Kirby Corporation

Good morning and welcome to the Kirby Corporation 2020 Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. We ask that you limit your questions to one question and one follow-up. To ask a question, you may press star, then one on your touchtone telephone. To withdraw your question, press the pound key. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Eric Holcomb, Kirby's Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. With me today are David Grzybinski, Kirby's President and Chief Executive Officer, and Bill Harvey, Kirby's Executive Vice President and Chief Financial Officer. A slide presentation for today's conference call, as well as the earnings release that was issued earlier today, can be found on our website at kirbycorp.com. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the investor relations section under financials. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors, including the impact of the COVID-19 pandemic and the related response of governments on global and regional market conditions and the company's business. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31st, 2019, and subsequent quarterly filings on Form 10-Q. I will now turn the call over to David. Thank you, Eric, and good morning, everyone.

Earlier today, we announced 2020 second quarter earnings of 42 cents per share. This quarter's results were heavily impacted by COVID-19 and the resulting reductions in demand for Kirby's products and services. In addition to the effects of declining activity, we incurred charges of six cents per share, including bad debt as a result of the bankruptcy of a large oil and gas customer and severance costs. During the quarter, we aggressively reduced costs across the company, and focused on cash generation, resulting in decent earnings and strong cash flow, despite the challenging market dynamics. We'll talk more about the second quarter's results in a few moments. Our pandemic response plan, which we activated in early March, has successfully ensured business continuity, uninterrupted customer service, and the safety of our employees. I'm pleased to report that all of Kirby's businesses have continued to operate without disruption. I'm proud of the resilience of our dedicated employees during these difficult times, and it's through their efforts that we are dealing with the challenging circumstances and ensuring continuous operations without sacrificing our commitment to safety and customer service. Moving to our segments. In marine transportation, the inland and coastal markets were significantly impacted by COVID-19 and the resulting decline in demand for many of the products which we transport. During the second quarter, refinery utilization declined sharply from 82% at the beginning of April to 68% in May before gradually recovering to 75% at the end of June. Chemical plant also dropped to 70%. With our customers' activity levels materially reduced, barge requirements in both inland and coastal dropped sharply, particularly in late May and in June. In inland, although the quarter benefited from storage requirements for crude and refined products, the magnitude of the demand reduction for movements of refined products, black oil, and some petrochemicals resulted in a sharp decline in our barge utilization from the low 90% range in early April to the mid-70% range by the end of June. Also contributing to the lower utilization were better weather and reduced flooding on the Mississippi River, which contributed to a 37% sequential decline in delay days and improved efficiencies across the waterways. There was a very limited spot market in the quarter, and it became highly competitive as the quarter progressed with spot pricing declining. Term contract pricing, however, was stable in the quarter. In coastal, reduced consumer demand for refined products and black oil had a significant impact on the spot market. As the quarter progressed, the industry experienced increased availability of 80,000 and 100,000 barrel barges and limited barge requirements on the West Coast. As a result, our barge utilization declined from the low 80% range in April to the low 70% range in June. There was minimal change in pricing for both spot charters and renewing term contracts. To help minimize the financial impact of the lower barge utilization and declining revenues, we continued to take aggressive actions to lower marine transportation costs during the quarter, including significant reductions in horsepower, operating costs, and G&A expenses. As a result, inland operating margins increased both sequentially and year-on-year, and coastal margins remained about break-even despite the decline in revenue. In distribution and services, second quarter activity declined as our core markets were significantly impacted by reduced economic activity, stay-at-home orders, and low commodity prices. Our oil and gas markets virtually stopped as the U.S. rig count dropped 50% sequentially, wells were shut in, and the number of active frack crews declined approximately 80%. As a result, customer demand for new and remanufactured pressure pumping equipment evaporated, and sales of equipment, parts, and service slowed materially. Additionally, one of our large oil and gas customers filed for bankruptcy, resulting in an approximate $0.04 per share hit to earnings. In commercial and industrial, the economic slowdown in stay-at-home orders significantly reduced activity levels, particularly in the on-highway and power generation businesses. In on-highway, we experienced reduced activity at our repair centers as fleet miles declined nearly 15 percent, metropolitan areas went on lockdown, and major tourist destinations closed. In power generation, new orders and service demand declined sharply as many major projects were postponed. The bright spots in this market were the marine repair and thermokine refrigeration businesses. Although these businesses reported sequential reductions in revenue, both maintained solid activity levels throughout the quarter. In response to these challenging market dynamics, we took further steps to realign the distribution and services cost structure, including additional workforce reductions, furloughs, and strict management of all discretionary costs and capital expenditures. We expect that these efforts will be fully filled in our third quarter results. In a few moments, I will talk about our outlook for the balance of the year, but before I do, I'll turn the call over to Bill to discuss our second quarter results in the balance sheet.