World Kinect Corp (WKC) 2023 Q4 法說會逐字稿

Thank you for standing by, and welcome to World Kinect Corporation's fourth-quarter 2023 earnings conference call. (Operator instructions)

I would now like to hand the call over to VP, Investor Relations and Communication, Elsa Ballard.

Good evening, everyone, and welcome to World Kinect's fourth-quarter and full-year 2023 earnings conference call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast on our Investor Relations website. I am Elsa Ballard, VP of Investor Relations and Communications. With me on the call today is Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer.

Before I get started, I'd like to review our Safe Harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause results to materially differ.

Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. World Kinect 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 measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.

At this time, I'd like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Elsa, and good afternoon, everyone. As we plan for our upcoming Investor Day in a few weeks, I've been reflecting on where we have come from and where we are going. We all know the last 10 years have seen tremendous volatility in energy markets, commerce, geopolitics, and even natural disasters. Throughout this 10-year period, our customer base, particularly airlines and shipping companies, experienced significant financial stress. I'm proud to say that our company went through this period with tremendous scale, financial stability, and stewardship in the face of massive turbulence. Our team has navigated through these challenges and consistently mitigated risks while managing the impacts of market disruption on our customers and suppliers, demonstrating both our expertise and reliability as a counterparty.

Today, we have a materially different business profile with a higher quality of earnings and a more predictable and synergistic portfolio. So resiliency, focus, momentum, and leverage of the words that resonate with me when I look back and look forward. And that's why I remain more enthusiastic and optimistic about our future than ever before.

I believe we are better positioned with our common operating model, common business processes, and seasoned leadership team. We have the force multiplier of a focused and aligned global team intent on leveraging our core distribution platform that we have spent decades developing and refining. Our core distribution platform buys, moves, and sells energy directly and through a network of partners around the world to commercial, industrial, and governmental entities.

We have deep domain expertise in global aviation and marine, and we are rapidly developing similar global expertise in land-based businesses and products, which represent a larger market opportunity. To be clear, we don't refine the products, but we do refine the surface. Our global platform has been stress tested in unforeseeable ways and is demonstrably more resilient and wiser. We have incorporated our experience and learnings from these events into our operating model, becoming an ever stronger financially and commercially responsible counterparty. With each test, we are better equipped to address the next market challenge, delivering greater value to the marketplace and investors.

From our humble beginnings as a broker and simple reseller and secondary finance company to the global industrialized distribution business we are today, World Kinect is a story of transformation, and our evolution and mission continues.

Our aviation and marine segments are matured global businesses. Our decades of experience have enabled us to establish the sophisticated core distribution platform we operate today that delivers consistent performance.

Our land business is evolving to resemble the aviation and marine distribution model, gaining momentum as we define and align our core national and global platforms. Where wins are coming more regularly because our team is more focused on institutionalizing standard methodology across people, assets, processes, and tools.

We have enriched the land leadership team by combining homegrown talent steeped in the understanding of our core model, with proven talent from acquired companies as well as experienced industry professionals to deliver value to customers and suppliers. That's how we will achieve the cash flow returns and growth we know exists in this business.

A foundational component of our land segment consists of fuel distribution to retail gas stations and C-stores. We have continued to expand our footprint by adding almost 300 new retail sites in 2023 to our customer base, most under traditional long-term contracts, which is a testament to our reputation in this space and the deep relationships with the supplier brands we represent.

Next is our Cardlock network. Cardlock being unmanned retail stations for refueling light commercial vehicles. We also serve commercial and industrial consumers, otherwise known as C&I, to which we distribute fuel and lubricants as well as power and natural gas. And that strong established and market-leading core distribution platform is complemented by a growing sustainability and renewable energy business.

We are focused on increasing the availability of renewable energy and lower-carbon fuels. We play an important role in facilitating the development of renewable solutions by bringing financing logistics, marketing, technical knowledge, and a myriad of services to facilitate the lower-carbon solutions the market needs by supporting these pioneering innovators and start-ups that are solely focused on their mission.

We also continue to expand our suite of complementary energy management solutions across our other three business lines, deepening our relationships with customers and suppliers with services like renewable energy solutions and emissions reporting and helping our customers achieve lower-carbon and net-zero goals. These are essential services that our customers need to better run their operations, and they have a higher attachment rate to our other offerings. All of these are part and parcel of the energy transition in progress today and growing into the future.

We are selecting the areas that are important to our customers and leverage our core distribution model. This strategy is exactly aligned to our customers' current and future needs. We are not only serving our customers' conventional energy needs today, but also enabling their energy management strategy going forward.

While still a small percentage of our overall business, our renewable and energy management offerings continue to grow and will represent a greater contribution to revenue, profitability, and the industry over time. And while the solutions we are providing to our customers are specialized, much of what we do is operationally common across our business activity. The vast majority of our business is derived from our core distribution model, our critical and unique ability to satisfy both customer and supplier needs. We are buying, moving, and selling the molecules and electrons that our customers need to transport their passengers and manufacture and distribute their products.

As an example of the value of the World Kinect network, we are assisting a number of our clients with alternative fueling options in response to the recent disruption to trade in the Red Sea. This is similar to the COVID period where dislocations in normal transportation patterns meant their customers had to rely more on our expertise and global supply capabilities. We saw the benefits of our core distribution platform in 2023.

Although we experienced nonrecurring financial impacts in the fourth quarter, which Ira will cover in his comments, we delivered solid core operating results with healthy adjusted EBITDA. This was on the back of especially strong growth within our aviation segment, which not only rebounded for the extreme backwardation in the prior year, but also benefited from improved operating leverage.

Marine came off a record year in 2022, and bunker prices and market volatility were considerably higher, but still performed very well in 2023. And while our land business in North America experienced some weather-related challenges that affected results in the first half of the year, we drove continued growth in our natural gas and power and renewable energy solutions activities and the integration of the Flyers team and platform when (technical difficulty)

Okay. Well, welcome back. Sorry for the technical difficulties, I think I'll just pick up where I'm pretty sure we left off.

So we've been speaking to you about our medium-term adjusted operating market -- margin target for the past few quarters, but there's only a piece of the story. As the global demand for energy continues to grow, we're intending to increase our market share, improve our operating efficiency, and continue to extend our value deeper into both our customer and supplier value chains as we've been doing for some time now. We've got a greater level of confidence or ability to execute. We've got a much sharper focus, and I can feel the momentum building. And the demand for our services is as strong as it's ever been.

And all through the change, our focus has remained constant. Our mission was then, and still is now, to meet our customers' energy needs in the most efficient manner possible and to provide our supply partners with the world's most reliable distribution platform. We work every day to improve access to and ensure the surety of energy supply through our core distribution platform.

I look forward to sharing more about our strategy and our outlook at our upcoming Investor Day. But what you should take away is that we are better positioned than ever to drive sustainable long-term growth with a favorable market position and a clear strategy to capture opportunities across our three businesses.

Before I turn the call over to Ira for a review of our financial results, I want to thank my 5,330 colleagues who work every day to ensure the success of our customers, suppliers, and company. And to our investors, thank you for your support, and we look forward to seeing you on March 13 in New York City. Ira?

Hey, everyone. Thank you, Michael, and good evening. And considering the unfortunate delay, I will try to speak as quickly as in New York or possibly could.

I'm going to begin by reviewing a number of non-GAAP adjustments in the fourth quarter, which aggregated $87 million, or $67 million after tax. Complete reconciliations of GAAP to non-GAAP financial measures are included in our earnings release in today's presentation and on our IR website.

The largest of the non-GAAP adjustments was $49 million charge related to an erroneous bid in the Finnish power market, which we had disclosed when it occurred in November. In our role as the market access provider for both producers and commercial customers of electricity in Finland, we submitted routine daily bid to Nord Pool, which is the commercial power market in the Nordic region, which effectively represents the net of related consumer demand and producer production on a given day.

In November, we inadvertently submitted a daily bid for an amount substantially greater than intended. Once we became aware of the error, we made immediate efforts to mitigate the impact, including a requested Nord Pool delay or rerun the related bidding process. When it became apparent that Nord Pool would not take action to mitigate the effects of this obviously erroneous bid, we quickly -- excuse me -- we quickly covered the associated positions fulfilling all related market obligations.

This incident was unique and isolated. The result of several independent and exceptional circumstances, all of which together translated to an extraordinary and unfortunate results. We have carefully assessed and reviewed our internal processes and had implemented additional measures to minimize the risk of a similar incident occurring in the future.

We also recorded additional non-GAAP adjustments in the fourth quarter. These included asset impairments of $32 million related to the write down of two investments, the rationalization of noncore business activities, including some of which have been discontinued as well as a further rationalization of our global office footprint, which began during COVID.

Additionally, we incurred costs associated with workforce restructuring activities as we continue driving greater efficiencies in our business. These restructuring activities combined with the rationalization of our office footprint and certain noncore business activities all resulted in immediate cost savings.

We understand, and in aggregate, these adjustments amounted to a large sum. However, aside from the charge related to the Finnish bid, we believe all of the other items helped to further simplify our business, enabling us to focus more clearly on growing our core conventional business and our sustainability-related activities. Total fourth quarter nonrecurring cash outflows related to all of these non-GAAP adjustments was approximately $50 million. And again, the details are included in our earnings release and on our website.

Now, let's turn to our fourth-quarter and full-year financial highlights. And as a reminder, the following results exclude the impact of all the items that I just walked through. On a consolidated basis, total volumes of $4.5 billion were essentially flat year over year. Adjusted gross profit was down 1% to $280 million from the fourth quarter of '22, primarily due to lower profits in our marine and land businesses, partially offset by strong results from our aviation business. And looking at the full year, volume of $18 billion was down approximately 2%, with adjusted gross profit at $1.1 billion, up 2% from last year. This is primarily due to a 36% increase in profitability year over year. Our aviation business, which had a fantastic year, rebounding solidly from 2022, partially offset by lower profits in marine and land.

Now, some additional detail segment by segment for both for the fourth quarter and for the full year. Within the fourth quarter, aviation volumes were 1.78 billion gallons, down 1% year over year, impacted by the lower return business activity we shed generally offset by ratable higher return business. Despite the modest decline in year-over-year volumes, fourth-quarter gross profit was $131 million, an increase of 19% year over year, driven primarily by the achievement of higher returns amidst the elevated interest rate environment. While full-year aviation volume of $7.3 billion was up only 3%, was also impacted by the rationalization of certain lower return business activity.

Aviation full-year gross profit was extremely strong, rebounding from the prior year, which was impacted by steep backwardation, but also benefiting from the achievement of higher returns amidst the elevated interest rate environment and solid growth at our last half mile airport operating locations, principally in Europe. Full-year gross profit increased 36% to $486 million for aviation.

One last comment on the achievement of aviation's higher returns. We not only achieved such returns by improving margins, which contributed to the significant increase in gross profit, but also by significantly improving working capital efficiency over the course of 2023, contributing to solid cash flow generation, which while I will separately address shortly.

As we look to the first quarter, while aviation results should experience a seasonal decline from the fourth quarter, we expect a year-over-year increase in gross profit, again, driven by our team's continued focus on optimizing returns across our commercial and business and general aviation platforms. For the land business, while fourth-quarter volumes increased 5% year over year to $1.62 billion, adjusted gross profit declined 9% to $105 million due principally to some margin pressure in the US and a lower contribution from the UK, which experienced unseasonably warm weather for much of the fourth quarter. These declines were offset in part by increased gross profit from our natural gas activities, as well as increased profitability related to our renewable energy solutions activity.

For the full year, land volumes were up slightly at $6.2 billion, driven by increased volume, again, associated with our natural gas activities, mostly offset by lower liquid fuel volumes, principally due to extreme weather conditions, which significantly impacted demand in the early part of last year. Adjusted gross profit for land declined 6% to $448 million, again, driven by the extreme weather conditions as well as some margin pressure in our broader commercial and industrial business in the latter part of the year. And similar to the fourth quarter, these declines were partially offset by healthy improvements in our natural gas business as well as continued growth in both our power and renewable energy solutions activities where we continue to find opportunities to expand relationships with customers as their energy transition journeys and related needs evolve.

As shared in previous quarters, the percentage of land volume associated with our nat gas and power business was 37% for the fourth quarter and 34% for the full year. That's up from 32% and 30% in 2022. This is in addition to our continued focus on distributing cleaner liquid fuel products such as renewable diesel. Overall, these numbers demonstrate our broader focus on cleaner sources of energy for a growing suite of customers throughout the world.

Looking to the land's first quarter, while gross profit is expected to be up modestly, the story is effectively opposite of what I described for '23, with commercial and industrial liquid fuels rebounding from the weather-related weakness experienced in last year's first quarter, partially offset by an expected reduction in natural gas activity, driven in part by severe cold weather-related market disruptions in mid-January.

And lastly, marine fourth-quarter volumes were 4.3 million metric tons, down 8.5% year over year, but up 6% from the third quarter when as previously noted, we believe we reached a bottom from a volume perspective. Year over year, lower volumes and bunker prices, coupled with a decline from higher volatility levels in the fourth quarter of '22 were the primary drivers of the 21% reduction in gross profit to $44 million.

Full-year marine volume declined 12% to $16.8 million metric tons, and gross profit declined to $173 million, down 33% year over year. We've discussed this over the course of last year, but it's worth reiterating lower profitability. Again, please, due to a comparison to an extraordinary year in 2022 for marine, which was positively impacted by exceptional volatility and record bunker fuel prices. While marine gross profit declined year over year, the business performed very well considering the significantly lower price environment where similar to aviation, marine further improved capital efficiency contributing to solid returns for the year.

Looking to the first quarter, we are expecting marine to be flat to up slightly from the fourth quarter with margins holding steady, for the expected decline in profitability from the first quarter of 2023 when volatility levels still remain high.

Now, let's turn to adjusted consolidated operating expenses, which were $207 million in the fourth quarter, consistent with our guidance range last quarter. This is up only 2% year over year, and for the full year, these expenses were effectively flat compared to 2022. Again, demonstrating our continued efforts to manage expenses tightly despite a highly inflationary macro environment for much of the year.

For the first quarter, we expect operating expenses will be in the range of $199 million to $203 million down sequentially, driven in part by the cost reduction actions taken during the fourth quarter. Again, we remain committed to enhancing operating efficiencies as evidenced by recent actions.

We increased our operating margin to 26% in 2023, and we remain focused on achieving our medium-term operating margin target of 30% by continuing to drive cost efficiencies in our business, while also further sharpening our portfolio of business activities. This will enable us to continue to simplify our story while achieving increased profitability and greater shareholder returns.

Fourth-quarter interest expense was $32 million, slightly above the high end of our guidance range, driven principally by funding costs associated with the unanticipated nonrecurring cash outflows during the quarter, but it was down $3 million from the fourth quarter of 2022. As we look ahead to the first quarter, we expect interest expense to remain generally flat with the fourth quarter, representing another year-over-year decline. I was expecting interest rate declines over the course of the year; we should benefit from further reductions in interest expense as the year progresses, contributing to an expected several million-dollar decline in interest expense compared to 2023.

Our [expected] -- adjusted effective tax rate for the fourth quarter was 21.1%, and our full-year adjusted effective tax rate was 21.7%, both slightly below guidance. Looking forward to 2024, we expect our adjusted effective tax rate will be in the range of 23% to 27%, up a few percent from '23, which benefited in part from the reversal of certain valuation allowances, many of which became necessary during the pandemic. And despite the one-time cash outflows that we experienced during the fourth quarter, we still generated $5 million of operating cash flow, bringing year-to-date operating cash flow to a solid $271 million, further supporting our strong liquidity profile, which provides us with the capital we need to invest in organic business activities, fund strategic investment opportunities, and return capital to our shareholders through buybacks and dividends.

Speaking of buybacks, and dividends, these totaled $94 million in '23 and include the additional repurchase of just over 500,000 shares for $10 million during the fourth quarter. Our capital allocation priorities remain consistent, supporting the growth of our business while carefully managing balance sheet leverage while also increasing shareholder value through buybacks and dividends. I look forward to discussing these priorities with you, as Mike indicated at our upcoming Investor Day on March 13.

So in closing, we generated $386 million in adjusted EBITDA, driven principally by a strong rebound in aviation results generally offset by a significant decline in marine profitability from the record results they achieved in '22. While our land liquid fuels business activities were negatively impacted by weather-related challenges in the first half of the year, this was partially offset by solid improvement in our nat gas and renewable energy solutions activities. We delivered $271 million of operating cash flow for the year despite, again, unanticipated nonrecurring cash outflows in the fourth quarter, further strengthening our balance sheet with net debt to adjusted EBITDA at only 1.5 times at year end, providing us with significant financial flexibility to continue investing in our core business, while also remaining focused on identifying the right strategic investment opportunities for us that can accelerate growth and operating leverage in our core platform. Speaking of operating leverage, again, we improved our adjusted operating margin to 26%, with a continued focus on driving additional operating efficiencies towards our medium-term goal of 30%.

And one last time, I look forward to seeing all of you, or most of you, at our upcoming Investor Day event on March 13, where, again, our goal will be to help simplify our story talking about what we have done for decades, as well as some of our newer sustainability-related activities and how they fit into our core operating model, and maybe most importantly, share our views for the exciting growth opportunities we expect looking forward.

Thank you. And I will now turn the call back over to our operator to finally begin our Q&A session. Operator?

(Operator instructions) Ben Nolan, Stifel.

Thank you, operator. Glad to finally get through to you guys. I wanted to ask a couple of things. First, Ira, you finished up talking about moving to that 30% margin. You're making some gradual progress. I'm just trying to wrap my head around sort of what's realistic, if I go back to 2018, 2019, volumes were 10% higher, but costs, employee costs were 10% lower. G&A costs were 30% lower. Where is the wood that can be chopped here? Like, how do you -- how are you going to get to that 30%? Is it more top-line or bottom-line focused?

I would say -- great question. If you put it in perspective, then you have 4% beyond where we were in 2023 coming out of the year. You're talking about $40 million of efficiency. While that's a big number, that may not be as massive as you would think when you're simply looking at going from '26 to '30, so saying that for starters.

It's a combination of both items that you mentioned, right? It's a combination of greater focus on business activities that drive greater returns. The Cardlock business with Flyers is a great example of that, where the return of that business well above 30%. Doing more of the things like we did in the fourth quarter, which included some workforce restructuring activities, looking at offices that are barely being utilized that cost us several million dollars that we don't really need any more in today's environment and also elimination of some certain non-core activities that were actually draining the P&L as opposed to adding to it. So we'll continue to look things like that and seek opportunities. But at the end of the day, we're looking to drive greater efficiencies on every line item in our P&L.

You mentioned G&A being up at the last couple of years. It's been flat. We're trying to bring that number down a little bit, but at least, it hasn't been growing considering the highly inflationary environment we've been in.

We feel that's a pretty good outcome, but sure we could do better, right? So we're pretty confident that combination of getting some it cost-efficient, GP, more of that into the mix and combining that with identifying more cost efficiencies, different geography opportunities for labor, for example, where there is some arbitrage there. We're looking at all sorts of things along those lines to make steady progress towards hitting that number. So we -- yeah, it's true to your point comment. We only achieved a 1% improvement over '22 and '23. We're looking to achieve further improvement this year and of course, even more improvement in '25 and beyond.

Right. And I appreciate the color. As it relates to sort of your strategy and also knowing that we'll probably hear more about that in just a few weeks now, where would you say is the priority? This might be just another way of asking the same question, but is your -- is management's focus more on sharpening the pencil here and making the existing business more efficient or finding ways to grow the business? And I presume, again, you're probably trying to do both, but where would you say is the greater level of emphasis?

Ben, this is Mike, and thanks for the question. Aviation and marine, as you heard in my prepared comments, have been active for quite a number of years. Land has been a journey. Kinect is kicking in, and we are the same thing with land, Flyers is great contributions, Lykins, a number of different businesses that we brought into the mix here. Admittedly, this has been a bit of slog. We’ve got, we think a good consolidated team in the mix. So it’s flexing liquid land, flexing our sustainability business. We are seeing activities coming there, certainly enhancing aviation and marine. We never take that for granted. And we’re leveraging aviation, marine. That's good amount of cross-sale with sustainability. I was suggesting that in my comments.

And then cost, it’s continuous -- cost management culture. Do we need 46 vendors for a particular item? So that continues and getting operating leverage on the platform. So it’s an ongoing work, but, certainly, looking at land and looking at our sustainability as growth engines, we feel good about that, and we feel like we’re in a better position now.

All right, great. And then if I could just one last one. You mentioned that obviously the craziness that’s going on in the Red Sea and the Panama Canal, and that there were some reminiscences to post-COVID time. That was a really good period for the marine business. Are you starting to see any financial outcomes that are at all similar to that or any possible bright spots in marine as a function of all of the crazy things that are going on in the world?

I don't think that you're going to see anything earth-shattering, you never know. But -- and the thing is, a lot of the planets need to be aligned. It's not one thing. You have a good amount of slow steaming going on. So certainly, it's a perfect way for us to help the market and be able to create value in the marketplace and be able to participate in that value creation. We're not really expecting it's going to be seriously robust. But it's generally positive when there are certain types of dislocation that we can monetize by providing solutions. So not forecasting it to be robust, but -- and the thing now too is, as much as I hesitate to say this, is that we have become a physical participant in the marketplace in very select locations. So while we're still very asset light, that was part of the gambit, to become a truly strategic partner to our clients and to be able to fill a gap. We experience some of those dislocations now, but not nearly as much as pure physical players.

Right.

The one thing I'd add to that, Ben, is even though marine didn't produce as much, it may not have a massive benefit from some of the things you described. Even at the level of profit contribution that they're driving today, the operating margin of that business is very strong. We're actually in a position now where in the fourth quarter we had zero working capital invested in that business.

So that, again, that's supporting both margins and returns. So when there are opportunities and disruptions and prices go through the roof, we tend to make a lot more money in that business. But even at these levels, the team is doing a phenomenal job. It's not competing for capital with aviation and land, and yet it's still producing a reasonable amount of cash flow for us. So we're going to talk more about that at Analyst Day, so I just wanted to give you a preview.

Well, great, and I appreciate it. Thanks, guys.

Thanks, Ben.

Ken Hoexter, Bank of America.

Hi, this is Adam Roszkowski on for Ken Hoexter here. Thanks for having me, Michael, Ira, Elsa. I guess to start, with the Investor Day coming up, what is the margin picture for the sustainably-linked land business? And how should we be thinking about the structural returns on this ESG portfolio in over the next couple of years here? Thanks.

Look, that -- Mike, you comment after me, but I -- let -- I'm getting my thoughts again. I would start by saying that that's still small, but it's growing. It's picking up steam, and there's very little capital tied up in that business because there's big service-oriented component and where there is a need for investment is relatively small. So the returns of that business over time should be higher than the historical conventional businesses we've been in that involve investments in inventory, for example, or for physical assets like small part of our marine business and even aviation.

And so we'll share some more detail on that at Analyst Day. But certainly, the opportunity there, that's more people are your asset in that business, principally. So as we start building up scale and we could leverage the folks that we have, the returns in that business will continue to increase over time. But again, at this stage, we don't have that leverage yet. So those returns are not yet where we'd like them to be.

I think that's fine. We'll pick that in New York.

Got it. Then switching over to aviation, can you talk about of rightsizing this portfolio? Can you talk about any business that has maybe left to call? And then how do you think about the sustainability of gross margins? And is there any notable repricing that is taking place within this business, first quarter or this year?

What was the first part of that, Adam?

Any business that has left to maybe shed off that -- yeah.

Yeah. So a big part of the quote, unquote, shedding really took place as we enter the mid part of '23, which is where our largest contract renewal cycle, or which is when our largest contract renewal cycle takes place in an extremely elevated interest rate environment. We worked really hard to get our margins to a better place to mitigate some of the incremental interest costs that we were obviously incurring over the course of '23.

And as you could see from our numbers, our margin increased by 10%, which is pretty significant considering our volumes. So whether that continues, so we already got the extra margin last year. We're always -- the team's always trying to do the best job possible in achieving optimal margins as we get into the cycle in the mid part of '24. You know, we're not necessarily going to have the same quantum leap in margins that we had in the summer of '23. But we're striving for the best possible outcome as the year progresses.

And we've actually started the year out pretty strong, which is a positive sign. So jury's still out on what we will be able to achieve in margin as the year progresses. But we started the year at a very strong level, and we're going to try really hard to hold on to that at a minimum.

Got it. And then just a clarifying one, did you ever give the operating income breakdown impact between corporate and land on the Finnish bid impact?

Yeah, the Finnish bid impact is all in land. It's all in land, and it all flowed through gross profit.

Okay. And then last one, if I can. Just on interest expense, you talked about a several million-dollar decline next year for your expectation. And you mentioned that lower interest rates are what is underpinning that. Is there any more room for working capital efficiency? How are you thinking about that in your outlook this year?

Look, we're -- we don't like tons of interest expense any more than you do. So we're trying to do everything within our power to bring that number down and not solely I leave it to the Fed.

So there are a lot of things we're focusing on. We did a phenomenal job. Our net trade cycle was lower than I ever remember across the entire business in 2023. I don't know if we could bring that down much further, but we look at efficiency opportunities in that regard every day. And we also look at opportunities where we may be able to generate some cash from some non-core assets to pay off some debt and reduce interest expense as well. So there are all sorts of things we're focused on. At a minimum, we should see a several million-dollar decline. It could be greater than that, depending on the outcome of certain activities that are that are underway.

Thanks, Ira, Michael. Also, appreciate it.

Excellent.

John Royall, JPMorgan.

Hi, good evening. Thanks for taking my question. So I had a follow-up on marine. You've normalized a bit from '22 levels that were impacted by price volatility, but still well ahead of where you were in '21. Can you talk about what's structural there and what's, maybe, still impacted by the short-term volatility issues? And then just maybe how we should think about that business longer term relative to the 4Q run rate?

Again, I think, volumes are pretty stable now. I think last quarter, some folks I asked about our volumes and we felt and maybe predicted accurately that we hopefully, at a bottom, and we rebounded from that bottom in the fourth quarter. So I guess we were generally correct. And we think at this point, volumes are pretty stable. There seems to be some upside opportunity, but not necessarily a really big number as Mike alluded to earlier.

Margins are still a bit ahead of historical averages, but considering the interest rate environment we're in, that makes complete sense. So assuming none of us expect interest rates to drop dramatically, regardless of which Fed governor you speak to in 2024. So I think that storyline will remain as it is today, which means that it should be not necessarily a play on words, pretty steady sailing for '24. And I think the run rate we're at is a reasonable run rate to expect. There can always be some upsides and downsides, but the volatility factor that we benefited from is really behind us now. And now, it's pure blocking and tackling and generating returns that achieve our the margin thresholds that we set for our team.

Great, thank you. And then follow-up on the buyback. You stepped up the pace a little bit last year going from about $50 million in '22 to 60 million in '23. Is that a good number to think about for '24? And then, how do you think about cadence there? Or is it just opportunistic when you have the cash flows? Or are you timing the market always? We noticed some quarters you buy back stock and some quarters you don't. So just any color on the timing would be helpful.

It's generally been opportunistic. We always tried to buy back, I would say at least $40 million or so, which keeps our share count steady, which means it's offsetting the dilutive impact of employee awards last couple of years. We exceeded that a bit as our stock was definitely not where we wanted it to be, so we bought back a bit more on. So I think we'll always be in that ballpark. There may be an exceptional year plus or minus, but I think we've been pretty consistent there. And we expect that we will remain generally consistent in somewhere in that range, depending upon our cash flows, stock price market environment, competing priorities for capital, et cetera.

Thank you.

Pavel Molchanov of Raymond James & Associates.

Yeah, thanks for taking the question. As I looked at the cash flow statement for the quarter, there was an acquisition. Can you talk about what it is that you bought?

Great question. So we made a small acquisition in Michigan of basically several cardlocks are similar to the cardlock activity we picked up with the Flyers acquisition, and I'm happy to ask you that's a great example of a completely synergistic, easy to integrate business opportunity. Albeit it was small where we literally it's a great shot for saying this by people on our team overnight, right, because all we have to do is add those cardlocks to our network, which is basically, through the use of technology and ensure they're getting fueled through a local provider. And that's it. We picked up, I think, two employees and that all transaction. And we got to pick up basically all of their GP. We would do that every day we could, and we're always looking at opportunities like that, that was one that worked out for us in the fourth quarter.

Okay. Question that I ask every quarter, what was the low-carbon percentage of EBITDA or operating income in Q4?

So the good news is we had pretty acceptable results in that part of our business, Pavel, in the fourth quarter. So those numbers stepped up a little bit from, call it 10%, 11%; 2%, 2.5% higher. I would say for the full year of '23, we were up low-teens. So maybe a little better than what I had shared earlier, and we expect '24 to be similar.

So we're making some slow and steady progress there. There's always going to be pops in a given quarter. Again, fourth quarter, the numbers were actually higher, a bit higher than that. But if you normalize it and you look at the year over year, we grew from 9% of GP in '22. And the number was up to close to 13% in '23. And then the EBITDA metric from 22% to 23% was even more impressive went from 7% to somewhere around 14%, so we doubled. And again, part of that was based on some pretty big wins we had in the fourth quarter that aren't necessarily going to be repeated every quarter, but we should be safely in double digits for GP and EBITDA percent of the total in those related businesses in 2024 as well.

Right. And I think this touches on, maybe one of the questions asked earlier, but, when you sell a gallon of renewable diesel, SAF, et cetera, is that a higher margin profile structurally compared to its petroleum counterpart?

It could be. So I think it's fair to say that you've got a product to commodity that is not an ample supply. The demand for it, it does vary. There was a time when we had plenty of sustainable aviation fuel and there was a lot of interest. But when you start to talk about the price, that interest disappeared. You are seeing some economies of scale come through. But I think, to answer your question directly, the answer is yes. So from that -- simply, the answer is yes.

Some time, the amount of effort required to source it, certainly in the early days, but you're seeing the distribution, the production become more mainstream. Many of these products, not all of them are dropping fuel so they drop right into our distribution platform and certainly with our end users are some products that require a little bit of educational aspect to it. And we've got the expertise to be able to do that. But yes, Pavel, they are definitely attractive from that dimension.

All right. Thanks very much.

Thank you. I would now like to turn the conference back to Michael Kasbar for closing remarks. Sir?

So thank you very much to everybody listening today, our supporters, analysts following our stock, and certainly our investors. We feel like we've got a far greater focus and good momentum in the organization. We look forward to see you all in New York to talk some more about our business. And thanks again to our colleagues. We have a management team and all of the folks that we work with every day, thanks for doing what you do. We'll see you all in a quarter. Take care. We'll see in New York. Take care. Bye bye.

Bye, everybody.

This concludes today's conference call. Thank you for participating. You may now disconnect.