World Kinect Corp (WKC) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the World Fuel Services 2016 fourth-quarter and full year earnings conference call. My name is Scott and I will be coordinating the call this evening.

(Operator Instructions)

This conference is being recorded. Now I'd like to turn the conference over to Mr. Glenn Kravitz, World Fuel's Vice President and Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you Scott. Good evening everyone and welcome to the World Fuel Services fourth-quarter full year 2016 earnings conference call. I'm Glenn Klevitz, World Fuel's Assistant Treasurer, and I will 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 at 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 we 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 factors that could cause results to materially differ from these projections can be found in World Fuel's most recent Form 10-K 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 future events.

This presentation also include certain non-GAAP financial measures as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most direct global comparable GAAP financial measures is included in World Fuel's press release and can be found on its 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 Chairman and Chief Executive Officer, Michael Kasbar.

Thank you Glenn, and good evening everyone. Needless to say, we're very disappointed with our overall fourth-quarter results. Once again, our aviation segment delivered strong results, but our land segment fell way short of our expectations, driven by unseasonably warm weather patterns in the UK and generally poor market conditions in the US, aided and abetted by the colonial pipeline disruption. While our volumes in market position grew significantly, these events negatively impacted our usual advantaged supply position.

Our Marine business also experienced further weakness driven by the continued malaise in the shipping and energy markets, and an unusually large write-off related to a well-publicized customer failure in Asia. While we were certainly not satisfied with our weak finish to 2016, we remain highly optimistic about our prospects for 2017 and beyond.

Our aviation segment has remained resilient and we remain focused on organic business development throughout the course of 2016. Our global aviation platform is a meaningful participant in every important dimension of commercial, business, general and military aviation fuel and related services. Our team has performed well and continues to do so.

As we enter 2017, we are engaged in building out our physical logistics service offerings at more than 80 airports in Canada, Europe, Australia and New Zealand through the previously announced acquisition of fueling operations. Our land segment is evolving from a primarily supply driven wholesale business to a national and international platform, aligned with a deeper emphasis on end-user demand to create more readable and predictable earnings.

PAPCO and APP form the East Coast and West Coast foundations of our C&I end-user business. They have given us a loyal end-user client following and the C&I sales and supply platform to blend with our supply wholesale and retail businesses. While you will see the impact of these standalone businesses today, we will start to see more robust commercial synergies in 2017 with the rest of our lands portfolio, including our Connect Energy Group platform and Multi Service.

Connect Energy Group, our newly branded global energy management platform, formed by combining five energy management companies, continues to deepen our C&I customer relationships through its natural gas power and sustainability advisory services. We can now provide energy advisory services in 25 countries to an enormous cross-section of commercial and industrial companies, and drive synergies with our liquid products businesses in the US, UK and Brazil.

Our payments business Multi Service is getting a bit more momentum as they continue to focus on niche B2B payment solutions, primarily to the energy and logistics space, and streamlining complicated cross-border transactions in 25 countries, 10 currencies and nine languages. They handle 19 million transactions annually, service 4,500 fleets with our over the road fuel fleet card and service another 200 global fleets with 700,000 trucks with parts procurement and associated payments.

Multi Service also provides commercial driver license protection for 15,000 truck drivers in the US and combined with AVCARD is the largest closed loop aviation fleet fuel card. And finally, our legacy retail business remains an important element of our land business and continues to give us scale, competitive supply advantage, ratable demand and cash flow for further investments.

The Marine segment continues to experience overall weakness and an array of challenges throughout all sectors of the shipping industry. Low fuel price is a relatively low price availability, over supply is shipping, weak economic activity led to another tumultuous year in 2016. Given the current state of the industry, we believe the recovery will remain slow. However we do believe we are positioned well to provide solutions to customers as fuel regulations evolve. Furthermore, we are poised with global initiatives when the market recovers.

Our previously announced cost restructuring in Marine is now effectively complete and we believe our cost structure is now more in line with the realities of this business segment today. While we have reduced costs in our Marine business, our overall cost structure remains higher than we would like it to be and we are therefore embarking on additional cost reduction initiatives across the business, which Ira will describe in greater detail shortly.

Considering our global initiatives across all our business segments, the incremental value driven by our latest acquisitions, organic growth and now additional cost saving initiatives, we believe we can deliver solid results in 2017. We appreciate the continued support from our long-term shareholders, customers, suppliers and our talented and dedicated colleagues around the world. We remain confident about our strategic market position and direction as a comprehensive energy management fulfillment and payments business. And now, I'll turn the call over to Ira for a financial review of the results.

Thank you Mike and good evening everyone. Consolidated revenue for the fourth quarter was $7.8 billion, up 16% compared to the fourth quarter of 2015. The increase was due to higher oil prices as well as increased overall volume.

For the full year, consolidated revenue was $27 billion, down 11% compared to last year. The decline in our annual revenue was due to the lower fuel prices we experienced, principally at the beginning of 2016, compared to the prior year. The lower revenue was offset in part by increased total aggregate volumes.

Our aviation segment volume was 1.9 billion gallons in the fourth quarter, up 238 million gallons or 14% year-over-year. For the full year, aviation segment volume was a record 7.1 billion gallons, up 785 million gallons or 12% year-over-year. The aviation segment is now an annual volume run rate of nearly eight billion gallons, an increase of 300% from the lows of 2009.

Volume growth in the aviation segment has been almost entirely a result of organic business development, displaying the strength and resilience of our aviation business, as well as the global need for our growing line of products and value added service offerings. Volume in our Marine segment for the fourth quarter was 7.6 million metric tons, down approximately 400,000 metric tons, or 5% year-over-year. Brokered business activity for the quarter was approximately 11% of total Marine volume as compared to 12% in the fourth quarter of 2015.

For the full year, our Marine segment volume was 31.4 million metric tons, down 1.3 million metric tons or 4%, compared to 2015. Throughout the year, the Marine segment continued to face the challenges of decreased demand and oversupplied market, low fuel prices and lack of any material price volatility, and at this time we do not see any meaningful market recovery in the near future.

Our land segment sold a record 1.5 billion gallons during the fourth quarter, up approximately 100 million gallons or 8% from the fourth quarter of 2015. For the full year, land segment volume was a record 5.4 billion gallons, up nearly 435 million gallons or 9% year-over-year.

Lastly, total consolidated volume in the fourth quarter was 5.4 billion gallons, an increase of more than 240 million gallons or 5% year-over-year. For the full year 2016, volume was 20.8 billion gallons, up nearly 900 million gallons or 4% compared to 2015.

As I continue with the remainder of the financial review, please note that the following figures exclude the impact of $17.9 million of pretax non-recurring expenses, or $12.2 million after-tax, which were recorded in the fourth quarter, as well as nonrecurring items in periods previously reported as highlighted in our earnings release. This amount, the $17.9 million that is, is principally comprised of the write-off of balances owed to us by Dakota Plains Holdings Incorporated (technical difficulties) related to the sale of our crude oil joint venture interest to Dakota Plains in December of 2014 as a result of their bankruptcy filing in the fourth quarter. Also acquisition related expenses, severance costs and a write off of a related small business in South Africa, which we shut down in the fourth quarter.

To assist all of you when reconciling operating income results published in our earnings release and 10-K, the breakdown of the $17.9 million is as follows. $7.5 million impacts non-operating expenses, one-time items impacting the aviation and Marine segments was $3.9 million, and the amount impacting the land segment was $2.6 million. The reconciliation of these amounts can be found on our website and on the last slide of the webcast presentation.

Consolidated gross profit for the fourth quarter was $225 million, a decrease of $5 million or 2% compared to the fourth quarter of 2015. For the full year, consolidated gross profit was $902 million, that's an increase of $39 million or 5% compared to 2015. Our aviation segment contributed $102 million of gross profit in the fourth quarter, an increase of $13 million or 15% compared to the fourth quarter of 2015.

For the quarter, although we witnessed the expected seasonal decline coming off of the strong third quarter, year-over-year the aviation segment benefited from an increase in government related and core resale activity when compared to the fourth quarter of 2015. We expect aviation to deliver a similar result in the first quarter. For the full year, gross profit in the aviation segment was $401 million, an increase of $37 million or 10% compared to 2015.

In terms of the ExxonMobil transaction, we have now closed on all airport locations with the exception of Australia and New Zealand and a few locations in Germany, which are expected to close within the next 60 to 90 days. We expect this transaction to begin making profit contributions generally consistent with original projections, adjusted for foreign exchange impacts, beginning in the second quarter of this year.

The Marine segment generated gross profit of $35 million, down $11 million or 24% year-over-year. For the full year, Marine segment gross profit was $151 million, down $39 million or 21% year-over-year. The weak Marine industry, low fuel price environment, and lack of significant price volatility were the principal drivers of the quarterly and annual declines when compared to 2015. Sequentially, Marine delivered a similar result at $37 million of gross profit, which we generated in the third quarter.

Quarter to date, in the first quarter of this year, volume and margin levels have improved, tracking closer to levels experienced in last year's third quarter. Our ability to maintain our industry-leading market position will serve us well when some of the macro economic and price related headwinds ease.

Meanwhile, we are managing our operations to the realities of the current business environment as evidenced by our recently completed cost restructuring actions. Our land segment delivered gross profit of $89 million in the fourth quarter, a decrease of $7 million or 8% year-over-year. Sequentially land segment gross profit actually increased by $1 million.

The year-over-year gross profit decline is principally related to three factors. First, we experienced one of the warmest fourth quarters on record in Europe, which negatively impacted our seasonally weather dependent UK land business when compared to the prior year. Quarter to date, weather patterns have returned to seasonal norms, which should drive a better first-quarter result in Europe.

Second, our inventory related businesses in the US were significantly impacted by the prolonged disruption along the colonial pipeline, which resulted in oversupplied market in the Midwest as the colonial pipeline inventory was redirected to this market. The Midwest market remains meaningfully oversupplied quarter to date, however we expect the situation to improve as the market begins to change over to summer gasoline. Our overall inventory related results compare unfavorably to what was a strong quarter in the fourth quarter of 2015.

Lastly, this year's fourth quarter in land excludes gross profit related to the Pester retail business which we sold at the beginning of 2016. Although our decision to sell these non-core assets negatively impacted gross profit when compared to last year's results, the net return on the core Pester investment remains well above average as we grow that business as an asset-light distributor. These factors were principally offset by gross profit generated by PAPCO and APP, both acquired last July.

For the full year, our land segment generated gross profit of $351 million, an increase of $41 million or 13% year-over-year, principally benefiting from recent acquisitions. Nonfuel related gross profit associated with our Multi Service business was $13.1 million in the fourth quarter, an increase of approximately 6% compared to the fourth quarter of last year. For the full year, Multi Service gross profit exceeded $51 million, that's up 5% year-over-year.

As mentioned last quarter, several recent contract wins in Multi Service should contribute to solid growth in 2017 where we're still expecting gross profit to grow 20% year-over-year with even higher growth in operating income as we are beginning to better leverage the Multi Service platform.

Operating expenses in the fourth quarter, excluding our provision for bad debt and one-time expenses, were $181 million, that's up $25 million or 16% year-over-year, but an increase of only 4% sequentially. The year-over-year increase in operating expenses was principally related to expenses of acquired businesses. Total operating expenses, excluding bad debt expense and any one-time cost, should be in the range of $177 million to $181 million in the first quarter, that's flat to down slightly from the fourth quarter.

Our bad debt provision for the fourth quarter was $10 million. During the fourth quarter we wrote off approximately $6 million of receivables related to the Hanjin bankruptcy filing associated with specific vessels against which enforcement of our maritime liens is unlikely to be successful due to impediments and obstacles resulting from the disorderly wind down of this business.

As of December 31 of 2016, we had outstanding receivables of approximately $7 million net of anticipated insurance recoveries. We believe we will recover substantially all of the remaining Hanjin receivable. We also recorded additional bad debt reserves and our land and aviation businesses related to a few smaller collection issues. And our reserve for the fourth quarter was also impacted by the significant $300 million sequential increase in receivables driven by higher fuel prices during the fourth quarter.

Excluding one-time expenses, consolidated income from operations for the fourth quarter was $34 million, that's down $37 million year-over-year and for the full year, income from operations was $209 million, down $47 million year-over-year. For the quarter, income from operations in our aviation segment was $41 million, that's an increase of $8 million compared to the fourth quarter of 2015. For the full year, aviation segment income from operations was $169 million, an increase of $31 million or 22% year-over-year.

Marine segment income from operations for the fourth quarter was $7.3 million, excluding the $6 million Hanjin write off and the one-time items mentioned earlier. For the full year Marine segment income from operations was $40.6 million, a decrease of over $32 million compared to last year's results. In the land segment, fourth-quarter income from operations was $9.4 million, down $26.7 million compared to the strong fourth quarter of 2015, principally driven by the factors resulting in lower gross profit which I described earlier. For the full year income from operations and land segment was $75 million, down $26 million compared to 2015.

Excluding the one-time charge related to the Dakota Plains bankruptcy, which I mentioned earlier, non-operating expenses, which principally comprised of interest expense for the fourth quarter, were $14 million, an increase of $7 million compared to the fourth quarter of 2015. This is principally related to increased borrowings associated with our increased volume, combined with higher fuel prices, the funding of acquisitions and higher average interest rates compared to last year. I would assume non-operating expenses to be approximately $12 million to $15 million for the first quarter of 2017.

When adjusting for one-time items, the Company's effective tax rate in the fourth quarter was 28.8%, compared to 21.5% in the fourth quarter of 2015. Our tax rate inclusive of the one-time items was effectively zero, as you will see in the face of our P&L. As the deductions related to the one-time items effectively equaled the tax liability related to the results of operations for the quarter. For the full year our effective tax rate was only 13.6%, compared to 22% in 2015. We estimate that our effective tax rate for the full year of 2017 should be between 15% and 18%.

Adjusted net income, which excludes the one-time expenses, was $14.3 million this quarter, down $36 million year-over-year. For the full year adjusted net income was $147 million, down 19% year-over-year. Non-GAAP net income, which also excludes intangible amortization and stock-based compensation in addition to one-time expenses, was $25.2 million in the fourth quarter a decrease of $35 million. While adjusted net income was down nearly 20% for the full year, non-GAAP net income of $188.8 million was down only 11% compared to last year as intangible amortization increased by over $8 million in 2016 because of the PAPCO, APP and ExxonMobil acquisitions.

Adjusted diluted earnings per share was $0.21 in the fourth quarter, down from $0.73 last year and for the full year adjusted diluted earnings per share was $2.11, down 18% year-over-year. Non-GAAP diluted earnings per share was $0.36 in the fourth quarter, down from $0.86 in the fourth quarter of 2015 and for the full year non-GAAP diluted earnings per share was $2.70, down only 10% year-over-year compared to the 18% decline in adjusted diluted earnings per share. We continue to believe that non-GAAP diluted earnings per share is the most accurate measure of our core operating results.

Our accounts receivable balance was $2.3 billion at year-end, up $300 million sequentially and up $500 million compared to December of 2015, which related to the increase in average fuel prices and increased total volume driven in part by our recent acquisitions. And net working capital was approximately $1 billion, which was up $200 million for the year.

We used $15 million of cash flow from operations in the fourth quarter, driven principally by increased working capital requirements resulting from a 10% sequential increase in fuel prices in the fourth quarter. For the full year we still generated $205 million of positive operating cash flow, compared to $448 million in 2015. We have now generated more than $1 billion in operating cash flow over the past four years. We also repurchased $23 million of shares in the fourth quarter, taking our 2016 total shares repurchased to nearly 1 million shares as we continue to look to repurchase enough shares to offset the dilutive impact of employee stock rewards.

So while we are clearly disappointed with the way in which we ended 2016, we remain optimistic about 2017 and the years beyond. We remain focused on driving organic growth and are still integrating three large acquisitions, which will contribute incremental profits in 2017 and beyond. We also remain extremely focused on driving greater cost efficiencies in our business.

While the previously announced cost imitative principally related to the Marine segment is effectively complete, that's not enough. We have already identified an additional $20 million of annualized cost savings opportunities with approximately $15 million expected to impact 2017 and we're actively looking to identify further efficiencies beyond this $20 million.

So considering all the moving parts, difficult marketing conditions in Marine and parts of the land business, some of which are continuing into the first quarter, the continuing integration of APP, PAPCO and the ExxonMobil deal, and now additional cost savings, while it is never been our practice to provide earnings per share guidance, we have decided to do so for 2017 to assist you with your financial models. So as indicated in our earnings release, we are providing full year guidance of $2.55 to $2 90 of adjusted diluted earnings per share, which assumes expected contributions from our three recent acquisitions, continued contributions for our government related activities, traditional seasonal weather patterns and our ability to realize the cost savings which I described earlier.

In closing, we believe we have a great company with great people supporting us day in and day out with tremendous opportunities ahead of us. Our entire team is aligned around the mission of delivering solid results in 2017 and beyond. Mike and I would like to thank you for your continued support, and we would now like to turn the call over to Scott to begin the Q&A session.

(Operator Instructions)

Jon Chappell, Evercore ISI.

All right. So Ira, I will start with you. The first question on the guidance, I think it's great that you're trying to provide some level of transparency which I think has always been a little bit of a struggle here. So just given the large amount of variables to the business and the fact that you haven't done this before in quarters like the fourth quarter show that one or two things can really throw the whole period out of whack, how confident are you in the range you're providing right now? Have you stress tested this and what are some of the other variables that can maybe throw this well above or well below the guidance range that has been provided?

Sure. Thanks for the important question, Jon. So I would say, obviously, we're doing this for the first time and being careful, we provided a pretty wide range. As you've indicated, there are a lot of things that could happen over the course of the year that could impact EPS by $0.05, $0.10, $0.15 a share or more. So we try to take all of those things into account.

We looked at our plans across our three businesses. We made a lot of core assumptions, some relatively conservative and none overly aggressive and then we factored in the cost saving element as well. We looked at Odyssey and the reality of that ExxonMobil transaction which we had hoped Odyssey in terms of what we expect that to produce in 2017. As you can imagine, our currency rates have gone against us in a big way from the time that we announced that deal, but we made some conservative assumptions there.

Our borrowing costs are increasing because we have more debt and interest rates are higher so we factored that in, I would say, conservatively. While our government business has remained remarkably resilient over the last few years when we told you guys a few years ago that it looked like it was about to go away, we made some conservative assumptions there as well, I would say, in terms of what that will contribute and those assumptions are below the contributions that, that business generated in 2016.

If I go across the three businesses, some of the core aspects that we factored into the guidance that we gave are worth repeating. If I look at Marine, as I indicated on the call, we don't expect significant uptick in activity there. We will get the benefit of the restructuring activities which are 95% complete at this point and we still expect some summer seasonality that we've been seeing there the last couple of years but we made little to no assumptions for much of any growth beyond that.

In Land, we've look at run rates and APP and PAPCO very carefully. Obviously, the newest parts of our business and have made assumptions based upon where we believe those businesses are within a reasonable range.

We have assumed reasonable weather patterns in the UK so that would be one of the risks you would highlight, Jon, if it's 75 degrees for the rest of this quarter and next winter in the UK, that would certainly be a risk factor that would impact our results. And we have also improved -- assumed improved market positions in the US vis-a-vis what happened to us in the fourth quarter where we were beginning to see that happen as we make it into the second half of this quarter but that could also change very quickly with unforeseen results.

In Aviation, again, I already talked about the ExxonMobil transaction, the government piece, and then we have assumed some relatively modest growth across the core business and then, of course, the cost savings the incremental cost savings which we have announced where we expect to generate $15 million worth of cost savings in 2017. So we put all that together; we looked at the various risks that I highlighted and that led us to the range that we provided which were very comfortable with this point in time, again, with the exception of something unforeseen occurring over the course of the year.

All right. That's incredibly helpful. Thanks Ira and then my follow-up would be on that cost savings initiative. You mentioned that the, quote-unquote, restructuring of Marines has basically been completed so that $20 million -- or $15 million for this year, $20 million overall. It sounds like it's not going to fall in that category so two parts then.

Where primarily are those savings going to come from? And second, what kind of confidence did you have -- do you have that you're not cutting muscle or bone at a knee-jerk reaction to some difficult market conditions that could potentially stunt growth if the market conditions do become favorable again?

So two additional solid questions coming from you, Jon, so thank you. So first off, let me describe for all of you what the additional savings are and that will probably answer a great part of -- part two to your question, Jon. There are three principal areas that add to the $15 million to $20 million that we announced in the earnings release and on the call.

One of them, as you can imagine, we have a lot of IT-related activity that goes on in this organization as it does in many organizations around the world which involves cost of third-party contractors; ultimately, depreciation from the capitalized portions of those projects. We did a lot of heavy duty analysis and we had a bit too much of that type of activity going on so we're cutting back there a bit in the least; critical projects that should not have any meaningful impact on the results that we can drive with this Company over the next couple of years so that's a piece of the savings.

While we have already talked about Marine, we are looking at additional restructuring activities across the business beyond what we've done in Marine but we're certainly not looking to cut any muscle. We're focusing on fat first so while we are very careful about what those actions may entail but we have certain areas of the business where we have the opportunity to do just that and we are embarking upon that over the next several weeks and couple months.

And then third, we have in direct procurement savings, which include costs associated with things like data subscription services, IT-related services, travel and various other products and service costs where we were spending a tremendous amount of money and didn't necessarily have our eye on the ball in terms of optimizing those particular costs. And we found opportunities to reduce costs in many of those areas with a fairly new team that's sole purpose in life is to focus on improving our execution in the area of indirect procurement of where we spend hundreds of millions of dollars a year.

So I would say this is only the beginning. I think there are opportunities to save more beyond this but this is what we have identified so far and what we are prepared to share and including the guidance range that we shared today.

All right. I appreciate the thorough answers. Thanks a lot, Ira.

(Operator Instructions)

Jack Atkins, Stephens Inc.

I guess starting off here and thinking about the bad debt expense for a moment, Ira, you explained what was driving the elevated expense on a year-over-year basis but when you think about commodity prices being up on a year-over-year basis throughout 2017, would you expect to have higher levels of bad debt expense as a receivable balance creeps up over here or would you expect it to return to more normalized levels that we have been seeing over the last several years?

Without any surprises, Jack, I would say that the latter, I would expect it, assuming that prices don't go through the roof, because if they do, just mechanically, we want to preserve in greater numbers based on higher receivable balance but barring that, that event we expect that the level of bad debt would be more in line with historical levels in 2017.

Okay. Okay and then when we think about the Marine segment in the fourth quarter minus the non-recurring items just barely profitable on a year-over-year basis or just barely profitable in general, and I guess when you think about that segment now, if you're not assuming much improvement in activity levels going forward, would you expect us to be running at this sort of just above breakeven level for the next several quarters or do you think we're going to return more to that $10 million level of operating income there going forward? Just trying to think about how to model that particular --

One of the things -- thanks for that, Jack. One of the things, I believe I said in my prepared remarks was that what we are seeing so far in Q1 and I know we're only about five or six weeks in; the last five or six weeks was a lot more like Q3 than Q4. Q4 was closer to breakeven principally because of Hanjin and obviously, with some one-time items in there.

If you exclude that, they were not that far off the $10 million number but we seem to be running more in line with $10 million plus outcome on a quarterly basis this year, benefiting, in part, from the restructuring and I also mentioned when we get into the summer, we have a few million dollars of traditional seasonal pick-up as well. So I think we are more likely to see results, at least as solid as Q3 as compared to what we saw in Q4.

Okay. Okay, thanks Ira. And just my last question here. When we think about the net debt-to-EBITDA ratio, we have seen net debt creep up here. Over the last several quarters, as you have been making these acquisitions and of course,, the EBITDA has been under pressure but how should we think about your comfort level around net debt-to-EBITDA as we move forward here, especially if the receivables balance may be going up?

Well, another good question. I think, of course, if the prices go up and the receivable balance goes up, the payables balance goes up as well but of course, our investment working capital would go up a bit but it's unlikely, barring again, a significant increase in price that, that would have a massive effect on our net debt position and if we saw that coming, there are things that we could do that we've done in the past when prices started skyrocketing to mitigate that risk.

So a little over 1 times net debt-to-EBITDA. We're not at all uncomfortable with that. We are not necessarily looking for that number to increase dramatically so we are very focused on our cash flow profile and this was the first quarter in over four years that we actually used any cash. We weren't too happy about that, right.

We wanted to keep that streak going but we were just slightly in the negative, again, because of 100% because of price in the fourth quarter. But going forward, if we could continue generating cash on a regular basis as we have in the past, we should be able to keep that number in check in that general neighborhood going forward. That's certainly our intention.

Okay. Thanks again for the time, guys.

Ben Nolan, Stifel.

I had a couple questions. The first is you mentioned that --

Ben, I'm sorry we can't hear you, Ben.

Sorry. Is that a little better?

Much better. Thanks.

So you had mentioned on the land business that the disruption in the Colonial pipeline had a negative impact and I guess I'm just trying to understand exactly how the dynamics of that work and what the impact was?

Do you want to take that, Ira?

Sure. So we could quantify the impact, it's somewhere around $7 million to $8 million and it was a twofold impact. The larger piece of the pie relates to the fact that as the Colonial had its issues, a glut of product was redirected to these Explorer pipeline, which basically served as the Midwest region where we have our greatest concentration of activity today in that part of our business. So that created a significantly oversupplied market and drove margins down pretty significantly so that was probably 60%, 65% of the impact right there.

And then the East Coast, you have the inverse problem, along with Colonial where product was scarce, that's where PAPCO is, for example, one of our recent acquisitions. Prices ran up, leaving us with some high-priced inventory and then once the pipeline sorted out all of its issues, you had a pretty sharp drop in price and we got impacted by that as well and that cost us a few million dollars. So in total, it was a pretty significant driver of the year-over-year Delta from what we produced in the fourth quarter of 2015 versus what we produced in the fourth quarter of this year.

Okay. Thanks for that color. That's very detailed. I appreciate it. My next question, actually, my last question is, obviously in the fourth quarter, you saw higher oil prices and you've mentioned that it impacted your cash flows and so forth.

But one of the benefits I suppose of higher oil prices in the past, you have been able to have customers looking to do price hedging. Have those conversations at all started again? Are things at least moving in that direction yet or is it still far too early for that?

It's pretty sluggish. I think everyone is watching OPEC trying to move the price up. They've got a $2 trillion IPO that they would like to realize but the shale oil revolution, that's one of four major energy events in the last 100 years and OPEC just doesn't have what it used to.

I don't think that people are -- we just know this for a fact ; you can see it in the 10-K and 10-Qs. Just not as much hedging activity as there used to be. That was an area that, obviously, we'd create a lot of value add but no, it really has not picked up.

Okay. All right. Thanks guys.

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

Okay. Well, thanks for the support of all of our long-term shareholders and customers and suppliers. As Ira said earlier, we've got a fantastic organization here. We've got folks that really have a burning desire and always have had for a long period of time to succeed. So we believe that we're on the right path and we feel good about what the future holds so we look forward to talking to you next quarter and thanks for all of your support.

Ladies and gentlemen, that concludes the conference call for today. Thank you for your participation and ask that you may disconnect your lines.