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Text: With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer.
If not, you can access the release on our website.
Before I get started, I would like to review World Fuel's safe harbor statement.
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.
As with prior conference calls, we have set members of the media and individual private investors on the line participate in listen-only mode.
This is Ira Birns.
Before Mike begins, operator, we've been informed that we still have music playing while Glenn was speaking.
Could you please ensure that, that's shut off ASAP before Mike begins?
We'll be with you in a few minutes.
Sorry for the delay.
Can you hear the music?
So I give us a couple more minutes.
Our sincere apologies, we're still try to work -- working how with the conference call [Indecipherable] shut off the music.
We'll be with you in a minute or two.
I'm not hearing music on my end.
Is anyone still hearing music?
Okay, we're back on.
Sorry for the delay.
So it's the music, but hopefully, everybody can hear.
If not please figure out a way to contact us.
So we're assuming everyone's hearing.
It's good to be here today.
As we all know, it's been a year like no other.
It was a year when our company, our country and the world were challenged in ways never before experienced.
It was also a year in which we learned a lot about ourselves and each other, about how we respond to emergencies, to rapid change, to having our personal and business lives turned upside down, and the health of our family and employees put at risk.
The pandemic impacted some businesses more than others.
Please support the industries that have been among the most impacted.
The World Fuel was the ultimate stress test, and I could not be more pleased with and proud of the incredible job our global teams did during this extraordinarily challenging year.
We did not miss a beat for our customers or suppliers in any part of our business activity or in all part of our global operations, not one.
We absorbed risk, performed our operations with excellence and improved our safety metrics along the way.
We maintained and enhanced our commercial, operational and financial position as the counterparty of choice to the global aviation marine and land-based industries.
I could not be more proud of the dedication and efforts of our team and the outcomes they drove in this difficult, risky and volatile year.
We have been fire-tested and are stronger for it.
Today, all of our businesses are strong, healthy employees to respond to the resurgence in passenger travel and commercial activity in aviation, marine and land as local and global markets reopen.
The work that we have done over the year on talent, leadership and culture has better positioned us to execute on delivering and scaling our existing diverse energy and last half-mile logistic solutions to end users.
Our aviation, marine and land businesses continue to refine and enhance their offerings and expand their global networks.
We have clearly demonstrated -- they clearly demonstrated there's strategic value in their markets during the most successful -- I'm sorry, stressful time in history.
Our energy management business continued to evolve its natural gas, power, wind, solar, carbon and renewables activities, and as I said last quarter, this business is breaking into stide.
We provided robust energy management advisory services to a broad base of locally rolled businesses in 55 countries.
We sourced renewable energy from our portfolio of 190 renewable power plants.
We concluded solar power agreements with various communities as well as agreements with utility-scale solar projects for Fortune 500 companies.
We've managed and sold growing volumes of electricity and natural gas.
Throughout all of our businesses, we were supporting our clients' pathways to lowering their carbon footprint and meeting their growing ESG agendas by procuring and selling carbon credits, sustainable aviation fuel and renewable diesel.
As I said last quarter, the reception from the market to our sustainability offerings did accelerate.
Society has passed the tipping point on climate action, and we are well positioned to serve the sustainability needs of the market.
Last quarter, I mentioned our generated military activity and the synergy of our commercial activities.
While our core in-theater business has experienced substantial declines as a result of troop withdrawals in Afghanistan, I am confident we will be building out a more diverse portfolio of business activities within this sector, which leverages our commercial, operational and expeditionary capabilities.
As I have said in the past, our military activity and expertise has positively influenced our commercial practices.
And the military veterans that work shoulder to shoulder within their organization continue to help us drive operational excellence.
We are grateful for your service and contribution to our success, and are committed to hiring and supporting military service members throughout our global organization.
In addition to participating in what is rapidly moving from an energy transition to an energy revolution, we are also participating in the digital transition.
We are digitizing more transactions, documents and communications every day and moving hundreds of suppliers and customers to our PPIs and portal solutions, all with the purpose of reducing costs, lowering ours and our customers' and suppliers' partner footprint and increasing the value by improving operational integration with the markets we serve.
We are taking our large and liquid analog transportation fuel marketplace and turning it into a digital energy ecosystem, and we're doing this with smaller teams and better performance as a function of focusing on diverse talent and thinking, and a collaborative culture.
In 2020, our global team showed great strength of character, tremendous resilience, uncountered grit and a relentless determination and burning desire to do well.
Ladies and gentlemen, I hope you enjoyed the extra music.
Sorry about that again.
But before I begin my financial review, I would also like to reiterate Mike's sentiments.
Last year was one that brought unforeseeable challenges to our business in the markets we serve.
But we couldn't be prouder of what our company has accomplished in the face of such extraordinary challenges.
While uncertainty still looms, the proverbial light at the end of the tunnel seems to be creeping a bit closer.
And we are very confident that our resilience business model will bounce back as the markets we serve begin to recover.
More positive news is coming out every day regarding vaccination rates and trends in COVID activity and the progress that is being made should be very encouraging to us all.
I'll provide additional details regarding what we have done to strengthen our company during 2020 as I give a more detailed review of our fourth quarter and full year financial results.
As usual, please note that the following figures exclude the impact of nonoperational items as highlighted in our news release.
The nonoperational income and expense items for the quarter and full year, principally relate to the gain on the sale of our multi-service business, most of which was recorded in the third quarter, as well as our acquisition, divestiture, impairment and restructuring-related expenses.
Now let's begin with some of the fourth quarter and full year highlights.
Consolidated volumes for the fourth quarter increased 3.5% sequentially to 3.5 billion gallons.
For the full year, our consolidated volume was 14.4 billion gallons, that's down approximately 26% compared to 2019, mostly related to the pandemic's impact on our commercial aviation business.
Adjusted fourth quarter net income and earnings per share were $1 million and $0.02 per share, respectively.
And adjusted full year net income and earnings per share were $74 million to $1.15 per share for seven weeks.
Adjusted EBITDA was $45 million in the fourth quarter and $261 million for the full year.
And lastly, we generated another $114 million of cash flow from operations during the fourth quarter which contributed to a record $604 million of cash flow from operations for the full year, further strengthening our balance sheet amid the ongoing and pandemic.
And now consolidated revenues for the fourth quarter was $4.7 billion, again, negatively impacted by the continued effects of COVID-19 on our segment volumes as well as a 25% decline in average fuel prices compared to 2019.
For the full year, consolidated revenue was $20.4 billion that's a decrease of $16.5 million or 45% when compared to 2019, with the decline driven by the same factors as the fourth quarter.
Our aviation segment volume was 1.1 billion gallons in the fourth quarter, to actually up 12% sequentially, but still well below pre-COVID activity levels.
Strength in cargo operations and business aviation was offset by continued weakness in global commercial passenger aviation activity.
Fourth quarter spikes in COVID activity led to a reinstitution of mandated quarantines and other forms of travel restrictions in much of Europe, the Americas and even Asia.
These restrictions are expected to remain in place for the balance of the first quarter.
However, COVID cases, hospitalizations and vaccination rates all seem to finally be trending in the right direction, which should begin to result in relaxed travel restrictions.
This is all leading to growing optimism for a reasonable recovery of commercial aviation activity, potentially beginning as early as sometime during the second quarter and into the third quarter of this year.
For the full year, volume in our aviation segment was 4.7 billion gallons, that's a 3.8 million gallon decline or 45% compared to 2019, again, for the same obvious reasons.
Volume in our earnings segment for the fourth quarter was 4.2 million metric tons and approximately 17% year-over-year and 3% sequentially.
The year-over-year declines were principally driven by weaker demand across the core resale in physical businesses.
For the full year, our segment filing was 17.5 million metric tons, that's a decline of 3.4 million metric tons or 16% compared to 2019.
Our land segment volume was 1.3 billion gallons or gallon equivalents during the fourth quarter.
That's a decrease of only 11% year-over-year and an actual increase of 2% sequentially, generally good results considering the broad economic impact of the pandemic on our markets our land business serves.
We experienced year-over-year COVID-related volume deployments in our retail, commercial and industrial and wholesale operations, which were partially offset by increases in our drilling power, natural gas and sustainability platform.
Our land team remains focused on expanding our C&I power and natural gas and sustainability platforms and has done a great job managing our land business through the pandemic over the course of 2020.
For the full year, volume on our land segment was 5.1 billion gallons, that's a decline of 390 million gallons or 7% compared to 2019.
And consolidated volumes for the full year was 14.4 billion gallons, down 5.1 billion gallons or 26% year-over-year.
Consolidated gross profit for the fourth quarter was $165 million, that's a 42% decrease compared to the fourth quarter of 2019 and a 23% decrease sequentially.
For the full year, consolidated gross profit was $852 million, down $260 million or 23%, both declines driven by the impact of the pandemic on our aviation and marine results.
Our aviation segment contributed $70 million of gross profit in the fourth quarter, down 50% year-over-year and 28% sequentially.
The reason for the year-over-year decline again is obvious, but we also experienced a sequential decline due in part to renewed travel restrictions in the fourth quarter, as mentioned earlier.
These restrictions most significantly impacted our iron ore volumes that are serviced by our physical operating network in Europe.
Also, our inventory business was negatively impacted by fuel price volatility during the quarter, and we also experienced a modest sequential decline in government-related activities related to well pump size Afghanistan troop withdrawals, mandated by the prior U.S. administration.
As we look ahead to the first quarter of 2021, we anticipate that aviation gross profit will remain flat sequentially, driven principally by continued lockdowns in many parts of Europe and other areas of the world, which, again, we expect will last through the balance of this quarter.
For the full year, aviation gross profit was $353 million, a decline of $188 million or 36% year-over-year.
The marine segment generated fourth quarter gross profit of $23 million, a 60% year-over-year decline and a 29% decline sequentially.
The COVID-related year-over-year decline in core retail activity, including the [Indecipherable] sector, was compounded by a comparison to a very strong fourth quarter in 2019, and which has benefited from the lead out to the January one very [Indecipherable] IMO regulations.
In addition to seasonality, the sequential decline related to lower margins we expected in our core retail activity and weakness in our physical business, impacted in part by COVID-19.
As we look ahead to the first quarter, based on what we've experienced year-to-date, we expect marine gross profit to increase sequentially, driven by a rebound in our higher-margin physical business and an increase in customer derivative-related activity.
For the full year, the marine segment generated $151 million of gross profit, which is down $30 million or 17% compared to 2019.
Our land segment delivered gross profit of $72 million in the fourth quarter, up 3% year-over-year and 11% sequentially when excluding profitability related to multi-service, which we sold at the end of the third quarter.
While core domestic activity declined, land experienced sequential increases in our power and gas business as well as the benefit of seasonality in the U.K., again, a good outcome for land considering the impacts of COVID-19 on the markets they serve.
Looking ahead to the first quarter, we expect land gross profit to be sequentially higher, principally related to the increase in activity in the U.K. as we expect people strength in our oil distribution activities, which began in the fourth quarter to continue through the first quarter, driven in part by assumed higher usage as a result of continuing pandemic-related lockdowns.
And some additional potential upside related to the recent volatility in the natural gas markets in parts in the U.S. For the full year, the land segment contributed gross profit of $348 million, after excluding the impact of multi-service, the land year-over-year decline was only $9 million or 3%.
Core operating expenses, which exclude bad debt expense, were $135 million in the fourth quarter, which is well below the range that we provided on our last quarter's call, as we remain focused on managing our variable costs during this period of continuing uncertainty.
Looking ahead to the first quarter, operating expenses, excluding bad debt expense, will likely be a bit higher in the range of $138 million to $142 million.
If we look at the full year 2020, core operating expenses were $613 million that stand at $152 million or 20% when compared to 2019.
By taking swift action to reduce our costs to better align the economic realities of 2020, we were able to mitigate more than 50% of the full year decline in gross profit.
This is another testament of our team's focused effort to manage through the challenges the pandemic.
Speaking of the challenges with pandemic, the debt expense in the fourth quarter was $5.8 million, returning to a more normalized level after two quarters of COVID-related elevated expenses.
We continue to navigate challenging markets well.
Our credit team continues to do a fantastic job underwriting risk with credit lines remaining well below historical levels.
As we look to 2021, we expect bad debt expense to return to levels at or below those experienced in 2018 and 2019, unless market conditions somehow deteriorate substantially from here.
Adjusted income in operations for the fourth quarter was $25 million, down significantly from 2019 and sequentially, again, due to the impact of the pandemic on our aviation and marine segments, most specifically.
For the full year, income from operations was $176 million, also down significantly, principally driven by the impact of COVID expenses.
Fourth quarter interest expense was $12 million, which is down 30% year-over-year.
While [Indecipherable] success continues to benefit from lower average borrowings and significantly low interest rates, interest expense increased sequentially as we ramped up our accounts receivable sales facility, which is further strengthening our liquidity profile.
At the end of the fourth quarter, we again had no borrowing with outstanding under our revolver, and we ended the year in a net cash position.
We expect interest expense for the first quarter to be in the range of $10 million to $11 million.
Other expenses were also elevated in the fourth quarter, principally related to foreign exchange losses driven by significant currency volatility during the quarter.
As a result of the impact of the pandemic on our operations, we were required to post a fairly significant amount of valuation allowances against our deferred tax assets in various foreign jurisdictions during the fourth quarter.
This resulted in a higher effective tax rate for the fourth quarter and even the full year.
These noncash adjustments are required under tax accounting standards and procurements from recording a tax benefit on certain legal equity loss results which, again, will continue to be driven principally by the decrease in demand associated with travel restrictions imposed globally due to COVID-19.
The recorded devaluation allowance has no cash flow impact and our net operating loss carryforward assets remain available to offset future taxable income from these legal entities once they become profitable to get close to identical since we did not be able to recognize any tax benefit, and so we start showing profitability in these jurisdictions, our effective income tax rate may remain higher than we would like in the short term.
If we normalize our rate for the impact of these allowances, our fourth quarter effective tax rate would have been somewhere in the low 30s.
Based on what we know today, we expect our effective tax rates to be in a very similar range in 2021, unless the local market conditions change materially.
Our total accounts receivable balance declined to about $1.2 billion at the end of the year, down more than 50% or approximately $1.7 billion from December of 2019, driven principally once again by volume declines and lower fuel prices.
Our continued focus on carefully managing working capital resulted in fourth quarter operating cash flow of $114 million.
For the year, we generated more than $600 million of cash flow from operations, which have enabled us to repurchase $68 million of our shares and pay $26 million of dividends while still strengthening our balance sheet substantially, again during the midst of the pandemic.
This provides us with a significant amount of available liquidity to invest in organic growth initiatives, a robust pipeline of strategic investments, additional share repurchases and dividends, all intended to drive greater shareholder value.
In closing, as we all know, 2020 is a very tough and unprecedented year, not only for us as a company, but for the markets we participate in just about everybody else.
While we do not control in business demand recoveries from COVID-19, operating remotely for almost the entire year now, our global team did an exceptional job focusing and executing on [Indecipherable] within our control.
Specifically, managing our expenses and cash flows and credit exposure to customers and other [Indecipherable] margins.
And while EBITDA was still significantly impacted by the pandemic, these prudent actions further strengthened our balance sheet, reducing net debt by more than 578 million -- $575 million, bringing us in a net cash position at year-end.
Looking forward, any state of crisis is a terrible thing to waste, and we worked very, very hard in 2020 to ensure we did not reach this horrible crisis.
I believe we will comment to much strong and efficient business.
With our balance sheet stronger than has been in a very long time, we are well positioned to hit the ground running as demand recovers post pandemic with significant capital available to invest to further strengthen multiple areas of our business with the greatest opportunities for growth and operating leverage.

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q4 adjusted earnings per share $0.02.
qtrly revenue $4,702.1 million versus $9,358.1 million.

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