World Kinect Corp (WKC) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services 2017 Fourth Quarter and Full Year Earnings Conference Call. My name is Jen, and I will be coordinating the call this evening. (Operator Instructions) And 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, Jen. Good evening, everyone, and welcome to the World Fuel Services Fourth Quarter and Full Year 2017 Earnings Conference Call. I'm Glenn Klevitz, World Fuel's Assistant Treasurer, and I'll be doing the introductions on this evening's call alongside our live slide presentation.

This call is also available via webcast. To access 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'd 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 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 good afternoon, everyone. We closed out the year with a lot of changes and events behind us and a clearer focus for the future. I'll comment more on that after Ira goes through our financial review of results, which includes of course, the impact of tax reform and other items.

Ira?

Thanks, Mike. And good evening, everyone. Today, we announced adjusted net income of $17 million in the fourth quarter. That's an increase of $2.7 million when compared to the fourth quarter of 2016. And for the full year, adjusted net income was $127 million, a decrease of $20 million compared to 2016.

Adjusted diluted earnings per share was $0.25 in the fourth quarter, up from $0.21 in the fourth quarter of last year. And full year adjusted diluted earnings per share was $1.86 this year compared to $2.11 in 2016.

For the past several years, we have provided 2 or often 3 income and EPS measures: GAAP; adjusted GAAP, which simply adds back nonrecurring charges and; non-GAAP, which additionally, adds back intangible amortization and stock-based compensation.

We've received feedback from investors that this has been cumbersome and confusing. So effective this quarter, we have simplified such reporting. We are now only reporting GAAP and adjusted GAAP. Intangible amortization and stock-based compensation information will always be available on our public filings for those who find such information useful for modeling purposes.

At the same time, we will now regularly report adjusted EBITDA, which we find to be a very meaningful measure of our operating results and growth as well as a common valuation metric. For this reason, we are more closely focused on this metric and looking to drive significant year-over-year improvements. Now onto the detailed review of the financial statements.

Consolidated revenue for the fourth quarter was $8.9 billion, up 14% compared to the fourth quarter of 2016. The increase was principally due to the significant increase in oil prices compared to the fourth quarter of 2016.

For the full year, revenue was $33.7 billion, an increase of $6.7 billion or 25% compared to 2016.

Our aviation segment volume was 2 billion gallons in the fourth quarter, up approximately 130 million gallons or 7% year-over-year. Volume growth in our aviation segment was derived, principally from gains in our core resale operations in North America and EMEA as well as sales coming from our acquired international physical fueling operations compared to the fourth quarter of 2016. And for the full year, aviation volume was 7.9 billion gallons, up 800 million gallons or 11% year-over-year.

Volume in our marine segment for the fourth quarter was 6.1 million metric tons, down approximately 1.5 million metric tons or 20% year-over-year. The largest drivers of the volume reduction relate to our operations in the Asia-Pac region and our decision to exit certain markets, we have seen continued market pressure and weakness as well as our conscious efforts to reduce activity in regions where we have not been achieving satisfactory returns on capital.

While some of these efforts impacted profitability in the fourth quarter, they directly contributed to our strong cash flow performance. For the full year, volume in our marine segment was 26.5 million metric tons, down 4.8 million metric tons or 15% year-over-year. This decline principally related to the previously mentioned decisions to exit markets or scale-down certain activities.

Our land segment volumes was 1.5 billion gallons during the fourth quarter, effectively flat with the fourth quarter of the prior year. And for the full year, volume in the land segment was 5.9 billion gallons, that's an increase of 600 million gallons or 11% year-over-year.

Total consolidated volume in the fourth quarter was 5.1 billion gallons, a decrease of approximately 280 million gallons or 5% year-over-year. And for the full year, consolidated volume was a record 20.9 billion gallons.

Before I continue with the financial review, I would like to review all the nonrecurring charges highlighted in our earnings release for the fourth quarter.

First, we took an impairment charge of $91.9 million, nearly 85% of which related to our marine segment with the remainder principally related to writing down 2 underperforming minority investments. This change is a result of our annual goodwill and asset impairment tests required under GAAP.

Due to continued weakness in maritime markets over the past year, including reduced profitability from the sale of price risk management products to our customers as well as our decision to exit our marine business in certain international markets, this is obviously a noncash charge and has no impact on our financial flexibility.

We also recorded a restructuring charge of $59.6 million in the fourth quarter, principally related to our ongoing efforts to rationalize our portfolio, including completely exiting the railcar business and exiting a low return capital-intensive distributor program within the land segment. These moves will result in a positive benefit of approximately $8 million annually going forward.

The restructuring charge also includes approximately $6 million of severance charges related to our continued cost-saving initiatives during the fourth quarter. We expect to identify additional opportunities to restructure operations, exit noncore or underperforming assets or lines of businesses in an effort to more effectively deploy our resources, both capital and people to drive improved profitability.

Finally, we booked an income tax charge of approximately $157 million, which includes a $144 million onetime transition toll charge on historical accumulated foreign earnings payable over 8 years as a result of U.S. tax reform. We intend to use our U.S. net operating losses and as a result, expect to only pay approximately $100 million over the 8 year period with approximately $8 million due in the second quarter of this year.

To assist all of you in reconciling results published in our earnings release and 10-K, we have provided a reconciliation of these amounts reflecting how all of these charges have impacted our segment operating results on our website and on the last slide of today's webcast presentation.

So now the following numbers exclude the full impact of all the items that I just described. Starting with gross profit. Consolidated gross profit for the fourth quarter was $230 million, an increase of $5 million or 2% compared to the fourth quarter of 2016.

For the full year, consolidated gross profit was a record $932 million, an increase of $30 million or 3% compared to 2016.

Our aviation segment contributed $106 million of gross profit in the fourth quarter, that's an increase of $4 million or 4% year-over-year. However, multiple factors contributed to a significant negative impact to gross profit in the fourth quarter, which were not anticipated when we provided guidance in late October.

As we have discussed in the past, our aviation customers rely on us to provide a stable and secure supply of jet fuel at airport locations, which requires our aviation business to always be long jet fueled to support our end-user commitments. We have also stated -- we also have a stated policy of fully hedging this related inventory position.

Even with a highly correlated hedge program, we still have exposure from the shape of the market curve.

During the fourth quarter, the jet fuel market was subject to increasing backwardation, driven principally by the lingering impacts of the September hurricanes and the impact of severe weather conditions during the latter part of the fourth quarter.

Because we are long inventory for the reason I described earlier, we have resulting exposure from the shape of the price curve. Hedging in a backwardated market during the quarter, actually contributed to a negative gross profit impact of approximately $10 million.

Furthermore, the sharp jet fuel price increase at the end of the quarter resulted in a timing difference between the resulting mark-to-market impact of our jet fuel hedges at year-end and the additional gross profit generated from selling fuel with a lower cost basis at higher prices in January.

In dollars, this amounted to approximately $7 million. And as anticipated, we recovered this full amount during the early part of this quarter. These negative impacts in the fourth quarter were partially offset by growth in our military-related business, operated through our NCS platform.

For the full year, gross profit on our aviation segment was $441 million, an increase of $40 million or 10% compared to 2016.

As we enter the annual aviation fuel tender season, our team remains focused on organically growing the core resale business with both new and existing customers.

We experienced strong results in NCS in 2017, driven in great part by the strength of our relationship and our ability to deliver service excellence in extremely competitive or complex and hostile environment. As a result of such efforts, we have recently been awarded a 2-year contract extension. Such contract does incorporate lower margins. So despite continued strong levels of volume quarter-to-date, profits related to this activity are expected to decline over the course of this year.

As we look to the first quarter, with the shape of the price curve smoothing out, we expect stronger inventory related results, including the $7 million recovery described earlier offset in part by lower sequential profitability from our NCS government business.

In aggregate, this should lead to improved aviation results in the first quarter. The marine segment generated fourth quarter gross profit of $29 million, down $6 million or 16% year-over-year. The gross profit decline was principally driven by the reasons described earlier as well as a further decline in profits from the sale of price risk management products.

We remain focused on driving further cost efficiencies in the marine business, which I will elaborate on further in a few moments.

For the full year, marine gross profit was $126 million, a decrease of $25 million or 16% year-over-year. As we look to the first quarter for marine, we expect gross profit to be relatively flat, but sequential marine results should improve driven principally by the benefit of additional cost-reduction activities.

Our land segment delivered gross profit of $96 million in the fourth quarter, that's an increase of $7 million or 8% year-over-year. The increases in gross profit were principally related to increases in natural gas sales through our existing Kinect business and the continued strong performance of our Multi Service payment solutions business. However, fourth quarter results were weaker than anticipated, driven by continued weakness in our North American supply and trading platform, including lingering hurricane impacts as well as modest weakness in the U.K. despite what was a reasonably cold winter season.

Gross profit associated with our Multi Service payment solutions business was $16 million in the fourth quarter, that's an increase of 25% compared to the fourth quarter of last year, again, demonstrating the expansion of our global FinTech payments platform and the continued ability of our Multi Service team to identify new customer engagements which tap into the unique value proposition which Multi Service offers.

For the full year, gross profit from the overall land segment was $366 million. That's an increase of $15 million or 4% (sic) [5%] compared to 2016.

First quarter results for land are expected to increase sequentially, driven principally by seasonal strength in our U.K. business as well as the benefit of additional cost-reduction activities.

Operating expenses in the fourth quarter, excluding our provision for bad debt and onetime items were $188 million. That's up $6 million year-over-year. The increase is principally related to expenses of recently acquired companies and investments specific to Multi Service at NCS, supporting growth initiatives in Multi Service and contractual requirements at NCS. Excluding these factors, expenses were actually down slightly year-over-year.

As we continue to step up our cost efficiency initiatives, we expect operating expenses, excluding bad debt and onetime items to be in the range of $178 million to $182 million in the first quarter, which would represent a sequential decline of approximately 4%, reflecting the impact of our most recent cost-reduction initiatives.

We are focused on driving expense ratios in both our land and marine businesses, down by a minimum of 3% to 4% in 2018.

For marine, reflecting our continued effort to rationalize spending to adjust to the realities of this business today. And for land, we are focused on making greater strides in integration, reducing inefficiencies and driving stronger profitability.

And under the leadership of our Chief Operating Officer, Jeff Smith, we are undergoing an organizational redesign of our back office and IT operations to create a leaner cross-functional team, which will leverage our enhanced technology platform. We have already made significant progress here quarter-to-date, which will contribute to our cost-reduction program during 2018.

Consolidated income from operations for the fourth quarter was $39 million, up $5 million or 16% year-over-year. For the full year, consolidated income from operations was $215 million, up $6 million or 3% compared to 2016. And adjusted EBITDA was $60.5 million in the fourth quarter, up from $57.3 million in the fourth quarter of 2017.

For the full year, adjusted EBITDA was just under $296 million, up from $292 million in 2016. Again, we believe this is a meaningful metric and we are focused on driving improvement in adjusted EBITDA in 2018 and beyond.

Nonoperating expenses, which is principally comprised of interest expense, was $19 million in the fourth quarter. This represents an increase of $5 million compared to the fourth quarter of 2016, principally relating to the higher borrowings associated with increased working capital requirements, which were driven by higher fuel prices during the fourth quarter as well as higher average interest rates compared to the fourth quarter of 2016.

At the end of December, the recently announced tax reform bill provided us the opportunity to repatriate a significant amount of cash held by our foreign subsidiaries. We immediately took advantage of this opportunity and we repaid nearly $250 million of debt prior to year-end with further debt reductions during January. This reduction offset in part by expected increases in borrowing rates through the year 2018 should enable us to reduce annual interest expense by somewhere around $10 million in 2018 on a year-over-year basis.

With that being said, I would assume interest expense will be in the range of $13 million to $16 million in the first quarter. The company's effective tax rate in the fourth quarter was 18.3% compared to 28.8% in the fourth quarter of last year.

As we look to 2018, our effective tax rate will be negatively impacted by tax reform. More specifically, the new global intangible low tax income or GILTI provision of a tax reform bill is expected to increase our effective tax rate. This is based on our expectation that are consistent with prior years, the majority of our income will be generated by foreign entities in foreign jurisdictions which also have a low level of foreign depreciable assets. Therefore, we believe our 2018 effective tax rate will likely increase to the mid-20s, significantly higher than our historical effective tax rate.

Now considering tax reform is less than 2 months old and many elements of the new tax code are still being interpreted, we continue to analyze all relevant changes and their impact on our business with the goal of arriving at the most efficient tax structure possible. Potentially, with an effective tax rate lower than the estimates I just provided.

While our tax rate may be higher than our historical rates, in 2018, there is great value in the freedom to move capital across our business with significantly reduced restrictions. And a lower U.S. corporate tax rate provides us with the potential for greater returns related to our pipeline of strategic investment opportunities, which most significantly reside in the United States.

On our balance sheet, accounts receivable was $2.7 billion at the end of the year, which is an increase of approximately $360 million year-over-year. This is principally due to higher fuel prices. Despite the increase in fuel prices, our working capital initiatives, including the marine initiative referred to earlier, have been paying off and contributed to operating cash flow generation of $160 million in the fourth quarter.

We remain focused on maintaining a strong balance sheet and generating consistently healthy cash flows as we have done for the past several years. While 2017 was a challenging year for us, we started taking important steps towards driving meaningful change throughout the organization. We are building a more efficient operating model, which should facilitate greater opportunities, both organic and strategic investments. With the objective of driving solid cash flows and improved operating results in 2018 and beyond.

I will now turn the call back to over to Mike who has some additional remarks.

Thank you, Ira. If we look back at the origins of our business our roots were in creating value as a reseller in fragmented markets through price, location, credit and information arbitrage. It seemed like one big endless summer where we were looking for the next big waves of value to the marketplace at the time, and of course, gross profit.

Cost really wasn't a critical part of the equation within that simple business model. Today, almost everything has changed in energy, finance, information and technology. Now we have shale oil and shale gas. We rode that constrained crude oil while it lasted in North Dakota, but that came crashing down. We have low cost of money, low price, ample supply of almost everything and a highly transparent and consolidated marketplace.

Our value proposition is now increasingly as a specialized distribution and service network, providing comprehensive and easily accessible solutions. Low cost and scalability are key as is the right mix of activities to serve a more demanding customer and competitive marketplace.

As such, the 3 pillars around which everything we do revolves are: one, a continuous cost management culture; two, a disciplined sharpening of the portfolio; and three, driving aggressive organic growth complemented with selective acquisitions.

Of course, an intense focus on the market, talent and culture is foundational for any successful organization. Our approach to cost management is comprised of utilizing a digital and agile business team methodology to leapfrog manual processes and accelerate the integration of people and approved processes in problem-solving. The nature of work is changing, and so are we.

We have started to restructure parts of our business, utilizing this approach. Telemetry, telematics, logistics, optimization, increased spans and reduced layers, collocation, shared service centers, empowered end-to-end agile teams, consolidated procurement, elimination of data centers and aggressively moving to cloud-based solutions will over time materially change our cost structure. We are at the early stages of this process, but expect material impact over the next 24 months.

In 2017, we exited our rail C-Store of small-scale LNG joint venture and a low return distributor program and are aggressively reviewing all discrete activities to test for return, runway and relevance to our markets and vision.

Our diversified aviation services network and distribution platform continues to perform well and is a model for land and marine. Our rightsized marine business should yield better returns and is poised in the longer term to capitalize on the continuing need in the market for a comprehensive service and distribution partner. We are well positioned to provide any solution for 2020 when low sulphur regulations commence.

Our land business should perform better in 2018 as we transition the business mix on the East Coast from a wholesale to retail recurring revenue model and drive efficiencies in the U.K. and U.S. platforms.

The North American market, which represents around 21% of global liquid-energy demand, is attractive to grow and leverages our maturing organization and the appeal of tax reform. We fully expect our Kinect Energy Group will deliver a material EBITDA run rate by 12/19. This is a sizable and growing market and we are committed to grow organically and through strategic investments.

Multi Service growth is accelerating. We remain bullish about its prospects for using its specialized expertise to solve complicated business problems with payments as well as driving synergies across our global platform.

To drive growth across our enormous population of existing and potential customers, with a broad product and service offering across an enviable geography, we are embarking on an aggressive zero-touch enterprise deployment of Salesforce.com, which will be fully installed in 2018. We expect this initiative to be transformational in itself.

The market has transformed significantly and technology will continue to change almost everything we do. We are leveraging the world's best technology partners to accelerate our transformation and create greater value in the markets we serve.

It's certainly a time of tremendous change, when our organization has a burning desire to leverage our broad energy, logistics and FinTech capability using exciting new tools and methodologies to continuously manage cost, sharpen our portfolio and drive growth with an exceptionally valuable set of product services and integrated solutions.

I'll now turn over the call to our operator to begin the question-and-answer session.

(Operator Instructions) And our first question comes from the line of Ken Hoexter from Merrill Lynch.

Looks like, I guess, you've made about 17 or up to 20 acquisitions over the past decade. Today, we're hearing a lot about trimming, I guess, cost cuts, trimming charges. Is there still more integration that you need to occur here? Maybe you can take a step back, Michael, it sounded like you want to take a step back and talk about kind of what you started as, are there too many disparate businesses here? Or do you still feel like you've headed in the right direction with these acquisitions now that you are stepping back with the cost-cutting program?

Listen, I think that -- I don't really have any regrets. All the businesses we bought were good businesses with good people. I think if I had to turn the clock back, I'd do a couple of different things because I think we were taking intelligent diversification steps. I think I would have dropped some people and done it a little bit different. I think we are a lot smarter now in terms of how to acquire, how to integrate cultures, brands, technology. We sort of left the folks alone, we left the technology alone and now we've got I think a much stronger view on how to move a lot more quickly. Technology is the name of the game. And within our U.S. land platform, we've got a disparate number of systems. We are moving them to the cloud, which will accelerate our ability to deal with that. Jeff Smith, obviously, is going to be instrumental in doing that. And with Kinect, massive amount of data. I mean Kinect alone has 30 terabytes themselves, so incredibly data intensive business. So the technology side of it is crucial. I don't want to say it's the name of the game with growing businesses, but it's a big, big part of it and we're not really where we need to go. So that's something that we have to move very quickly on. Mike Crosby on the land side and his team I think are doing an excellent job in the U.S. We're optimistic and bullish in terms of our ability to bring that together and brand that properly. So I feel good about what we're doing. We definitely -- cost is a whole different ballgame today. It's not an event. It's something that is continuous. So we're serious about it. We have an outside view. We have outside people helping us and teaching us some new tricks so it's important. It's very difficult and when you look at marine and aviation, obviously, marine has its own issues but we're working through them. If you look at aviation, they've got a platform. We spent a lot of time years ago and created an end-to-end solution. So if you've got the people, the process and the technology and that is what allows them to scale. We don't exactly have that in land. Land is a conglomeration of a number of different businesses and systems and technologies and we're bringing those together and as that comes together, and it is coming together, we're going to see a better result, a more predictable result, recurring revenue. We went through debt commodity cycle. We started out exploiting the inefficiencies in the marketplace. That was our first cycle. We rode the commodity side. Q4 of '14, Q1 of '15 it came crashing down. We should have pivoted faster, but okay, it is what it is. And now we're smarter and it's hedged down to basically go after that.

Let me just follow up. Ira, you talked about bidding back for NCS. Maybe you can talk a little bit more about that? Obviously, I presume you view it as still profitable, but why chase that business at that lower margins? Does that highlight how competitive the market has become? Or I guess as Michael keeps talking about on technology that others can provide this kind of service? And should we expect continual degradation of margins going forward on new business given that contract renewal?

So -- listen, we've been in the government business and government contracting business since the late '80s. And it's really helped our company tremendously. I've compared it to Formula One racing for passenger cars where you really have to deal with the contracting and logistics. It's serious requirements and it's really helped our company in its commercial activities. So that's a 2-year contract. And we'll have, obviously, the uncertainties of what the volume may be, but that is a contract. So that margin shouldn't change. But we'll continue to develop our capability. We already are expanding that in different geographies and taking it wherever -- different governments have an interest in our contracting and logistics capabilities. So we don't -- that margin is locked in for at least 2 years within the possibility of extensions.

And additional opportunities that you mentioned as well.

Yes, that's right. And we are in sort of a pole position for when there are other requirements that come up in that area or other areas. So as Ira commented in his script, we've got an excellent relationship with them and we've got a fantastic reputation for performance. So it's an important part of our area -- of our business and we leverage that within our commercial area, I think I mentioned with the ExxonMobil acquisition, we'd use the physical logistics competencies of our military personnel to handle those interplain deliveries in those 7 countries around the world. So we set up a center of excellence on logistics and that worked out for us extremely well.

Just a quick one, Ira. Did you say that the hedges now are back in proper format as far as going from backwardation? Or is that continuing into the 2018?

That backwardated curve smoothed out. I would say by the middle of January, it was back to way more normal levels. It was really one of the most severely backwardated markets that we've seen in many, many years in the fourth quarter. But thus far, where we sit today, it's been very calm and the issues I described do not seem to be repeating themselves during this quarter.

And our next question comes from the line of Kevin Sterling with Seaport Global Securities.

So the marine volumes we saw in Q4 '17, should we expect something similar in the first quarter of '18? Or do you have more markets to exit?

I don't know if we have more markets to exit. We're being mindful of returns. So there has been some changes that is not a surprise to folks that have been following the marine business. We're looking as I said to model our physical business. I think aviation has it right in terms of the third-party, the inventory, the distribution, the technology side of it. So it's certainly not in a robust place. So if we can't get the returns then we're going to be focused on that financial discipline. We certainly want to support our clients and we're still committed to the space. So I don't see -- I don't think we see growth in volume -- aggressive growth in volume. So I'd say it's more likely to be flat.

Okay. That helps. And as you've exited those marine markets, are you deploying those resources elsewhere?

In some cases, yes. In some cases, we're just reducing costs.

Okay. Ira, looks like you guys paid down a good chunk of debt in the quarter. Do you expect to continue to delever in 2018? Is that the plan?

Assuming that -- we've already pretty much paid down all the debt we could with the cash that became available to us because of the tax reform. We've got a pretty good track record. We have an excellent track record of consistently generating operating free cash flow year in, year out. You may note that interestingly enough, we generated the exact same amount of operating cash flow in '17 as we did in '16 by coincidence. So to the extent we continue to do that, we can now more likely use that cash to delever further, assuming prices stay in the same ballpark. As of course, if prices move up, that may require some more capital or if we decide to go after some of the strategic opportunities that are in the pipeline that remains very robust for us. Obviously, we use some cash there too. So depends on a few factors. But the cool thing now, Kevin, is that we could have generated a lot of cash in a given quarter but historically if it was all generated overseas, we couldn't use any of the cash to delever. So while tax reform is quite likely hurting us on the tax rate side, it's giving us a lot more flexibility to move capital around where we need it and keep debt at the lowest levels possible. So we've always had a grossed up balance sheet, if you will, with hundreds of millions of cash and then a larger sum of debt. Those days are fortunately over. We'll still hold onto some cash on our balance sheet to cover our day-to-day business, but we don't need to cover -- to carry any more than that anymore. So that's as I said in my script if we are making investments, tax reform and a lower corporate tax rate in the U.S. makes U.S. investments a lot more attractive. So anyway, I hope that answers your question.

Yes, it does. And so speaking of like those investments and stuff and you guys have taken a little bit of hiatus from M&A. How does your pipeline look right now? And as you kind of, I guess, reinvent yourselves, if you will, can we see you back on the M&A train as you take advantage of your lower debt levels and the tax rate?

Yes.

Okay.

People tell me that they prefer short answers, so the answer to that questions is yes.

It can't get any much shorter than that, Mike. But the pipeline is pretty robust?

Yes. Certainly, land, as I've said this before, it's a very sizable market. Our intention obviously is to build density, particularly when you're in a distribution business, that's critically important. We have perhaps a unique feature of that, we have a global network. There aren't too many folks in the world that have our spread of geography where we truly understand the markets and certainly the distillate markets by virtue of our jet fuel in so many different countries. So we're still bullish on going global. Our Kinect business is truly a global business and Marine and aviation. Multi Service is active in more and more countries. Their clients look to take them in more countries. So -- any case, land is certainly sizable. I'd love to acquire within the FinTech space with Multi Service, if had to turn the clock back, we would have bought 3, 4, 5 companies within that and bulk that business up. Kinect, we feel very bullish about in that area. Marine, it's interesting, we feel like we could look at that many number of different ways. And aviation, still has a good amount of runway in it. We're happy with all of the acquisitions we've done there. And I think, if you want to look at it and going back to Ken's question, having a platform makes all the difference. And so, we are getting a lot more serious about our land platform. It's very high on our list of priorities that kind of tough to really get the value out of businesses if you can't do the plug-and-play. But now, you made me give you a long answer, Kevin. But in any case, there is no shortage in organic growth opportunities that are intelligent when you look at our business, we have a fairly broad chassis. We've got a broad geography. So our opportunity for growth and profitable growth is good, but we have to do a couple of things before we could do that, the right way, we're building it step-by-step.

Got you. I like your long answers, it's good detail for me. Another point, and if I'm remembering correctly, a few years ago, I remember, you guys had a similar issue you had in aviation this quarter, where I think at the end of the quarter, fuel spiked and you kind of got caught on the wrong side and your hedges didn't work. Am I thinking about that right? I think it's happened to you before. And then point number two, do you still -- is it black oil futures you sold as your hedge against jet fuel inventory?

It's heating oil. So historically, heating oil and jet fuel are very tightly correlated and heating oil is the liquid market to hedge because there's no real liquid market to hedge jet fuel directly. What you're referring to, Kevin, is true. It's actually happened several times in the 10, 11 years that I've been here. And it's not that the hedges didn't work, at least the $7 million item that I referred to. It's simply because of the inventory methodology we utilized, we wind up with hedges that are intended to cover our risk being on the wrong side because in this example, prices spike. The assumption is that you're covering your risk from prices going down and your inventory being valued too high when you're trying to sell it off to customers. This is the opposite side, so the assumption is that you've got some extra profit on your inventory. So you've got a liability on the hedge side, right? The problem is the liability of the hedge side happens at the end of the year when you mark your hedges to market and the pickup. Because all this happened at the very end of the year, you don't see that until you start selling that inventory a few weeks later, which has a lower cost basis. So you make the profit back because prices are higher, right? So that's something that we're still exploring. There are potential opportunities to change the inventory methodology that we utilize today, which could reduce that risk going forward. There is some technological requirements to do that and we may actually get there in 2018, more news to follow there. So we always have run the risk of that happening historically. The good news is, those aren't lost dollars, right? The dollars tend to come right back when the inventory is sold, which is exactly what happened in this case.

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

Well, thanks for joining us and I look forward to talking to you next quarter. Take care.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a good day.