World Kinect Corp (WKC) 2011 Q1 法說會逐字稿

At this time I would like to welcome you to the World Fuel Services 2011 first-quarter earnings call. My name is Russell and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (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 conference.

Good evening everyone and welcome to the World Fuel Services first-quarter 2011 conference call. I am Frank Shea, EVP 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 also available via webcast. To access this webcast or future webcasts, please visit our website, www.wfscorp.com and click on the webcast icon.

With us on the call today are Paul Stebbins, Chairman and Chief Executive Officer; Mike Kasbar, President and Chief Operating Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Nobel, Senior Vice President and Chief Accounting Officer.

By now, you should have all received a copy of our earnings release. If not, you can access our release at our website.

Before we get started, I would like to review World Fuel's safe harbor statement. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance, are forward-looking statements that are based on assumptions that management believes are reasonable, but are subject to the range of uncertainties and risks that could cause World Fuel's actual results to differ materially from the forward-looking information. A 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 filed 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 would like to introduce our Chairman and Chief Executive Officer, Paul Stebbins.

Thank you, Frank. Good afternoon and thank you for joining us.

Today we announced earnings of $41.1 million, or $0.58 per diluted share for the first quarter of fiscal 2011. These results represent the best quarterly earnings performance in the history of the Company. Despite a challenging operating environment, our volumes and profitability were solid across all three business segments, and we continued to execute well on important strategic initiatives. And while acquisitions and rising oil prices required the additional use of cash in the quarter, we generated good risk-adjusted returns and our overall return on invested capital remained at 15%.

At a macro level we saw evidence of continued improvement in the economy this quarter, particularly in emerging markets. But we remain cautious about the outlook going forward and believe that good planning requires that we be alert to a number of issues we perceive to be persistent impediments to a durable recovery.

First and foremost is the Chinese economy, which has been a significant driver of trade activity and directly impacts the shipping business. As the government of China works to dampen inflationary pressures an overcorrection could impact their growth rate and ultimately the trade into and out of the country. While over the long term we have no doubt that China will continue its growth trajectory and play an important role in global trade, it is unclear what impact their near-term anti-inflationary policies might have on the shipping industry.

Another factor is the price of oil. As has been much reported in the media, oil prices rose sharply this quarter in response to supply/demand fundamentals, political instability in the Middle East, and weakness in the US dollar. The price of marine fuel was up 28% in the quarter and aviation fuel rose 25%. This added cost pressure to a shipping industry challenged by overcapacity, volatile freight rates, and tightening access to liquidity. It also eroded some of the gains in profitability achieved by the airline industry over the past year.

As we have discussed in the past, price volatility underscores the importance of our service offering to customers and suppliers alike. And we are well positioned to help them manage their exposure to a high -price environment. But, given the general economic backdrop, we will remain focused on risk management as we continue to drive growth.

Also impacting market confidence are the issues of sovereign debt in Europe, the impact of the Basel III protocols on lending, and the lack of clarity as to whether or not the US has the political will to reduce its debt. The uncertainty around these issues could result in more stringent lending, tighter credit, and a higher cost of capital. These conditions could impede a more sustained recovery in the global economy. However, these conditions also highlight the strength of our global platform, while creating significant challenges for our less well financed competitors.

Historically our business has performed well during times of volatility and uncertainty in global markets. And while we expect this to continue to be the case going forward, our growth initiatives, investment strategies, and discipline around risk/return metrics will continue to be governed by an abundance of caution, as we wait to see how these macro factors play out.

Turning to the segments, we were pleased to see an increase in our Marine volume, both sequentially and year over year. This was a clear indication that in a market characterized by weak demand we're picking up market share. And given the uncertainty associated with the macro issues cited earlier, our strength as a counter party proved to be an important competitive differentiator for our customers and suppliers alike. We believe this differentiation will be even more important going forward as suppliers find a diminished market for credit insurance and even financially strong customers find their credit lines reduced. During the quarter we emphasized caution regarding credit risk. Looking forward, we will continue to exercise prudence and support our well established customers who need assistance managing costs in this difficult market.

In our Aviation segment we saw continued growth in volume and profitability and we are pleased with our strategic initiatives in this space. Of course, high oil prices are creating cost pressure on our customers in this segment as well, but our strong position in the market continues to add value to customers and suppliers worldwide. As we look forward we will remain focused on tight execution in logistics, expanding our supply locations and maintaining a disciplined approach to risk management.

In our Land segment, we were very pleased to see continued positive growth in this space. We are seeing growth in our branded and unbranded markets and they are now significant contributors to our overall results. Our international activities are gaining traction and looking ahead we expect continued growth in this space.

On the strategic front we were very pleased to finalize our acquisitions of Ascent and NCS. Ascent rounds out our move into the business aviation space and, combined with Hiller and Western, gives us significant scale. It also enables us to provide a significantly differentiated service to our customers, while providing a robust platform for our oil company partners looking to rationalize their go-to-market strategy. We are excited about our ability to help them protect their brands and maintain a competitive position in the market.

Meanwhile, the NCS team is off to a great start and we are confident they will develop significant new opportunities for growth in the area of advanced fuel logistics.

We are proud of the fact that our business model continues to demonstrate resilience in a broad range of operating environments. We are positive about the prospects for future growth, but remain cautious about the overall global economy. Our highest priority will be to maintain a disciplined approach to risk management while we help our customers and suppliers navigate a challenging market. And while uncertain market conditions create stress, they also create opportunity. We believe planning for market disruptions is not just good business from a defensive perspective, it is an integral part of executing on our growth strategy.

We appreciate your continued support. And I will now turn the call over to Ira for a detailed review of the financials.

Thank you, Paul, and good evening, everybody.

I am pleased to announce that today we reported the highest level of quarterly profits in Company history. Coming off of a very strong fourth quarter, we again performed very well in what continues to be an extremely volatile operating environment. This is a true testament to the dedication of our entire team and to the growing diversity of our business model.

And now, for the financial overview. Consolidated revenue for the first quarter was $7.1 billion, up 22% sequentially and up 81% compared to the first quarter of last year. The sequential and year-over-year changes in revenue were impacted by more than a 20% increase in average fuel prices sequentially and more than a 30% increase in average fuel prices from the first quarter of 2010.

The Aviation segment generated revenues of $2.6 billion, up $522 million, or 25%, sequentially and up $1.2 billion, or 81%, year over year. Approximately 54% of the year-over-year increase was a result of higher average fuel prices and the remainder was a result of increased volume.

Our Marine segment revenues were $3 billion, up $510 million, or 21%, sequentially and up $901 million, or 43%, year over year. Approximately 62% of the year-over-year increase was a result of higher average fuel prices during the quarter and the remainder was a result of increased volume.

And finally, the Land segment generated revenues of $1.4 billion, up $219 million, or 18%, sequentially and up $1.1 billion, or 299%, year over year. Approximately 73% of the year-over-year increase was due to increase in volume attributable to recent acquisitions, as well as organic growth initiatives, and the remainder was the result of higher average fuel prices.

From a volume perspective, our Aviation segment sold 856 million gallons of fuel during the first quarter, up 5% sequentially and 37% year over year, representing record quarterly volume and the eighth consecutive quarter of sequential volume growth. The sequential growth in Aviation volume was principally driven by the additional volume from the Hiller acquisition, which closed at the end of last year.

Our Marine segment's total business activity for the first quarter was 6 million metric tons, up 2% from last quarter and up 10% year over year. Fuel reselling activities constituted approximately 84% of total Marine business activity in the quarter, the same as in the fourth quarter of last year.

Our Land segment sold a record 522 million gallons during the first quarter, up 2% sequentially and up 219% from last year's first quarter. The year-over-year increase was driven mostly by the acquisitions of Lakeside and Western, which were not included in our first-quarter results last year.

Consolidated gross profit for the first quarter was a record $137 million, an increase of $13 million, or 11%, sequentially and $38 million, or 38%, compared to the first quarter of last year.

Our Aviation segment contributed a record $70 million in gross profit, an increase of $12 million, or 21%, sequentially and $22 million, or 45%, compared to the first quarter of 2010. Our self-supply model's jet fuel inventory position was approximately 53 million gallons, or $198 million at the end of the first quarter, up from 41 million gallons and $103 million at the end of the fourth quarter. We again realized a gross profit benefit this quarter as a result of the high level of volatility during the quarter, combined with higher overall levels of inventory.

The Marine segment generated gross profit of $40 million, a decrease of 3% sequentially, but an increase of 2% year over year.

Before I comment on the Land segment results, please note that we are now consolidating the joint venture related to our Western acquisition in our results. The results of this joint venture were included below the operating income line in other income and expense in the fourth quarter.

Our Land segment delivered a record level of gross profit of $26 million in the first quarter, up $2 million, or 10%, sequentially and $15 million, or 139%, year over year. The Land segment generated more than 18% of total gross profit this quarter, demonstrating the increasing importance of this segment to our overall operations.

Operating expenses, excluding bad debt and excluding the expenses related to the NCS acquisition which closed in March, increased by $3 million to $77 million, within the range I provided on last quarter's call. Including NCS, operating expenses, excluding our provision for bad debt, were $80 million, up $6 million sequentially and $24 million compared to the first quarter of 2010, which also predated the Lakeside, Western, and Hiller acquisitions.

As I mentioned on last quarter's call, 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 $80 million of operating expenses for the first quarter was $4.9 million, up from $3.1 million in the fourth quarter and $2 million in the first quarter of last year. Operating expenses, excluding the amortization of acquired intangible assets and bad debt expense, as a percentage of gross profit was 55% for the quarter, down from 57% last quarter and flat compared to the first quarter of last year.

For modeling purposes, I would assume overall operating expenses, excluding bad debt expense, of approximately $89 million to $92 million in the second quarter of 2011. The sequential increase in operating expenses is principally attributable to a full quarter of expenses related to the NCS acquisition, which was only in for one month in the first quarter, and the acquisition of Ascent, which closed at the beginning of April. And both include additional amortization of acquired intangible assets as well.

Ascent, based in Parish, New York, supplies aviation fuel and deicing fluid to more than 450 airports and fixed-base operators, or FBOs, throughout North America. Ascent is a national branded reseller of aviation fuel for ConocoPhillips and the exclusive third-party distributor of deicing fluids for Dow Chemical in the United States. We are pleased to welcome Ascent to World Fuel and are looking forward to working with their very talented team. The expansion of our branded aviation fuels platform, which now includes Western, Hiller, and Ascent, fortifies our position in the business aviation market, where we now serve more than 1,100 FBOs throughout North America.

Additionally, we closed the acquisition of NCS Fuels, based in Aalborg, Denmark in March. NCS is a full-service suppler of aviation, gasoline and diesel fuels and related logistics solutions supporting NATO, the US and other European armed forces operating in Afghanistan. We would also like to formally welcome the NCS team to World Fuel.

On the balance sheet, our total accounts receivable balance was $1.9 billion at quarter end, up approximately $500 million from the fourth quarter, primarily due to the increase in average fuel prices and the impact of the NCS acquisition. Our bad debt provision in the first quarter was $800,000, down $300,000 compared to last quarter, but up $400,000 compared to the first quarter of 2010. Our credit risk management team, which is now comprised of 75 risk management professionals, continues to manage our receivables portfolio well, and we are comfortable that our balance sheet reserve remains adequate.

Consolidated income from operations for the first quarter was $56 million, an increase of $7 million, or 14% sequentially and $13 million, or 32% year over year.

For the quarter, income from operations for our Aviation segment was $38 million. That was up $7 million, or 22%, sequentially, and $11 million, or 43%, compared to the first quarter of 2010. Our Marine segment's income from operations was $17 million in the first quarter, a decrease of $2.7 million, or 13%, sequentially and year over year. Our Land segment generated another record level of income from operations of $11 million, up $2 million, or 24%, sequentially and up $8 million or nearly four times the level of income from operations generated in the first quarter of last year.

We had $3.5 million of nonoperating expenses this quarter, which consists of approximately $2.5 million of interest expense and other financing costs, and $1 million of other expenses, including foreign exchange. I would assume net interest expense to be approximately $3.5 million to $4.5 million for the second quarter of 2011. And, once again, this excludes any potential foreign exchange impact on our results.

The Company's effective tax rate for the first quarter was 20%, up from 17.1% in the fourth quarter and 18.5% in the first quarter of 2010. The recent acquisitions we have completed have increased the mix of taxable income to jurisdictions with higher tax rates, resulting in the higher rate for the first quarter. We estimate that our effective tax rate for the second quarter should be between 20% and 22%.

Our net income for the first quarter, as Paul stated earlier, was $41.1 million, an increase of $1.7 million, or 4%, over the fourth quarter and an increase of $7.4 million, or 22%, year over year. Non-GAAP net income, which excludes amortization of acquisition-related identified intangible assets and stock-based compensation, was $46.8 million in the first quarter, an increase of $2.7 million, or 6%, sequentially and an increase of $10.6 million, or 29%, year over year.

Diluted earnings per share for the first quarter was $0.58, an increase of 4% both sequentially and year over year. Non-GAAP diluted EPS was $0.66 in the first quarter, an increase of 5% sequentially and 10% year over year. As a reminder, the year-over-year earnings per share comparisons were affected by the dilutive impact of our secondary equity offering, which we completed in the third quarter of 2010. Total diluted shares for the second quarter should be between 71.5 million and 72.0 million shares, impacted in part by a full quarter of shares issued as part of the consideration for the NCS acquisition, which closed in the beginning of March.

Our return on invested capital was 15% in the first quarter, flat with last quarter. We continue to generate strong returns on invested capital and we remain focused on pursuing strategic investment opportunities which are accretive to earnings and can deliver solid returns to our shareholders.

Our overall net trade cycle increased approximately one-half day sequentially to 8.6 days, driven in part by the NCS acquisition, which represented approximately half of its increase.

Our return on working capital in the first quarter was 35%, down from 39% last quarter, impacted principally by rising fuel prices during the first quarter.

Cash flow from operations was negative $144 million in the first quarter. Our cash flow this quarter was clearly impacted by a sequential increase in bunkers, jet, gas and diesel prices, all which saw increases in excess of 25% during the quarter.

Cash declined from $273 million at year end to $93 million at the end of the first quarter, driven principally by incremental working capital requirements related to rising fuel prices and the funding of the NCS acquisition.

In closing, considering continued uncertainty and volatility in the global markets, this was another solid quarter for World Fuel. In addition to posting record quarterly earnings, we completed another strategic acquisition and again delivered above-average returns to our shareholders. We have continued to profitably grow the business through our strategically diversified business model and we look forward to the many opportunities that lie ahead.

I will now turn the call back over to Russell, our event specialist, to open up the question-and-answer period.

(Operator instructions.) George Pickral.

Paul, I think you said you're navigating a challenging market at some point in your prepared remarks, to quote you. Can you maybe talk about what you're seeing from your customers in the market? By that I mean, for example, in Marine, do you see customers taking smaller stems more often, kind of avoiding the out-of-the-way ports? Are they more focused now on fuel prices than they were even three months ago? And I guess the same question for Aviation and Land.

Sure. Look, as we talked about, there was a very sharp increase in prices in the products markets throughout this quarter. And of course logic predicts that's going to have an immediate impact on the cost structure for these guys. And I would say that the larger backdrop, George, is just global trade. So you're in the transportation space and you know -- you're familiar with many of the public shipping companies. It's been a difficult path to kind of find your way when you've got rocketing prices and sort of a persistent, slow lack of recovery in the global market, and then some uncertainty around some of the big trade partners, like China. That's created some anxiety.

I think that the volatility in the Middle East did create a little bit of an uptick. There's a little bit of positive news for the tanker operators going forward. The container guys have certainly been doing better than they had been. But there's still some anxiety about the [bulk] market, what's going to happen with the China if they really do put on the brakes? Does that affect the inbound traffic on iron ore and other major commodities? So I would say that the problem is that the cost structure hits them fast and hard and they don't have a chance to adjust that rate structure through the whole chain. So we think some of them are going to be able to survive that better than others.

As you know, our focus has been to really stay close to our long-time customers, the well capitalized fleets that are going to have kind of a durable presence throughout this transitioning market. And I think that that bodes well for our business model. The fact that we saw an increase in volume makes us feel pretty comfortable with that. And generally speaking, I would say in a high-priced market they're looking for our kind of assistance more than ever.

But the global backdrop, you're seeing the same tea leaves that we are. These markets tend to represent opportunity for us. But, look, we're just generally cautious because none of these macro factors have played out yet.

Got you. That's great color. Thank you, Paul. And then, Ira, maybe a question for you on the self supply. Your gallons went from 41 to 53 in the quarter; I believe that's what you said.

That's right.

Is that principally in the US or is that with expansion in Europe too?

No, that's still principally in the US. There's a little bit over in Europe, but the lion's share of it remains in the United States.

Gregory Lewis.

Paul, I mean, it sounds like the integration of the recent acquisitions seems to be going smoothly. And with that we've seen your cash position sort of drop below $100 million. You talk about the navigating the challenging market. Given this environment, I would imagine that we could see more acquisition opportunities for World Fuel present itself maybe later this year. How are you sort of thinking about potentially going out and looking for new companies to acquire, sort of over the next call at 6 to 12 months?

Hi, this is Mike Kasbar. I'll take that. The first comment I want to make is we certainly benefit from the fact that we acquired well run companies that have pretty talented and very committed management teams. So that makes integration a lot easier. The management group that we've got here, particularly finance, HR, and IT, have certainly stepped up quite a bit. The increased activity in our platform are getting stronger during this calendar year. So the opportunity in the marketplace is still there. Our strategic review process is stronger than ever. So I think that we'll continue to digest what we've done, but I think we're pretty well positioned and able to respond to attractive opportunities, but we're kind of mindful of prudently staging these so that nothing falls off the truck. So I think the market is still sort of ripe for continued activity there, but we're just carefully working our way through the opportunities.

Okay, great. And then, Ira, if you could touch briefly on the NCS transaction and what it's done to the trade cycle. Was this sort of a one-time increase in these things, or as the NCS business -- is there opportunities for that to sort of expand and boost the trade cycle time?

Well, just because of the nature of it -- good question, Greg -- the nature of that business that has a wider trade cycle in terms of payment terms with government entities, even though it's a small piece of our overall receivables base, since the difference is fairly meaningful, as I think I said on the call, we increased the trade cycle by a half a day in the quarter, and probably two-tenths of a day related to that alone. And they were only in for one month. So as they're in for a quarter it will have a slightly larger impact. But once we get through a full quarter of NCS, then it would normalize and shouldn't have a meaningful incremental impact beyond that, unless that business was significantly outgrowing the core business.

Okay. Thank you very much for the time, gentlemen.

(Operator instructions.) Ken Hoexter.

Paul and Ira, you talked about the tougher economy with oil prices rising. I just want to stick on that for a second. You know, if we go back to 2008 when oil prices were high, it kind of gave you an opportunity maybe to expand margins a bit. We saw on the Marine side margins top 3.8%, 4.2% at the end of '08, early '09. Now what we're seeing, kind of all-time lows, I guess, down at 1.3%. Can you walk us through how we should think about the margin impact of higher prices on the business? Is there the opportunity to start seeing some reacceleration on the gross profit margin to offset the higher prices and maybe some of the slower business that you're talking about, Paul?

Sure, Ken. Thanks for the question. I understand you're in a far-away part of the world. We appreciate your getting up very early to join us here today.

So let's go back to '08. You had a couple of dynamics going on. Certainly you had a high price market. Crude did go to $147 a barrel in 2008 and with it the product prices definitely rocketed. There was a lot of volatility and at that time -- you know the transfer station place pretty well -- the shipping industry was really on a tear at that time and you didn't really see a meaningful drop-off in activity until really towards the end of '08 and into '09. So at that time I would say that there was a little bit of, I wouldn't say indifference, but the direct impact of those high prices was a little less sensitive to the shipping industry at that time because it was coming off sort of a 5-year tear of a lot of activity.

So I'm not sure that the market conditions are equivalent right now. So I would say right now you've got a shipping industry that's a little bit more challenged, a little bit more stressed. And you've had things like slow steaming which are impacting the overall demand slate. The thing that we're really focused on right now, Ken, is that, yes, as a general proposition, when you've got fast-moving oil prices it does tend to benefit margin opportunity. It's just sort of the nature of the beast. And volatility impacts it as well. But, again, the discipline for us is all around the issue of risk-adjusted returns.

So when we see kind of a stress market, we tend to consolidate all of our focus and our activity by concentrating the marketing effort on our longstanding and more stable customers, the ones that we think have got the staying power to kind of weather the up and down markets but are going to be long-term players. And most of our focus is on the value-add of helping them navigate a stress market and making sure that they can sort of manage the cost as best they can in a difficult space.

So I would say that the market situations are a little bit different. We do think that we're very well positioned to handle a high-priced market better than our -- certainly better than our competitors. And so in that sense there is opportunity for us. It's definitely going to separate, if you will, the men from the boys. The smaller, less well financed guys are suffering not only from high prices, but they're also suffering from the fact that in a more stress market there's a lot more focus on credit quality. That is definitely impacting negatively some of our competitors who just don't have the balance sheet or the position to play. So that's kind of the overall picture. I hope that -- does that help you?

No, it definitely does just because obviously it sounded like your opening comments there was concern on where the market heads in terms of the demand side, so I just wanted to understand. So does that mean you're then also focused on -- to that prior question, I guess, do you start focusing on bringing in the days outstanding to manage that a bit? Is that something you're also focused on trying to shrink back down?

Sure. I mean, it's a mix of business. And I would say that in Marine space it's actually gone down a little bit as an overall trade cycle. So I would say that it reflects exactly our perceptions about the overall [percent of] risk. When you look at the overall consolidated change in our trade cycle, it has a little bit more to do with Land and Aviation and, as you know, Aviation's just been absolutely blowing and going. So it hasn't been in the Marine space that we've seen any, if you will -- I'm loathe to use the word deterioration, because we don't think about it that way.

When we think about trade cycle we're really focused on just making sure that if it's the good class of customer and we feel very confident about the steadiness of that risk and the returns relative to that risk, we're okay with the trade cycle. It's only in a situation where -- we would not want to see a situation, for example, where in a very, very stress market with a whole series of weakening financial conditions of the customers that are trade cycle then expanded. We wouldn't want to do that, because you're just not getting a good enough return on the invested capital. But in Marine right now we don't see that situation.

Let me just follow up, then, on the Air and Land side, I guess. As oil prices run up here and your concern that you opened up with on the demand side, is there a price here that we're getting to that you're looking at that on the Aviation with utilization as high as it is, do you see some demand destruction at a certain price that you'd get more concerned at as we see oil prices pick up?

Yes. I mean, logic predicts that at some certain price point it is going to absolutely [impede] demand, but we haven't seen that yet, Ken. I would say that there's been enough underlying strength in all sectors of the space, both cargo, passenger. There was a substantial recovery. The airlines have been profitable. Certainly the high prices have had a little bit of impact on profitability. But from our perspective, we think that we have not seen those price points yet where it's beginning to actually destroy demand. We may see that, but right now, as you know, it's a little tough to call. I know where you sit it's probably not too easy, just like where we sit. What's the ultimate price of oil going to sort out? Is it going to drop back down to low levels, as some of the big Wall Street guys have predicted? Or are you going to see it continue to rise on the back of volatility and the weak dollar? We're kind of watching that as well.

But right now we have not seen that demand destruction. And, in fact, because of the change in our Aviation business model, we've actually seen increased volumes because we're adding more value and our ability to supply in a more robust way in multiple locations. We've become increasingly valuable to the supply community and we're strategically in partnership with the airlines to create new supply opportunities. So we haven't really seen it impact the Aviation side yet.

Great to hear. And then last thing on the demand destruction question. With Afghanistan, with the actions over the last couple of days, and Iraq seeing continued troop withdrawals, how do you feel about the NCS acquisition? I mean, is timing -- we're going to continue to see that pull back now and is there a feeling of buying that at the peak? Or just trying to understand that last acquisition.

No. Look, as you know -- so, question one, do we see it as buying the peak? No, definitely not. From our perspective that acquisition was highly strategic. There's a set of competencies within that organization that we think have got broad application in a number of environments that happen to include what is now the Afghanistan activity. But the reason we bought that was not just for Afghanistan. We bought it because it introduced an advance logistics capability which we think has much broader application throughout and across all of our segments. So we're excited about that acquisition, regardless of Afghanistan.

I would say the other thing, too, is that while prima facie there's a lot of press discussion about withdrawals and how fast we're going to get out and what will NATO do and all that, I would say the reality is when you look at NCS's overall market share in that entire campaign, if you will, across both US and NATO, it's relatively small to the whole mix. There's plenty of opportunity for us to continue to play a role, both for NATO and for the US. And I don't think we have any particular concern, at least in the near term, that that's going to change. I think that they've got a value to provide and that while these withdrawals may take place, there's a lot of infrastructure that's going to be present there for some time to come.

And of course, what's also interesting to us, which we don't talk about in detail, because it's unclear at this point, some of these areas are going to morph from being military activities more into commercial activities, because there's an infrastructure sustainability program that takes place in some of these war zones afterwards, which is also interesting. And that involves logistics as well.

So, again, go back to the original strategic. We didn't buy it just for Afghanistan. We bought it because there's competencies there which we think are pretty important and pretty significant to building out our service offering on a much broader scale over time.

Appreciate your time this morning -- or your this evening. Thank you.

Edward Hemmelgarn.

Yes, just a couple of questions. One, Ira, is the anything else in the G&A expense, I mean, other than the increase you're seeing in amortization of intangibles, that was unusual in the first quarter?

No. Not at all. That would be the principal delta between Q4 and Q1, aside from the incremental expenses associated with a quarter of Hiller and one month of NCS, in the general G&A categories.

Okay. Then also, any major customer pickups this quarter?

In terms that had an exceptional impact on the results in Q1?

No, just in terms of new business, I mean, that you're looking forward to, maybe it didn't have much of an impact --

Yes, I would say that --

-- in the current quarter but moving forward.

No, I think the good news from our point of view is there has been definitely new customer acquisition across all three of the segments and it's just reflective of the nature of our highly diversified portfolio. There's a lot going on out there. But one of the things that we've invested quite heavily in, Ed, over the last couple of years was a more robust CRM systems and the ability to do targeting on a much more discrete basis and matching our supplier opportunities with customers. And that's led to a pretty robust ability to identify new targets.

But I wouldn't say in the results that there's any one single customer that stood out and made a meaningful impact in and of that one customer's result. It's an ongoing program and we're pretty pleased that we continue to generate new activity across all three segments. I mean, as you know, Land is a relatively new part of our business and is growing. We're very excited about that. With the acquisitions we're meeting customers we never had before, ever, because we weren't in the space. So that's exciting.

I would say in the Marine space just, even though it's a difficult market, what's interesting is that there are all sorts of activities going on in that space that are not just in the traditional, conventional trades, which are new to us, and that's exciting. And, again, these are around complex logistics for the oil industry and other markets that are developing.

And then on Aviation, as you know, just by virtue of our strong supply position, we continue to be more attractive to a much broader base of customers. So it's an ongoing thing but there's no one single customer that impacted the result quarter to quarter.

Are you beginning to see any increases in customer interest in usage of you to hedge future fuel positions?

Yes. Actually when you think about it, quarter to quarter it actually dropped. There was a little bit less activity in Q1 than there was in Q4, which was interesting to us. But that is not a complete surprise to us, Ed, because when you look at what happens in a very fast rising market, basically what our experience is, is that it's a little bit of deer in the headlights. All the customers kind of freeze and they basically say, this thing is moving so quickly, I can't even get in quickly enough to have a meaningful hedging program. So they tend to kind of wait to see what happens.

Plus, as you know, there's been some pretty high profile Wall Street people that are saying what prices are actually going to end up coming back down. So there's a little bit of the wait and see; they don't want to buy at the peak. So quarter to quarter our overall hedging activity was actually down in terms of the customer interest. I mean, we're always hedging just in terms of our own inventories and stuff, but that's kind of routine business. But in terms of customer appetite, it actually dropped off a little bit in the quarter. We'll just have to see looking forward into Q2 what happens.

Okay. And lastly, one other question. In terms of the Aviation inventory, how much of a gross profit impact did that have in the quarter?

I would say very similar to what we've seen in previous quarters, a few million dollar impact.

Okay, great. Thanks.

Brian Delaney.

Just a quick question. I was just going through the Q that you just filed. I just wanted to make sure I'm looking at this correctly. So when I look at the reserves on the balance sheet, gross A/R was up $500 million-plus sequentially and the reserves are up, I guess, $200,000 sequentially from the December quarter, a similar trend versus last year. So for outsiders, a $500 million increase in revenues with $200,000 of incremental reserves, it strike -- what can you say to give us some comfort that that's an adequate amount of reserves on such a big increase in receivables?

That's a great question. We look at all our receivables and our reserving methodology not based necessarily on a raw receivable number. It's more correlated to anything that may be in the past-due categories or customers with credit ratings that are lower down the scale. So whether are receivables go up significantly or down significantly in a specific quarter, it's tough to draw a very tight correlation to the impact on the reserve. So what I'm saying indirectly is that significant increase included growth in government receivables, for example, for which there is next to no reserve, and also increases in sales to very high-rated customers. So just because we had a significant increase in the total doesn't mean that the pieces that you'd want to reserve changed materially. And based on the result, I can tell you that they did not. And that's why the reserve is where it is.

So that's a very bottom's up analysis, customer by customer, credit rating by credit rating, in terms of the way that's calculated, the way the reserve is calculated quarterly. And as I said in my prepared remarks, we're very comfortable that that reserve is adequate despite what appears to be a very significant increase in gross receivables.

Right. I mean, from an outsider's perspective you have an $800 million increase year on year with $400,000 or $500,000 worth of incremental reserves and sequentially a $500 increase with $200,000 worth of incremental reserve. So from an outsider, just to get us comfortable with it, that's helpful.

Yes, and I could tell you that our receivables base was as high as it is this quarter going back a couple years ago and dropped down to probably less than half -- or not probably, less than half of that number back in 2009. And the movement in the reserve going down was not significant either. We're kind of back in terms of total dollars of reserve to almost exactly where we were in 2008. And I would say that nothing materially has changed in the overall landscape versus those two periods. So that number generally is a pretty tight number -- unless we were going in a new direction and moving further down the credit rating scale -- regardless, that number being the reserve, regardless of what the gross receivables are.

All right. Thank you.

George Pickral.

Two quick follow-up questions, if I can. I don't know if you can break it out between organic and acquisition growth on the Land side, but can you give an organic growth rate in that segment?

I think there's been significant growth there on the organic side, George. Our legacy business has been kicking in nicely and we've made some additions. So we feel pretty good about being able to drive that organic growth, the combination of the companies that we've put together and the management teams have really come together, I think well. But in terms of stats I don't think I have that to share with you.

Okay. No, that's good to hear, Mike. So let me just ask it quickly another way. US gas consumption usually mirrors GDP. Is your -- if you could guess your organic growth, do you think it's greater than US GDP growth?

Well, listen, if you start to look at gas consumption, gasoline consumption, that's not our only end market. You start to see $4 and $5 a gallon, you're going to see demand destruction and folks are going to be on buses and trains and carpooling and all that. You've got some fall-off in that demand. But we've got industrial consumers, commercial consumers. So we're grabbing market share. We're growing. So I don't think that GDP growth is really what we're going to be tracking in terms of land.

Without the acquisition impact we were actually up -- with the acquisitions plural -- we were actually up in the high-single digits sequentially in volume growth. So we are -- to support what Mike had to say, we are certainly seeing some growth in the organic business as well.

It's kicking in. The platform is working. It's been a long road, but we've got some scale and critical mass. It's what we've been looking to do. It's been a little bit of a long road, but we're here and we feel pretty good about it.

Sounds good. And then, last question for you, Ira. Now that these acquisitions are closed, can you maybe talk about the integration? And I'm thinking both from the sales side and from an expense side. Are there any -- do you think there could be any, call it, integration risks on the top line? And then, secondly, are there potential for cost saves going forward?

Yes, George, I think I addressed that previously, but I'll comment on it again. Certainly as you look at the metrics in terms of our operating margin, it's certainly starting to look like our other businesses and we are getting some critical mass. So I think those numbers come through quite nicely.

Our technology platforms are going to be standardized across all of those integrated companies in all of the spaces, both in business aviation, which we acquired three companies, combined with BaseOps and [Afguard] in our World Fuels business. So that's six different platforms coming together on one. And with Lakeside and Western and Texor and TGS and our legacy World Fuel, they're all going together on one platform. And there's a lot of commonality between those platforms. So as we see those organizations straighten out in terms of the financial and the back office and we're getting focus where certain individuals were looking at larger geographies, we now have the ability to get them to focus on smaller geographies. We're going to get, I think, some nice traction there and [we'll] see it in the numbers.

Okay, thank -- sorry I missed that. I got cut off earlier, Mike. I appreciate the color, though.

No problem; it's good news. I'm happy to say it twice.

And at this time I would like to turn the call back over to Paul Stebbins for closing remarks.

Thank you very much for joining us. And there's a lot of change in the market, but we feel that we continue to do well and we're pleased about that. So we look forward to talking to you in Q2 and thanks for being here today.

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