Kirby Corporation

Good morning and welcome to the Cary Corporation 2021 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please sign in 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 please limit your questions to one question and one follow-up. To ask a question, you may press star then one on your touchtone phone. to withdraw the question, please 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, which 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 businesses. A list of these risk factors can be found on Kirby's Form 10-K for the year ended December 31, 2020. I will now turn the call over to David.

Thank you, Eric, and good morning, everyone. Earlier today, we announced adjusted earnings of 17 cents per share for the 2021 third quarter, which excludes a one-time non-cash charge totaling $4.58 per share related to our coastal marine business. On a gap basis, we reported a net loss of $4.41 per share. Overall, our quarter was messy, with the one-time charge in coastal, a devastating hurricane which significantly impacted our inland marine business, and increased issues related to COVID-19. We'll talk more about each of these, including the one-time charge, in a few moments. But first, I'll discuss our key markets. In marine transportation, our inland business started the quarter with improving customer demand. In August, however, barge volumes declined as the cases of the COVID-19 Delta variant increased, which slowed the pace of the economic recovery and reduced demand for refined products and crude. Vehicle miles traveled in the U.S. declined, including an overall 4.4% decline in August, with all regions of the U.S. impacted. In our operations, we experienced a meaningful rise in positive cases among our mariners. As a result, we incurred increased costs to charter additional horsepower during the quarter to ensure our operations were seamless. Our inland business was also materially impacted by Hurricane Ida, a significant Category 4 storm which made landfall near New Orleans in late August. This storm left a widespread path of destruction which led to prolonged shutdowns of many customer plants as well as significant damage to marine equipment and waterway infrastructure. As this storm approached, all refineries and chemical plants in the New Orleans-Baton Rouge corridor were forced into shutdowns. The storm damage was so significant that many remained closed or operating at reduced production levels through September and in some cases well into October. At the height of the storm, more than 2 million barrels of refinery capacity per day was offline, reducing PAD 3 refinery capacity utilization from 93% in August to 79% in September. In the petrochemical sector, with nearly the entire complex shut down, operating rates at nameplate ethylene plants in southeast Louisiana declined from 89% in August to 24% in September, and production fell as much as 75% compared to August. From a marine transportation perspective, The storm surge was so significant the Mississippi River flowed backwards, causing many industry barges to break free and resulting in damage to numerous vessels, customer docks, and waterway infrastructure. It's been estimated that as many as 2,000 dry cargo and tank barges were damaged during the storm, which included 30 Kirby tank barges. All of this resulted in a full closure of the Mississippi River for about a week and a lengthy closure of parts of the Gulf intercoastal waterway, which remains in effect today. This closure has resulted in lengthy alternative routes and significant lock delays throughout September and October. Overall, we estimate the damage caused by the hurricane on our equipment directly contributed to lost revenue and additional costs totaling approximately $0.08 per share during the third quarter. Moving to coastal, the market remained challenging during the third quarter, but we did experience some increases in spot market demand, which contributed to modest increases in barge utilization and reduced operating losses. More importantly, we took significant actions to improve our coastal business, including the sale of our marine transportation assets in Hawaii and the retirement of 12 laid-up wire tank barges and four tugboats in the coastal fleet. These actions resulted in a one-time non-cash impairment charge in the third quarter. However, there are significant positives, and it positions the coastal business for success going forward. First, our risk profile is greatly reduced by exiting Hawaii, which is a remote market that has generated poor returns for many years. The retirement of our outdated and laid-up coastal wire barges and tugboats improves our cost structure and materially reduces future capital outlays. Frankly, many of our customers view the old wire tow technology as less safe and less reliable than when compared to newer ATBs. Overall, going forward, we expect our smaller fleet will allow us to focus on attractive markets and more efficient, safe, and cost-competitive equipment will ultimately generate improved earnings and favorable returns. In distribution and services, momentum continued to build with improved activity levels, contributing to significant sequential and year-on-year increases in revenues and operating margins. In commercial and industrial, the timing of major backup power installations and seasonal utilization improvements in the rental fleet led to strong sequential activity in power generation. Increased demand for Thermo King product sales and service also contributed favorably to the quarter's results. These gains were partially offset by modest activity reductions in marine repair, primarily due to reduced major overhauls and temporary facility closures following Hurricane Ida. In oil and gas, increasing U.S. rig counts and completions activity drove strong incremental demand for new transmission parts and service from major oilfield customers. This growth contributed to 25% sequential growth in oil and gas revenues and positive operating margins for the first time in more than two years. In manufacturing, although supply chain constraints delayed the deliveries of several orders and led to a sequential reduction in revenues, our backlog grew meaningfully with significant new demand for our environmentally friendly pressure pumping and electric power generation equipment. In October, Kirby acquired a small energy storage systems manufacturer based in Texas, which has been a key partner in the development of our new power generation solutions for electric fracturing equipment. This acquisition will be important to the development of future energy storage solutions for the oil field, as well as industrial and marine transportation applications. In summary, our third quarter results reflected a challenging environment as well as key operating decisions in coastal marine. The good news is that we have seen a significant improvement in inland market fundamentals in recent weeks, with increasing customer demand and higher barge utilization in the high 80% range. Distribution and services also continues to improve with the economy. In a few moments, I'll talk more about these developments as well as the rest of our outlook. But first, I'll turn the call over to Bill to discuss more about the one-time charge, as well as our segment results and balance sheet.