World Kinect Corp (WKC) 2010 Q4 法說會逐字稿

At this time, I like to welcome everyone to the World Fuel Services 2011 fourth-quarter earning's call. My name is Russell, and I will be your event specialist today.

(Operator Instructions).

It is now my pleasure to turn the webcast over to Mr. Frank Shea, Executive Vice President and Chief Risk and Administrative Officer. Mr. Shea, you may begin your call.

Good evening everyone and welcome to the World Fuel Services fourth-quarter 2010 conference call. I am Frank Shea, Executive Vice President and Chief Executive Risk and Administrative Officer, and I am doing the introductions on this evening's call with, as we have been doing in recent quarters, a live slide presentation. This call is available by a webcast. To access this webcast or future webcasts, please visit our website, www.WFSCorps.com and click on the website icon. With us on the call today are Paul Stebbins, Chairman and Chief Executive Officer; Michael Kasbar, President and Chief Operating Officer; Ira Birns, Chief Executive Vice President and Chief Financial Officer, and Paul Nobel, Senior Vice President Chief Accounting Officer.

By now, you should have all received a copy of earning's release. If not, you can access our release on the website. Before we get started, I would like to review World Fuel's Safe Harbor Statement. Any statements made or discussed today do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance. Our forward-looking statements are based on assumptions that management believes are reasonable, but are subject to a range of uncertainties and risks that could cause World Fuel's actual results to differ materially from the forward-looking information. The summary of some of the risk factors that could cause results to materially differ from our projections can be found in our form 10-K for the year ended December 31, 2010, and other reports files with the Securities and Exchange Commission. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. At this time, I like to introduce the Chairman and Chief Executive Officer, Paul Stebbins.

Thank you, Frank. Good afternoon and thank you for joining us. Today, we announced earnings of $39.4 million or $0.56 per diluted share for the fourth quarter of fiscal year 2010. Our earnings for the year were $147 million or $2.31 per diluted share. A 25.4% increase in net income over fiscal 2009. These results represent the second-best courtly performance in the history of the company. And, our performance for 2010 set a new record. We achieved solid metrics for our returns on equity, invested capital and working capital, while our cash and overall liquidity remained strong. Discipline, risk management, strategic focus and strong cost functional execution drove these results. On every level, 2010 was a transformational year for World Fuel and we are well positioned to capitalize on an expanding set of opportunities in the markets we serve.

In our aviations space, we saw continued strong results across a broad spectrum of commercial, business and government activity in the fourth quarter. On the commercial aviation front, we produced strong volume and profitability in our core business, while continuing to develop strategic opportunities for self supply. Our government business remained an important contributor, and in business aviation, we made some important strategic moves to fortify our position in the space. Through the acquisition of Western Petroleum and the Hiller group, we executed on our strategy to secure a major position in the supply of branded and unbranded jet fuel at FBOs across the country. Besides fuel sales, we expect to use our newly acquired distribution platform to further expand our Ab card business and develop our technology offering to fixed-base operators and business aviation customers. Looking forward, we believe there will be additional strategic opportunities that will further strengthen in both the domestic and international business aviation market.

In our marine space, we successfully held onto volume and profitability in what continues to be a difficult operating environment with weak overall demand. Those of you who focused on the transportation sector are well aware of the persistent challenge predicting results when the industry faces over-capacity, a stubbornly uncertain rate environment and looming bank debt maturity towers. Fortunately, for World Fuels, our strong financial profile and reputation for observing tight risk management discipline continue to be significant competitive differentiators with suppliers and customers alike. As 2011 unfolds, we will continue to take a conservative view on the market and overall demand. Our focus looking forward will be on helping our customers exercise tight control over fuel costs, as the industry seeks a more durable equilibrium. At the same time, we will continue to provide safe harbor to our supply partners and provide ratable off take in a difficult market.

In our land space, we delivered solid results for the quarter. With the acquisition of Western Petroleum, we established critical mass in our unbranded offering, and opened up new areas for product development. The strong results from Texor and Lakeside, our branded offering posted a solid performance and we continue to explore commercial synergies between our branded and unbranded offerings. All in all, 2010 was a transformative year for World Fuel. Our disciplined approach to risk management continued to be a hallmark of our success. Our cross functional maturity has continued to develop, and is what enabled us to qualify and execute on multiple acquisition targets during the year.

On the finance side of the house, our team did a great job of anticipating the commercial trajectory of the company and responded by securing an $800 million five-year bank facility and fortified our balance sheet by raising $220 million in the secondary offering. Since then, we have put that capital to work, making acquisitions which were not only accretive to earnings, but brought with them a wealth of management talent ready to help us build the future. We will continue to look for acquisitions that fit our strategic, financial, operational and cultural evaluation framework. As we refine and improve this process, it is clear that a strong collaborative culture is and always will be a mainstay of this Company's success. It was a busy but rewarding year for World Fuel; we demonstrated strategic agility and execution excellence in a fast changing market. As our business continues to evolve and grow, we remain committed to creating durable value for our shareholders. And, we believe the best is yet to come. I will now turn the call over to Ira for a detailed review of the financials.

Thank you, Paul, and good afternoon, everyone. Today, we announce the second highest level of quarterly profits and highest level of full year profits in Company history. 2010 was an exceptional year for World Fuel Services. In addition to record earnings, we have announced multiple strategic acquisitions, added to our strong liquidity position by amending and extending our now $800 million bank facility as well as raising approximately $220 million of net proceeds through a secondary offering and ultimately delivering solid results to our shareholders.

And, now, for the financial overview. Consolidated revenue for the fourth quarter was $5.8 billion, up 17% sequentially and up 64% compared to the fourth quarter of last year. The year-over-year change in revenue is impacted by the increase in crude oil prices to an average of $85 per barrel in the fourth quarter compared to $76 in both the third quarter of this year and the fourth quarter of 2009. The aviation segment generated revenues of $2.1 billion, up $268 million or 14% sequentially, and up $772 million or 57% year-over-year.

Approximately 61% of year-over-year increase was a result of increased volume and the remainder was a result of higher average fuel prices. Our marine segment revenues were $2.5 billion up $134 million or 6% sequentially and up $640 million or 35% year-over-year. Approximately 55% of the year-over-year increase was a result of higher volume during the quarter and the remaining was a result of higher average fuel prices. And, finally, the land segment generated revenues of $1.2 billion, up $440 million or 57% sequentially and up $872 million or 255% year-over-year.

Approximately 85% of the year-over-year increase was due to the increase in volume attributable to recent acquisitions as well as organic growth initiatives, and the remainder was a result of higher average fuel prices. On the volume side, our aviation segment sold 817 million gallons of fuel during the fourth quarter; up 5% sequentially and 36% year-over-year, representing record quarterly volume in the seven consecutive quarter of sequential volume growth. The sequential growth in aviation volume was principally driven by increased sales to commercial, passenger, cargo and government customers. For the full year, our aviation segment sold 2.9 billion gallons of fuel, up 868 million gallons or 43% year-over-year. Due in part to seasonality, we do not expect any significant growth in volume in the first quarter of 2011.

Our marine segment's total business activity for the fourth quarter was 5.9 million metric tons; down 3% from last quarter, but up 13% year-over-year. Over the course of 2010, we managed to maintain volumes throughout the year, despite continuing weak market conditions. Our core competency of managing risk and delivering market expertise has continued to serve us well in what remains an extremely challenging environment. Nevertheless, we expect that market conditions will remain relatively weak for the first half of this year. Fuel reselling activities constituted approximately 84% of total marine business activity in the quarter. This is somewhat higher than our historical averages. For the full year, our Marine segment sold 23.7 million metric tons, up 2.6 million metric tons, or 12% year-over-year.

Our LAN segment sold a record 512 million gallons during the fourth quarter, up 43% sequentially, and up 222% from last year's fourth quarter. The sequential increase was driven primarily of the acquisition of Western Petroleum, which closed on October 1, and the year-over-year change was driven by both Western and our Lakeside acquisitions, as well as growth in our existing domestic and international businesses. For the full year, our land segment sold $1.2 million gallons of fuel, nearly double the volume sold in 2009. Including recent acquisitions, we now have an annual run rate in excess of 2 billion gallons in our land business is. Consolidated revenue for the full year was $19.1 billion, up $7.8 billion or 69% compared to 2009. Approximately half of the year-over-year increase in revenue was attributable to the increase in average fuel prices, and half was a result of higher volume across all three of our business segments.

Now, gross profit. Consolidated gross profit for the fourth quarter was $124 million, an increase of $12 million or 10% sequentially and $22 million or 21% compared to the fourth quarter of last year. Consolidated profit for the full year was $442 million, an increase of $67 million or 18% year-over-year, representing the highest level of annual gross profit in Company history. Our aviation segment contributed a record $58 million in gross profit, an increase of $2 million or 4% sequentially, and $9 million or 18%, compared to the fourth quarter of 2009. The principal drivers of the sequential increase in gross profit related to increased commercial, passenger, cargo and government activity. Our cell supply models jet fuel inventory position was approximately 45 million gallons or $103 million at the end of the fourth quarter; down from 68 million gallons at $155 million at the end of the third quarter.

We again realized the benefit from inventory average cost of in this quarter due to the volatility and upper trajectory of jet fuel prices during the fourth quarter. The marine segment generated gross profit of $42 million, an increase of 1% both sequentially and year-over-year. As I mentioned, last quarter we continued to experience demand weaknesses and overall industry softness. While market conditions remain generally weak, we believe that we remain in a favorable position to profitably grow our marine segment when industry begins to recover. Our LAN segment delivered a record level of gross profit of $24 million in the fourth quarter. That's up $9 million or 59% sequentially and $12 million or 107% year-over-year. 2010 was a solid year for our LAN segment as we further develop this business, driven in part by the acquisitions of Lakeside and Western.

As we begin 2011, we have started to reap the benefits of the increasing size and scale of our LAN segment making the segment a more meaningful contributor to the overall profitability of the Company. Operating expenses in the fourth quarter, excluding our provision for bad debt, was $74 million which is up $8 million sequentially and $18 million compared to the fourth quarter of 2009. Our expenses were at the high end of the range I provided our last quarter's call, primarily due to increased incentives resulting from the strong finish to the year. Due to our increased level of acquisition activity, our operating expenses now include an increasing amount of amortization of acquired intangible assets. Intangible amortization included in the $74 million of operating expenses for the fourth quarter was $3.1 million, up from $2.5 million in the third quarter and $2.1 million in the fourth quarter of last year.

For modeling purposes, I would assume overall operating expenses, excluding bad debt expense, of approximately $74 million to $78 million in the first quarter of 2011. The sequential increase in operating expenses is principally attributable to the acquisition of Hiller, which will be included in our first quarter results. As you know, Hiller, based in Tampa, Florida, is a leading supplier of aviation fuel to fixed-based operators and corporate flight departments. They also provide a full range of support services such as marketing, Hiller business solutions, freight expertise and card processing. We're pleased to welcome the Hiller team to World Fuel and are excited about the many growth opportunities that lie ahead.

Our total accounts receivable balance at the end of the year was $1.4 billion, which is up $223 million from the third quarter due to the increase in volumes as well as the increase in average fuel prices during the quarter. Our bad debt provision in the fourth quarter was $1.1 million, flat to last quarter, but up $800,000 compared to the fourth quarter of 2009. Consolidated income from operations for the fourth quarter was $49 million, an increase of $4 million or 8% sequentially, and $5 million or 11% year-over-year. For the full-year, income from operations was $180 million, up $27 million or 17% year-over-year. For the quarter, income from operations for our aviation segment was $31 million. Essentially flat on a sequential basis, but up $7 million or 26% compared to the fourth quarter of last year. Our marine segment income for operations was $20 million for the fourth quarter; a decrease of $700,000 sequentially, and $4 million from last year's fourth quarter. And, finally our LAN segment had income operations of $9 million, up $5 million or 166% sequentially and up nearly $6 million or 180% year-over-year.

The company had non-operating expenses, which is comprised of net interest expense and other financing costs offset by income from a joint venture related to our acquired Western business of $1.3 million for the fourth quarter, which is up slightly from the third quarter and up approximately $500,000 from the fourth quarter of 2009. Excluding any foreign exchange impact and any income from the previously mentioned joint venture, I would assume other expenses or interest expense to be approximately $2 million or $3 million for the first quarter of 2011.

The company's affective tax rate for the fourth quarter was 17.1%, which is flat to the third quarter and down from 19.4% in the fourth quarter 2009. Despite the addition of Western, taxed at higher US rates, the fourth quarter tax rate was below the range I provided in last quarter's call. And, the shift in mix of taxable income to jurisdictions with lower tax rates outweigh the impact of the Western acquisition in the quarter. The effective tax rate for the full year was 17.5%, which is down from 21.6% in 2009. We estimate that our effective tax rate, which will also be impacted by the Hiller acquisition in the first quarter to be approximately 18% to 21%.

Our net income for the fourth quarter was $39.4 million, an increase of $2.7 million or 7% over the third quarter. And, an increase of $4.9 million or 14% year-over-year. For the full year, net income was $147 million, up $30 million or 25% year-over-year. Non-GAAP net income, which excludes amortization of acquisition related identified intangible assets and stock-based compensation, was $44.1 million in the fourth quarter, an increase of $3.8 million or 10% sequentially. And, an increase of $6.6 million or 18% year-over-year. For the full year non-GAAP net income was $161 million, up $33 million or 26% year-over-year.

Before I discuss our earnings per share, please note that our earnings per share were impacted by a full quarter of additional shares from our recent equity offering, which, as I mentioned on last quarter's call, had a diluted impact of approximately $0.08 per share during the quarter. Diluted earnings per share for the fourth quarter was $0.56, a decrease of 7% sequentially and 2% year-over-year. Excluding the impact of the equity offering, diluted earnings-per-share was up 5% sequentially and 12% year-over-year. Non-GAAP earnings per share was $0.63 in the fourth quarter, a decrease of 5% sequentially, but up 3% year-over-year. Excluding the impact of the equity offering, non-GAAP earnings per share was up 6% sequentially and 16% year-over-year.

Total diluted shares for the first quarter should be between 71 million and 71.5 million shares, impacted in part by shares issued as part of the consideration for the Hiller acquisition which closed at the end of the year. Our return on invested capital decreased slightly from 16% to 15% in the fourth quarter due principally to the impact of our recent equity offering. But, still well in excess of our cost of capital. We continue to generate solid returns on invested capital and should begin to see returns increase as we continue to use the proceeds of our equity offering to make accretive investments. Our overall net trade cycle increased approximately a half a day sequentially to eight days, principally due to an increase in our inventory days outstanding. Our return on working capital in the fourth quarter was 39%, down from 45% last quarter, impacted in part by rising fuel prices during the fourth quarter.

Cash flow from operations was negative $3 million in the fourth quarter and our cash flow this quarter was clearly impacted by the 12% sequential increase in oil prices over the course of the quarter. Despite the financing of multiple acquisitions, as well as making strategic investments in working capital our balance sheet remains strong and liquid with over $270 million of cash at year-end plus approximately $730 million of availability under the bank facility. All available to fund organic and external strategic investment opportunities.

In closing, 2010 was another extraordinary year for World Fuel. In addition to posting record earnings, we enhanced our liquidity profile, we completed several strategic acquisitions and again delivered above-average returns to our shareholders. As we begin to see improvements in certain markets, due to the tremendous efforts put forth this past year, we are positioned to quickly capitalize on these opportunities. As always, we will focus on continuous improvement across the business, and we look forward to what should be an exciting 2011. At this point, I'd like to turn the call back over to Russell to open up the call to questions and answers. Thank you.

(Operator Instructions)

Your first question is from the line of Jon Chappell.

So, Paul, you mentioned some of the concerns in the marine businesses, which we are seeing on a first-hand basis and it is starting to get a little bit more scary as counter party risk starts to rear its head again for the first time in a couple of years. Just a couple questions there. First of all, it sounds like you're a little bit more cautious on that, so should we expect you to be scaling back your risk exposure, and for that to show up on the volume side of the business? Second of all, are there any significant receivables outstanding to some of the companies like Korea Line who filed for receivership so far?

I would say that one of the things that we are pretty proud of at this group is our risk management discipline, I think if you go back to some of the other chaotic markets you have seen a track record of our ability to navigate this pretty well. We certainly are taking a cautious view as I said in my notes. The shipping industry has been stressed now for a couple of years, I think there was a general hope that you would see a recovery and that would reduce some of that risk. Now, you have got the compounding of a crazy environment out there and the economic recovery hasn't happened as quickly as we would like. So shipping has really been stressed. But I would say a couple things, if you continue to see the kind of volatility in the Middle East and all that, you and I both know that sometimes that can actually have a positive impact, particularly on the tanker trade and what have you.

So right now I don't see -- I would say that we have already been exercising a pretty tight discipline. Our focus has been focused on, as you know, the best in class customer, our view is that we wanted to be the long-term player who was there for the survivors, where the value add was important for the well capitalized fleets. So, that's kind of been our focal point and I don't think that is changing. Our view is a longer-term view, and we want to be valuable and have deep relationships with these big fleets that we think will survive. In terms of things like Korea Line, certainly these things are going to happen; we are cautious as well. We've sold to Korea Line over the years as well, but we feel that in our case we have a very good position and the exposures are relatively low compared to what we know has happened to some others. Which again, I would say, speaks to our discipline and our sense of knowing how to protect our interests in these difficult markets. We have got a pretty good capability in that.

Overall yes, would I like to see the shipping market better? I think we all would. These guys are going through a lot of pain, but I think our view is that we are going to be there to help them through this difficult period. We've got a class of customer that we think values what we do, and we will survive. And I think that when you get this kind of uncertainty in the market, it also differentiates our offering because from the counter party risk point of view, the suppliers are more focused on our value proposition than ever. We think that that is good. We also think that as this counter party thing heats up again, it is going to seriously marginalize a lot of the competitive landscape. So I would say that strangely enough there is a silver lining in this, in that it presents opportunities, and it clearly differentiates our offering in this market. So I think there is some underlying silver lining in it as well.

Thanks, Paul, and that leads to my second question as well, which is a little bit bigger than just the shipping markets. You've said several times in the past the volatility in oil markets is a good thing for you guys as well, both in the marine and aviation. Given all of these geopolitical events and disruptions there, have you seen any benefit to your business? Or on the other side has there been any negative impact as well, has the oil prices been exceptionally volatile mostly to the upside and maybe some flows are disrupted because of what's going on there.

There are a couple of things going on here. First, I would say that as it relates to what we have just come through in the Q4, we do not see any particular evidence of that. We, like everybody in the world, are watching the unfolding events in the Middle East with a great deal of interest. Clearly, we just know from historical experience, Mike Kasbar and I have been doing this since we were in our 20s, and we have watched some awfully chaotic events happen around the Gulf wars and all sorts of upheaval. But when you start getting into possible disruption of oil flows into Europe from Libya, when you look at the possibilities of troubles in the Suez Canal and the disruption of trade patterns.

I would say as a general proposition that kind of uncertainty and chaotic dislocation tends to benefit our business model. Because we are able to respond very quickly; we end up with a lot of visibility on what's going in market dynamics. The customers need us more than ever in terms of navigating what to do because it is causing disruptions in their ability to execute on their responsibilities as carriers. So, I would say that generally speaking, the history of this enterprise is that we tend to thrive in these environments, we tend to do well. And our value proposition becomes more acute and much more highlighted, if you will, or underscored in these kinds of environments.

Obviously, if oil prices go to $200 a barrel, we are not particularly, we would not be thrilled to see that because it is going to stress working capital and it's going to put pressure on our customers in terms of ultimate spend on oil for fuel. And so we would not want to see some of the dynamics like what we saw in 2008 where the rapid increase caused a lot of stress on the airline community, in particular. Not as much in 2008 as shipping, but shipping was a lot stronger in 2008. So it might have an impact in terms of the business model liability.

But certainly at these kinds of levels we are in a position to play in a game in a way that others cannot. So, that is good. And so we are going to maintain, as you know, what I said in the script. We take a lot of pride in our risk discipline first and foremost. At the end of the day that's the thing that I think is going to be a key to our success over a long, long period of time, through all sorts of up-and-down cycles. So, we're going to maintain focus on our risk management discipline; we think we've got a robust and differentiated value proposition. I think the volatility in general favors our model. And that in a time of great dislocation, our value proposition is more highlighted than ever.

Great. That makes total sense. And then just one quick one for Ira. I think Nordic is $58.5 million although it has not closed yet. What is the total cash outlay for the three acquisitions Nordic, Hiller, and Ascend in the first half of this year? Hopefully in the first quarter. And then you gave us the run rate on the land gallons post acquisition. What is the kind of run rate that we are looking for in aviation, post all three acquisitions?

On the first part you're probably talking about $140 million in cash for the three, Hiller, Ascent and NCS, give or take. There is some equity components to two out of those three deals. That is the cash piece. In terms of the run rate on volumes, was your second question when you throw it all in. I think as I mentioned on the call, even factoring the only acquisition that is going to have a real impact at all on the first quarter would be Hiller because they are in for the whole quarter. The other two may be in for a couple of weeks or so. That is not going to have a meaningful impact on volumes because it is a relatively low annual volume business and considering the seasonality and some of the impacts on passenger traffic due to the horrendous winter weather in January, even including Hiller I don't expect -- you shouldn't expect a meaningful move in total volume in the first quarter.

Okay, thanks, Ira and thanks a lot, Paul.

Thanks, Jonathan.

George Pickral.

Question for either Paul or Ira or even Mike I guess, on your land margins. They have gone from call it a 15% to 20% run rate and they jumped up to 36% this quarter. What incorporated that number? Is it sustainable or can we get up to 50% or 55% range where marine and aviation are?

Certainly, Western played a key role in the progress we have made there. I think we mentioned at the time of the acquisition that Western was very strategic. It certainly added tremendous firepower to our unbranded gas and diesel business. It brought on some very talented leaders that are contributing in a big way already to our overall land business. And some of the other pieces of the pie, although small, are picking up steam, whether it be the UK or Brazil. And even our historical unbranded business in the States has been performing a bit better. So, when you put it all together, that's had a significant improvement on that metric. And we hope over time that we can improve that even further, and get a whole lot closer to the long-term historical metric that we have achieved in aviation and marine.

There is nothing fundamental in the quarter or going forward that would necessarily make that number go down?

Look, the number can always go up or down. But certainly, the principal driver in the increase in the fourth quarter was with the addition of Western.

Fair enough. Thank you. Paul, going back to your comments to one of Jon's last questions. I get that fuel volatility is good for you all and you can take share. You mentioned you just threw out $200 per barrel oil, just making up a number. But how close do you think we are to the customers pushing back on rates? Is it $140 where it got back in 2008? Do you think it is higher? Are they starting to push back now, or are you still able to take advantage of the volatility from the spread side as well as the volume side?

When you say push back on rates, could you just clarify that?

I think he is talking about margins.

I'm talking about when you quote your customer a price, and they come back to you and say I just can't pay that. And you--?

It's a combination of a number of different things, and obviously, we want to be sensitive to all of those issues. But there is certainly risk pricing that comes into the equation and we have got to be responsible in terms of how we deal with that. If prices do spike, certainly there is more risk in the market place. One of the things that we have got a tremendous benefit from is our folks have been in markets like this, as Paul said earlier, many times before. And we have got a very responsive organization, we have got an extremely well organized team that is responsive to all of the circumstances both globally and regionally. So, there is really a function of what the value is that we are offering. And I think the thing you have to also appreciate is that with that volatility we have the ability to offer greater value on the derivative side in terns of smoothing out pricing. So, there are a number of different factors that go into that. It's not simple linear one-to-one; the price goes up and you raise your margin. There are a number of different services that we are providing that go into adding the value. I think you have to look at it from that perspective.

I appreciate that. Thank you.

Ken Hoexter.

Paul, during the downturn you had talked about reducing your days outstanding on some of your customers. Is that a phase we're in yet with fuel running up like this?

I would say it's a little premature to say that. Certainly as you know in 2008, what we talked about was we started in January of 2008 with something around 9.5, close to 10 days. By the end of that year we had dropped it by about half. That was in response to a dramatic run-up in the price and a very sharp dislocation. And basically it was about preserving working capital and making sure we were getting good returns. As the market turned around the other way we began to relax that a little bit, and you see it moving up somewhere closer to 7.5, 8 days, and that is on an overall consolidated basis. I would say we are certainly looking at that. What we demonstrated in 2008 is that we do have the ability to move that number from quarter-to-quarter. But I don't feel that we have any particular sense of alarm at this point. I think it's just a matter of looking at returns and making sure -- it's always going to be about what's the return.

As you know, back at that time, we were generating very high levels of return on working capital, but we were probably missing some opportunities on gross profit. That is why we began to relax a little bit. You saw the return on working capital come down, but we also were generating what we think was quality gross profit. So, it is always a moving balance between the two. We also have a lot more liquidity today than we did back then. So, when you think about what happened in June of 2008; prices went to $147 a barrel. Our liquidity position was very, very different at the time and we have since then changed that profile considerably. So we have a pretty good feeling about the quality of the balance sheet, our ability to play in the game and to use that liquidity intelligently. We will continue to be focused on the trade cycle, but on a historical basis, certainly the eight days that we are right now, we are very comfortable with that.

That is a great answer. Let me just take that one step further because you talk about that access to liquidity as a huge benefit in a positive during the downturn for the Company. How then should we look at it with the recent acquisitions, do you then say, hey, okay, we are going to pull back from the acquisition market right now? We've done a bunch; let's settle it and integrate those. Or do you look at it and say we have a lot of cash right now; we still have room to make more acquisitions?

That's a great question and it speaks to the core of every Wall Street Journal article. What is everyone scared of? They are scared that you're going to go out by a bunch of stuff and run around with your head cut off, not integrate it well, have all the values be destroyed as opposed to creating value. That's what nobody really wants to see happen. Look, Mike and I grew up in this business; we're both large shareholders ourselves. We've lived through cycles of acquisitions, and I think one of the things we pride ourselves on, particularly with the increased maturity the organization, is our ability to integrate these things and do it very efficiently from the get-go.

I take a lot of comfort in this Company's ability to manage that efficiently, to make sure that we are not destroying value, to make sure that we're creating value, net-on-net. And I think that's a discipline that we've refined because we don't want to live with the chaos of a lot of sloppy herkey jerkey acquisition noise that doesn't get us anywhere. We are not interested in managing that. I think in that point of view, the discipline, you can take a lot of comfort that there is a robust discipline in the Company about doing that. The second thing is, as we look into this market and we are trading off the needs to deploy our working capital in a high-priced environment certainly that is a consideration. And we are also going to be looking from time to time at what might be available in terms of the acquisition. If we see a slam dunk acquisition, I don't think you're going to see us just walk away from it because we have got anxiety about what's going on in the oil market. I think we feel that we have got a pretty good position to continue to exercise our muscle as it pertains to the acquisition evaluation process.

At the end of the day, if we see something really good, we are not scared to go back and raise more capital if we have to do that. So, it's not the thing that we are doing tomorrow, but I'm just saying that if you look at the trajectory of this Company. I think that if history has shown you anything, we've done a very good job over the last 10 years of managing this pretty well, and we have been very selective about when we do go into the markets and why. And we would not do it unless we have a pretty good use of proceeds in mind. So we have a pretty good currency right now; our stock has got value. We think that that is going to help us in this kind of a market, in particular, as we think about that acquisition slate.

It's a balance. We certainly understand that we don't want to destroy value. We understand that you have to breathe and efficiently integrate these things so you don't destroy value. But we also, as Mike Kasbar has said many times, the whole world has been for sale. The amount of upheaval in the global market is creating a lot of opportunity for us. We're going to keep our eyes open; we have a got a very robust discipline internally that's around culture, operational integrity, management team. All those things are going to help qualify those acquisition targets, but in the meantime we are going to think very efficiently about how we deploy that capital in our core business as the prices move around. And we can tweak the trade cycle, we can tweak our return metrics. We're always going to be governed by the risk discipline; that's first and foremost. I think we are just going to continue to execute. That is the primary thing.

My last question is just as you think about, during the offering period, you talked about a lot of deregulation going on. Yet the acquisitions you made seem to be already pre-existing companies, domestic companies? Are there opportunities that you still see on a global basis as deregulation goes forward that you want to get more accretive on that angle?

When you say deregulation. I'm not -- can you--?

During the offering period you talked about global deregulation making more opportunities to move into areas on a more global basis.

I think what you are alluding to Ken is that we see a systematic divestiture in the global marketplace and that is creating opportunities. We do see that; I think there will be opportunities. We don't have any particular one single regional focus. I think there are things happening worldwide we will continue to evaluate. But, yes, the trend is certainly continuing. The dynamics of the oil supply chain, those of you on this call who cover the energy space know that that's certainly first and foremost on the minds of the large global oil companies, and we continue to benefit from that for sure. Absolutely.

I appreciate the time, thank you.

Thank you.

[Gregory Lewis.]

As I think about the acquisition opportunities that Paul was alluding to, and thinking about your availability to add that to the balance sheet. Should we be thinking about this on a EBITDA basis? In other words it looks like in the fourth quarter you generated $50 million to $55 million of EBITDA. Should we think about maybe annualizing that? And backing into what potentially the balance sheet -- or at least the debt portion of the balance sheet would look like? Is that the right way to think about it?

It's certainly fair. You have covenants in the bank facility tied to metrics like debt to EBITDA. So, you're constrained to the extent that you can't bust through those levers. So if you look at the EBITDA number and multiply it by a current Company limit for example it's about 3.25. That would tell you what our current capacity would be. Obviously, as we are going out to buy another company, we are inheriting more EBITDA, which provides you with even more debt capacity. Which puts you in the ballpark of the size of the facilities, if the facility was sized to our run-rate of EBITDA give or take. But that is a good question, and that's a fair way to look at it.

Great. Really quick, you mentioned that the Hiller transaction-- there is going to be about 1 million shares that were issued for that. I believe there's--?

No. I'm sorry finish your question first. Go ahead.

I was going to say, as you sort of buided this. I think 71.5 million shares for Q1. Can you give any guidance on the other -- I believe there's another one of their acquisitions there's going to be an equity component as well?

Two answers. On the first part, the Hiller shares -- this is in the 10-K, you'll see the numbers there. It's only about 300,00 shares issued related to Hiller, but as the stock prices ramped up significantly over the past few months. The common share equivalents that go into that calculation of diluted shares has gone up, and has continued to go up as well. The delta between 70.5 plus 0.3 for Hiller out of 71.5 or so, I gave a range of 71 or 71.5, would be the estimate for what that impact would be for the first quarter.

In terms of the deal that we have not closed yet, it would make more sense for us to share that once the deal closes. Because that number is not necessarily locked in stone until we finalize that transaction. But in one of the two transactions, the NCS transaction, there will be some equity included and we'll provide those details at the time we close the deal.

Thank you very much.

Thank you great.

(Operator Instructions)

Operator, if there are no other questions--.

And you do have a question from the line of [Ed Himmelgard].

I was trying to ask a question before, but I wasn't getting through. My question was, the last time we saw the spike in oil prices, it proved to be a very fruitful time for you from both a gross profit margin standpoint, but also a customer acquisition standpoint. Are you seeing some of the similar -- not the magnitude quite as great obviously because we don't have the liquidity issues we had then. But are you seeing improved opportunities in gross profit this quarter? But also are you getting a more responsive potential customer with your sales force?

It's a little bit early to look at that. I think it's fair to say that there's a somewhat inverse relationship to volatility and uncertainty, and the value of what we do and our ability for our risk group, led by Frank Shea, and a lot of other people, to navigate through the marketplace. So it's our value prop. It has been our promise to the marketplace to have a solid balance sheet and maintain liquidity, and to be conservative and careful in terms of how we do that. So I think history has told us that we do a pretty good job; it's what we focus on every day. But it is pretty early days. I mean who knows how things are going to shake out. None of this may occur, but we're always at our stations are looking at this. And it's the core of what we to terms of risk management in every which way.

There are no further questions at this time.

We would like to thank everyone for joining us today, and we'll look forward to talking to you for the Q1 call. Thanks a lot.

Ladies and gentlemen this concludes today's conference call, and we thank you for your participation. You may now disconnect.