World Kinect Corp (WKC) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the World Fuel Services' 2015 first-quarter earnings conference call. My name Thaddeus and I will be coordinating the call this evening. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you, Thaddeus. Good evening, everyone, and welcome to the World Fuel Services first-quarter earnings conference call. My name is Glenn Klevitz, World Fuel's Assistant Treasurer, and I will be doing be introductions on this evenings call, alongside our live slide presentation.

This call is also available via webcast. To access the webcast or future webcasts, please click on our website, www.wfscorp.com, and click on the webcast icon.

With us on the call today are Michael Kasbar, Chairman 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 I get started, I would like to review World Fuel's Safe Harbor statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.

A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's Form 10-K for the year ended December 31, 2014, and other reports filed with the Securities and Exchange Commission. World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or other events.

This presentation also includes certain 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 is included in World Fuel's press release and can be found in its website.

We'll 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, Michael Kasbar.

Thank you, Glenn, and good afternoon, everyone. Today we announced adjusted first-quarter earnings of $59 million or $0.83 per diluted share. During the quarter, we once again demonstrated the resilience of our diversified business model and delivered solid results, despite the vagaries of today's marketplace.

In the first quarter, our land segment was driven by the strong seasonal performance of our UK-based Watson Petroleum business. Our aviation and marine segments performed well and we improved our returns on working capital, assets, and equity. Our balance sheet remains very healthy and we generated more than $100 million of operating cash flow during the quarter.

In our aviation segment, while we saw the expected seasonal decline in certain regions, our commercial aviation team continued to conclude valuable business with blue-chip airlines and expanded our service offerings to new locations.

Our growing global business in general aviation platform performed well during the first quarter, aided by an increase in deicing activities. And our integration efforts continue to materialize synergies.

In our marine segment, we continue to grow market share, posting the highest quarterly volume total in the history of the segment, at nearly 7.7 million metric tons. Although we witnessed weakness in some higher-margin specialty markets and locations as well as the continuing headwinds in the dry bulk markets, our team remained focused on profitable growth while delivering premium services through our expanding global platform.

In our land segment, the very strong seasonal performance from our recently acquired Watson Petroleum business was the principal contributor to the segment's solid result in the first quarter. Although the land result was offset by drop-off in our domestic wholesale business from a very strong fourth quarter, the teams continued to perform well and we are very optimistic about our ability to grow our land business in the US, the UK, and beyond.

Lately, I've heard more senior political figures tell me that they've never seen such a tumultuous, geopolitical global landscape with a more disruptive and discordant world situation than what exists today. I bring this up because while it's not good news, our business model is designed to pivot away from risk and towards opportunity and manage those risks to create alternatives for our customers and suppliers to safely run their respective businesses.

Our talented team, our significant investment in technology, software, and enterprise business process allows us to continue to grow our ability to respond to market events and developments in every corner of the globe, in almost every single energy product and form of distribution and support.

Our technology orientation is significant, both within our business as well as with business technology that powers our customers' businesses, where we wrap the best elements of our domain expertise with our own proprietary software. Our flexibility and entrepreneurial roots, combined with a maturing operation, puts us in an enviable position to satisfy the ever-changing needs of our marketplace.

It's an exciting time at World Fuel. We have a tremendously talented and engaged group of people from all over the world invested in building out a long-term sustainable and broad-based energy, logistics, and technology business managing commercial and industrial risk.

Having that multicultural commitment to building a global public company committed to sustainable returns and value-add in global commerce is an enormous value prop. We are at the early stages of leveraging this capability.

We appreciate the continued support from our shareholders, customers, and suppliers. And we continue to be very enthusiastic about the opportunities to build our business over the long term.

And now I'll turn over the call to Ira for a financial review of the results.

Thanks, Mike. And good afternoon, everybody. Before I review our financial results, please note the year-over-year and sequential comparisons will exclude certain items that were disclosed in the first and fourth quarters of last year as well as a charge related to the previously disclosed retirement of our former aviation segment president of $3.8 million or $2.3 million after-tax and an acquisition related deferred revenue accounting adjustment of $2.1 million or $1.1 million after-tax and minority interests, which were reported in our most recent quarter.

Now onto the financials. Consolidated revenue for the first quarter was $7.3 billion, down 25% sequentially and 30% compared to the first quarter of 2014. Our aviation segment generated revenues of $2.9 billion, down 26% sequentially and 32% year over year.

Our marine segment revenues were $2.3 billion, down 25% sequentially and 33% year over year. And finally, our land segment generated revenues of $2.1 billion, down 23% sequentially and 25% year over year.

All of these year-over-year declines were due to substantially lower oil prices, offset in part by increased volumes. And the sequential declines were also due to lower oil prices, offset by higher volume in the marine segment only.

Our aviation segment volume was down 3% sequentially to 1.45 billion gallons, driven principally by fewer selling days during the quarter. Year over year, aviation segment volumes grew 10% or 125 million gallons.

Volume in our marine segment the first quarter was a record 7.7 million metric tons, up more than 500,000 metric tons or 7% compared to last quarter and up approximately 1.6 million metric tons or 27% year over year.

Our marine team has done a great job growing market share over the past two quarters, with volume now up more than 18% since the third quarter. Fuel reselling activities constituted approximately 86% of total marine business activity in the quarter. This number has decreased due in part to some acquired brokerage activity late in the fourth quarter.

Our land segment sold 1.1 billion gallons during the first quarter. That's flat sequentially, but up more than 150 million gallons or 16% from the first quarter of last year.

Consolidated gross profit for the first quarter, excluding the previously mentioned deferred revenue accounting adjustment, was $217 million, a decrease of $2 million or 1% sequentially, but an increase of $29 million or 16% compared to the first quarter of 2014.

As mentioned at the beginning of my prepared remarks, we recorded a $2.1 million acquisition-related deferred revenue accounting adjustment in the first quarter relating to an aviation acquisition completed late in the fourth quarter. We will need to make this adjustment in each quarter of 2015. However, after what we estimate to be a $1.2 million pre-tax adjustment in the second quarter, or next quarter, such amounts will become less meaningful in the second half of the year.

Our aviation segment contributed $85 million of gross profit in the first quarter, again excluding the same deferred revenue accounting adjustment, which is an increase of $10 million or 14% sequentially and $16 million or 23% compared to the first quarter of 2014. The principal driver of the sequential increase in gross profit related to inventory average costing, where we experienced a modest positive impact in the first quarter as compared to a loss of approximately $6 million in the fourth quarter of last year.

Our de-icing business performed well, driven by the cold US winter. And government-related gross profit remained relatively consistent with the fourth quarter.

Our self-supply model's jet fuel inventory position was approximately 138 million gallons or $230 million the end of the first quarter compared to 134 million gallons or $242 million at the end of the fourth quarter.

The marine segment generated gross profit of $54 million, a decrease of $6 million or 9% sequentially, but an increase of $6 million or 13% year over year. The sequential decline was driven by a more competitive pricing environment resulting principally from lower fuel prices during the first quarter as well as a decline in offshore activity.

Furthermore, while gross profit was down sequentially, marine's return on working capital actually increased due to the significantly lower price environment. And finally, marine first-quarter gross profit remains well above the levels achieved through the first three quarters of 2014.

Our land segment delivered gross profit of $79 million in the first quarter, a decrease of $7 million or 8% sequentially, but an increase of $7 million or 10% year over year. Our first-quarter land results benefited from a very strong seasonal quarter at Watson in the UK, offset by a drop-off in our domestic wholesale business from what was a very strong fourth quarter and also the impact of the sale of our crude oil marketing joint venture in the fourth quarter. Therefore, those results are no longer included in 2015.

While Watson performance was very strong in the fourth quarter and first quarters, as mentioned when we announced the Watson acquisition last year, Watson generates substantially all of its profitability in the winter months. Therefore, we expect a significant reduction in Watson-related profitability in the second and third quarters with the return to their seasonally strong period in the fourth quarter of this year.

Nonfuel-related gross profit associated with our multiservice business was $12 million in the first quarter. Operating expenses in the first quarter, excluding our bad debt provision, were $139 million, down $7 million or 5% sequentially, but up $17 million or 14% year over year.

The year-over-year increase in operating expenses is principally related to a full quarter of Watson compared to less than one month in last year's first quarter. Operating expenses as a percentage of gross profit were 64% in the first quarter, down from 67% last quarter and 65% in the first quarter of 2014.

As we look to the second quarter, I would assume overall operating expenses, excluding bad debt expense again, to return to approximately $144 million to $148 million. Our total accounts receivable balance was $2.2 billion at the end of the first quarter. That's down $100 million or 5% sequentially, principally related to the continued decline in fuel prices during the first quarter.

Our bad debt expense in the first quarter was $1.3 million, up from just $200,000 recorded in the fourth quarter, but down $100,000 compared to the first quarter of last year. Our highly experienced global credit team continues to do an excellent job managing our credit exposures throughout the world.

Income from operations for the first quarter was $77 million, up $4 million or 6% sequentially and $12 million or 18% year over year. For the quarter, income from operations in our aviation segment was $34 million, again, adjusted for the items previously mentioned, an increase of $6 million or 22% sequentially and $4 million or 12% compared to the first quarter of 2014.

While marine gross profit declined by $6 million sequentially, as I mentioned earlier, marine income from operations was $26 million for the first quarter, a decrease of only $1 million or 4% sequentially. Year over year, marine operating income increased $5 million or 24%.

And finally, our land segment generated income from operations of $32 million, an increase of $1 million or 5% sequentially and $5 million or 20% year over year.

EBITDA for the first quarter was $92 million, down $1 million or 1% sequentially, but an increase of $12 million or 15% compared to 2014.

Nonoperating expenses for the first quarter were $7 million, an increase of $1 million sequentially and $4 million compared to the first quarter of 2014. The year-over-year increase in nonoperating expenses is principally related to higher average borrowings during the first quarter.

Again, excluding any foreign exchange impact, I would assume nonoperating expenses to be approximately $5.5 million to $7.5 million for the second quarter of 2015.

Excluding the items that I previously mentioned, the Company's effective tax rate in the first quarter was 17%, up from 14.9% last quarter, but down from 18.1% in the first quarter of 2014. While our tax rate could always fluctuate on a quarterly basis, we estimate that our effective tax rate for the full year of 2015 should be somewhere between 16% and 19%.

Our adjusted net income for the first quarter was $59 million, representing an increase of $1.4 million or 2% from the fourth quarter and $7.1 million or 14% year over year. Adjusted diluted earnings per share for the first quarter was $0.83, an increase of 3% sequentially and 14% year over year.

Non-GAAP net income, which additionally excludes intangible amortization and stock-based compensation, was $65 million in the first quarter, a decrease of $3.1 million or 5% sequentially, but an increase of $6.5 million or 11% year over year. Non-GAAP diluted earnings per share was $0.91 in the first quarter, a decrease of 5% sequentially, but an increase of 8% year over year.

We generated $107 million of cash flow from operations in the first quarter, marking the 11th consecutive quarter of positive operating cash flow and totaling more than $700 million over this period. As a follow-up to last quarter, our net cash collateral on deposit related to our derivatives portfolio, declined by approximately $25 million in the first quarter, which contributed to our positive cash flow results.

As mentioned last quarter, we expect that cash flow related to the reduction in such cash collateral deposits to accelerate in the second and third quarters of this year as related derivative contracts mature. We had $391 million of cash at quarter end. And sequentially, we reduced our net debt by approximately $80 million to $310 million.

Net debt to EBITDA improved to approximately 0.9 times, providing us with significant capacity to fund organic growth and future strategic investment opportunities while continuing to maintain a strong balance sheet.

While lower prices contributed to first-quarter cash flow results, it also positively impacted key metrics, including return on assets, return on equity, and return on invested capital. First-quarter return on invested capital of 11.7% represents our highest quarterly return since fourth quarter of 2013.

So in closing, we delivered solid results this quarter, with a 19% year-over-year increase in volume and a 16% year-over-year increase in gross profit. Sequentially, we experienced increased profitability in aviation, increased volumes in marine, and strong seasonal results at Watson in the UK.

As I mentioned earlier, while Watson seasonality will likely result in a drop-off in our overall results in the second quarter, we expect a strong rebound in the second half of the year, aided by seasonal strength in aviation and land in the third quarter and fourth quarters, respectively.

Our consistent cash flow generation has allowed us to continue to make both organic investments and acquisitions while maintaining a solid balance sheet with significant liquidity and the pipeline of such additional opportunities remains rich.

I would now like to turn the call over to Thaddeus, our operator, to begin the Q&A session.

(Operator Instructions) Jon Chappell, Evercore ISI.

Mike, first question on the marine side. So record volumes -- that's great. But then pretty sizable sequential decline in the gross profit. So what I'm trying to get my head around is how much impact from OW -- I know we talked about this last quarter.

Was there a potential volume benefit from OW that also translated maybe into a weaker spread from some of that business? Was there a boost to the fourth-quarter profitability because of OW that kind of normalized in the first quarter? Just trying to rectify how one can jump so big, while the other drops in a short period a time, when this kind of big underlying issue is happening in the industry.

Well, Jon, you are good student of the marketplace, as we all know. So certainly in the fourth quarter, we had a number of different issues. We certainly helped a number of suppliers and customers that were a bit stranded in the marketplace. And that certainly gave us a little bit of a pop in our volume activity.

We also had significantly strong quarter in the fourth quarter totally unrelated to OW. The whole OW impact, I think, has been pretty drastically exaggerated to a certain extent.

We had the drop-off in pricing, which has somewhat of an impact on margin activity. When you look at pricing in the marketplace, some of the offshore market, you know that the offshore business has come off. So that's softened the demand there. Rig mobilizations are down.

So combination of a number of different things. A lot of those folks from OW have ended up in other companies. They've been distributed. They haven't left the marketplace. I think our team did a pretty good job in terms of building volume and generating a reasonably good margin, considering the growth in volume.

So the volatility that some folks have talked about and some have equated this to 2008. It's really dramatically different. We've got a massively oversupplied marketplace; demand is still not strong. So you've got a lot of folks on the fence in terms of the derivatives activity. Inventory levels are as high as I think they've been in about 80 years.

So it's still kind of a sloppy market and I think our team did a superb job of building volume. We feel very good about where we're going and I think it's just the ups and downs of the marketplace.

If I can ask my one follow-up here before my second question. If I'm trying to -- and I guess I kind of grew up understanding the business that potentially the bluer chip customers maybe don't pay as much, because they are a bit better kind of risk-adjusted counterparty, I guess.

So could we maybe read into the first quarter -- or am I completely misinterpreting this -- that volume is much stronger, maybe the spread was down, because there is more of a focus on kind of counterparties and credit risk. And like you said, you've added significant volume and your sales team has done a good job, but maybe on a risk-adjusted basis, it's been pretty good, which is unfortunate for kind of the sequential margin side of it.

Yes, that's part of it. We certainly will take all the blue-chip volume we can get. [I don't] much focus on that. We acquired -- I'm pretty sure that it we mentioned this in our last call that we picked up a brokerage operation, a former brokerage company from Wilhelmsen Marine called WMF, with offices in Oslo, London, and Singapore.

So we've increased our brokerage volume there, which has an impact on margin. And also lower pricing does impact it. It improves our returns, but it does have a little bit of an impact on the margin side. Prices have dropped on average quarter to quarter about 33%. So you're going to see some impact there.

Okay. My second question, Mike. In your prepared comments, one of the last things you said was you are in the early stages of leveraging some of the capabilities that you've either acquired or developed organically.

If I can just ask two parts of this. One -- how much of the early stage is -- are you like first or second inning or are you kind of in the fourth or fifth inning of where you aspire to be with some of these capabilities?

And I guess the second part of that would be how else do you develop these? I mean, do these have to be further developed organically? Do they need to be developed through kind of bolt-on acquisition? So how do you kind of foresee that?

Listen, thanks for the question, because it gives me really an opportunity to talk about something that I've got a lot of passion for. And I think is one of the coolest things about our Company.

We've been doing this for a long, long time. And I'm pretty proud that we have a lot of smart and talented people that have been here for a long time, building this from nothing to what it is today.

But when we look at the marketplace of energy, logistics, and the value-added services that we are providing to commerce and transportation and now broadening to energy with natural gas and power. We're building up our lubricants business.

We have 39 different products and inventory in 14 countries. We operate about 4,000 individual physical assets, logistics assets. So the Company really has grown tremendously and the market continues to open up for us.

You know, the downstream market is huge. I've mentioned in the past, we've -- today, handle about 1 million barrels a day. We touch a significantly greater percentage of that. So as we continue to grow organically and grow through acquisition and build out our capabilities within the value chain, it's just tremendously exciting.

You know, we've got people in so many different countries around the world connected to one system, it's truly a global team. So the sky is the limit. Obviously, it all takes time; it's taken a lifetime to get to this point.

But as we look at the land space, in particular. We look at the marine space; we've gone selectively into some physical markets on the niche side. OW obviously did a lot of that. We do that very selectively. On the marine lubricant side and the land lubricant side, that's an enormous business.

Natural gas is a huge part of the energy complex and we are providing advisory on the power side. So these are just huge, huge markets. And they all really fit into our capabilities and competencies. It's not that much different.

So having that risk management platform, having that back-office capability, the technology capability, really allows us to intelligently and strategically and selectively look at these markets and how we can bring value to a broadening customer base.

Our government activity is interesting. Our military activity -- I've said it before. I don't think world peace is going to break out anytime soon. So our ability to go in there and provide advanced logistics to various different entities, different branches of the military -- NATO, DLA, foreign governments -- we continue to grow that. So the possibilities are there.

Obviously, we have to do it intelligently step-by-step, but that's a little bit of what I meant by those comments. So I'll stop there.

That's very helpful. Thanks a lot, Mike.

Jack Atkins, Stephens.

Good afternoon, guys, and congrats on a nice quarter here.

Thanks, Jack.

I guess just to start off, I'd like to maybe start off with a question on M&A. You know, it's been a little while since you guys have made a sizable acquisition. I know that you guys have made some tuck-ins more recently.

But could you give us a feel for what the M&A environment is like currently? And I know the cash balance keeps growing because of the good cash flow, but as you look out in terms of the things you could acquire, what types of businesses are you targeting in terms of your three segments? And how should we think about the M&A environment going forward here?

Okay. Well, I'll tell you what. I'll answer this question a little different way than how I've answered it in the past. Certainly, within all of this space is that we are in our core business activity. We see acquisitions as very much a key manifestation of our strategic evolution.

So significant organic growth is what we've had in a number of our businesses. But we will continue to grow through acquisition in all of our spaces. And I'll just say that I would be surprised and disappointed if we didn't have significant acquisition or acquisitions in this year.

Okay. Okay, I'll leave that one there, then, Mike. And then I guess sort of shifting gears, we've seen a lot in the press recently about a potential settlement fund for the victims of the Lac-Megantic tragedy in Quebec a couple years.

It's notable that World Fuel and Canadian Pacific are not members of that settlement fund. And just sort of curious if you could maybe give us some sense for how the process is being adjudicated and sort of at what point do you think we're going to get some clarity on a resolution of this matter from your perspective?

Okay. I think I'll let Ira handled this. He's been following this.

Yes, I'm not sure I'm going to thrill you with my answer. But Jack, to be honest, all we can tell you is that we clearly can't at this point time comment on the status of the settlement discussions beyond what we've included in our filings. And that does include updates that are reflected in the Form 10-Q, which we filed about an hour ago today. So there's some updates in there. Beyond that, we really are not in a position to comment right now.

Okay. That's what I'd figured you'd say. And then just a couple housekeeping items for follow-up. Ira, could you give us -- if you still are planning on giving this -- the gross profit from the multiservice business in the quarter that impacted the land-based business. And then what were the land volumes? I didn't catch that.

$12 million is the GP from multiservice and land volume was 1.1 billion gallons.

Okay. Thanks again for the time.

Gregory Lewis, Credit Suisse.

Mike, you kind of touched on it. So with the -- your outlook on acquisitions. But I guess my question is as we look at the balance sheet right now, there's close to $400 million of cash on it. When we think about cash being released in Q2 and Q3, it looks like that's going to swell even higher.

Ira, as we think about being efficient metrics, what is sort of an ideal amount of cash that we should be thinking about having on the balance sheet to keep World Fuel efficient? And then I guess on the backend of that real quick, how much of that cash is not in the US and is overseas?

So two answers. On the first one, you know, it's tough to nail down an exact number, Greg. But I would say years ago -- I'm dating myself -- the answer to that question would be $100 million, $150 million.

The business has grown a bit. We clearly had a lot more cash on the balance sheet than that for very long period of time. What I could tell you is $391 million certainly is not the optimal number. It's more than we need; it's more than a company our size would need to symbolically reflect a very strong balance sheet.

Some of that cash will ultimately pay down debt. Some of it may be used for acquisitions, as Mike described. But we're not necessarily looking to increase that number dramatically from where it is today.

Now your second question hit on one of the factors involved in that the comparison of cash to debt, because on a net basis, we only have $310 million of debt today, even though we've got close to $700 million of gross debt.

Part of that is because only a bit less than $100 million of that $391 million is in the US and the rest of it is sitting offshore. And not all of that is -- some of that could have effectively be brought back to the States and some of it is a bit more complicated. So that's part of the story as well.

The good news is we have a lot of investment opportunities, not only here in the US, but outside of the US as well. Watson is a good example of that, which, as you know, happened last year. And we could use that cash to invest both organically and by acquisition offshore.

Okay, great. And then my other question is just in regarding the land volumes. Clearly, volumes were relatively stable, gross income -- the EBIT up in land. Was there any -- were there any seasonal impacts that sort of kept the lid on land this quarter? I sort of remember that land was typically seasonally weak in Q1. It didn't look like that actually happened this quarter.

Well, there's a few factors. So yes, you're right about that. Land is generally seasonally weak in the US in the first quarter, which it clearly was this quarter, probably a bit more than normal. Last year, the seasonal weakness was masked a bit by the polar vortex, where we had a pretty big pickup, namely in our natural gas business, which, obviously, we didn't have again this year.

And then you had the seasonal strength of Watson, which was -- on the flip side of that, the seasonal strength in Watson was stronger than what we would've expected. So net net, we were down a few million dollars, with dramatically different factors, with Watson higher than expected and the seasonal weakness in land in the US a bit lighter.

And also, it was coming off of a fourth quarter that was exceptionally strong in the US. So it made the comparison from Q4 to Q1 even greater.

So as we think about Watson, it's almost like it's a nice counterbalance for the seasonally weak first quarter? So Watson is more of a stabilizer for your land?

That's right, but once again, good to mention it again while everyone is listening. When you get to the second and third quarter, that's where you start to see some improvement, hopefully domestically, but the Watson business drops off dramatically because they are so heavily oriented to the winter season.

So net net, we'll see a drop off in land next quarter because of that and that will come back in the biggest way in the fourth quarter.

Okay. Thank you very much.

Kevin Sterling, BB&T Capital Markets.

Mike, talking a little bit about OW and I hear you -- I think it's probably been overblown. But let me ask that question a different way. Have you seen some customers come to you maybe raising their hand like look, we want to do business with World Fuel, we see your strong balance sheet, we see your opportunity to source fuel.

We want to be a partner with you, kind of given some of the -- obviously, the volatility in oil, but also maybe some of the disruptions among some of your competitors.

Yes, certainly, that has -- that is our brand. Being a transparent public company, our balance sheet liquidity, compliance, all of those factors are very much ingrained in who we are and what we do. Events like OW just reinforce that.

So we definitely experienced some of that. The market is amazing in terms of its memory. It very quickly forgets things, too. But we certainly benefited from that and from a supply perspective, suppliers really value us as a solid counterparty and a distribution platform for them.

Suppliers want to buy and sell fuel, oil, and energy products. And whether it's the marine side, the land side, aviation, natural gas, power, we represent that strong counterparty. But events like OW certainly underscore that and it's a great opportunity for us to promote that aspect of our Company.

Got you. Thank you, Mike. It makes sense. And Ira, I got a question for you. As we look at your record volumes in marine this quarter, as we model going out, should we assume maybe some slowness in those volumes? Or should we assume the type of growth that we saw in the first quarter on the volume side continuing in Q2 and the rest of this year?

I would say that I would not expect the rate of that volume increase to continue, but we hopefully should be able to hold onto all that volume that we picked up -- or most of the volume we picked up over the last couple quarters.

You remember, marine is a spot business. So some business does come and go, but as I mentioned earlier on the call, 18% increase in two quarters. I'm hopeful we're not going to give much of that back, but we're not going to continue to grow most likely at that clip going into Q2 and Q3.

Got year. That's very helpful. Thank you and thanks for your time, gentlemen. I appreciate it.

(Operator Instructions) Ken Hoexter, Merrill Lynch.

Just following up on the cash flow, which is great. As prices fall, does it change the business at all? Does it change your payable terms? Do they get extended? What changes to the business do you see as prices come down? Is it just you start seeing increased volumes? I just want to get it from your perspective.

Well, if you're focusing on the cash, Mike may want to answer the question from the standpoint of day-to-day business activity. But on the cash side of the equation, no, it doesn't spur a change in terms in any major way. Certainly, it gives us some greater flexibility to grab some business by playing with terms a little bit, because the cash impact is half of what it may have been when prices were double.

But generally, no, that doesn't change materially. And that's why we're generating the cash that we are generating. Because effectively, you just need less cash to run the business, unless you're growing volumes significantly and therefore are investing in that growth.

Generally, that's really why, aside from the derivative issue, which I've described in the last couple quarters, we always generate cash on the way down. There's a bit of a lag that occurs.

So in the first quarter, since prices dropped from the beginning of the quarter, we were able to recoup a pretty reasonable reduction there, in addition to the pickup on the derivative side.

I don't know, Mike, if you want to add anything beyond that, if that's what you are after, Ken?

Yes, no, that was perfect. I don't want to cut off Mike if he wanted to throw something in. But --.

No, carry on, Ken.

Okay. Second question would be just -- I think it was Greg was trying to get at this before on the land side. But I want to understand -- I get the kind of growth you get from the acquisition in the fourth and first quarter, but it seemed like in your statement that domestic land saw a decrease.

Maybe if you could just flesh that out a little bit more in terms of what drove that downtick. Maybe I missed it from the answer you gave before, but it seemed like a little bit weaker than I would've expected, given the seasonal bump from the acquisition.

Sure. You've got the seasonal bump, which is Watson, right? So if you focus back on the domestic side, that's where you had the drop-off. There are a bunch of different pieces of the puzzle there.

One example may be Canadian Rail, where sometimes we benefit from the yard between the US and Canada of moving gas and diesel by rail. Sometimes, we don't. We had a much stronger outcome in the fourth quarter than we did in the first.

You also had the drop-off related to the crude joint ventures going away. So some of that profitability was there in the fourth quarter that's no longer there. We do -- there is a bit that we get from a post-acquisition standpoint, but it doesn't compare to what we were generating earlier.

And then the weather certainly impacted our dealer business, which is predominantly in the Midwest, and even a bit of our wholesale business as well, which is a spot business and we performed very well in Q4. And we just didn't seem to see the same level of activity.

So it was a lot of different things. But if you summarize it, Q4 was pretty strong across the board in the US and the seasonal first-quarter slowdown was just a bit more extensive in the first quarter than we normally would see.

Is that a statement on the economy in terms of seeing that slowdown? Would you read into that a little bit more, given the statement there?

No, Ken, I think -- it's really a statement on our business mix. And you know that our Company is very much oriented towards satisfying end users and demand. What we've done by aggregating this enormous amount of demand is we enter the value chain on the supply side.

That supply side has got some amount of variability to it. Certainly driven by price, but certainly driven by just the way the oil markets work. So we'll work some arbs and we'll generate some profitability of moving product around and working the logistics. So the way it turned out between the fourth quarter and the first quarter, as Ira commented, is that we had a variety of different things that didn't hit.

So our business model, as you know, is diverse. We are involved in lots of markets. We're involved in lots of products. Lots of geography. We're not dependent on any one area. I'd like to believe that as we continue to grow and develop, our business is going to be noise canceling.

We're going to continue and I think we've done a pretty good job of being able to deliver consistent results. But we are still growing the business. We are certainly oriented towards more sustainable predictable business activity as opposed to the highly volatile type of activity.

You know, you look at, for example, our multi-service business. This is a very long sales cycle business. But when you get that business, it is almost an annuity. That business sticks around for 10 years, 15 years, 20 years. But it takes a long time. It's sort of a slow burn.

Our spot business, while there is a good amount of ratability to it, gives us the ability to pivot and work with the markets. So with that, you look at our land business, it's our youngest child. Still growing up; I mean, it's relatively new. We've only really been in that business in earnest since 2008.

So as we build up that scale, you're going to see, I believe, more ratability there and less volatility of those earnings. I don't know if that's helpful.

Wonderful, yes, no -- no, it's all helpful. If I could just get a clarifying on one thing you said, Mike, which is -- I just want to go back to your original comments. Just to clarify, did you say you're taking physical ownership in areas outside of crude? I think you mentioned lubricants and other stuff. Is that a shift in strategy? Does that increase risk or --.

No, no, we've been doing that in and really, we're very much a niche player. At the end of the day, we're looking to satisfy and delight our customers and suppliers. So we will enter a marketplace that is underserved. The reason we exist is because we're satisfying demand that is not whatever satisfied through the marketplace.

So in certain markets, where there is -- it is underserved. In certain airports, if we didn't have inventory, there wouldn't be any jet fuel. So we'll do this in select markets, but it's very select.

Okay. Helpful. I appreciate the time, gentlemen. Thank you.

And Mr. Kasbar, there are no further questions at this time. I will turn the call back over to you for your closing remarks.

Thank you, everyone. We appreciate the support and interest in our Company. We feel good about where we are and where we are going and look forward to talking to you next quarter.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.