World Kinect Corp (WKC) 2012 Q4 法說會逐字稿

At this time I would like to welcome everyone to the World Fuel Services 2012 fourth-quarter and year-end earnings call. My name is Patrick and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session.

(Operator Instructions).

It is now my pleasure to turn the webcast over to Mr. Jason Bewley, Vice President of Corporate Finance. Mr. Bewley, you begin the conference.

Good evening, everyone, and welcome to the World Fuel Services fourth-quarter and year-end 2012 conference call. My name is Jason Bewley, Vice President of Corporate Finance, and I'll be doing the introductions on this evening's call alongside our 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 Michael Kasbar, President and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. By now you should have all received a copy of our earnings release. If not, you can access the release on our website.

Before we get started, I'd 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 a 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 different from our projections can be found on our Form 10-K for the year ended December 31, 2012, and other reports filed with the Securities and Exchange Commission. Our comments will include non-GAAP financial measures, as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and other information required by Regulation G has been posted on our website.

We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. At this time I'd like to introduce our President and Chief Executive Officer, Michael Kasbar.

Think you, Jason, and good afternoon, everyone. Today we announced full-year earnings of $189.3 million, or $2.64 per diluted share. We once again ended the year with a very healthy cash level and liquidity position. For the fourth quarter, our earnings were $45.8 million, or $0.64 per diluted share, when excluding the one-time charges associated with the acquisition of select assets of Multi Service Corporation. Multi Service is an exciting extension of our solutions-based offerings to the transportation, logistics, energy, and payment processing sectors.

Based in Overland Park, Kansas, and with operations in Australia and the Netherlands, Multi Service today processes over eight million transactions annually at more than 3,500 truck stops in the US, at thousands of tolls, bridges and tunnels across Europe, within government payment systems for global fuel procurement and for private label transaction processing customers. We are very optimistic about the opportunities our new Multi Service capability will create going forward.

In the Aviation space, our team once again delivered strong results, setting a new volume record in 2012. For both the quarter and the year, we experienced continued success across all of our Aviation lines of business. Following many years of healthy rationalizations in commercial capacity, including the recently announced merger of American Airlines and US Air, the short- to mid-term outlook appears more positive for the industry as a whole.

For business Aviation, growth within and beyond the United States market represents an attractive opportunity for World Fuel and one we are poised to capitalize on. As we look forward to the year ahead, I am optimistic about our opportunities in the Aviation space.

Our Marine segment also performed well, despite continued weakness in the broader macro markets. While total tons delivered was down slightly for the year, this segments gross profit and operating income was at the highest level we have achieved since 2008, and was up 7% compared to 2011. While the shipping industry continues to be challenged, we remain disciplined in our approach.

In the fourth quarter, lower-risk business was a larger portion of the business mix, and low volatility levels produced less profitability from customer hedging, which led to lower margins for the quarter. However, we believe we're on the right course for this industry in the short term and we remain optimistic about our ability to position ourselves in the Marine space as the shipping industry, the banking industry that it relies on, and global economy continue their slow recovery.

In the Land space, we once again posted records in gross profit and volume for fiscal-year 2012. During the fourth quarter, our results were negatively impacted by adverse price swings in the Midwest market, primarily due to supply disruptions related to hurricane Sandy. However, for the year, the Land segment posted impressive growth, surpassing 3 billion gallons of volume for the first time. While meaningful growth opportunities certainly remain in our Marine and Aviation businesses, the Land fuel market is significantly larger and more fragmented, and therefore provides significant opportunities for further organic growth and accretive investments.

2012 marked another year of growing our platform through both strategic acquisitions and organic development. Over the last five years our Company has grown gross profit and operating income at an average compounded rate of 22% and 24% per year respectively and we continue to improve our ability to scale, integrate, and strengthen our global platforms. We added several key members to our global commercial teams and our cross-segment functional teams, particularly in technology and software development and services.

Over the last decade through various market cycles we've demonstrated that our business model is resilient, that the opportunity set for World Fuel is broad and growing, and that our value propositions are deep and diversified. We are focused on long-term value creation through well-consider distance in the enormous pipeline of opportunities around the world in energy, transportation, logistics, and technology. Opportunities for growth are plentiful, but we remain committed to conservatism and disciplined risk management.

As we expand the breadth and depth of our service offerings across all our business segments, our level of accomplishments in global markets is significant for only 2,500 employees. It is a testament to the talent of our teams and the degree of collaboration we have across business segments, geographies and functions. Our collaborative culture allows us to take any nimble entrepreneurial approach to business while serving our customers' and suppliers' needs and maintaining an effective foundation of corporate governance.

It is truly an exciting time for World Fuel as we leverage our growing capabilities within new demands arising from the global market shifts. While the world continues to change and demands that World Fuel Services change with it, we have not lost sight of our deep commitment to provide our many customers and suppliers with the expertise, value, and solutions that has differentiated World Fuel Services from our competitors for years. I am grateful to you, our shareholders, for your belief in our vision and your ongoing support of the growth of our enterprise. And now I'll turn the call over to Ira Birns for a financial review of our results.

Thank you, Mike, and good evening, everybody. As I review our results I will talk about our performance for the fourth quarter, as well as highlight many of our full-year achievements for 2012. Consolidated revenue for the fourth quarter was $9.9 billion, effectively flat sequentially, but up $612 million, or 7%, compared to the fourth quarter of last year. The year-over-year improvement in revenue was due to the increase in overall volume across our businesses offset by the impact of lower fuel prices.

Our Aviation segment generated revenues of $3.9 billion, up $86 million, or 2% sequentially, and up $599 million, or 18% year over year. Approximately 81% of the year-over-year increase was a result of higher volume and the remainder was a result of higher average jet fuel prices. Our Marine segment revenues were $3.4 billion, down $181 million, or 5% sequentially, and down $539 million, or 13% year over year. Approximately 70% of the year-over-year decrease was a result of lower average bunker fuel prices during the quarter and the remainder was a result of lower volume.

And finally, the Land segment generated revenues of $2.6 billion, up $118 million, or 5% sequentially, and up $555 million or 28% year over year. Approximately 88% of the year-over-year increase was due to the increase in volume and the remainder was a result of higher average gas and diesel fuel prices during the quarter.

Consolidated revenue for the full year in 2012 was $38.9 billion, up $4.3 billion, or 13% compared to 2011. Approximately 82% of the year-over-year increase in revenue was attributable to the overall increase in volume across our business segments and the remainder was a result of higher average fuel prices.

Our Aviation segment sold 1.1 billion gallons of fuel during the fourth quarter, which is flat sequentially, but up 15% year over year. For the full year, our Aviation segment sold 4.4 billion gallons of fuel, up nearly 500 million gallons, or 13% year over year.

Volume in our Marine segment for the fourth quarter was 6.6 million metric tons, up 100,000 metric tons, or 2% compared to last quarter, but down 4% year over year. Fuel reselling activities constituted approximately 90% of total Marine business activity in the quarter, slightly higher than last quarter. For the full year, our Marine segment sold 25.8 million metric tons, down 300 million metric tons, or 1% year over year.

Our Land segment sold a record 875 million gallons during the fourth quarter, up 11% sequentially and up 24% from last year's fourth quarter. For the full year, our Land segment sold 3.1 billion gallons of fuel, up by nearly 700 million gallons, or 29% year over year. Overall, we sold a record 14.3 billion gallons of fuel in 2012; that's up 9%, or 1.1 billion gallons from 2011.

Consolidated gross profit for the fourth quarter was $163.3 million, which represent a decrease of $17.4 million, or 10% sequentially, but a slight increase of $1 million, or 1% compared to the fourth quarter of last year. For the full year, consolidated gross profit was a record $673.4 million, an increase of $38.4 million, or 6% year over year.

Our Aviation segment contributed $76.3 million of gross profit in the fourth quarter, a decrease of $7.9 million, or 9% sequentially, but an increase of $6.3 million, or 9% compared to the fourth quarter of 2011. For the full year, our Aviation segment contributed $294.6 million in gross profit, down $11.5 million, or 4% from in 2011's record level of gross profit in Aviation.

Our Self-Supply model jet fuel inventory position was approximately 90 million gallons, or $284 million at the end of the fourth quarter, down from 95 million gallons, or $318 million in the end of the third quarter. In the fourth quarter, while we were negatively impacted by basis spreads in the early part of the quarter, we recouped much of this impact over the balance of the quarter, resulting in a slightly negative net result for the quarter as compared to a $5 million plus benefit, which we recognized in the third quarter. This was the principle cause of $7.9 million sequential decline in gross profits in the fourth quarter.

The Marine segment generated gross profit of $47.2 million. That's a decrease of $6.7 million, or 12% sequentially, and $6.9 million, or 13% year over year. Our core business was relatively stable in the fourth quarter, with volume actually up slightly from the third quarter. However, we did experience a shift in business mix to lower-margin, low-risk business during the quarter, and low volatility levels negatively impacted profitability derived from customer hedging activities. Despite the continued weakness in the marine markets, for the full year the Marine segment generated gross profit of $208 million, up $13 million, or 7% from 2011.

Our Land segment delivered gross profit of $39.8 million in the fourth quarter, down $2.8 million, or 7% sequentially, but up $1.6 million, or 4% year over year. In the fourth quarter, while we did not initially believe Hurricane Sandy would meaningfully impact our Land results, as the storm subsided many refineries, pipelines and terminals shut down due to damage, power outages, and storm surges. The storm left the entire Northeast with limited to no supply.

While directly affected areas were principally impacted, distributors and end users in the Midwest found themselves in a similar situation, albeit delayed. The Midwest market tightened up as barrels were been directed to the East Coast, and therefore parts of the Midwest, where most of our domestic activity is based, found supply nearly as scarce, driving prices to some of the highest premiums in the US for fuel we purchased during the period following the hurricane, resulting in difficult market conditions in which to generated profitability over the second half of the quarter.

While our branded wholesale businesses in Chicago and Milwaukee were not meaningfully impacted, our Western wholesale business was materially impacted by these factors. As we entered the first quarter, we began to see market conditions stabilize. The hurricane impact was partially mitigated by a full-quarter contribution from Carter, which we acquired in September. Despite Land's fourth-quarter results, for the full year Land generated $170.8 million in gross profit, up $37 million, or 28% from 2011, demonstrating the increasing significance of this segment on our overall results.

As a reminder, the Multi Service acquisition will begin contributing to our Land segment results in the first quarter, enhancing our Land segment's platform and providing broader opportunities for growth. A small portion of Multi Service's results will be reported as part of our Aviation segment.

Operating expenses in the fourth quarter, excluding our provision for bad debt, were $108.6 million, which is up $2.5 million sequentially and $12.2 million compared to the fourth quarter of 2011. The year-over-year increase principally relates to expenses of recently-acquired businesses. For the quarter, we recorded one-time expenses of $4.5 million associated with the Multi Service acquisition, which were all recorded in corporate overhead. We had initially estimated these one-time expenses at $2.8 million, but following the announcement of the transaction we identified multiple redundancies which resulted in additional one-time costs.

In addition, Carter contributed to three months of operating expenses in the fourth quarter versus one month in the third quarter. Excluding the one-time charge and Carter, our operating expenses were actually down 8% sequentially. Intangible amortization included in the $108.6 million of operating expenses in the fourth quarter was $4.9 million, up from $4.6 million in the third quarter, but down from $6.9 million in the fourth quarter of last year. With Multi Service's related intangible amortization included, first-quarter amortization is estimated to be between $5.5 million and $6.5 million.

For the full year, our operating expenses increased as a percentage of gross profit when compared to 2011, driven principally by gross profit performance, which came in below expeditions. We were not pleased with this outcome and therefore, as we enter 2013 we are highly focused on driving further operating efficiencies and expect this metric to once again improve over the course of 2013. For modeling purposes, I would assume overall operating expenses, excluding bad debt expense, of approximately $115 million to $119 million in the first quarter of 2013. Once again, this estimate now includes a full quarter of Multi Service results.

Our total accounts receivable balance in the fourth quarter was $2.2 billion at December 31. That's down from $2.4 billion at the end of the third quarter. Our bad debt expense in the fourth quarter was $400,000. That's down from $3.6 million recorded in the third quarter and down $1 million compared to the fourth quarter of 2011. The sequential reduction in bad debt expense is principally related to the decrease in accounts receivable during the quarter, while we had a significant increase in accounts receivable in the third quarter.

Consolidated income from operations for the fourth quarter was $54.4 million, a decrease of $16.79 million, or 23% sequentially, and a decrease of $10 million, or 16% year over year. Excluding the one-time expenses related to Multi Service, consolidated income from operations in the fourth quarter was $58.9 million. For the full year, once again excluding the one-time expenses, income from operations was $261.5 million, up $4.5 million from 2011.

For the quarter, income from operations in our Aviation segment was $35.6 million. That's down $4.3 million, or 11% sequentially, but up $6.2 million, or 21% compared to the fourth quarter of 2011. Our Marine segment's income from operations was $20.6 million in the fourth quarter, a decrease of $6.8 million, or 25% sequentially, and $7.4 million, or 26% from last year's fourth quarter. And finally, our Land segment had income from operations of $12.6 million, down $5.6 million, or 31% sequentially, and $6.2 million, or 33% year over year, principally due to the items that I highlighted earlier.

Consolidated EBITDA for the fourth quarter, excluding the one-time expenses related to Multi Service, was $67.1 million, a decrease of $5.9 million, or 8% year over year. For the full year, excluding the one-time expenses, EBITDA was $289 million, effectively flat with 2011's results.

Our non-operating expenses, which is principally interest expense, was $4.3 million in the fourth quarter, up $900,000 compared to the third quarter and down $200,000 from the fourth quarter of last year. Excluding any foreign exchange impact or earnings from affiliated businesses, I would assume non-operating expenses to be approximately $5 million to $6 million for the first quarter of 2013.

Our effective tax rate for the fourth quarter was 10%. That's down from 21.7% last quarter, and 11.5% in the fourth quarter in 2011. The lower tax rate this quarter was impacted by multiple items, including the lower-than-expected income in the US, driven by the Land situation described earlier, and an aggregate $3.6 million reduction in our FIN 48 reserve for uncertain tax liabilities, due principally to the settlement of an income tax audit, as well as the settlement of certain other foreign tax liabilities.

Excluding the FIN 48 reserve reduction, our effective tax rate in the fourth quarter would have been 17.2%. The fourth quarter is a clear reminder that our quarterly tax rate can vary based upon shifts in our distribution of worldwide earnings and other tax-related matters. Therefore, rather than providing quarterly guidance, it seems more appropriate to provide guidance for the full year. So while our quarterly tax rate may fluctuate, we estimate that our effective tax rate for the full year of 2013 should be between 18% and 21%.

Our net income for the fourth quarter, excluding the one-time expenses, was $45.8 million, a decrease of $5.7 million, or 11% from the third quarter, and a decrease of $4.3 million, or 9% year over year. For the full year, excluding one-time expenses, net income was $192.3 million, down $1.7 million or 1% year over year.

Non-GAAP net income, excluding the one-time expenses, amortization of acquisition-related (inaudible) intangible assets and stock-based compensation, was $52.3 million in the fourth quarter, a decrease of $5.6 million, or 10% sequentially, and a decrease of $5.1 million, or 9% year over year. For the full year, excluding all the items I just described, non-GAAP net income was $215.9 million, down $5.2 million, or 2% year over year.

Diluted earnings per share in the fourth quarter were $0.60. Excluding the one-time expenses, it was $0.64, representing a decrease of 11% sequentially and 9% year over year. For the full year, diluted earnings per share was $2.64, and excluding the one-time expenses it was $2.68, representing a decrease of 1% year over year. Non-GAAP diluted earnings per share, excluding all the items identified, was $0.73 in the fourth quarter, a decrease of 10% sequentially and 10% year over year. For the full year, non-GAAP diluted earnings per share, excluding all the items identified, was $3.01, a decrease of 3% year over year.

Our overall net trade cycle remained generally unchanged at 8.4 days in the fourth quarter, compared to 8.2 days in the third quarter and 8.5 days in the fourth quarter of last year. We generated $98 million of cash flow from operations in the fourth quarter, bringing our total cash flow from operations for the year to nearly $146 million. This compares to $74 million in cash flow from operations generated in the fourth quarter of last year and a use of $143 million of cash for the full year of 2011.

Our balance sheet remains strong and liquid. Despite approximately $137 million utilized to fund the Multi Service acquisition in December, we had more than $172 million of cash at year-end, and our net debt was only $208 million. Net debt to EBITDA was only 0.73 times and we had only $100 million drawn on our revolver, providing us with significant liquidity to fund organic growth and future strategic investment opportunities.

In closing, while 2012 had its challenges, we performed well. We posted record gross profit and reach record volume. We completed two accretive and strategic acquisitions, including the recent acquisition of Multi Service, which will provide new avenues for future growth, and we continue to focus on our strategy core competencies and broad product and service offerings. We also generated strong operating cash flow, further enhancing our solid liquidity profile, providing significant capacity to fund organic growth and additional strategic and accretive investments in 2013 and beyond. Now I'd like to turn the call back to the operator to open up the call to Q&A.

(Operator Instructions).

John Chapelle.

My question's going to be about Multi Service. How are you going to account for this thing? It's the land business, I'm assuming, but it's not like a typical volume-type business. Can you give us any insight as to how we can model this thing; margins, transactions, stuff like that?

All we can tell you right now -- we'll elaborate more in the first quarter when we complete the first full period of results -- for starters, I would say about 80% -- a little over 80% of the results will fall into our Land segment. The balance will be in Aviation. That relates to the air card program. We'll also do -- because obviously the net revenue generated by Multi Service has no fuel attached to it, so we'll share service-related revenue separately so we won't taint the profit per gallon that we generate in the core Land business and we'll share that information on a quarterly basis. That's probably all we can tell you right now. If we think of anything else we'll share that with you at the end of the next quarter.

Okay. And then if you can also talk about the opportunity in this business. What's the competitive landscape like? Is this a one-off transaction or are there other countries like Multi Service where you could roll them up like you do your core business and provide economies of scale to this business?

We haven't had a chance to talk about Multi Service since we acquired it. We've known the company for quite a long time and it's always great when you bring folks into the group that you know. There's certainly a level of comfort and ease makes the integration a whole lot easier, so we've been doing business with them for quite some time in a number of different places. We've worked with them, we've competed with them. Their primary lines of business is their fleet card business, which they focus on the smaller fleets.

It's an underserved marketplace, and what they do is what we've done pretty much our entire lives is consolidating and aggregating purchasing to create some efficiencies. We're providing solutions for that client on the purchasing side and then efficient marketing platforms for our supply partners. So they've got a very nice product. They've got an extremely customizable proprietary and pretty flexible platform that they can pretty easily configure to satisfy the requirements of a diverse customer base.

So we're really happy with their product. We've always admired what they've done. And then they do a number of other different things in terms of private label where their giving aftermarket OEM part space basically the ability to deal with contract management, transaction processing, and that's a service on the trucking side. They manage an independent-owned network of retailers where they provide a level of service there.

So it is something that we like from the perspective of its scalability, its ability to provide solutions to our clientele to both our suppliers and our customers, and we'll be talking about it a bit more as we go down the road. We certainly think that we've got opportunities, especially on the international side. You do have opportunities around the world, and we'll be looking to do some add-ons. It's early days, but we'll definitely be looking to add onto that and build onto this fantastic team that we (inaudible).

Okay, that's my two. Thanks, Mike. Thanks, Ira.

Greg Lewis.

I just wanted to follow up on Jonathan's questions on Multi Service. I guess I'd ask it a little different way is. What if any impact is the acquisition of Multi Service and as this rolls through World Fuel's balance sheet, is that going to -- in other words, are we going to see more increase in -- is there going to be more -- the funding mechanism, was there going to be a requirement from World Fuel to expand its balance sheet, i.e., increase its debt and other?

No, the Multi Service platform actually uses very little cash. As we mentioned in the announcement we expect them to throw off cash in the first year. And by the way, since we closed on December 31 the assets and liabilities related to Multi Service are on the year-end balance sheet already, even though there were no results of operations, obviously, in the fourth quarter because we closed the last day of the year. So if that's what you're asking, Greg, it's not a cash-intensive business. It's more the opposite. It should provide opportunities for us to enhance our cash flow profile.

Okay, perfect. And then just shifting gears a little bit, can you provide a little bit more color on the impact of Sandy in the Midwest. Just giving the timing of that in the quarter. When did it normalize? I think you mentioned that it has normalized, was that something that we saw in December or was it something that happened in 2013?

In the last quarter we were just a day or two into it and we don't really have significant operations in our Land business in the Northeast where, obviously, Sandy hit, so at the time we certainly didn't expect that we were going to have much of an impact there. Our Aviation side did extremely well and managed themselves, moving a lot of product by truck. It's just a little bit of a different supply chain and our Marine business is very much globally oriented.

What we didn't really count on was the ripple effect of the impact it was going to have in the Midwest, so that caught us by surprise and was largely responsible for some price disruptions and we were impacted by that. The Western model is very much oriented as an inventory model, moving product around the Midwest throughout the country, and that certainly caused some impacts that we didn't really plan for or expect and we were exposed to. So it basically rolled throughout the quarter.

Okay, perfect. Thank you.

Thank you. Jack Atkins.

To start off with, if we could focus on the Marine segment for a minute, what was really behind the negative mix shift there in the quarter? And then do you think that that's normalizing? Just trying to understand if this is something that could be an issue for the next couple quarters, or if this is confined to the fourth quarter?

It's possible that we're a bit more conservative than the average bear. We very much are oriented to not taking and not betting the farm. We never have and it's not really our plan to do that. You've got a fairly risky market there, so we've taken a conservative approach. Demand is not great, as we know. You've got different market cycles Aviation and Marine. I think that's the beauty of the diversity of our business model.

If you look back at 2008 and 2009, we had an exceptionally good year for Marine in 2008. Aviation responded extremely quickly, started to soften up in Marine in 2009, Aviation came back and then we introduce Land. I've talked about some of the noise canceling. The beauty of our business model is that we're not necessarily dependent on any business cycle or economic cycle. We've managed to go through all of them.

We're still conservative on the Marine side. The banking -- there's still a tremendous a lot of debt out there that I think a lot of -- the lack of recognition, so we're careful and what that means is that our growth is probably going to be a little bit conservative. On top of that, the volatility was not great in that quarter.

If you talk about the fourth quarter of 2011, we had a significant amount of contracts due to derivatives because we had the right forward-curve profile. We didn't have those in this quarter so that was primarily why the fourth quarter turned out the way it did and we think that it's going to be probably a slow recovery. That seems to be the orientation of Marine. It reacted low bit slower than the Aviation side. The Aviation side has done an exceptionally good job of cutting down on their capacity and has manage themselves in some ways better than the Marine industry, which is a pretty distressed industry.

Okay, got you. And then as my follow up, just wondering if you guys could address your plans for the NCS business in 2013 given the administration's plan for the troop withdrawal there over the next couple of years. Just sort of curious, is the pipeline additional NATO contracts, is that as full as it was a couple of quarters ago and where are we in the process of maybe winning additional process to supplement the loss of demand once we minimize our footprint in Afghanistan?

When we made the decision to acquire that company a while ago, we did it with the intention of being able to leverage that skill set to other geographies. That is one serious piece of business development, but it's very much in tune with our strategic extensions of understanding logistics, procurement, dealing with government entities. Within Afghanistan, that troop draw down will create additional activity so it's possible, but certainly not guaranteed, that the level of activity could, in fact, increase, but it's always unpredictable there. Certainly I wouldn't venture any guess on anything there.

We provide the service and once again our intention -- we all pray at the altar of predictability, but we're trying to balance profitability and predictability and we -- I don't want to say opportunistically go after things, but we certainly are positioning ourselves to fill the gaps in the marketplace and match our core competencies and our developing core competencies to those emerging opportunities in the marketplace, and some of them are not ratable.

We do look at that logistics service in those framework agreements in other parts of the market and we've been working on that. We don't have anything to report. We established Kyrgyzstan a while ago and we reported that to you. So it's certainly our intention to develop that as a global business line and I think for the foreseeable future our expectation is largely stable results, but it's impossible to really know.

Okay, great.

Ken Hoexter.

Mike, maybe could just follow up on the -- you've talk about Land being impacted by Sandy. You talked about Marine staying in this weak market. On Aviation it also saw a little bit of decline on the gross profit per gallon. Was this because of also Self-Supply at Aviation, was that impacted, or is there a shift here that you're seeing similar to the Marine on -- in terms of your volatility comments there?

The principal shortfall on Aviation that contributed to the lower margin -- because, once again, volumes were generally flat -- was what I described in my prepared remarks. We were positively impacted on inventory, as I described on the last quarter's call, by over $5 million. This quarter we didn't have a positive impact, we actually had a slight negative impact to $1 million to $2 million. So that $6 million or $7 million swing contributed to almost the entire delta in GP sequentially, which is what drove the reduction in margin.

No, it's not the dynamics that we described in Marine, but I would describe the Aviation business as stable with a lot of growth opportunities on the horizon in both the commercial and general aviation side of the house.

But to the Marine comment there, it is because of lower volatility, right? Is that -- am I my getting that comment correct?

On the Marine side there were two things that Mike described. One was volatility was extremely low and as you remember, Ken, from past discussions, volatility contributes to the profitability that we generate on the hedging side on behalf of our customers, so it in a period with no volatility like we saw in Q4 it's less likely for us to be successful in that element of our business. So that was one piece of the puzzle. The other piece was both a conscious migration to lower-margin, lower-risk business and really being driven there in part by what was available out of the marketplace.

We generated the same level of volume in Q4, but the mix of business was shifted towards the highest credit quality, which is typically the lowest margin, and that was a bit different than what we saw in the third quarter. So you had a couple factors there. That also contributed -- the second factor that I just described contributed to cash flow, as well, because generally the trade cycle of some of that lower-risk businesses tighter, and that's one of the contributions to what was a very solid cash flow result in Q4. That's the positive side of that equation.

Great. And if I could just to the follow up here on -- coming back to Multi Service, I think there's still a bit of confusion as to -- maybe, Michael, you were addressing the question there before about why you felt this was needed. Are you trying to say this is a new leg to the story after the Land and Aviation and Marine, or is this something you view as an extension to existing operation. Give a little bit of feeling as to why you wanted to make this type of acquisition as opposed to something that would have been maybe -- fit into one of those three segments a little bit cleaner?

Thanks for asking, because it gives me an opportunity to talk about it a little bit. We're really very excited and happy to have Multi Service as part of our family of businesses. If you look at what our value proposition is, we're providing solutions. If you look at processing millions of transactions, getting a timely invoice and accurate invoice, getting the management control of what is going on with a truck. They provide a closed-loop, level-three transaction system that gives both the merchant, as well as the customer, the opportunity to get a tremendous amount of information on what is going on with that transaction.

We've got a great team that, as I said before, has built this highly flexible, customizable proprietary platform that we can basically engage our buyers and our sellers to basically make what is kind of a complicated thing, with taxes and fuel prices and locations and management information, basically sort that chaos out. So we're really exciting about being able to bundle this.

So to answer your question, it's really both. It stands on its own; it always has stand on its own. It's been an independent business for many years, extremely innovative group of people. Now they have a bit of a war chest; they've got a global platform. Certainly we've got a tremendous supply community by way of introduction in terms of business development and expanding customer base. They bring us into the Land business a significant amount of touch points on the Land side in terms of trucking. So we're pretty excited about it. And their functionality that they have in all of their lines of business are transferable to other geographies and other marketplaces and other solutions.

So you know that we've invested a tremendous amount of money over the years in technology. We're a big believer in it, it certainly makes a lot of sense for our asset-like business. We're running an intellectual capital business. We're basically making money on our ideas, our and innovation, and our wits. And technology and information management and solutions for all the moving targets that we have in terms of prices jumping up and down, locations, all of the logistics, ships, planes, trucks, it all fits.

So we've been on this. It's been a little bit of a slow burn, we've made some small acquisitions of software and technology companies. We bought Avcard in 2007. It does fit, and it adds to the predictability. These are very predictable business models, they're asset-light, they're very working capital, non-intensive, or whatever the right word is. We like it and we'll continue to grow our business in a bunch of different areas.

Whether we've got the right mix of businesses today, we're doing a number of bit different things and we're in the process of figuring out what that right mix is, but we're pretty happy with this addition. It is a little bit different, we understand that. But trust us, this was, I think, a very good at addition to our suite of services.

Appreciate the insight. Thank you.

William Horner.

Mike, you touched on this earlier and I appreciate the color you gave on Sandy, but did you by chance quantify the impact you all saw during quarter?

I'll get that, William. It's very difficult to quantify within any level of complete certainty, but we're viewing the impact it's somewhere in the neighborhood of $4 million to $5 million for the quarter.

Okay.

So that doesn't represent the entire sequential change in GP, but it's certainly a good half of it or a little more than that.

Okay, good. Thanks, Ira, that's good color. And then just on quick housekeeping issue. I missed it on the slide, but could you remind me of your Aviation volumes during the quarter?

The Aviation volumes in the quarter were 1.1 billion gallons.

Okay.

Which is basically flat from the third quarter.

Got you. All right, that's all I've got. Thanks, gentlemen.

Edward Hemmelgarn.

What was the quarterly revenue run rate for Multi Service when you acquired them?

Well, remember, it's effectively a net business model, their gross revenue and net revenue are the same, it's less than -- it's about $15 million or so a quarter.

$15 million? Okay, great. Thanks.

Thank you. And at this time we have no further phone questions.

Well, thanks for joining us. We feel good about our Company and what our position is for long-term value creation. We've got significant global reach, we think we've got an excellent competitive position, and we feel very good about our ability to continue to participate in this incredible global marketplace. So thanks very much, and we'll look forward to talking to you next quarter.

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