Earnings Transcript for WKC - Q2 Fiscal Year 2023

Operator: Good day and thank you for standing by. Welcome to the World Kinect Corporation Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] Please be advice that today's conference is being recorded. I would now like to hand the conference over to your host toady, Elsa Ballard, Vice President or Investor Relations. Please go ahead.

Elsa Ballard: Good evening, everyone, and welcome to the World Kinect's second quarter 2023 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, the new VP of Investor Relations here on the call for today the first time. I am thrilled to be here. With me on the call today is Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. Before we get started, I would 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 risk that could cause a actual results to materially differ. Factors that could cause results to materially differ could be found in our most recent form 10-K and other reports filed with the SEC. World Kinect 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-gap financial measures, a reconciliation of these non-GAAP financial measure measures to their most directly comparable GAAP financial measure is included in our press release and can be found on our website. We'll begin with a few minutes of prepared remarks, which will then be followed by a Q&A period. At this time, I'd like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Michael Kasbar: Thanks, Elsa. Welcome to you, Elsa, and welcome to all. This is Elsa's first call, and you may notice some new elements going forward and more communications in a variety of mediums as a commitment of World Kinect. I would like to thank Glenn Klevitz for his work over the years on Investor Relations, and now he has the opportunity to focus on our important global treasury requirements. Thank you, Glenn, for all of your work over the years. It's been an exciting few months for us here at World Kinect importantly that I can now officially call the Company World Kinect. I want to begin my remarks with why the name World Kinect and what that means for the Company and for you as investors. For nearly 40 years, we have been providing energy, logistics and finance solutions, creating value for both suppliers and consumers of energy. When we went public on the New York Stock Exchange over 30 years ago, we were a small reseller of petroleum products, primarily in the U.S. When we rang the New York Stock Exchange closing bell last month at our official rebrand, it was as number 70 on the Fortune 100 with nearly $60 billion in sales last year, and maintaining and growing an energy ecosystem of thousands of customers, suppliers, partners and experts around the world fulfilling energy in 200 countries and territories. Our mission was then and still is today, to meet our customer's energy needs in the most efficient manner possible, and to provide our supply partners with a world-class distribution platform. While we are not in the business of producing or refining the energy we supply, we work every day to improve access and deliver value to our global network of customers, suppliers, and partners. The changing of our corporate name to World Kinect is part of our ongoing commitment to that mission, and more clearly reflects our future facing businesses that anticipate and adapt to our customers and the markets evolving requirements. One of the ongoing challenges our customers face today is the need to source and consume a diverse energy diet that is affordable, reliable, and increasingly lower carbon to achieve their sustainability targets or satisfy regulatory requirements. At World Kinect, we are not only serving our customers' conventional energy needs today, but also expanding our portfolio to provide customers with greater access to sustainably sourced energy across aviation, land and marine. As an update on the renewable energy front, during the second quarter, we announced an expansion of our partnerships with two of the largest sustainable aviation fuel or SAF providers, expanding our ability to supply SAF to over 40 airports in North America and Europe. Additionally, we also made a minority investment through World Kinect Sustainability Ventures in a commercial mobile EV charging company, providing charging-as-a-service to fleets and other consumers. These are all excellent examples of World Kinect's strategic evolution as we seek to leverage our extensive supply network to bring value to our partners and customers alike. So while we are very focused on supporting our customers' energy transition journeys, we've recognized this part of our business today remains small relative to our conventional energy business. However, this business has been gaining traction, growing year-over-year, and creating synergies with our conventional fuel offerings. Our commitment to growing sustainably related products and services is evidenced first by our continued investment in people supporting these activities with headcount of 250 across the globe. We are also working to drive organic growth in related areas, including digital and technology enabled data management for what is a relatively complex, specialized and evolving space. Second, we have a dedicated team focused on a growing pipeline of inorganic investment opportunities. Importantly, we aren't looking to make investments for the sake of making investments, but rather carefully identifying innovative future solutions that will strategically enhance our customer offerings and satisfy their requirements for today and tomorrow, while driving incremental and long-term shareholder value. Furthermore, we are also selectively investing in certain early stage ventures that show promise of delivering innovative future solutions as the market continues to evolve. One such investment is producer's trust, a digital platform supporting regenerative agriculture for small and medium sized farmers in developing countries. This investment brings us closer to nature-based solutions and is a reflection of our commitment to bringing high-quality, high-impact carbon offsets to market. We will also continue to rollout technology enabled solutions to drive value and operational integration with the marketplace, automate as many of our internal processes as makes economic sense and continue to logically deploy AI on use cases with the best business and organizational outcomes. We are on course to be a cloud-first company by year end, meaning all of our systems and infrastructure will be in the cloud giving us greater security, resilience, and the flexibility to expand and scale our global offerings. Finally, in the same way that we have built the world's first and largest independent green fuel services business and the most diversified independent aviation supply and services business, we will build our land and renewable energy supply and carbon management business. While aviation and marine took longer to build, we expect these two will take considerably less time because we already have the global footprint to leverage, together with knowledgeable and experienced professionals executing with better tools. The foundational principles of return on capital, cash flow and risk management, upon which World Fuel services built our base businesses will continue to govern our evolution as World Kinect. We are laser focused on driving efficiency and returns within our global platform and improving the consistency of profit contribution from all of these activities. And so in summary, we believe our recent name change to World Kinect is very meaningful. While we will continue to meet the critical fueling requirements of our customers day-in, day-out, this change is intended to emphasize our ongoing transformation alongside that of our customers and suppliers, further solidifying our existing relationships and trust we have built in the past with enhanced and expanded relationships in the future. Therefore, World Kinect more clearly reflects our future facing business as we continue anticipating and adapting to the evolving needs and capabilities of our partners in the markets we serve throughout the world. It's certainly exciting times for us. As I turn the call over to Ira for a review of our financial results and business results, I want to conclude with a thank you to the over 5,000 members of our global team who work every day to ensure the success of our company. It is only because of their hard work, your hard work that we will continue to drive our long-term growth strategy and deliver on our mission. It is truly a pleasure and privilege to work with such a talented, dedicated, and passionate group of people who make coming to the office every day and engaging and meaningful experience. Thanks very much. Ira, let's hear all the good stuff.

Ira Birns: Thank you, Mike. Good evening everyone. As Mike noted, I'm about to share all the good stuff. It's clearly been an exciting several weeks for us, considering the World Kinect name change and the recent convertible offering, etc. But now, we'll get into some of the details specific to the second quarter. For starters, as always, I'd like to note that our non-GAAP results for the second quarter reflect limited adjustments to GAAP results with no EPS impact this quarter, which is consistent with last quarter. However, the comparative prior year numbers do exclude the impact of certain non-operational items, which are highlighted in our earnings release. To assist you in reconciling the results published in our release, the breakdown of last year's non-operational items could be found on our website and also in today's webcast presentation. So getting into the real numbers on a consolidated basis, while total volume of 4.47 billion was down slightly year-over-year, consolidated gross profit increased 11% to $282 million from last year's second quarter when we experienced the impact of extreme backwardation in our aviation segment. Speaking of aviation, as I mentioned last quarter, we have been laser focused on driving efficiencies and solid returns in the face of the current elevated interest rate environment. While we experienced organic growth in many parts of the aviation business, including international passenger activity and business in general aviation, these volume gains were offset in part by weakening cargo demand and we also made a conscious decision to reduce our exposure to certain working capital intensive activities, which while resulting in some volume reduction contributed to overall margin improvement as well. Considering all this aviation volume of 1.85 billion gallons in the second quarter was only up slightly year-over-year, however, second quarter aviation gross profit of $128 million was up significantly when compared to the second quarter of '22, which was materially impacted again by inventory losses driven by significant price volatility and extreme backwardation. And again, we also benefited from our heightened focus on margins and returns during this year's second quarter. As we look to the third quarter for aviation, we expect a traditional summer seasonal increase in aviation gross profit with an anticipated further improvement in margins benefiting in part from our recent contract renewals. Now, turning to our land segment volume was just over 1.5 billion gallons down slightly year-over-year, driven in part by some lingering weakness in our North American commercial and industrial activity offset in part by a further increase in volumes associated with our natural gas and power trading activities. Consistent with last quarter, approximately one third of total reported land volume relates to these natural gas and power activities. From a profitability standpoint, land generated $111.5 million of gross profit in the second quarter down approximately $11 million or 9% year-over-year. As forecast on last quarter's call, the principle portion of this year's year-over-year decline relates to our UK operations where prior year results benefited from significant market volatility. We also experienced the year-over-year decline in profitability in our North American commercial industrial business, offset in part by an increase in gross profit from our sustainability related service offerings. As we look to the third quarter for land, we expect a modest year-over-year improvement in volume and gross profit driven principally by a somewhat stronger summer driving season in North America, aided by a significant year-over-year decline in fuel prices at the pump as well as continued year-over-year growth in our sustainability related service offerings. And lastly, our marine segment volume of 4.2 million metric tons was down approximately 14% from the second quarter of last year, driven primarily by declines in activity in the container market. In terms of profitability, marine gross profit was $42 million in the second quarter down from a record 78 million in the prior year, when bunker prices were approaching record highs and market volatility was quite significant. While year-over-year results were down as expected, marine margins remain well ahead of historical averages. As I mentioned during my aviation commentary, we also remain focused on ensuring we generate margins in marine, which enable us to maintain acceptable returns in the current interest rate environment. For the third quarter, while marine gross profits should be generally flat sequentially, gross profit will again be down year-over-year, similar to the year-over-year decline we experienced in the second quarter. Moving on to expenses, consolidated operating expenses were $205 million in the second quarter, which is at the lower end of last quarter's guidance. As we look ahead to the third quarter, we expect operating expenses to be in the range of $214 million to $218 million, which will be up sequentially, principally driven by seasonality, but will be down year-over-year. In the face of what remains an uncertain macroeconomic environment as well as persistent inflationary conditions, one of our primary priorities is vigilant expense management with heightened scrutiny on areas such as hiring and travel, as well as all other expense categories. Our primary objective is to deliver the best possible outcome for both our valued employees and shareholders this year. Looking beyond the third quarter, we reiterate our commitment to further enhancing operating efficiencies, reaffirming our operating margin target of 30% or higher by 2025. As a reminder, this target relates to our adjusted income from operations as a percentage of gross profit. This strategic focus is expected to contribute positively to overall returns and drive incremental earnings per share progressively over time. We've talked a lot about interest expense over the past year, and we continue to focus on managing working capital and capital expenditures, generating positive cash flows and optimizing the terms and conditions of our liquidity facilities. These efforts have been paying-off with second quarter interest of $32 million, down $2 million sequentially and down more than $3 million from our peak quarterly interest expense in the fourth quarter of last year. Looking ahead to the third quarter, we expect interest expense to decline again to the range of $28 million to $30 million, with a further reduction principally related to the benefit of the lower interest rate associated with our recent convertible note offering, which I will talk more about in a few moments and also outstandings under our liquidity facilities have been trending lower. Our adjusted effective tax rate for the second quarter was 24%, that's a bit higher than expected. However, we continue to believe that our '23 full year tax rate will remain generally consistent with 2022, at approximately 20%. Onto cash flow after delivering very strong operating cash flow in the first quarter, we generated an additional $44 million of operating cash flow this quarter, driven by, again, carefully managing all related balance sheet levers. That brings year to date operating cash flow to $186 million, keeping our liquidity profile strong and positioning us well to continue pursuing growth opportunities while maintaining solid financial flexibility and enabling us to continue to focusing on opportunities to drive incremental profitability. More specifically, as we often receive questions about capital allocation, I wanted to quickly touch on our flexible capital allocation framework and remind you how we make decisions about our uses of capital. Our guiding principle remains supporting the growth of our business, while carefully managing balance sheet leverage, all with an eye on delivering incremental shareholder value. In the growth bucket, our primary focus is on organic growth and accretive M&A, which could include opportunities like the Flyers acquisition last year which expanded the breadth and depth of our North American land business as well as opportunities to continue building our sustainability related product and services platform, where we continue to make good progress organically, thanks to our growing and talented team, focused on this part of our business. On the balance sheet side, again, we prioritize low leverage through prudent capital management and work to maintain ample liquidity throughout our business cycles, and on shareholder returns, we want to remain an attractive holding for our investors, which is why we have consistently returned capital to our shareholders, through both buybacks and dividends. Speaking of buybacks and dividends, we have returned $67 million to shareholders year-to-date paying $17 million in dividends and repurchasing $50 million of stock in conjunction with our recent convertible offering. Just to note for your models, our recent $50 million buyback reduces our share count by approximately 2.2 million shares or 3.5% going forward, effectively starting with Q3. And we have now repurchased more than 10 million shares over the past 5 years. As mentioned earlier, we issued $350 million of convertible notes maturing in July 2028 at the end of the second quarter, which diversifies our capital structure and immediately reduces our annual run rate of interest expense by approximately $10 million. Again, this is one of the many opportunities being focused on to reduce interest expense in this elevated interest rate environment. As we entered into a series of related bond hedge and warrant transactions, simultaneous to the convertible offering, it is important to note that, there is no equity dilution related to the convert upon conversion, unless our stock price exceeds $40.14. And whatever the value may be created when our stock price does exceed this conversion price can be settled in cash or shares, or a combination of the two at the Company's option. This was a very successful transaction for us, and we are very happy to welcome so many new investors to the World Kinect story. With the maturity of our bank facility recently extended to 2027 and the new convertible notes maturing in 2028, we have significantly strengthened our financial position with our liquidity well secured for an extended period of time. So in summary, despite a tax rate a bit higher than anticipated going into the second quarter, we delivered solid overall results. We delivered additional cash flow contributing to strong year-to-date operating cash flow and free cash flow. We diversified our capital structure with our first ever bond offering. We continue to find ways to reduce interest expense with sequentially lower interest for the second consecutive quarter. We repurchased $50 million worth of stock reducing our share count by approximately 3.5%, and we should deliver strong results in our seasonally strong third quarter and remain intently focused on driving profitable growth and carefully managing expenses to ensure we deliver strong results for the full year '23 and into '24. And finally, as Mike mentioned earlier, we remain proud of our team and we are excited about the continued evolution of World Kinect and the growing opportunities that lie ahead. Thank you. I'd like to now turn the call back over to Liz, our operator to begin the Q&A session.

Operator: [Operator Instructions] Our first question comes from the line of Ben Nolan with Stifel.

Ben Nolan: Hi guys, Ben Nolan from Stifel. I have just a couple of questions. The first, I think I already mentioned on the aviation side that you reprice contracts and I think that's usually something that happens around this time of the year. Can you maybe talk to how those are being repriced both with respect to the trajectory or the incremental pricing and how those conversations are going, what portion of the business is price sensitive or not?

Ira Birns: Sure. Well, hey, Ben, thanks for joining us today. So, no simple straight line answer to that question. So, I'll try to give you a broad one to help as much as possible. Considering the current interest rate environment, I probably keep repeating myself about the fact that we're focused on meeting our hurdle rates that that have increased considering the environment that we're in. So with that in mind, as we've gone through some of our contracts renewed in the spring, many of them renewed on July 1st at the beginning of the third quarter. That's a factor that the very well experienced team that's been doing this forever takes into serious account when deciding, their strategic position with each and every account you have to take into account the interest rate environment, competition in market, certain markets being stronger than others, etc. And as a result of that the easiest way to answer your question say is some business that didn't necessarily meet those hurdle rates, which I alluded to in my prepared remarks, which will result in a little bit of volume decline versus the organic growth that we've seen in the areas that I mentioned. But also in many cases we've seen a bit of an increase in our margin compared to the contracts that were expiring in the spring or at the end of June. So, that's one of the reasons, I mentioned that we should see an even stronger margin in the third quarter than we did in the second because we should have some uplift there. It's not massive, but the teams did a great job in finding whatever opportunities possible to bring those margins up. So, we'll have several million dollar annual incremental benefit from those margins, net of anything that we may have given up.

Ben Nolan: And changing gears, as it relates to the buyback, the $50 million buyback. I'm curious, it for you guys buybacks have been sort of episodic. Would you characterize that as just sort of a one-off or are you thinking about something a little bit more continual with respect to your buyback activity?

Ira Birns: So, episodic, I'll remember that word. We've actually bought back on average, a couple million shares a year quite rateably over the last several years while I mentioned on the call, 10 million shares over five years. We targeted a number very similar to the number that we wound up buying back in conjunction with the convert, as that's a number that ensures that we're at least at a minimum offsetting the dilutive impact of employee related equity awards. So that's an amount we probably would've purchased anyway. There was a strategic value to doing that in conjunction with the convert, because it helped reduce what the type of volatility some companies would often see when issuing a convert before closing the deal and actually worked very well for us as our stock only moved about 4% on the day that we were in the market. That's considered pretty immaterial on a comparative basis to other transactions. So, it's unusual that we get it all done in one day. It was kind of efficient to do it that way. It all got done at the same price. But going forward, we'll be going back to the same rationale. We've all always had of trying to combine that with our dividend to return 60 million, $70 million a year to shareholders between those two items. There are times we bought back a bit more defending our stock when it got beaten up to levels that really, really disappointed us. But I would say generally, the $50 million number is a good metric to think about going forward plus or minus for future years.

Ben Nolan: So in other words, an annual number 50 million is a good annual number?

Ira Birns: That's right.

Operator: Our next question comes from the line of Pavel Molchanov with Raymond James.

Pavel Molchanov: You talk about sustainability kind of expanding within the revenue mix. Can you maybe put some specific numbers, kind of Q2 contribution versus previous year or any historical comparisons along those lines?

Ira Birns: I mean, if you look at everything that we historically defined as World Kinect, which is our nat gas power sustainability related services businesses. It's grown to about 10% of revenue. And that's progressively increased year-over-year by a few percentage points. But second quarter year-to-date, full year expectation somewhere around almost exactly 10% of gross profit.

Pavel Molchanov: Yes. Just to clarify, what -- did you mean 10% of top-line or 10% of EBITDA?

Michael Kasbar: I'm talking about 10% of net revenue. And the EBITDA contribution is also very similar to that number. So, it's pretty close to 10%.

Pavel Molchanov: Okay. And maybe kind of zooming in on one aspect of that. You guys recently announced a sustainable aviation fuel deal with Neste, and I think you said that your SAF volumes will be up 20x in 2023 versus last year and obviously from a pretty small base. But just talk about what you are seeing as you talk to airlines about their interest in SAF?

Michael Kasbar: Yes, Pavel, all of the airlines have got commitments that they have to meet. And I think it's pretty well known that, the demand far exceeds the supply. It's a feverish pitch of a lot of folks looking to build manufacturing and production. But, I mean, the truth of the matter is that, it's willfully inadequate for the amount of demand. So, this will continue certainly the support in terms of LCFF will help the cause, and you will see the cost of that being distributed. But there is going to be a slow burn. We are participating in it. And particularly in any of the businesses, any of the sustainability businesses that are using the same infrastructure, we are going to participate fully. So drop in fuels are a beautiful thing, and we will invest in projects that we think make sense. We have done that over the history of the Company, and we will continue to do that. So, we started this journey in 2011 well before anybody was really talking a whole lot about it, and we have just continued to accelerate it. It requires a certain amount of logistics capability, which is right in our wheelhouse, and we will continue to do that. So, that's our commitment. We are following what our customers are looking for and helping them to achieve their targets and their goals. We will invest in projects and help to make it happen, but it's going to take a little bit of time.

Pavel Molchanov: Okay. Last question for me. I hope you I can get your kind of macro perspective on this. In the last four weeks, we have seen pretty notable escalation in oil prices, still lower than a year ago. But certainly the steepest increase in oil year-to-date. Is there any resulting demand impact that you have observed since the beginning of July?

Michael Kasbar: Well, I'm not sure it's directly related to price. I think there are probably larger macro issues at play that may be just more fundamental economic sort of trends and cycles. In fact, on the retail and the gasoline side, we feel that will probably benefit from the relative lower comparative price. But I think some of the drop off in demand in shipping and in some of land-based, some of the disruptions that you've got within air travel, despite the fact that you're seeing an increase in demand, certainly on the international long haul which is beneficial. So, it's a lot of swirling trends, and I don't think you can really put your finger on any one thing. But I wouldn't say that price is really driving behavior so much, right now. It's not I think a meaningful enough move to have impacted consumer or commercial activity.

Ira Birns: And Pavel just to add to that, it is our seasonally strongest quarter. So you got that impact which maybe you would have a negative somewhere, but it's being masked by the fact that you're, you're seeing growth because it's the summer, especially in commercial passenger activity and crews and areas like that that are more consumer oriented if you will. So, and we're seeing that we're not really -- we're not seeing any significant headwinds to that seasonal pattern that we expected going into the quarter.

Operator: Our next question comes from Ken Hoexter with Bank of America.

Ken Hoexter: Just want to talk about the sustainability of aviation gross margins obviously pretty key here, so maybe you could talk about that a little bit.

Michael Kasbar: You know, Ken, I think, it's been pretty wild ride. I mean, nobody knows this better than you. You've been following us for quite some time, but if you go back from 2014 to 2022 from the implosion of the energy complex to the recovery in 2019 to COVID, and then the Ukraine and the disruption of oil supplied market and what that meant in terms of the pricing profile, it's been quite extraordinary. The mix of our business, I think our aviation team should be extraordinarily proud of what they've been able to accomplish both in commercial and business aviation. And we've got a material business aviation practice now, which is sort of exemplary. So, it's a combination of both the business mix and I think tremendous discipline on the team. And as Ira commented earlier from interest rate hurdle rates and really being more discerning in terms of where are we showing up. All supply is local and some local supply was rather expensive, long transit times, difficult to manage when you've got all sorts of whipsawing market pricing. So it's been a combination of things. And I think that volume growth obviously and some of our services growth is something that we obviously want to focus on. I'm not sure that, if you look at sort of historic norms, it would be prudent for us to continue to think that we can flex on some of these items, because we're at reasonably healthy levels. But I think going back to Ira's comments and what we are really focused on is the efficiency of the organization and bottom-line sort of returns and working on cost and looking at, we were spending money, what we're doing on headcount and just taking a closer look at those areas and looking at return on a broader sort of holistic perspective. So I don't know if that kind of helps you think about the business.

Ira Birns: Yes. Just to add a little bit to that, Ken. If you go back to pre-COVID, this is kind of bit of thank you to our phenomenal team in the aviation business. You'll remember where we had a lot of government related business. It was obviously higher margin. So you would think that, it would be hard to achieve the unit margin that we had back then considering those dynamics, which are now all gone. But over the last few years with some COVID related interruptions, our mix of business has really changed a lot. We've got a growing business aviation business Mike mentioned. We bought UVair 20 minutes before COVID started. But now a couple years later that's really kind of returned to where we expected it to be and beyond. Our business that's now five, six, seven years old, principally in Europe on airport, the business that really started out from the acquisition from Exxon that's a bit more physical, higher margin business has travels come back in Europe, that's become a bigger piece of the pie. And then of course, just on the core commercial business, as Mike mentioned greater focus on margins, so what's pretty remarkable to answer your question? I think the general zip code where we're at today is sustainable. And it's better than where we were in 19 with the dynamics again that have been gone now for the next last couple years. So that's pretty cool. And there's some seasonality, right? So our margin always peaks in the third quarter. It'll probably be lower in the fourth quarter than the third quarter, but these levels are sustainable. It's not that we have some short-term blip an apples-to-apples comparison. The overall mix of all the contributing factors and Mike even mentioned some non-fuel offerings that have grown to contribute to our margin. So, it's just a great job and we're at levels now that we should be able to hang on to.

Ken Hoexter: So Ira, would you break it down into buckets in terms of, I don't know passenger versus small private jets versus other and is it a mixed shift that's occurring within that or just culling of different business that you…

Ira Birns: Absolutely, if you go back a few years or three, four, five years, I would say that the business in general, the private jet market as you would you would call, it is maybe 20%, 22% of the business. Now it's closer to 50%, right? So, that's a big shift. And then we had we were zero, five, six, seven years ago, the type of business we have at over 100 airport locations today, that was zero. We weren't at any, right? And that's just because of the nature of the beast where we are on the ground with the truck and the driver and the fuel and the tanks, that's a much higher margin business as well. So, now that's a bigger piece of the mix, right? So yes, you have had a mix shift. You lost the government piece, but those two pieces that were relatively small back then have become much bigger pieces of the pie that have arguably more than offset what went away.

Ken Hoexter: And then just one on land, right, which is you talked about 30% is nat gas related. Maybe talk about how that is priced, I don't know, versus what we know on a per gallon diesel methodology? And it sounds like that part is growing faster. How do we think about that and margins there?

Ira Birns: Great question. So they are both different, nat gas and power. There is more nat gas volume than power volume. It's still I know it's grown as a bigger piece of the pie. It's about 30%. If you -- it's a little confusing. If you try to convert it to kind of a gallon equivalent margin, which makes sense in the ounces you are trying to do, the nat gas volume is much lower than our average volume. But as a much lower cost to serve because that's a very small tight, not fantastic group, but small. So, we don't spend a lot of money to generate that profitability. The power related volume is much smaller that number is actually higher than our average land margin. But I would say, if you split the net gas and power volumes, 75% to 80% of it is net gas and only about 20% of it is power. So that, that has arguably a bit of a negative impact on our average margin, if that outgrows our fuel business that could have an impact. But again, it's all dropping to the bottom line because of the extremely efficient cost structure that exists in that business. So, it's good a good question.

Ken Hoexter: Thanks for that. Last one for me, just a small one, just given all the move on the debt. Talk about balance of debt off balance sheet receivables versus your long-term debt, what got paid off. Can you just abbreviate that real quick?

Ira Birns: So, the only thing that really changed at the June 30th date at the end of the second quarter is, we took the $350 million minus all the associated costs of that deal and the $50 million buyback, and that those net proceeds just repaid our revolver, right? So, that's really all that happens. You have lower revolver borrowings. Now you have got to convert on average. The other part of your question on receivable sales, since that remains our most expensive cost of capital today, the average outstandings on that are coming down, which is one of the things that's contributing to reduced interest expense. So, somewhat lower receivable sales, somewhat lower revolver borrowings, and then the new $350 million line on the balance sheet for the convert. So net, net, our overall average interest rate has come down for two reasons because of the convert and a somewhat lower mix of receivable sales. And then Glen, who Mike mentioned at the beginning of the call are now full-time treasurer as opposed to 80% of time treasurer. He has done a great job, renegotiating some of those deals. So, even the receivable sales that are outstanding are coming with a somewhat lower coupon than they were back in the first quarter.

Ken Hoexter: If I can just sneak a quick one and our, just the last couple of downturns, right, we, not that delinquencies are a big part of your business, they're so small, but you manage that business really well. I just want to understand from an economic point of view, from your point of view, is anything shifting here? Are we, do you feel like anything, from your economic point of view, is anything changed? Are we getting closer to the end on that or is it, it's just too small part, just given how your risk department works well?

Ira Birns: Yes. So, if I got the question correctly, I would say, we went through the horrors of COVID and managed through that very well. There were a few bankruptcies, most companies with, whether it would be governmental support or otherwise did a really good job and have rebounded phenomenally well, obviously the market's really strong, but I would say, I wouldn't set off the fire alarms, but certainly there's a lot more focus today on certain parts of the business where customers balance sheet strength may have weakened a little bit. I don't think it's anything, again, I don't think it's anything alarming, but we're playing paying close attention to certain elements of the market and customers, knock on wood, no issues on the horizon that we're aware of. Our teams done a great job avoiding a couple that it could have become a problem, which is something we've repeatedly done well for decades. So, overall I would say, 90% of the portfolio is just as strong as it was a year ago. The other 10% is weakened a little bit and we're looking at it very carefully, but as you could see from our results, again, very limited write offs.

Ken Hoexter: No, I know. Thank you for that. I know you've always had low write offs and that's because you guys manage it and you take down the day sales out. I just didn't know if there was like a, if you were seeing that tighten or if you were seeing it re widen because things are getting better. That was…

Ira Birns: If we look at something like our metric on past dues, we've actually, that's come down, right? So our part of that is our team doing a phenomenal job, but we haven't seen a deterioration at all in terms of something like past dues.

Michael Kasbar: The portfolio continues to get better, when, if you look at our service offering, the service offering we have speaks to the largest and the best companies. So, that obviously has its own benefit to it. That wasn't always the case going back quite some time ago, but the portfolio is significantly better and that's where we do our business.

Ken Hoexter: No, I know. Yes. I was just trying to see if you had a more macro view, after the Company stuff that, but perfect. I appreciate the time and the answers. Yes just thanks Mike and Ira.

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