Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services’ 2019 Second Quarter Earnings Conference Call. My name is Ash, 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, Treasurer and Investor Relations. Mr. Klevitz, you may now begin the conference.

Thank you, Ash. Good evening, everyone and welcome to the World Fuel Services’ second quarter 2019 earnings conference call. I’m Glenn Klevitz and I’ll 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 our 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 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 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. I am pleased to report that our second quarter results demonstrated a continuation of the earnings momentum established in the first quarter of this year. We continue to be guided by the three pillars of our shareholder value creation strategy, sharpening our portfolio through efficient capital allocation to businesses with more predictable and sustainable profit streams, driving organic growth by reliably delivering differentiated energy solutions to our expanding customer base and maintaining our commitment to continuous cost management in order to improve our operating leverage and provide greater value to the market.Our improved year-over-year earnings performance, together with a favorable renegotiation of our credit facility has significantly increased our liquidity. We now have greater financial flexibility to execute on our strategic initiatives and maintain our strength as a stable financial counterparty. Our aviation segment posted double digit year-over-year percentage increase in operating income in the second quarter. The aviation team has done an exceptional job of improving supply chain efficiency and increasing asset utilization at our physical locations, while continuing to expand our network in response to the demand by many of our airline customers for reliable and cost effective fuel delivery solutions.Our government business again delivered strong results in Q2, demonstrating our continued ability to support complex requirements, relying on our long established expertise and energy and logistics in geographically remote or challenging theaters of operation. Solving energy management problems continues to drive our organic growth and differentiates us as a strategic partner, fueling our customers’ operations and growth. We commenced new operations at several locations in Europe and Latin America during the quarter. We continue to invest in the development of customer facing technology platforms that complement their fuel offering and facilitate our customers’ trip planning…

Thanks for pausing, Mike. Good afternoon, everyone. We delivered solid financial results in the second quarter and continue to execute on our core strategies of continuous cost management and sharpening our portfolio to drive enhanced returns. Before I get into the details of the second quarter, some of the highlights are as follows.Adjusted EBITDA for the second quarter was $98 million. That's an increase of $14 million or 17% compared to last year. We have now delivered year-over-year increases in adjusted EBITDA for nine consecutive quarters, and our trailing 12 month adjusted EBITDA has increased to a record $388 million. Adjusted earnings per share for the quarter was $0.58, an increase of 23% compared to the second quarter of last year. And lastly, our balance sheet remains strong, aided by operating cash flow generation during the quarter of $125 million. We repurchased $65 million of common stock during the quarter and as previously announced, increased our dividend by 66%. And as we announced earlier this week, we have amended and extended our bank facility, further improving our liquidity profile, providing us with additional financial flexibility to continue investing in our business and returning capital to our shareholders.Consolidated revenue for the second quarter was $9.5 billion, down $700 million or 7% compared to the second quarter of 2018. The year-over-year decrease in revenue was principally driven by the decline in volumes in our marine and land segments as well as the 12% year-over-year decline in Average fuel prices. Our aviation segment volume was 2.1 billion gallons in the second quarter, an increase of 50 million gallons or 3% year-over-year, and 173 million gallons or 9% sequentially.Volume in our marine segment for the second quarter was 5.1 million metric tons, which is down 775,000 tons compared to the second quarter of last…

[Operator Instructions] And now, our first question comes from the line of Ben Nolan with Stifel.

So, I have two questions. Well, I'll stick to my one question and one follow-up. The first one relates to just sort of thinking strategically about the various businesses. Obviously, we've been able to grow -- organically grow the aviation business quite a lot. And at the same time, the volumes have been drifting down a little bit in both land and marine, but clearly you’re carving out lower margin volume in order to generate better profit out of the group, which is great. Just curious, as you think about those two businesses in particular going forward, is there an opportunity set to do something similar to what you have successfully been able to do in the aviation business in that, are there business opportunities out there that you can organically grow at healthy margins in a similar cadence to the aviation or is that just structurally not how things are going to shake out right now?

Great question, Ben. And I think I've commented in the past, where I've said that our aviation business model, and the manifestation of aviation, and a little bit of the evolution of the entire company, most notably exhibited within aviation, our origins, as I've said in the past, we were essentially a bank, we were underwriting and reselling and basically a market maker in a fragmented market, dealing with risk management, obviously credit risk, but also price risk.And that was fantastic, it was a lot of fun, it was great business, but things change. And we started the journey with aviation, moving from that third party value added reseller into inventory, and then into distribution assets, and then into services and technology. And that's worked out extremely well. Marine, under John's stewardship, John Rau, and we started this, in 2004, with physical supply in the UK, move to Latin America. So, that journey has started with marine and marine has had a lot of challenges.We all know, more than most industries got hit in a lot of different ways. But we're very much on our way there. So that, I think, is good. And, with IMO 2020, we've been sort of conservative, because it's not like, it's a surprise, both the -- certainly the oil industry is pretty resilient, then manages change pretty well and the shipping industry, I think, is going to respond reasonably well to it. We feel cautiously optimistic about that, but we feel like we've got a good journey within marine and we're on our way. Land is tremendously interesting.We started out physically within our land business, and locally in terms of distribution in 2008, with our retail business, and then moved into commercial and industrial business. We took a little bit of a departure into…

No, I think that's a fulsome answer.

So I take from that, that, yes, there are opportunities to profitably and organically grow the marine and land businesses over time. I know, maybe last quarter or two quarters ago, you began talking a little bit again about the possibility of making acquisitions, should the opportunity present itself, specifically targeting the land segment? I'm curious, if you might be able to dive down a little bit within that and first of all, said that's still the thinking? And to the extent that it is, how should we think about what you guys view as a good fit? Is it just something that as geographically, are there specific lines of business within land where you feel like, you can really find value and are good fit, but any color that you can give there?

So, thanks for that. So, I think Ira commented in his script that we're reactivating, we took a pause, and I think he's commented on that in the past, we’ve sort of regrouped in terms of base camp before we start to scale again. And, we're ready to do that, we're being thoughtful about what is the right fit and of course valuation. So we like the commercial and industrial business, it makes sense. I mean, it's essentially what we do within aviation and marine. So there's a commonality within those spaces. We like the retail business in terms of its cash flow.That's in a little bit of a transition, but our commercial and industrial business, certainly within the US, we started out in the northwest and the southeast, and in the Midwest, and the MidCon, continuing to build that out, throughout the United States. Makes a lot of sense to us. We continue to look at this globally, there is an interface between our land and marine business and our land and aviation business. So, there is a confluence there, you do have the marine industry and certainly 2020 is going to use a whole lot more diesel. And within the aviation industry, you're using diesel, gas and power at various different locations.The gas and our business, we like a lot. We’ll continue to grow that, we're a reflection of the marketplace. So, the conversations that we have with our clients, they're interested in our capability with LNGs at the price of that is extremely competitive now. There's a significant amount of LNG activity. So, our expertise in terms of understanding natural gas makes a lot of sense. So, I think we've intelligently pivoted to these markets. We got into that in 2012 when ship owners and trucking companies…

The only thing I would add, trying not to be repetitive, is if you consider the actions we took with the bank transaction this week, taking advantage of strong market condition wasn't just something we had to do. But we were able to achieve better pricing. And it's always good to extend out the life of a low cost capital facility, like the bank facility we've enjoyed for many years. Our cash flow has become more ratable, we have really solid cash flow this quarter. So if you take Mike's comments, and you combine them with the fact that our balance sheet has been strong for quite some time, but our liquidity profile has gotten much stronger, which gives us a lot more firepower to consider jumping back into the market, while allowing us to invest and return capital to shareholders, as we did with the buyback this quarter, and still have more than sufficient liquidity to run the business and deal with the risk of rising fuel prices, et cetera. So, all around, it's an opportune time for us to find the right opportunities.

And I'll split this one and hopefully it's a real quick answer. In that vein, what's the right size? What would be an ideal target?

I don't think there's a right size. I will take a moment to share my personal views that something really, really small, it takes about as much effort, there's something really big, but it's really tough to tell, it’s more about strategic fit than size. So, I think you could put a bracket on a low end of a relatively small number, single digit millions of EBITDA, but it's very tough to put a bracket on the high end, I guess, it really depends on what's out there. And, our affordability now is a higher number on that upper end bracket than it may have been a while back, which would provide more opportunities for synergies than some of the smaller transactions we've done in the past. And again, if you combine that with just being a lot smarter, and learning from the transactions of the past, and where maybe we didn't achieve the synergies that we should have, there's a lot of incremental value if we could find something more meaningful in size. But it's really tough to put an actual number on that.

I think just to add more color to that, we've got certainly the capability and certainly the appetite for the right sizable type of acquisition that is within the core, that fits with the right valuation, certainly would be interesting as a way to accelerate different parts of the business and certainly within land.

Our next question comes from the line of Ari Rosa with Bank of America.

Pretty comprehensive answers, love to hear that. So just to start out, I wanted to touch on just kind of what you're seeing in terms of global growth and some of the impact of the trade wars, it seems like you guys would be a little bit exposed to that. But it doesn't seem like it's impacting your business too much. So maybe you could just give us some thoughts on what kind of conversations you're having with your customers and what you're seeing there.

Okay. So it’s pretty diverse in terms of geography and in terms of marketplace, and our supply chains are pretty evolved. So generally speaking, we have capitalized when there's been disruption, can't always guarantee that, and the whole world is a little bit different, disruption doesn't disrupt like it used to. So, so far, we haven't really experienced anything. And I wouldn't expect that we've got a big exposure, we've got a pretty diversified business model. And, we don't have deep concentrations in commercial locations, or any concentration in commercial clients. So, that -- we've always had a diversified orientation. So, I don't really think that we've got any exposure, certainly no known exposure, in terms of trade, anything can happen in the crazy world that we live in, but it's not like we're manufacturing, we have 80% of our manufacturing in China, or some heavy concentration with our commercial activity in certain areas. So, trade wars is not something that we spend a whole lot of time thinking about.

If I could switch to what you guys are doing with the buyback? Obviously, the buyback activity in the quarter suggests you guys think that your stock is still undervalued? Do you think that's fair, is there, in terms of how you're thinking about the buyback, is it just going to be methodical based on free cash flow or are you guys going to look to be a little more opportunistic there?

Great question, again. Ari, it’s Ira. I would say there that, if you think of what I mentioned a couple of moments ago, our cash flows are being more ratable, our liquidity profile has improved. Our first choices have always been investing in the business and focusing on strategic opportunities, which, again, we've taken a pause there for a while, but we're getting -- our shoes are getting a bit bigger, our capital availability is growing. And yes, I mean, we wouldn't have bought the shares that we did in the quarter if we didn't think they were undervalued. So, it is no guarantees that we'll be doing that every day. But we're more thoughtful of using, let's say, a greater portion of our capital to do things like that, increase the dividend, buy back shares than we may have done in the past. And, that's, I think that's something that we've given a lot of serious thought to, which led to the buyback during the quarter.So, Mike, I don’t know if you have anything to add to that.

So asset class, as far as I'm concerned, it's really –

Sorry, one thing I'll add to that, I just asked Mike that, because I lost my thought, I don't know if this is an advertisement for World Fuel. But tax reform, obviously, has played a trick on our P&L, right, as I mentioned earlier, our rate is significantly higher, we can't do anything about that for now than it was, which has impacted EPS. So I know, most of or all of you guys focus on our evaluation on an EPS basis. Ironically, over the last couple of years, when the tax rate went up significantly, our EBITDA has grown fairly dramatically. Right. It's up almost $100 million, as I mentioned earlier, over the last couple of years.So what that's created is a disparity since everyone's still focused on EPS, our EBITDA multiple has dropped to between 5 and 6, as basically a kind of an innocent victim of the EPS impact to tax reform. So, I don't know what that means for everyone. That's why we continue to talk about EBITDA and EBITDA growth, because we do think from an EBITDA multiple perspective, we remain seriously undervalued, I would say, but we do understand the EPS element of the equation. And obviously, we're trying to drive that number in the right direction as well. We just had headwinds with the impact of tax reform. So I thought it was important to note that too.

So that's a great point, Ira. And if I could just maybe get a follow up on that point before getting to my final question. So, could you talk about what activities you guys are doing to actively bring down your tax rate or maybe get more of that cash flow to flow through instead of having to pay to the government?

You have 45 minutes, Ari? That's a great question and it's very complex and lengthy answers, even in the second quarter, the tax law -- tax reform related laws are still changing, right? So we're in a new regime, we're still in a state of flux. Our organizational structure worldwide was designed for pre-tax reform world as opposed to post tax reform, right. So now, you have to carefully reevaluate that structure and see what opportunities may exist to be more efficient. Obviously, driving profitability, as I believe I mentioned in the past, more profitability in the US is a clear winner to help bring that rate down. So part of our strategy of investing organically and even through M&A is, for now, a very USA centric.Because, we get that extra value of positively impacting our global effective tax rate, but beyond that, there are so many nuances to tax reform that are really complicated. We've got a great team, internally and externally that are spending a good portion of their time or a large portion of their time, focusing on those types of opportunities. Unfortunately, they just will never transpire or become available to us overnight. And more likely, if we are going to start seeing some meaningful benefit, it will be in 2020. Glenn reminds me that it’s part of the new bank deal that we did this week.We now have capabilities to borrow in many countries outside of the US and we potentially could use that to also facilitate some improvements in terms of driving our tax rate in the wrong direction -- in the right direction, sorry. So we'll update you. And I think as the next couple of quarters come along, I think we should have more intelligence on what 2020 could look like. Unfortunately, 2019 is still going to be in the, generally in the same zip code as to where we were this quarter. So, yeah, good question as well.

Makes a lot of sense, will be on the lookout for that. And then just, if I could squeeze one more in. Related to IMO 2020, it seems like there's more complexity related to the services that you're going to have to provide to customers, maybe you could give a little color on kind of how much advance activity is required to accommodate those customers. And then if you expect that you'll see higher returns as a result of that, just given the higher level of complexity and potentially higher fuel costs.

Well, there's going to be more planning and logistics and quality control. Not every fuel is going to be available at every location, and you're going to see some amount of experimentation, perhaps on both buyers and sellers. So, I think one of the things we’re expecting is that there is going to be more interaction, there may be more frequent fueling, there's certainly going to be the market wanting to leverage external expertise, we certainly have a lot of it.One of our calling cards way back when from the 80s and we still have it, it was the way that we differentiated us. And I’d like to say that, we were a leader in the industry in terms of technical capabilities. So, there's certainly going to be that. There will be different sourcing and logistics and a lot of advisory. So, that will give an opportunity for additional value add. So, I think that it is generally a positive because there's going to be a greater demand for our services. All remains to be seen, it's not like it's a surprise, and it happened overnight.This thing was years with advance notice. So, we feel like we're extremely well prepared and well positioned, and certainly by virtue of our land business, and sourcing distillate and then with our Kinect business, in terms of, LNG, we've got a tremendous amount of internal capability. So, I'm not sure what else I could say in terms of giving color. It all remains to be seen in terms of how it's going to shake out, but we feel prepared and it should generally be positive for us.

So directionally, can you give any commentary on kind of how those conversations are progressing with customers in terms of what preparations are in place and then maybe some order of magnitude or some scale of what the higher profitability looks like, if, in fact, there will be higher profitability from that type of business.

So, the discussions have been carrying on for quite some time. And we're pretty engaged with our customers that have a need, and we're interacting with them with different tools and products and services. So that engagement is pretty strong. And, we're pretty happy with that. We've been surprised in terms of some of the resources that, I don’t know, if surprise is the right word, but we've been leveraging different parts of our organization and our customers have been leveraging different parts of our organization. So that's fantastic. We're getting a lot of collaboration across the organization. So that's a very good thing.In terms of the quantum, it's really too early to tell. And certainly, I would be reckless to sort of give you any guidance on that. Can't really do it.

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

Well, I want to thank our shareholders for the support that you've given us over the years and certainly new shareholders that are finding us as an interesting place to put your investments and very much to the team. We've got the best team in the world. So thank you. Thank you so much. It really makes working in World Fuel, both interesting a challenge and something worth waking up to. So let's keep it rolling and look forward to talking to everyone next quarter.

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