, a little bit on the marine side, but I would say more on the aviation.

So a good run rate, then going forward?

Yes.

Okay. All right. Great. Thank you for the time.

Thanks Ken.

Thanks Ken.

The next question comes from the line of Kevin Sterling with Seaport Global Securities. Please go ahead.

Thank you. Good evening, Mike, Ira and Glenn.

Hi Kevin.

Hi Kevin.

Congratulations on improvement and progress you are making. Mike, you guys talked a little bit of about the M&A pipeline and you might after taking this hiatus, where are some opportunities you see? Is it aviation, land? Maybe you could shed a little light on areas may be looking at it, if you don't mind?

Well, we are making a practice that all of our businesses maintain pipelines, obviously. There's always opportunities in the marketplace. Certainly, within the land space, it's an enormous space. So there is an enormous marketplace in North America. It's the largest energy market in the world. So there is quite a bit in the energy management side in terms of gas and power. On the aviation side, a little bit less but there is certainly opportunities there. On the government services side, that's certainly a wide open market. And the marine space certainly has a lot of independent practitioners. But I think with land, we feel very strongly about that. And we have got, I think, a hyper-focus on that business. So we would like to see that be the third leg of the stool, so to speak, in terms of developing that further. It is a global market. We certainly focus on North America. And there are synergies between all three of the businesses there. So that's really what we are focused on. I commented best-in-class, best-in-cost and really trying to get a one company scenario where we are getting shared services creating global business services. So Ira has been working on that and Jeff has been working on that and bringing in energy management and fulfillment where we are managing an energy product for a commercial and industrial governmental entity and figuring out how to do that in a very efficient and effective way and then wrapping that around with products and services is the name of the game for us. So we are excited about that. And any way that we can bolster up that offering, the energy diet is pretty diverse now. So clients are looking for sustainability services. They are looking for different energy products. We started with renewables and jet fuel about six, seven years ago and we are one of the few companies that are doing that today in California. So it's really about bringing the picture together to be that energy supermarket for commercial, industrial, transportation and governmental entities. So to the extent that we could bring all of those businesses up to operating temperature is the name of the game. Marine, obviously, has been a phenomenal turnaround. So it's really sort of balancing the business so that we are operating on all of those cylinders. But land is an enormous space and we would like to see if we could get that moving a little bit more.

Got you. Thanks Mike. And speaking of marine, do you have more low margin business to exit at marine and land? How should we think about that?

Listen, there is always a reason to do business and we look to support our clientele. But we think that we do a pretty good job and we are providing value to our clients and we are increasingly working to be very integrated with their operations. So we are helping there operation. Our best clients understand the value that we bring to them and we are helping them strategically deal with their energy requirements, their operating requirements, their quality requirements. It's not a simple business. So we certainly are looking to support our clientele. But I think we have done a pretty good job of understanding the returns there. So Ira, do you want to add some color to that?

The only thing I would add to that is I think the heavy lifting in terms of low hanging fruit of low margin relationships we have had, that just really didn't a whole lot of sense. I think we are pretty far through that. Where we may have some low margin activity that remains in areas where we believe there is still opportunity to grow that relationship and expand through the offering of non-fuel services, et cetera. And we see a runway to a better number, but generally we have tried that or we haven't seen that runway. We did a great job, I would say, in marine first and then we follow that into 2018 in land. And I think we have raised the bar internally in terms of everyone being hyper-focused on the importance of driving returns and how the right return gives you more liquidity to service the next customer with some capital. So I don't think it will ever be done, but I think we have done a lot of the hard work already and now we are just refining that going forward.

Got you. Thanks. And switching gears here, I want to talk about aviation real quick. And I don't know if there is policy or not, but there has recently been a value added tax or VAT tax rate reduction on jet fuel purchased in Brazil from 25% to 12%. Would World Fuel, would you guys benefit in any way from this tax cut?

We don't really do a tremendous amount of activity there on the jet side. So I would say the answer to that would be no, in Brazil in particular.

Okay. All right. That's all I had. Thanks and congratulations once again on the quarter and the improvement you are in making.

Thanks Kevin.

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

Well, thanks very much. We appreciate the time and the support and look forward to talking to you next quarter. Have a great evening everyone.

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