World Kinect Corp (WKC) 2012 Q1 法說會逐字稿

Good evening, everyone. And welcome to the World Fuel Services First Quarter 2012 Earnings Conference Call. I am Beth, your event specialist and I will be doing the instructions on this evening's call alongside the life web presentation. This call is also available via webcast. To access this webcast, or future webcasts, please visit the Company's website at www.wfscorp.com and click on the webcast icon.

By now you should have received a copy of the Company's earnings release. If not, you can access the release on the Company's website.

On the call today are Michael Kasbar, President and Chief Executive Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Nobel, Senior Vice President and Chief Accounting Officer.

Before we get started, I would like to review the 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 a range of uncertainties and risks that could cause World Fuel's act6ual results to differ materially from forward-looking information.

A summary of some of the risk factors that could cause results to materially differ from the Company's projections can be found in the Form 10-K for the year ended December 31, 2011, and other reports filed from the Securities and Exchange Commission.

The speakers will begin with several minutes of prepared remarks which will then be followed by a question and answer period. Instructions on how to ask a question will be given at the beginning of the Q&A session. All lines have been placed on mute to prevent any background noise.

And at this time, I would like to introduce World Fuel's President and Chief Executive Officer, Mr. Michael Kasbar. Sir, you may begin.

Thank you, Beth. And good afternoon everyone.

Today we announce first quarter earnings of $46 million or $0.65 per diluted share, a 13% increase in net income over the first quarter of 2011. Given market conditions, we are pleased with the results and the performance our global team delivered.

Our marine organization, once again, produced solid results despite continuing weakness in most of the market segments. Our marketing group working alongside our risk management team was more selective in the business they pursued during the quarter.

As such, volume was down sequentially from the fourth quarter, but the positive results were due to the increased sophistication of our offerings value proposition and a better mix in business activity. Overall, we remain cautiously optimistic that the dynamics of the marine industry will continue to improve as the world's economies slowly get back on track.

As we pointed out on the last earnings call, government advance logistics was confronted with a supply disruption in Afghanistan starting in the fourth quarter that continued throughout the first quarter of 2012.

Looking forward, our outlook has improved by having secured northern routes into the country, and we expect to resume fuel reselling activities soon.

We have also initiated activity under our contract with the US military's Manas Air Base in Kyrgyzstan. In the other areas of aviation, our marketing team continued to manage our core business well and perform as expected.

The volume in our land segment was flat sequentially, but up significantly compared with the first quarter of 2011. Despite some seasonality and changes in business mix in the first quarter, the significant increase in land's volume year-over-year demonstrates the growing importance of this segment to our overall business.

We continue to evolve as a global super marketer and distributor of our fuel products, services and logistics for land-based fuels. New lines of businesses such as crude oil marketing, transportation and rail car logistics provide robust opportunities for growth.

World Fuel Services continues to grow as a single source provider of supplies, logistics and financing of transportation fuels and energy products around the world. Our global team of local professionals works across geographies, disciplines and businesses building enriched, engaged strategic relationships with our partners. This important engagement enhances our ability to create value for our partners. And that continuous value creation mentality positions our company for long term growth in diverse markets across and between segments.

I'm extremely proud of the collaborative culture we have created and the results we continue to achieve. Our business model is responsive to a fast-changing marketplace, our balance sheet is strong, we have a healthy cash and liquidity level, and we continue to thrive on the dynamics of change.

Now, I'll turn over the call to Ira Birns for a detailed review of the financials.

Thank you, Mike. And good evening, everybody. Starting with revenue, consolidated revenue for the first quarter was $9.5 billion. That's up 2% sequentially and up 34% compared to the first quarter of last year. The year-over-year change in revenue was impacted by the 14% increase in volume across our businesses, as well as by the increase in crude oil prices, which rose to an average of $105 per barrel in the first quarter, compared to $95 last quarter, as well as in the first quarter of 2011.

Our marine segment revenues were $3.9 billion. That's down $83 million, or 2% sequentially, but up $905 million, or 30% year-over-year. Approximately 81% of the year-over-year increase was the result of higher average fuel prices during the quarter, and the remainder was the result of increased volume.

Our aviation segment generated revenues of $3.4 billion, up $97 million, or 3% sequentially, and up $765 million, or 29% year-over-year. Approximately 56% of the year-over-year increase was the result of increased volume, and the remainder was the result of higher average fuel prices.

And, finally, the land segment generated revenues of $2.2 billion, that's up $141 million or 7% sequentially, and up $730 million, or 51% year-over-year. Approximately 68% of the year-over-year increase was due to the increase in volume, and the remainder was the result of higher average fuel prices.

Please note, in the first quarter of 2012, any NCS-related lands business activity previously recorded in our aviation segment is now being recorded in the land segment.

Volume in our marine segment for the first quarter was 6.4 million metric tons, down 500,000 metric tons, or 7% compared to last quarter, but up 400,000 metric tons, or 6% year-over-year.

Fuel reselling activities constituted approximately 89% of total marine business activity in the quarter, which was flat with last quarter.

Our aviation segment sold 995 million gallons of fuel during the first quarter, effectively flat sequentially, but up 139 million gallons, or 16% year-over-year.

And, finally, our land segment sold 704 million gallons during the first quarter, also flat sequentially, but up 182 million gallons, or 35% from last year's first quarter.

Consolidated gross profit for the first quarter was $157 million, which represents a decrease of $5 million, or 3% sequentially, but an increase of $20 million, or 15% compared to the first quarter of last year.

Despite a 7% sequential decline in volume, our marine segment, again, delivered strong results despite continued market weakness with gross profit increasing $1 million, or 2% sequentially to $55 million which was principally drive by a ship and business mix.

On a year-over-year basis, marine gross profit was up $15 million, or 37%. Our aviation segment contributed $65 million of gross profit in the first quarter. That's a decrease of $5 million, or 7% sequentially and year-over-year.

Our aviation segment's first quarter's results were impacted by a full quarter of reduced government activity, specifically due to the drawdown of troops in Iraq which occurred in the latter part of the fourth quarter, and border closures in Afghanistan which effectively remain closed for the entire first quarter.

Looking forward, we expect to resume fuel reselling activities in Afghanistan in the very near future as we have now secured alternative northern routes into the country. And as Mike noted, we have also initiated activity under our contract with the US military's Manas Air Base in Kyrgyzstan. The combination of these activities should translate into stronger government-related profitability in the second quarter.

Also, as discussed last quarter, our aviation segment gross profit for the fourth quarter was negatively impacted by the unusual correlation between heating oil and jet fuel prices. In the first quarter, such correlation normalized and actually finished the quarter strong resulting in a gross profit benefit during the quarter.

Our US self-supply model's jet fuel inventory position was approximately 67 million gallons, or $219 million at the end of the first quarter. That's up from 55 million gallons and $160 million at the end of the fourth quarter.

Our land segment delivered gross profit of $37 million in the first quarter, driven principally by seasonality, gross profit was down $1 million, or 2% sequentially, but up $11 million, or 41% year-over-year.

Operating expenses in the first quarter, excluding our provision for bad debt, were $97.8 million, which is up $1.4 million sequentially, and up $17.4 million compared to the first quarter of 2011. For modeling purposes, I would assume overall operating expenses, excluding bad debt expense of approximately $98 million to $102 million in the second quarter.

Our total accounts receivable balance was $2.3 billion at the end of the first quarter, up approximately $130 million, compared to the fourth quarter, primarily due to the increase of average fuel prices across all three of our business segments. Our bad debt expense for the first quarter was approximately $140,000. That's down $1.3 million (technical difficulty) $700,000 compared to the first quarter of 2011.

Looks like our first question was coming in.

Bad debt expense was relatively low this quarter as the quality of our receivables portfolio remains strong and we had an immaterial level of write-offs during the quarter. Consolidated income from operations for the first quarter was $59 million. That's a decrease of $5 million, or 8% sequentially, but an increase of $4 million, or 7%, year-over-year.

Our marine segments income from operations was $27 million for the first quarter, a decrease of $500,000, or 2% sequentially, but an increase of $10 million, or 58%, from last year's first quarter.

For the quarter, income from operations in our aviation segment was $27 million. That's down $3 million, or 9% sequentially, principally due to the items that I highlighted earlier. Income from operations was down $11 million, or 30% compared to the first quarter of last year. And, finally, our land segment had income from operations of $16.2 million, down $2.5 million sequentially, but up $5.5 million year-over-year.

Consolidated EBITDA for the first quarter was $68 million, a decrease of $5 million, or 8% sequentially, but an increase of $5 million, or 9% year-over-year. On a trailing 12-month basis, EBITDA is now approaching $300 million for the first time.

The Company had non-operating expenses, primarily consisting of interest expense, of $4.1 million in the first quarter, which is down $400,000 compared to the fourth quarter, but up $700,000 from the first quarter of last year. Excluding any foreign exchange impact, I would assume non-operating expenses to be approximately $4.5 million to $5.5 million for the second quarter of this year.

The Company's effective tax rate for the first quarter was 12%, compared to 11.5% last quarter, and down from 20% in the first quarter of last year. This quarter's tax rate was impacted by a $3.3 million reduction in our tax provision which related to a change in estimate of our uncertain or 1040A tax liabilities. This was based upon new information and a formal study performed by our outside tax advisors which was completed in March. Excluding this reserve reduction, our effective tax rate for the quarter would be 18%.

At this time, we do not foresee any additional [discrete] items impacting tax expense this year, and expect our 2012 full year effective tax rate will remain between 17% and 20% as forecast last quarter. Considering the 12% rate this quarter, our average tax rate over the next three quarters will likely be at the high end of the 17% to 20% range.

Our net income for the first quarter was $46.4 million, which is a decrease of $3.6 million, or 7%, from the fourth quarter, but an increase of $5.3 million, or 13%, year-over-year. Non-GAAP net income, which excludes amortization of acquisition related identified intangible assets and stock days compensation, was $52.9 million in the first quarter, a decrease of $4.5 million, or 8% sequentially, but an increase of $6.1 million, or 13% year-over-year.

Diluted earnings per share for the first quarter was $0.65, a decrease of 7% sequentially, but an increase of 12% year-over-year. And non-GAAP diluted earnings per share was $0.74 in the first quarter, a decrease of 9% sequentially, but an increase of 12% year-over-year as well.

Our overall net trade cycle decreased by approximately three-tenths of a day sequentially to 8.2 days in the first quarter.

So, despite an approximately 10% increase in fuel prices this quarter, we generated $49 million of cash flow from operations in the quarter, our second consecutive quarter of positive cash flow from operations. This compares to a use of $144 million of cash in the first quarter of last year.

Our balance sheet remains strong and liquid. Our cash position was more than $240 million at quarter end, our highest cash balance since the fourth quarter of 2010. Combined with the liquidity provided under our $800 million bank facility, which remains committed through July 2016, we remain well-positioned to fund organic growth and external strategic investment opportunities.

I would now like to turn the call back over to Beth, the operator, to begin the Q&A session. Thank you.

And ladies and gentlemen, at this time I would like to remind everyone if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that is star, one. As a reminder, we would appreciate it if participants would limit themselves to one question with one follow-up. We will pause for just a moment to compile the Q&A roster.

And, operator, do we have a question queued up at this time?

Yes. Your first question comes from the line of Greg Lewis.

Yes. Thank you and good afternoon.

Hi, Greg.

Hi, Greg.

Hi. Michael, could you talk a little bit about -- provide a little more color on what's going on in Afghanistan? I mean, it sounds like there's the potential for the northern routes to open up and volumes potentially to start flowing. Should we think about that as potentially a second quarter event? Has it already happened? Is it something that's going to happen maybe in Q3? And just in thinking about that, what type of potential do you think there is to sort of see volumes return to previous levels?

Sure, Greg. Well, I think as we discussed on the last call, with the border closing caught everybody, I think, by surprise, it stressed those different supply networks. Our team did a phenomenal job of responding to that developing new sources of supply. As you can imagine, everyone was rushing to the northern distribution network, the NDN, so that created a huge amount of stress. We're satisfied that we've got a good mousetrap wired. We'll start to see that producing delivery soon within this quarter. And it's always tricky, you know, in these locations.

These are complicated deliveries, complicated logistics. You do have weather that comes into play going through the mountains with snow. So, our expectation is that we'll see that kick in in Q2. It hasn't started yet, but we're expecting it any moment. And the actual forecast through the rest of the year remains to be seen. As you know, these are requirements contracts. We expect to fulfill, I guess, a similar volume as we've been experiencing before the border was closed.

Okay. Great. And I guess my last question, there was a cash flow generation of about $49 million. You mentioned that cash is sort of at the highest position that it's been for a while. And then we sort of tie that in, we saw volume sort of trickle down or flattish across your segments. Was that sort of a planned move by World Fuel as a sort of build a cash position? Or is that more of just the function of the dynamics of the various sectors in sort of seeing the volumes flat to down?

I would say it's a combination of two things, principally, Greg. What you described -- you had flat volume in two segments and volume down a bit in marine. On the flip side, you also had pricing going up, so that added a negative impact. But at the same time we brought our trade cycle down by three-tenths of a day. So, if you combine those two positives and one negative from a cash flow standpoint, it resulted in the $49 million of cash flow generation.

We weren't strategically looking to build cash balance, but, certainly, we're looking to generate cash where it makes sense. And this quarter, the combination of those events allowed us to generate almost $50 million of cash.

Okay. Thank you very much.

Your next question comes from the line of Ken Hoexter.

Hey, great. Good afternoon.

Michael or Ira, can you talk about -- just following up on that -- did you, in looking at the trade cycle that you talked about, did you want to shrink that? Is there economic risk out there that you see building that you wanted to take that trade cycle down a bit? Was that an active move on your part?

I would say that's driven more by the mix of business during the quarter than anything else. I think the trade cycle has been sitting in a pretty tight trading range over the last few quarters. So, certainly, with our very focused risk management discipline, especially considering what's going on in the marine markets, et cetera, we're very focused on who we're selling to, what type of terms we're providing, et cetera.

So, some of those related moves had an impact on the trade cycle. Some of the government business dropping off had an impact on the trade cycle as well because the average days there are generally higher than our weighted average.

So, it was really those drivers, not necessarily a highly focused effort to bring that number down strategically. But rather the impact of what went on in the quarter from a mixed standpoint.

Great. And looking at the -- for the follow-up question, looking at your big picture here and in terms of the refineries closing on the east coast, do you view that as opportunity for World Fuel to expand your service provision to customers, does Delta buying a refinery impact at all. I know you have to lose a customer, but I don't know about Delta. Can you talk kind of about the changes that you see going on in the aviation market outside of just this Afghanistan contract?

I feel like I should do something like change you can believe in. We thrive on all of that. With those refineries closing, that's created some disruptions and that's where we provide the solutions in terms of logistics, bringing product to the marketplace. With Delta and their trainer refinery, a very interesting move. We do business with Delta. They've got a superb procurement team, very interesting move.

The thing that I think is very interesting to us on that is with our crude oil coming from North Dakota or Bakken, these are [sweet] refineries that are typically run on imported product. They shut down before the Bakken phenomena kicked in. So now these refineries, I think, are viable. Certainly, Delta believes that. We think that they've got a very interesting scenario there. And that becomes an opportunity for us to partner with them on the supply side in terms of bringing crude to that refinery.

It's constant change and it's really perfect for our business model to be able to respond in any number of different ways. So, it's certainly an interesting marketplace.

Great. Thanks for the time.

Your next question comes from the line of John Chappell.

Hey, John.

Hey, Mike. Your answer to the last question was a perfect lead-in to my first question. You'd mentioned in your prepared remarks some of your new business opportunities like the crude oil marketing, shipment and logistics. Beyond moving Bakken, now potentially to Trainer, or I guess there's some private equity firms by the other refineries on the east coast.

How big is that market potential? What is it doing for you right now as far as business? Is it just ramping up or have you not even generated any revenue from that yet? And how do you foresee yourselves kind of getting involved in that market?

We like the space. I think it'll be a market that will continue for quite some time. I think as I mentioned in my last comments, pipelines are definitely slow. You've got a lot of political issues there. Certainly, the construction. You've got a significant amount of expense. So, the rail car business, I think, is going to be bullish for some period of time. We're very active. We geared up pretty quickly. We're moving product into the east coast and the Gulf coast.

So, we think we've got an interesting possibility to grow that. We're taking it step-by-step. We're generally conservative in terms of how we go after things to make sure that we've got them right. So, we like the space; we'd like to grow it.

In terms of how big it could be for us and the size, I really can't give you any sort of insight on that. It's step by step as we sort of do more and see more, you'll see more and we'll tell you more.

But at this stage of the game, it's just important diversification of our business. I think what it tells you is the innovation that we've got to expand horizontally and use our logistics capability, our marketing capability, our financing capabilities, risk management, to expand into other markets. So, I think that's the most significant take-away. And I think that you'll see us look at other products further down the road.

Okay. And then my follow-up also has to do with the land business. The first quarter gross profit was down sequentially for the first time in eight quarters. Is there significant seasonality involved in that business, or was that kind of similar to what you said in the marine business where maybe the marketing group pulled back a little bit while working with the risk management team just to kind of get your risk reward in line?

It's a combination of a number of different things. There is some seasonality. You do have some weather. You do have driving. You know, that falls off. We do sell quite a bit of gasoline and diesel so there's some of that. We did have an interesting opportunity in terms of an outage where rail cars provided some logistics in terms of satisfying refinery issue and I think I made some remarks pointed to that last quarter.

And then, additionally, the business mix in our crude operations we're sourcing product direct from producers and that's producing a little bit of a different outcome in terms of timing. So, it's a combination of a number of different factors. But we feel pretty good about the business itself. It's just a number of different things that hit from time to time.

Okay. Thanks, Mike.

Your next question comes from the line of Kevin Sterling.

Good evening, gentlemen.

Hi, Kevin.

Hi, Kevin.

The shift in your marine business mix that you talked about that helped to contribute to the marine gross profit, is there a certain sector of the shipping industry that you're serving more that positively contributed to your gross profit in marine?

Well, you know, we -- the core of our business has been the core of basically the marine segment. I mean, our business mix doesn't look a whole lot different than your larger segments of tanker, dry bulk and container. But we have diversified and we like complicated activities simply because we're providing a solution that is adding a bit more value and we can get a higher margin for it. So, some of the complicated deliveries that we've been focusing on now produce better results.

So, our mobile team has specialized in that, combined with our advanced logistics we've just gone deeper into the supply chains in various different parts of the world. And that's producing solid results. It's a great addition to our core business activity of our long term container, tanker and dry bulk clients.

Okay. Thanks. And kind of switching gears here, you're talking about your operating cash flow you generated, I believe you sold $28 million of accounts receivables and retained $8.6 million interest. Did you bulk any gain on this? And if so, was that included in operating cash flow?

No, there's no gain booked on the sale of the receivables of any significant. But, obviously, the sale of those receivables impacted operating cash flow. But we had this very similar number of receivables sold in the fourth quarter. I think maybe about a $10 million difference between the fourth quarter and the first quarter -- a $10 million, $15 million increase in what we sold. So, both of those amounts impacted cash flow in each of the last two quarters.

Got you. Thank you for that clarification.

Okay.

Your next question comes from the line of Alex Brand.

Hey, good evening. Sterling filling in for Alex.

Hi, Sterling. How are you?

Doing well, thank you.

Ira mentioned this in his prepared remarks, but I want to make sure that I understand the spread between HHO and jet fuel. Are you saying that it had no year-over-year impact so it was normalized from the fourth quarter?

No. In the fourth quarter, heating oil somewhat unusually moved somewhat significantly ahead of jet, and that resulted in a negative impact. It happened between Thanksgiving and the middle of December on a most pronounced basis.

What I was saying was in the first quarter, not only did the delta return to normal, but actually improved, meaning that the delta between jet and heating oil actually increased beyond what the longer term average. So, we benefited. As opposed to losing a couple of million dollars in the fourth quarter, or having a negative impact I should say of a couple of million dollars in the fourth quarter, we had a positive impact of a couple of million dollars in the first quarter.

And is that fair to look -- thanks, Ira -- on a year-over-year basis so a couple million benefit on a year-over-year basis?

On a year-over-year basis, I think there was a small benefit as well.

Okay.

But not as pronounced as the sequential difference.

On a similar line, can you talk about the impact of jet fuel inventory sale on the P&L in the quarter?

That's effectively the numbers. So, we had a couple million dollar plus benefit in the first quarter.

Okay. All right. I'm with you. Got you. And, Ira, also the NCS land business that you mentioned, is that a material amount of volume that shifted from aviation to land?

The volume is not overly material.

Okay. Great. That's all I had for today. Thanks.

Your next question comes from the line Brian Delaney.

Hey, guys. Thanks for taking the questions. This quarter, of the $4 million of operating income growth, how much of that if we normalize for acquisitions made throughout the last nine months, what is the contribution from acquisitions in there?

There's very little that's left as you got to the first quarter this year because you had two of the three months of NCS already in last year in the first quarter. The only other piece was [Ascent] which was a smaller acquisition that we made in the second quarter. So, there's not much of an acquisition impact remaining on a year-over-year basis.

So, when I'm looking at the operating income growth, you said a portion of that is from the heating oil dynamic you just talked about. So, a million of the four came from that? But you said a couple million. That was sequentially, not year-on-year, correct?

A couple million was sequential -- I'm sorry. We benefited -- I said a couple million this quarter. Sequentially, you got to double that. So, at least a $4 million impact because you had a $2 million negative impact last quarter.

But versus last year, of the $4 million increase in operating income, half of that came from the heating oil?

No. It would be less than half of that. Less than half of that coming from heating oil, a little bit from acquisition, and then the rest would be organic.

So, when I look at the last big acquisition you guys made was April 1. But when I look at the way the street is looking at operating income progression throughout the year, you had 7% growth this quarter. They're looking for a pretty rapid acceleration as the year goes on when the back half it'll be strictly apples to apples, what is the main driver for that as we head into the back half of the year to have such an acceleration?

You'd probably have to ask the folks that are doing the projections. But one of the things that we could talk about, which Mike and I have already discussed, is we obviously saw a drop off on the aviation side because of the border closures, the border closures in Afghanistan. And that should rebound in the second quarter and as the rest of the year progresses.

We should get full benefit if nothing changes to the negative and there are no further disruptions in the second half of the year, and there are significant growth opportunities that we're pursuing across all three sectors. So, we haven't provided that level of detail in terms of projections for the balance of the year. We're obviously always out there trying to increase the profitability of all three segments we participate in. So, we really don't point to the one or two things we discussed on the call as a portion of the drivers.

Okay. And how does the acquisition landscape look currently?

I think there are always opportunities across the segments that we serve. And we're always out there looking. There are plenty of opportunities. It's funny, the right opportunities that fit strategically from a people standpoint, from a commercial synergy standpoint, et cetera, and we got a robust development team that are focusing on those opportunities day in and day out. Sometimes you can land a couple in a quarter. Sometimes you take a little bit longer until they manifest themselves. So, it's tough to give you a pinpoint accurate answer on when something is going to happen.

And for modeling purposes, did you guys comment on the bad debt expenses, is the level we should think about on a going forward basis?

It's a little lower than normal. We had a scenario where receivables didn't change materially, the quality of the portfolio remains strong -- actually strengthens slightly in the quarter. And we had no write offs whatsoever of any significance. But I would say the longer term average would be above what you would see this quarter. But every quarter we're analyzing the need for our reserve independently of the previous quarter. So, it's tough to tell you exactly where that may come out going forward. But you can use history as a guide, I guess, as the best source of forecasting.

Your next question comes from the line of [Roy Pruday].

Hi, guys. Good evening. Thanks for taking my question. I was just wondering, two or three years ago you made a number of acquisitions in the land segment. And since then you've sort of talked about how that's an exciting opportunity for growth. But in the US, gasoline consumption, I think, has been down the last three or four years.

And I'm not sure how much of that is cyclical versus structural -- people driving less and the vehicles becoming more efficient, and things like that. But has the decline in consumption changed the way that you value land segment assets at all since you made those acquisitions in the past?

That's a great question. You know, that's not the only end market that we're involved with. So, commercial and industrial users where you're not going to have displacement of gasoline. You certainly have the dieselization of the business. We do sell a heck of a lot of diesel as well. So, when we look at these businesses, we're really looking at them from the perspective of the distribution assets, the relationships, having those end markets.

So, the last company that we acquired in that space was Western. That was a very nice opportunity for us. We developed and exploited the tails of that business which resulted in crude oil. And we're deploying more of our working capital and balance sheet, exploring that organically. We picked up some lubricants businesses. The rail car business -- we ramped that up to about five times the volume of rail car activity.

So, we like the space. We're going to continue to grow in it. But right now we're satisfied with our ability to sort of work with the businesses that we have. But we're certainly open to go after that.

It's a huge market. I mean, the gasoline market is huge. You could say that it's a melting iceberg. But it's not going to go away. You know, the absorption rate of new technology is going to take many, many years, but we're certainly very conscious of the move to move to move away from gasoline. So, some of the alternative products of bio-diesel and ethanol we're very active in those spaces. We understand them pretty well. So, we're going to continue to use liquid fuel.

Are we going to have electric cars and all that sort of jazz? But it's a pretty big space. We'll continue to grow into it. But we are conscious of that. And it certainly values something we pay a whole lot of attention to. We've managed to grow our business activity organically so we've got a good mix of organic growth. But you'll see us buy in this space again, that's for sure.

Great. Thanks.

Your next question comes from the line of Eric Gordon.

Good evening. You mentioned earlier in the call that government profitability was in the aviation sector, would be up in the second quarter. I was curious within this segment in the first quarter what the sequential decline in government profitability was.

All I can tell you without getting into an exact number, I think we said that in the fourth quarter, the sequential decline was $3 million and we only lost a period of the fourth quarter. We really lost the entire first quarter because of the border closures. So, the number was clearly more than double that in the first quarter this year.

Okay. Great. The second question I had is for Mike. On the prior call, I guess the fourth quarter call, you mentioned that the Company is looking at transformative deals but the price must be right. So, just ask another question on M&A. How would you describe a transformative deal?

You know, listen, we've been in -- if you've taken a look at the history of our company and it's come down a couple of different paths of marine and aviation. We've diversified into land. We've got a lot of different things that we're doing. We are involved in card processing. We acquired Avcard in '07, October of '07. We've grown that business nicely. I like that space. We picked up some software companies.

So, anything that is scalable that fits into our skill set, that takes us into different disciplines, [scout] maybe viral growth. That would be nice. Those types of opportunities I think very much fit with our company. We're certainly not going to discard what we're doing today. But I think if you look at the vertical, the horizontal, the strategic lines that we can go down, they're significant.

When we look at fuel that we're providing to the world, there's a lot of services that you could surround that. If you look at logistics, the logistics phase we're deeply involved in. We're a third party fuel logistics company and finance company. So, there's lots of roads that we could go down. WE look at a lot of things. And we're open to any number of different roads that we think are compatible for our space for the type of skill set that we have. And with our financial sort of roadmap.

So, right now it's fuel. Everything we do is relatively consistent and similar in terms of its aspect. We've got a good amount of best practices. We're leveraging our global platform. But we're totally open to something that can have a dramatic impact on our business. And I'm open to that. We all are. So, it's a possibility.

In the meantime, we're sticking to our knitting, playing good defense on managing our risks. We believe that defense wins ball games. And waiting for the opportunities to provide value to our customers and our suppliers. So, we've been doing it for many, many years. We've got a global team. And our business development crew and our financial crew and our business unit heads are very much tuned in to the vast amount of opportunities.

So, I know that we've been saying this. We haven't actually put something on the table. But we're open to it and we thought it was useful for the market to understand that's our disposition.

Thank you very much.

Thanks, Eric.

And there are no more questions at this time.

Okay. Thanks very much everyone for listening. We'll see you next quarter.

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