World Kinect Corp (WKC) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the World Fuel Services 2017 Third Quarter Earnings Conference Call. My name is Scott, 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 Vice President, Assistant Treasurer and Investor Relations. Mr. Klevitz, you may begin your conference.

Thank you, Scott. Good evening, everyone, and welcome to the World Fuel Services Third Quarter 2017 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 the 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, 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 Risk 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 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 on its website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. And at this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Glenn, and thank you to everyone for taking the time to join us this evening. Today, we announced third quarter adjusted earnings of $41 million or $0.60 adjusted diluted earnings per share. Despite the major disruptions we encountered this quarter, our team came together in many ways to deliver a solid result. During the third quarter, we experienced a concentrated series of natural events, which impacted our business operations in the U.S., Mexico and Puerto Rico. I'm proud to say our team was the first on the ground in Puerto Rico to get fueling operations up and running for all of our customers. It comes as no surprise to me that we rallied together to support our team members and our customers when they needed us most. It's what we do and who we are individually and as a team. It represents the most treasured attribute of our culture. To our employees supporting disaster relief efforts with donations of time, money and heroic personal efforts, I thank you for your compassion and generosity. I'm proud to be a member of this organization. During the seasonally strong third quarter, our aviation segment posted solid results in our core resale business in the Americas, Europe and Asia as well as a higher-than-expected level of activity coming from our government-related operations. Additionally, during the quarter, we witnessed improvements in growth and profitability coming from the ongoing integration of our physical international fueling operations, which we acquired during the last year. Given the headwinds of certain supply and demand disruptions due to the impacts of the previously mentioned natural disasters, we are pleased with our performance. As expected in our Marine segment, oversupply, consolidation and changing market dynamics continue to negatively impacted the independent bunker fuel services industry. Overall lack of volatility has negatively impacted sales of price risk management offerings. Low pricing and a lack of volatility has pushed the traditional reselling and underwriting model to a supply and transportation model, most notably in Singapore, where the introduction of mass flow meters has accelerated this trend. Although there has been little to no improvement in the overall marine landscape, our core resale business has performed well in this challenging environment, and we continue to rationalize our operating model and look to gain efficiencies through numerous initiatives that are ongoing throughout the company. The shipping market is following a similar path as aviation, and this bodes well for World Fuel. Our land segment was also impacted by the disruption from the hurricanes, principally Harvey and Irma. Although our supply teams worked diligently and provided alternative sources of gasoline and diesel fuel to our contract customers, most specifically during the shutdowns of the Colonial Pipeline, negative pricing impacted our domestic land business on the East Coast as well as in the Midwest. Our transaction processing and payments business as well as our Kinect gas and power management business were partial offsets to the adverse impacts in our core operations. Lastly, we are pleased to announce the additions of 2 members of our senior leadership teams in our organization. First, on August 4th, we announced that Stephen Gold has been appointed to our Board of Directors. Stephen served as the Executive Vice President of Technology and Operations Innovation and Chief Information Officer for CVS Health Corporation. Stephen has more than 30 years of information systems management experience and we believe that his vast experience in technology will prove invaluable on our journey to grow our technology offerings, digitize our business and drive internal efficiencies, creating value for our customers in the global energy, logistics and payment market places. And last week we announced the appointment of Jeff Smith as our Executive Vice President and Chief Operating Officer. With more than 30 years of corporate experience, Jeff brings extensive operational and management experience of leadership in driving global transformation. He most recently served as Chief Information Officer of IBM and prior as CEO of Suncorp Business Services. His expertise in bringing agility to business teams will be instrumental in driving improved operational performance to provide an exceptional experience for our employees, customers and suppliers. We truly appreciate the continued support from our long-term shareholders, customers and suppliers and the tremendous engagement of our global teams. Now I'll turn the call over to Ira for a financial review of our results.

Thank you, Mike, and good evening, everyone. Consolidated revenue for the third quarter was $8.5 billion; that's up 15% compared to the third quarter of last year. The increase was due principally to the increase in oil prices as well as increased volume in our aviation and land segments. Our aviation segment volume was 2.1 billion gallons in the third quarter, up 165 million gallons or 9% year-over-year. Volume growth in our aviation segment was derived principally from seasonal gains in our core resale operations in North America as well as sales coming from our recently acquired international physical fueling operations. Volume in our Marine segments in the third quarter was 6.8 million metric tons, down approximately 1 million metric tons or 13% year-over-year. The largest driver of the volume reduction in Marine relates to our operations in Asia. Our Land segment volume was 1.5 billion gallons during the third quarter, up approximately 75 million gallons or 5% from the third quarter of 2016. This increase was principally driven by volume growth in our Kinect natural gas business.

And total consolidated volume for the third quarter was 5.4 billion gallons, a decrease of approximately 30 million gallons or 1% year-over-year. For the first 9 months of 2017, total consolidated volume was 15.8 billion gallons and that represents an increase of approximately 3% year-over-year. Consolidated gross profit for the third quarter was $240 million, an increase of $3 million or 1% compared to the third quarter of 2016. As Mike mentioned earlier, multiple hurricanes played havoc on the fuel markets during the second half of the third quarter. As a result, gross profit in our aviation and land segments was negatively impacted by approximately $8 million to $9 million in the third quarter, and I'll provide some additional color on the specific impact to each segment in a moment. Our aviation segment contributed $124 million of gross profit in the third quarter, an increase of $12 million or 11% compared to the third quarter of 2016. The principal driver of the gross profit increase came from increased activity in our government-related business. We expect our government-related activities to remain strong, although the related profit contributions will likely decrease in 2018 as a result of compressed margins associated with contract renewals. As we've stated before, it's always difficult to forecast government-related profit contributions, which not only driven by margins but also volumes, which are always subject to troop deployment and related activity in theater. As an example, in addition to our primary government activities, during the third quarter, we also benefited by responding to certain specialized government requirements, which effectively offset the aggregate negative impacts to both aviation and land associated with hurricanes Harvey and Irma during the third quarter. Due to the significant hurricane activity during the third quarter, the market experienced supply and pricing impacts related to physical jet fuel sourced in the U.S. Gulf region and the derivative instruments we rely on to hedge our price exposure. Our aviation customers obviously rely upon us to provide a stable and secure supply of jet fuel at airport locations. And during this unusual and short period of price volatility, our purchases of physical inventory to support our customers resulted in a temporary decrease in our margins, primarily at a handful of key markets along the East Coast. As we look to the fourth quarter, in addition to the lingering impacts from the September hurricanes, we expect the traditional seasonal sequential decline in both volumes and profits for our aviation segment. The Marine segment generated profit -- gross profit of $30 million, down $7 million or 18% year-over-year. The gross profit decline was again principally driven by reduced volume in our resale business in Asia as well as a further decline in profits from the sale of price risk management products globally. We remained focused on driving further cost efficiencies in the Marine business and identifying growth opportunities, despite the challenging maritime market environment that continues. Our land segment delivered gross profit of $85 million in the third quarter, that's a decrease of $2 million or 3% year-over-year. As I previously mentioned, the hurricane-related disruptions also negatively impacted the land business in the third quarter, but in different ways than aviation. Both the mid-continent region and Chicago area were impacted by oversupplied markets driven by a delay in refinery turnarounds due to the storm-related disruptions. Excluding the impact of such disruptions, gross profit in land actually increased year-over-year.

Like aviation, lingering impacts from the hurricanes have extended into October. However, we still expect a seasonal uptick in land results in the fourth quarter, assuming normal winter weather patterns in the U.S. and the U.K. The extent of such uptick as always depends on winter temperatures as we progress through the balance of the fourth quarter. Gross profit associated with our Multi Service Payment Solutions business was $15.6 million in the third quarter, an increase of 19% compared to the third quarter of last year, again demonstrating the continued expansion of our global FinTech payments platform. As I continue with the remainder of the financial review, please note that the following figures exclude the deferred tax asset valuation allowance of $77 million as well as $3.4 million of pretax nonrecurring expenses in the third quarter as well as nonrecurring items in previously reported periods, as highlighted in our earnings release.

The nonrecurring expenses are, principally comprised of acquisition-related expenses and severance costs. To assist all of you in reconciling results published in our earnings release and 10-Q, the breakdown of the $3.4 million in nonrecurring expenses is as follows: $1.4 million relates to land; $500,000 to marine; $300,000 to aviation; and $400,000 in unallocated corporate expenses, and there was also another $800,000 relating to nonoperating expenses below the operating income line. The reconciliation of these amounts can be found on our website and on the last slide of our webcast presentation today. Operating expenses in the third quarter, excluding our provision for bad debt and onetime items were $174 million, which is flat year-over-year. However, when excluding the impact of recent acquisitions, operating expenses declined by $4 million, reflecting the impact of our ongoing cost-saving initiatives.

Total operating expenses, excluding bad debt expense and any onetime items, should be in the range of approximately $175 million to $179 million in the fourth quarter. Our bad debt provision was $2.4 million in the third quarter; that's up approximately $900,000 compared to the third quarter of last year. Consolidated income from operations for the third quarter was $64 million, up $3 million or 5% year-over-year.

Nonoperating expenses principally comprised of interest expense was $16 million in the third quarter. This represents an increase of $6 million compared to the third quarter of last year, principally related to increased borrowings associated with increased working capital requirements, which were driven by higher fuel prices during the third quarter, again, significantly impacted by the hurricanes, acquisition funding and higher average interest rates compared to last year. I would assume fourth quarter nonoperating expenses to be generally consistent with the third quarter.

On to taxes. In the third quarter, we booked $77 million valuation allowance against our deferred tax assets in the United States. This noncash adjustment is generally required under accounting standards following a 3-year cumulative loss in a specific jurisdiction, in this case, the U.S., as defined for such purposes. The recording of the valuation allowance has no cash flow impact, and our net operating loss carryforward asset remains available to offset future taxable income when it is generated by U.S. operations. Excluding the impact of the deferred tax valuation allowance, the company's effective tax rate in the third quarter was 13.6% compared to 11% in the third quarter of last year. Since we will not be able to recognize any deferred tax benefit in the U.S. until our deferred tax asset is reestablished, our effective income tax rate may increase in the short-term. With this in mind, we are estimating that our effective tax rate for the fourth quarter of this year should be between 15% and 19%.

Adjusted net income was $41 million this quarter; that's down $4 million compared to the third quarter of 2016. Non-GAAP net income, which, again, excludes onetime expenses and also excludes intangible amortization and stock-based compensation, was $52 million in the third quarter, a decrease of $5 million from the third quarter of 2016. And adjusted diluted earnings per share, again, was $0.60 in the third quarter, down from $0.65 last year. And non-GAAP diluted earnings per share was $0.77 in the third quarter, down from $0.82 in the third quarter of last year.

Our total accounts receivable balance was $2.6 billion at the end of the third quarter, which is an increase of approximately $340 million sequentially, contributing to $175 million increase in net working capital. The increase in net working capital principally relates to the sharp increase in the fuel prices during the third quarter. This contributed to an operating cash outflow of $111 million for the quarter. Also during the third quarter, we repurchased an additional $30 million of our common stock, taking our year-to-date repurchases to $62 million or 1.7 million shares. Again, delivering on our commitment to continue providing incremental value to our shareholders through share repurchases.

In terms of earnings guidance for the full year 2017, we still anticipate a result consistent with the $2.10 to $2.40 adjusted EPS range provided on last quarter's call. Again, that range excludes any onetime items. But we expect that number to be closer to the midpoint of this range. Leading into the fourth quarter, our guidance assumes continued strong government-related activity, normal winter weather patterns in the U.S. and the U.K., anticipated contributions from acquired businesses and our ability to continue to deliver on our cost-saving initiatives.

In closing, we delivered reasonably strong results in a quarter where we faced significant market disruptions, while many of our employees faced challenges of their own. As Mike referred to earlier, as we progress to the fourth quarter, we are strategically reviewing our overall business, including all noncore assets and businesses, and we are also identifying additional cost efficiency opportunities. We are currently formulating our strategic plan for 2018 and beyond, and we look forward to sharing more details with you on our fourth quarter call in mid-February.

I will now turn the call over to Scott, our call operator, to begin the question-and-answer session. Thank you.

(Operator Instructions) Our first question is from Ken Hoexter with Merrill Lynch.

Just on the accounts receivable, I guess just real quick, Ira, you just ran through the numbers there, but with it up 15% sequentially, or I guess 25% year-over-year and 15% gross revenue growth. Is there anything to be concerned with given that volatility you noted on the fuel or is that not -- I mean, you mentioned the cash tug that it has. Maybe a little thoughts on that there?

Obviously, prices heavily impacted by the hurricanes were up, they bounced around a lot on net-net basis. They were up during the quarter, which just drove our working capital investment up because we're so working capital intensive. So I wouldn't call that anything but just natural phenomena of higher prices. Our DSO or Day Sales Outstanding didn't change, just the overall receivables with every invoice one being somewhat greater than the prior quarter in last year because of the higher prices being billed. As prices settled down and we expect that's quite likely that accounts receivable balance is likely to come down over the next couple of quarters and net cash flow would then come back. So nothing inherently has changed in terms of the quality of the portfolio. It's just purely a price-related impact.

I appreciate that. Yes, I just wanted to check because that's a big focus for cash flow. On the -- you noted in your prepared remarks the increased competitive activity. I guess is that particularly in aviation you were talking about, is there a particular geography? Is that just the military businesses, or you are just seeing increased competition in all facets?

Yes, Ken I'm not -- it's a very competitive world. So the barrier to entry in lot of our traditional businesses has come down. So it's great for anybody who wants to enter, and it's great for everybody who's is in a particular business that wants to enter some other business. So it's just a very competitive marketplace. So we're experiencing competitive pressures in practically everything that we do. Everyone's got a supercomputer in their hand. So prices are low, credit is available, a lot of our traditional value props have been under pressure, which is why we've diversified and moved into some of the more inventory aspects and distribution aspects, which obviously is a challenge. But we've developed those capabilities and leveraging a tremendous amount of technology to reduce cost of operating and increase the value add. So we're just experiencing it everywhere, it's just the nature of today's world.

Okay. Is that, I guess -- I guess 2 questions and I guess my follow-up on Exxon. Maybe, Ira, can you give us an update in terms of all the facilities, they are all up and running now. Can you kind of just give us an idea on the progress on the acquisition?

Sure, yes. We've -- everything has been -- we finished the last pieces of that puzzle in the second quarter, and we're still going through the integration and learning process. With every quarter, we seems to be doing a little bit better. That deal has already led to new opportunities for us at other airports in the regions that we serve through that acquisition. So I would say that, that is certainly picking up steam and it's been a -- been a nice transaction for us, and we expect more out of it in 2018.

So -- would you throw any financials in terms of is it better than you thought, original targets or is it still too early?

It's still too early. And again, the one thing that I mentioned a few times on previous calls was the foreign exchange rates have changed fairly dramatically, even though they've moved back a little bit recently from where we were when we initially announced the transaction. So that's still a bit of a handicap, if you will. But aside from that, I would say that we're getting closer and closer and in 2018 we should be at the point where we're delivering results very consistent on a local currency basis, at least with what we had initially predicted.

Our next question is from Gregory Lewis with Crédit Suisse.

I guess, Michael or Ira, just as the oil price pertains to the absorption of cash and maybe the potential of getting better margins, I guess, in Q2 and Q3 oil prices were relatively flat on average. However, in the last, I guess, month or 2, we've seen oil prices high. I mean Brent sniffing $60 a barrel. I guess how do we sort of true up? Or how should we be thinking about the demand on -- for more cash to service your working capital and the potential for better margins?

Okay, I'll try that first, and Mike can chime in. So we got a lot of levers in working capital. Our working capital obviously includes receivables, which Ken just asked about, and inventory, and of course, payables to our suppliers. As the prices bounced around, we've lived through pretty dramatic price increases about 9 years ago. We have the ability to turn the dials to a great extent, which impact our overall trade cycle and our investments for working capital. We haven't had the need to do that over the past couple of years because we've been in this prolonged low price environment. As that changes, if it changes meaningfully, we could look at the same types of moves that we've employed in the past. And we may need to invest more in working capital, but we could temper that requirement in terms of reconsidering how we go to market, how much inventory we are holding, et cetera.

So I would say that's a good summary of the first half of your question. To the second half, one of the areas where we've been very weak recently is on the sale of derivative instruments to our customer or the hedging side of our business or fixed price deals. If prices are -- continue to move up and move up rapidly, the opportunity for that type of business to come back picks up pretty significantly. In Marine this quarter, we probably had our lowest result as far as I can remember in terms of delivering on that part of our business. And also in Marine, because of the fact that it's a spot business and it's been suffering from the environment in the overall marketplace, as prices go up, we have an opportunity to see some margin improvement in Marine, more quickly than we would necessarily see it in our other businesses just because of the, again, the sport nature of that business. So Marine could get a double whammy, we said this before on the positive side from continued increase in prices from the derivative sale activity as well as just core margins. And the offshore market has been dead for a while as well. When prices start getting higher, that market could start to expand again and that could pay some dividends as well. So there are a lot of good things that could happen. We obviously have to manage the working capital side of the equation, which I think we have proven that we could do very, very well in the past; We'll have to continue doing that.

I'll just add a little bit of color in the interest of time. Everything that Ira said. So the margin enhancement will, I think, be somewhat toned down. I don't believe that you're going to see prices be sustainable at a higher level. But I think more of where we're going to see our value is more efficient internal operations, more services, more value add that will be able to drive scalability and be rewarded with volume. So it's really going to be driving volume through a more efficient platform as opposed to simply looking at margin expansion for profitability.

Okay, great. And then just on the, I mean the ongoing shift through the company to be in more energy management focused, more distribution oriented. As you guys are doing this review and looking at -- you kind of mentioned the desire to maybe sell off some noncore assets. Is that specific to any -- is there any segment that's maybe more heavily weighted towards noncore assets than others? Or is it pretty much across the whole company?

Yes, it's across the whole company.

Segments?

Not prepared to obviously get into it now. But we've -- we go through the annual review, and obviously, making the right selection and doing more of less and managing your cost, making your selection, putting all of your organic and inorganic thrust behind it is the name of the game. So everyone's got to do it. We've been pretty acquisitive. And we've developed certain things that we just need to make sure that we have the right focus. So that's something that we'll be talking a little bit more about in the fourth quarter.

And our next question is from Jack Atkins with Stephens.

So I guess, Mike, let me start off, in your prepared comments, you referenced the hiring of your new COO. He seems to have a significant tech background. You've recently added a new board member, as you commented, with significant tech credentials. Could you maybe just sort of give us a little bit more color on those particular additions to the team, and what sort of expertise do you expect them to bring that sort of was not within the fold, I guess, before their arrival, and sort of what do you expect this to produce, adding this type of talent to the bench?

Okay, thanks. So, well, both gentlemen have tremendous backgrounds, and we're excited to have them with the company. So obviously technology today is critically important. It's really the part of every business. No business can exist without it today as we know. So it's a great combination. We have -- we've been on this journey for quite some time, not only in terms of our internal necessity for what we do in terms of being a low-cost provider. The amount of information that we process; we have a tremendous amount of proprietary unsearchable data. We've got a tremendous combination of domain expertise. So that combined with today's tools and analytics, I think is a potent combination for us to be able to compete in the marketplace. We've always operated a global network with our Marine and Aviation business, their platform. So looking at our internal operations, driving data-infused workflows. A big part of what we're trying to do is just leverage all of the information, the network that we have is critical. There's just so much going on. I could talk for a quite a bit on this in terms of machine learning, instantaneous credit decisions. So there is a lot of things that are challenging our legacy model. And now incorporating those, basically building on the past, leveraging the future. It's an omni-channel world. We're delivering in the virtual world with e-commerce and technology, third-party inventory physical distribution, all of those require technology, telemetry, telematics. So accelerating the development of our global land platform including Kinect. So liquid gas power, putting that all in one platform is very powerful. Global companies are looking for single-source solutions where they can get a tremendous amount of information to be able to manage and leverage their indirect spend. Not to speak of aligning the engagement and thrust of 5,000 people. So helping the senior team to do that, that's exciting. I get very inspired about the 5,000 people that we've got in 40 countries and being able to connect with them and give them the tools where we can all act as one and deliver that incredible customer experience or market experience. So we're operating this multisided platform where we've got suppliers, customers, vendors. It's sort of an exciting time. And despite the fact that we've got a lot of challenges in front of us, certainly, we've got a tremendous amount of opportunities and technology is in the center of it. So I'm excited about it and really happy to have Jeff on board. He's got a big agenda for us. We feel very fortunate. And Steve Gold has been just a tremendous asset to me already in terms of being able to give me guidance and help make decisions that are pretty difficult today. Not to mention cyber and as we look at some of our clients, they want -- they do business with us because they're looking for compliance in terms of the excellence we have within our legal compliance function and now also with cyber security. People want to know who you are doing business with. So I think that we've got a very differentiated offer in the marketplace. I don't think there's anybody quite like us. We are running this global energy and logistics supermarket; I think it's pretty cool. It's pretty ambitious, it's definitely transformative. We've been in it for a while. And Jeff, I think is going to bring a tremendous amount of leadership in terms of an agile management process where we're going to be looking to accelerate really the way we do things. So I'm pretty excited to have him on board, and I know everyone else is. So thanks for that question.

Absolutely. That's encouraging. Okay, great. So just kind of shifting gears here for a moment. You talked earlier about the strategic review and the potential for some noncore asset sales or divestitures. But I think back to World Fuel being, historically being, an acquisitive company, the Exxon, Imperial Oil integration seems to be going very well from what Ira was saying and updating us. So I guess with the background of potential divestitures and asset sales, are you guys still -- have that appetite for M&A and sort of how should we think about that being focused going forward in terms of what you're looking for?

Okay. Listen, we're always open for business. I think I've answered this question a couple of quarters ago. So it's being very thoughtful and very specific about what and why we have -- we've done a lot of it, as you know, and it's always about raising the bar and using it to accelerate the transformation, the transition. So I think we get better at it every day. On our energy management side, we feel pretty good about that, and we're really just a reflection of the marketplace. So a lot of what we're doing is really transforming with where the market's at. It's leveraging all of the things that we have done well, and the international experiences that we have, and the deep domain experience that we have within energy and logistics but realizing that there is lower barriers to enter, which is why this omni-channel world is so crucial because people want what they want, how they want it, where they want it, when they want it, and you've got to basically live in all of these different dimensions. So you've got to live in the virtual world. They want networks to create that delivery of global fulfillment and then you need to be doing it within the physical world as well and wrapping everything up with technology. So I think, you'll see on the menu, certainly technology, distribution, really anything that is going to provide what our customers need. So it's either build or buy. And we've always looked at the human aspect of it in terms of bringing in talent. So we've done a bunch of tuck-ins. I think that we're getting better at this, and doing more meaningful acquisitions where there is some amount of synergy is not so easy. One of the things that I tell you we will be very reluctant to do is to buy companies that we can't plug into a platform. So the technology side of it is crucial. Very difficult to get the value when you don't have a platform and you're not eliminating some of the costs, and we've done a little bit of that. Some people may call it stringing some pearls together. And -- so we're not going to do too much of that. So I don't know if that's helpful in terms of an answer, but we've made lots of mistakes, and we've got with a little bit of age, not running as fast or jumping as high, but we're a little bit smarter. So we're picking our places little bit better.

Okay, that makes sense, Mike. And then last question from me, and I'll turn it over. But Ira, just going back to your comments in your prepared remarks on the hurricane impact, I guess, I was having trouble following because it seems like there were some headwinds certainly from the hurricanes, but they're spread out among the different segments. So -- but I think there may have been some benefits as well offsetting some of that. Is there a way to sort of frame up what the net impact from the hurricanes were to the third quarter just so we can kind of have that number and think about how ex those items the company performed?

Sure. The hurricane impact themselves, aggregated between aviation and land, were somewhere between $8 million and $9 million, about $5 million and change on the aviation side and $3 million and change on the land side. The reason why we're able to still produce a number of that net expectations is because we had a similar dollar benefit in that incremental government business that I talked about that came through in the third quarter, which related to some specialized requirements that is not part of what we normally do every day. So it's a fortunate coincidence that, that came through right around the same time as the hurricane. So if you net all that out, it nets out to almost zero sum gain or loss.

Okay. That make sense. And I got you. And then that special military business, you're not expecting that to repeat it sounds like in the third quarter. That was just sort of a one-off item?

Yes, bit of it trickled into the fourth quarter. Just don't know how long it's going to last. So we may get some benefit in the fourth quarter, but we're not sure how much.

Our next question is from Ben Nolan with Stifel.

So I have a couple of questions. The first is maybe going back, while it relates to sort of how you're thinking about the business going forward, and I appreciate that you're obviously becoming much more technologically focused, and I have to go back and with the dictionary and sort out what all of those words meant. I think you've talked about there Mike. The -- more simplistically as you look forward at various aspects of your business going into next year, obviously, it sounds like some of the government side on the aviation will -- you're expecting to slow down a little bit. But where are the areas of organic growth, just in terms of underlying volume that you can look at and say there is some low-hanging fruit out there, and we expect whatever. I guess, it could be growth or contraction in certain areas as you're looking at the business for next year. So is there anything obvious that you'd point us to, how you're thinking through the business?

Yes, I mean, if you look at our land business, it's really in its early stages. I mean, it's very early innings. And if you look at -- I mean, if you look at really our businesses of the future, so to speak, and I call them business of the future, but there is a lot of similarities. I said this in the past, a ship, a plane, a truck, an airport, a seaport, a truck stop, jet fuel, marine fuel, diesel; it's a moving target, a stationary target, it's molecule. So there is a lot of commonality, and I look to genericize with this and take the labels off because the actual process of the activity, there is a tremendous amount of commonality there. So certainly with the natural gas, power, and diesel, those are the 3 growth products within today's world. If you look at where consumption is going to be. So our Kinect business, I feel really good about that. That's one is going to take a little while. So we're building that. So that is a business of the future. If you look at our C&I business, we're seeing more and more clients around the world looking to have a single source supply, and we're doing multiple country contracting, where we're getting large multinationals wanting us to supply them in 4 or 5, 6, 7 different countries. So that's a great opportunity to grow, and there's a lot of similarities between marine, aviation and land. There is a lot of intersections there. There is a lot of land-marine interface, land-aviation interface. You're looking at the new 2020 regulations that are coming in with IMO, so we're in a great position in terms of sourcing and managing LNG by virtue of Kinect. We've got a tremendous amount of natural gas and LNG expertise. We've got a tremendous amount of expertise in terms of distillate fuel, blending fuel, in terms of technology and payments. I'm looking forward to being on a phone call where we're seeing some things pop there, but that has got the potential to - going viral may be a slight exaggeration, but the beauty of being in technology businesses is that once you get the network effect and you start to add more people to it, it's a power of 2. So you really start to get some interesting scalability there. And all of it is within the community of clients that we have. We have 60,000 nonresidential customers. That's an extraordinary number. So our cross-sell capability to bring that through a portal to our clients where they've got confidence in their counterparty in terms of who they're buying their energy for, they trust them. They know that they've got a company that has the compliance, has the supply chain, authentication that they're looking for. So it's sort of an exciting journey, and these are all the areas, not to mention our traditional areas, where as we get deeper into distribution services. Our aviation business has a meaningful percentage of its gross profit is in services. So that I think it's just a great story, and we've been doing it step-by-step and we hope, by virtue of Jeff and certainly, Steve's guidance that we're going to accelerate those services and be an aggregator to bring other people into our network and into our ecosystem and our marketplace. So it's a great big future like I said in the past, I wish I was 35 years old because I can't wait to see what this company is going to turn into. We've got a lot of challenges. I mean, transitioning and transforming is not easy. And almost every single one of our traditional value drops has been under massive, massive attack. So it's rough, and we have not done everything right that is for sure, but we're learning. And I think as you look at energy, a lot of diversity, that's what we're doing. And I think this company has tremendous innovative horsepower. We've got a great organization here. So I'd like the numbers to show up a little bit differently, little bit better, but things take a little bit of time.

Right. To sort of bring it down to little bit more of a numerical number as we are analysts here. If you are just looking at the aviation marine businesses and land business and saying, okay, organically, from a volume basis, here is what I feel like, given our service offerings and all the things that we're trying to accomplish. Here is how much I think the growth rate in those various businesses should be over the next few years. Any sense of what you should be able to accomplish if you're successful?

You want me to make your job so much easier. Yes, you know what, I'm going to have to punt on that. I think that we're going to have to try to obviously do a better job of letting that rope out, but we are going to have to come back to you on that one I think.

Okay, no that's fine. I understand.

We've got great upside, Ben, and as you look at some of the things that you're doing, and some of things that we're doing. If you look at aviation, we've created some good scalability. I think that's a pretty good model. And I see the other businesses following that. I mean, that's 25 years in the making. So -- but platforms are important; we don't have them. But that's why you're seeing us so aggressive on the technology side because we really do need that, but I hope to be soon able to give a little bit more guidance. I'm not delighted with guidance, to be honest with you, but being able to suggest and give confidence at the end of the day, we know that people want predictable, ratable results with the company that they understand. We're trying to make the company a lot more understandable, but it's a complicated world we live in.

Yes, for sure. And I do applaud the effort because I think you're right. I think that would certainly make it easier for people to invest. But my next and, I guess, last question relates back to something that's come up in the last few quarters and obviously, in the first quarter you laid out, I guess, it was at the end of last year, you laid out your aspirations for cost cutting; initially I think it was $20 million and then I believe last quarter you said you felt like you could add another $15 million to that. Any update on where we are at the process? How much has been done and how much is left to do?

Yes. I think just really it's an update or actually a very similar statement in the last quarter, we're still on track to achieve the previously announced $15 million to $20 million by the end of this year, which is I think the same thing I said last quarter. So that hasn't changed. And of course, we're going to get some of the annualized benefits of some of the savings that we implemented this year. So we'll get some incremental benefit in 2018. I think as we're in the middle of our planning process. We're still very focused in identifying additional efficiencies. And when we get to the mid-February call, the year-end or fourth quarter call, we're hopefully -- we should clearly be in a position to give you some more clarity on incremental opportunities beyond what we've already announced. But we're not done. That's for sure. But it would be premature to give you a number beyond what we've already shared at this point.

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

Okay, well, first I wanted to thank my colleagues around the world from the thousand truck drivers we have to our Board. We have a great organization. Market conditions are challenging, but we truly have a burning desire to succeed, and I want to thank our customers and suppliers, and of course, our investors. We appreciate your support. So thank you, and look forward to talking to you next quarter.

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