Kirby Corporation

Operation 2022 First 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 touchstone telephone. To withdraw your 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 VP 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 Raj Kumar, 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 on the company's business. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2021. I will now turn the call over to David.

Thank you, Eric, and good morning, everyone. Earlier today, we announced first quarter earnings of 29 cents per share. The quarter's results reflected improved market fundamentals in both marine transportation and distribution and services. As anticipated, our marine transportation business was significantly challenged by the COVID-19 Omicron variant, but the magnitude was at the high end of our guidance range with a total impact of approximately 10 cents per share. We also continued to experience significant supply chain constraints in distribution and services, which delayed sales during the quarter. Looking at our segments, in marine transportation, overall inland market conditions improved during the quarter. However, our financial results were significantly impacted by Omicron. With virus cases escalating across the U.S. during January and February, we experienced modestly reduced customer volumes and a decline in our barge utilization to the mid-80% range. We also experienced a material increase in positive virus cases amongst our mariners, which resulted in accruing challenges, lost revenue, and increased operating costs. That said, inland market conditions rapidly improved in March, as the cases of the Omicron variant declined. We saw improving fundamentals with refinery utilization rising to above 90%, resulting in increasing customer demand. Consequently, by mid-March, barge utilization improved considerably to above 90% for the first time since the start of the pandemic. These factors led to tight market conditions, improved spot market pricing, and further increases in term contract rates. Overall, first quarter inland margins were in the high single-digit range, but we experienced notable improvement during March with low double-digit operating margins for the month. In coastal, market conditions modestly improved with our barge utilization increasing to the low 90% range. We also realized some small pricing gains for the first time in two years. Similar to inland, coastal was materially impacted by the Omicron variant in January and February. Reduced coal shipments in our dry cargo business also contributed to sequentially lower revenues and increased losses. Overall, first quarter coastal operating margins were negative in the mid-single digits, but we did see results improve closer to break-even in March as the Omicron impact dissipated. In late March, we officially announced our entry into the offshore wind market with our newest business line, Kirby Offshore Wind. This entity will be providing feeder barge services that transport wind towers and turbines from ports to offshore wind turbine installation vessels. We are partnering with Marist using a 20-year frame agreement and our first joint project will be installing wind equipment for Empire Wind, a joint venture between Equinor and BP off the coast of Long Island, New York. We intend to construct two new deck barges with low-emission diesel-electric hybrid tugboats for combined capital expenditures of approximately $80 to $100 million over the next three years. The Empire Wind project is expected to commence operations in late 2025 or early 26, pending the completion of Maersk's new wind turbine installation vessel. We are very excited about this new growth area and particularly pleased to partner with world-class operators such as Maersk, Equinor, and BP on this foundational project for the U.S. offshore wind market. Moving to distribution and services, our markets remain strong across the segment, and contributed to meaningful sequential and year-on-year improvement in revenue and operating margins. In oil and gas, strong commodity prices and increased oil field activity contributed to improved demand for new transmissions and parts and distribution. In manufacturing, our backlog continued to grow with incremental orders for new environmentally friendly pressure pumping equipment and power generation equipment for EFRAC. However, as expected, significant supply chain issues delayed many new equipment deliveries during the quarter. In commercial and industrial, overall demand remained solid across our different markets, with the largest growth coming from the marine repair and on-highway sectors. Demand was also strong in our thermoclean refrigeration business, but its revenues and operating income declined sequentially due to continued supply chain issues. In summary, despite significant COVID and supply chain challenges in the quarter, our first quarter results reflected continued improvement in market fundamentals for both our segments. The inland market is improving, demand is strengthening, and rates are moving higher. While the coastal market remains challenged, our barge utilization is solid, and we realized modest rate improvements for the first time since the start of the pandemic. Demand in distribution and services is strong, and our backlog continues to grow. While supply chain issues are expected to persist for the foreseeable future, we see continued growth ahead. All of this should bode well for Kirby and ultimately drive incremental earnings growth as the year progresses. In a few moments, I'll talk more about our outlook, but first I'll turn the call over to Raj to discuss the first quarter segment results and balance sheets.