Thank you for standing by, and welcome to World Kinect Corporation's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the call over to Elsa Ballard, VP, Investor Relations and Communications. Please go ahead.

Good evening, everyone, and welcome to World Kinect's second quarter 2024 earnings conference call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast on our Investor Relations website. I'm Elsa Ballard, VP of Investor Relations and Communications. With me on the call today is Michael Kasbar, our Chairman and Chief Executive Officer; and Ira Birns, our EVP and Chief Financial Officer. Before we get started, I'd like to review our safe harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We assume 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. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website. We will begin with several moments of prepared remarks, which will then be followed by a Q&A period. I would now like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Elsa, and good evening, everyone. While we faced challenging market conditions in our Land business this quarter, we remained focused on increasing our percentage of core recurring revenue activities and driving improved operating efficiency to deliver our medium-term targets, which we shared with you at our recent Investor Day. As I've highlighted over the prior few quarters, our management team's focus is on building a more ratable and leverageable business model across all of our businesses. Aviation is a great example of this. Our Aviation business continued to deliver strong performance and has excellent momentum heading into the second half of the year. Our optimized scale platform provides consistently high operating margins, and we continue to demonstrate our value to customers around the world in both business and commercial Aviation. Aviation generated a very strong operating margin in the second quarter and continues to be a model of efficiency. Advancing our objective of sharpening the portfolio, the strategic divestiture of the Avinode business within the quarter further enhanced our liquidity and created economic value well beyond what we were able to achieve by retaining the business in our portfolio. This was followed by a tuck-in acquisition in Business Aviation that we signed today. This transaction will expand our bulk fuel distribution network by adding nearly 300 customers, including 100 FBO locations. Our market-leading business Aviation distribution platform will be able to bring additional supply and solution capabilities to these locations as well as outstanding customer service and comprehensive operational support. While not initially a significant earnings contributor, this acquisition is an example of the type of synergistic and strategically complementary deals we will continue to seek. While not at the ratability of Aviation and while results were down year-over-year, our Marine platform remains highly efficient and working capital…

Thank you, Michael, and good evening, everyone. Before I begin, please note that our second quarter non-GAAP results reflect approximately $88 million of pretax adjustments. This is primarily due to a $96 million pretax gain on the sale of Avinode, which was completed in early May, offset in part by certain restructuring costs and a single investment-related impairment. The after-tax gain on the Avinode sale was approximately $87 million, contributing $1.45 to GAAP diluted earnings per share for the quarter. Congratulations again to our team for successfully completing this transaction during the second quarter. Reconciliations of our non-GAAP measures are available on our Investor Relations website as well as today's webcast presentation. So now getting into the second quarter details. Consolidated results were clearly impacted by weaker-than-expected performance in our Land segment, which was offset in part by solid results in Aviation. Despite the underperformance in Land, our expenses again declined year-over-year, our tax rate was lower than anticipated, and we generated strong cash flow, which contributed to a further reduction in interest expense. I'll now provide more color on the second quarter segment-by-segment results. Starting with Aviation, where as a reminder, results were modestly impacted by the Avinode sale, which we completed on May 1st. Aviation volume was down slightly year-over-year. This was principally related to a reduction in low margin activity over the past 12 months, including a 100 million gallon per quarter reduction in bulk activity that we discussed last quarter, offset by volume growth in much of our core Aviation activities. Our efforts to improve returns in Aviation contributed to a near record 53% operating margin for the quarter. Aviation gross profit was generally flat year-over-year with the benefit for margin improvements, generally offset by the impact of the Avinode sale. Just to note, since Avinode…

[Operator Instructions]. Our first question comes from the line of John Royall of JPMorgan.

Hi, good evening. Thanks for taking my question. So my first question is on Land. Can you talk a little more about the headwinds in renewable fuels on the West Coast that Ira spoke about for 2Q? And then what you're seeing in terms of the recovery there into the third quarter?

Yes. Thanks for the question, John. To try to answer it in a simplest way possible, there have been -- what I would best describe as logistics-related issues, which have both impacted our ability to push through volume on the West Coast and push it through as economically as we would like to. What does that mean? There have been -- pipeline terminals have effectively been slow to convert to renewable diesel. So in many parts of the region, we're forced to move more product through rail and truck, and that's not as cost efficient. So that impacted us from a volume perspective and a bit from a margin perspective as well. What does that mean going forward? There are discussions and activities going on each and every day, which hopefully will enable us to create more efficiencies in that network, but it's probably going to take a couple of months or so before we see any significant change there. But there are opportunities for that to improve. There's some new refineries that have come online that have impacted the market. So there's a bunch of factors that when put all together had a meaningful enough impact on us for us to mention that as a factor in the second quarter.

That's really helpful. Thanks. And then my follow-up is just a housekeeping question as I don't think we have the 10-Q yet. Can you talk about what's been received in cash on the Avinode sale and when the tax bill will be paid if it hasn't already? And should we think about the tax portion as just the $87 million gain times tax rate?

Actually, the tax on that transaction is for all sorts of reasons, it's a relatively small number. So for starters, almost exactly $200 million is what came in, in May, you'll see that on the cash flow statement. And the related tax that would go out the door, I would say most likely in Q3 is only about $9 million. So net-net, it has a positive after-tax benefit from a cash perspective of about $190 million.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Ben Nolan of Stifel.

Thanks. A couple. First, just quickly, you talk about the tuck-in acquisition on the Aviation side. Any context on how the capital outlay for that?

Thanks for the question. The capital outlay for that, is that the question?

Yes. Right.

Yes, it's about -- total purchase price was around $45 million, of which several million dollars is deferred for a period of time. So it's somewhere around $40 million that will go out the door when we closed that transaction somewhere around the end of the third quarter.

Okay. Perfect. And I was going to also dig in a little bit on the Land side. It did seem like some of these factors should have been -- we should have seen them in the first quarter as well. I'm curious whether that's the West Coast fuels or Brazil or any of the handful of things that you laid out there. I'm curious what changed from sort of how you were thinking about the business when you last reported and as compared to how it played out over the quarter and maybe how it was in the first quarter versus how it was in the second quarter?

Sure. So great question. Thanks. So in the first quarter, thinking back, the largest year-over-year variance really related to weather issues that impacted both the U.K. that had a weaker quarter year-over-year and our nat gas business. So we highlighted those on something like Brazil, we did have an impact on the first quarter. But in terms of the overall year-over-year variance, it wasn't quite as significant. That situation deteriorated a bit further this quarter, and it became meaningful enough to call it out. But we were impacted by that one in Q1 as well. We weren't impacted as much on that renewable piece of the puzzle that I just described to John. And in terms of nat gas, we called nat gas out last quarter and this quarter, right? So I think those are the principal moving parts. So again, biggest factors last quarter were the weather impact in Europe and the U.S. In this quarter, you had more significant impacts.

There's a little bit of sustainability this week.

Yes. And then in this quarter, it's just our sustainability-related products and services, as I alluded to, were off a little bit. So we mentioned that as well, but not -- somewhat different than what we experienced in the first quarter.

Got it. All right. Appreciate it. Thank you guys.

Thank you. [Operator Instructions] Our next question comes from the line of Graham Price of Raymond James.

Hey, good afternoon guys. Thanks for taking the questions. Maybe firstly on Aviation. Given that we've seen a lot of problems in the airline industry with the outages and whatnot. Just wondering if there's any impact from that that you're seeing on Q3 guidance specifically?

So far none. We know some of the airlines that got impacted. Obviously, capacity is a little bit more than what is optimum and there's adjustments being made but really no impact. Our network continues to increase and expand. So being able to grab market share as the locations increase is a favorable development for us. But no impact, not expecting an impact. And if there is one, we're not expecting it to be impactful. So I think it's steady as she goes, and we'll sort of ride that. A lot of our business there is contractual. We do have a good amount of ad hoc is what we call it in the Aviation market. So there's always the possibility, obviously, but that's not presently in our forecast. It's the opposite.

Great. Good to hear there. And then just a housekeeping question for my follow-up. What was the second quarter percentage of EBITDA from low carbon energy, I guess, the Kinect businesses?

In the second quarter, Graham, the number usually [indiscernible] is GP actually, the percentage of that part of our business was about 8%. The EBITDA percentage this quarter was much lower on the back of principally of the much weaker performance on the nat gas side. But it was about 8% of gross profit.

Got it. Okay. And that GP number, that 8% compares to, I think you told us 12% last quarter.

That's right.

Okay. Got it. Thank you.

You're welcome, Graham.

Thank you. I would now like to turn the conference back to Michael Kasbar for closing remarks. Sir?

Well, thank you, everyone for listening this afternoon, this evening. Appreciate the interest and look forward to speaking to you next quarter. Be safe. Take care. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.