Kirby Corporation

Good morning and welcome to the Kirby Corporation 2023 Fourth Quarter Earnings Conference Call. All participants will be in a listen-only mode. 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. Please note this event is being recorded. I would now like to turn the conference over to Mr. Kurt Nemitz, Kirby's VP of Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining the Kirby Corporation 2023 Fourth Quarter Earnings Call. 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. The slide presentation for today's conference call, as well as the earnings release, which was issued earlier today, can be found on our website. 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 evolved risks and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's latest Form 10-K filing and in our other filings made with the SEC from time to time. With that, I will now turn the call over to David.

Thank you, Kurt, and good morning, everyone. Earlier today, we announced fourth quarter revenue of $799 million and earnings per share of $1.04. This compares to 2022 fourth quarter revenue of $730 million and earnings per share of $0.62. During the fourth quarter, continued strong fundamentals in both our businesses resulted in significant year-over-year growth in our revenue and earnings. In marine transportation, pricing on spot and term contracts benefited from strong demand and limited availability of barges, while the onset of winter weather conditions proved to be a headwind to our efficiency in the quarter. Distribution and services delivered higher revenues sequentially, but margins were down slightly from the third quarter as a result of lower demand in our power rental business and typical seasonal impacts. We ended the year on a good note, and we anticipate strong growth in 2024. In Inland Marine, we continued to experience strong demand and high barge utilization with our barge utilization rates in the low 90% range. Spot market prices continued to push higher and we were up in the low to mid single digits sequentially and in the mid teens year over year. Pricing increases on term contract renewals were up year over year on average in the high single digits during the quarter. While the efficiency of our operations was challenged during the quarter, with the late days up 86% sequentially, strong pricing and utilization mostly offset this, allowing for inland marine margins to remain flat sequentially, with operating margins remaining in the high teens on average. In our coastal marine business, we saw consistent customer demand during the fourth quarter that helped maintain barge utilization in the low to mid 90% range. Overall, coastal marine revenues were up 4% sequentially, as improved spot and term contract pricing more than offset planned maintenance and ballast water treatment installations, which reduced equipment availability. As a result, the coastal business was able to finish the year with operating margins in the low single digit for the quarter. In distribution and services, demand in the fourth quarter remained steady throughout much of the segment, marked by a sequential increase in revenues, increases in new orders, and steady backlog. In oil and gas, revenues and operating income were up sequentially and year over year as solid execution on our backlog and deliveries were partially offset by lingering supply chain delays. In commercial and industrial, While revenues were up sequentially, the seasonal fall-off in our power rentals business led to a sequential decline in operating income. Despite supply chain issues and seasonal weakness, the business segment overall concluded the year very strong. Overall segment revenues were up 13% year-over-year, and operating margins were in the high single digits. In summary, our fourth quarter results reflected ongoing strength in market conditions for both segments. Despite the temporary headwinds of seasonal winter weather in the quarter, the inland market is strong and rates continue to push higher, helping to offset lingering inflation. While our coastal revenue was challenged near-term by planned shipyards, industry-wide supply and demand dynamics remain very favorable, our utilization is good, and we are realizing healthy rate increases. Steady demand and distribution and services is contributing to further growth in the segment. And while supply chain bottlenecks are expected, the outlook for the market is stable. I'll talk more about our 2024 outlook later, but first I'll turn the call over to Raj to discuss the fourth quarter segment results and balance sheet in more detail.

Thank you, David. And good morning, everyone. In the fourth quarter of 2023, Marine transportation segment revenues were $453 million and operating income was $68 million with an operating margin of 15%. Compared to the fourth quarter of 2022, total marine revenues increased by $30 million of 7% and operating income increased $21 million of 46%. Increased pricing and utilization in the inland market were partially offset by weather-related inefficiencies and coastal shipyards. Compared to the third quarter of 2023, total marine revenues, inland and coastal together, increased 5%, while operating income increased by 7%. Now looking at the inland business in more detail. The inland business contributed approximately 82% of segment revenue. Average barge utilization was in the low 90% range for the quarter. Long-term inland marine transportation contracts or those contracts with a term of one year or longer, contributed approximately 60% of revenue, with 62% from time charges and 38% from contracts of a treatment. Tight market conditions contributed to spot market rates increasing sequentially in the low to mid single digits and in the mid teens range year over year. Term contracts that renewed during the fourth quarter were on average up in the high single digits compared to the prior year. Compared to the fourth quarter of 2022, inland revenues increased by 11%, primarily due to highest term and spot contract pricing. Inland revenues were up 6% compared to the third quarter of 2023, due to higher pricing and the reopening of the Illinois River locks. While inland operating margins remained on average in the high teens, we did exit at 20% in the final month of the quarter. Now moving to the coastal business. Coastal revenues decreased 7% year over year and were up 4% sequentially as downtime from planned shipyards was partially offset by higher contract pricing. Overall, coastal had low single-digit operating margins as improved pricing was partially offset by increased shipyard days. The coastal business represented 18% of revenues for the marine transportation segment. Average coastal barge utilization was in the mid-90% range, which was in line with the fourth quarter of 2022. During the quarter, the percentage of coastal revenue under term contracts was approximately 95%, of which approximately 94% were time charters. Average spot market rates were up in the mid single digits sequentially and in the mid 30% range year over year, and prices on term contract renewals were up in the 20% range year over year. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes in the fourth quarter as well as projections for 2024. This is included in our earnings call presentation posted on our website. At the end of the fourth quarter, the inland fleet had 1,076 barges representing 23.7 million barrels of capacity. On a net basis, We currently expect to end 2024 with a total of 1,078 inland barges representing 23.8 million barrels of capacity driven by a modest number of additions in the year. Now I'll review the performance of the distribution and services segment. Revenues for the fourth quarter of 2023 were $347 million with operating income of $29 million and an operating margin of around 8%. Compared to the fourth quarter of 2022, the distribution and services segment saw revenues increase by 39.2 million, or 13%, with operating income increasing by 11.6 million, or 68%. When compared to the third quarter of 2023, revenues increased by 12 million, or 3%, and operating income decreased by 4.5 million, or 14%, with a decline in margins related to product mix. On the commercial and industrial market, strong activity contributed to a 24% year-over-year and 5% sequential increase in revenues with improved demand for equipment, parts and service in our marine repair and on-highway businesses. Power generation was also up year-over-year. Overall, the commercial and industrial business represented approximately 64% of segment revenue and had an operating margin in the mid to high single digits in the fourth quarter. In the oil and gas market, revenues were down 3% year-over-year and up 2% sequentially as solid execution on our backlog was partially offset by lingering supply chain delays. While we saw slowing trends in our conventional remanufacturing business, we experienced continued favorable trends in new orders and backlogs driven by our EFRAC units and associated power generation equipment. Overall, oil and gas represented approximately 36% of segment revenue in the fourth quarter and had operating margins in the low double digits. Now I'll turn to the balance sheet. As of December 31st, 2023, we had $33 million of cash with total debt of around 1 billion. During the quarter, we decreased our debt balances by 51 million and our debt to cap ratio improved to 24.2%. We achieved cash flow from operating activities of $216 million for the quarter. We used cash flow and cash on hand to fund $127 million of capital expenditure, or CAPEX, of which $56 million was related to maintenance of equipment, and the remainder was directed to growth CAPEX in marine and EFRAC. We continued to return capital to shareholders in the quarter and repurchased $52 million of stock at an average price of $77.08. As of December 31st, we had total available liquidity of approximately $491 million. For 2024, we expect to generate cash flow from operations of $600 to $700 million on higher revenues than EBITDA. We still see supply chain constraints posing some headwinds to managing working capital in the near term. Having said that, we expect to unwind most of this working capital as orders shift as 2024 progresses and beyond. With respect to CapEx, we expect capital spending to range between 290 and 330 million for the year. Approximately 190 to 240 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment, including the remaining ballast water treatment system on some coastal vessels and some facility improvements. Up to approximately 90 million is associated with growth capital spending in both of our businesses. The net result should provide approximately $300 million of free cash flow for the year. We are committed to a balanced capital allocation approach and will use this cash flow to opportunistically return capital to shareholders and continue to pursue long-term value-creating niche investment and acquisition opportunities. I will now turn the call back to David to discuss the remainder of our outlook for 2024.

Thank you, Raj. We had a good quarter in both our businesses, despite some temporary headwinds. Refinery activity remains at high levels. Our barge utilization is strong in both inland and coastal, and rates are steadily increasing. While we expect typical seasonal weather conditions to pose some near-term headwinds in the first quarter and some high shipyard activity in our coastal business, our outlook in the marine segment remains strong for the full year. In distribution and services, despite supply chain constraints that we've discussed, demand for our products and services is good, and we continue to receive new orders. Overall, we expect our businesses to deliver improved financial results in 2024. While all this is encouraging, we are mindful of challenges related to a slowing global economy and additional economic weakness due to interest rates. However, Even with these uncertainties, we remain very positive and expect to drive strong earnings and strong cash flow from operations going forward. In Inland Marine, our 2024 outlook anticipates positive market dynamics with tight conditions due to limited new barge construction in the industry and many units going in for maintenance, combined with steady customer demand. With these market conditions, we expect our barge utilization rates to be in the low to mid 90% range throughout the year. Overall, inland revenues are expected to grow in the mid to high single digit range on a full year basis. Normal seasonal winter weather has started and is expected to be a headwind to revenues and margins in the first quarter, as usual. With respect to operating margins, we expect to gradually improve during the year with the first quarter being the lowest and averaging around 20% for the full year, what will be a 300 to 400 basis point improvement from the 2023 average. In coastal, market conditions have tightened considerably and supply and demand are balanced across the industry fleet. Strong customer demand is expected throughout the year with our barge utilization in the low to mid 90% range. With major shipyards and ballast water treatment installations concluding in the first half of the year, revenues for the full year are expected to increase in the high single to low double digit range when compared to 2023. Coastal operating margins are expected to be in the mid to high single digit range on a full year basis, with the first quarter the lowest due to weather and shipyards. In the distribution and services segment, despite the uncertainty from volatile commodity prices, we expect to see incremental demand for OEM products, parts, and services within the segment. In commercial and industrial, strong demand for power generation and stable marine repair is expected to help drive full year revenue growth in the high single digit to low double digit percent range. In oil and gas, our manufacturing backlog is expected provide stable levels of activity through most of 2024 but will be somewhat offset by lower activity levels in the oil field market we anticipate extended lead times in the near term to continue contributing to volatile deliveries with respect to the schedule of new products in 2024 overall the company expects segment revenues to be flat and slightly down on a full year basis with operating margins in the mid to high single digits but slightly lower than year over year due to mix to conclude we ended 2023 in a position of strength in both of our segments in marine transportation barge utilization and customer demand remains strong and rates continue to increase in dns demand for our products and services remain strong and we continue to receive new orders in manufacturing. Overall, we anticipate our businesses to deliver 30 to 40% earnings growth in 2024. Key risks putting us at the lower end of that range would be the impact of a recession, a potential recession, or lingering inflation. While achieving the higher end of this range would be driven by stronger than expected chemical markets for marine and stronger than expected oil and gas markets in DNS. As we look long-term, we remain confident in the strength of our core businesses and our long-term strategy. Our marine businesses are in the early innings of a multi-year upcycle and demand remains solid in DNS. We intend to continue capitalizing on strong market fundamentals and driving value for our shareholders Operator, this concludes our prepared remarks. We are now ready to take questions.

Certainly. We will now begin the question and answer session. As a reminder, we ask that you limit your questions to one question and one follow-up. One moment for our first question. Our first question will be coming from Jack Adkins of Stevens. Your line is open.

Okay, great. Good morning, guys. Thanks for taking my questions. Yeah, good morning, Jack. So, David, I guess I'd like to maybe, if I could start with the CapEx guidance for a second. You know, the $90 million, I think, in growth CapEx, can you kind of give us a little more color how that splits between the marine versus the distribution businesses? And I guess as I look at the 39, if I'm reading this right, 39 new companies, I guess, how many barges are you planning on adding in 2024? I'm just trying to get that correct as we think about next year. Are you building barges for 2024 in inland?

No. What happened, Jack, is we stepped into a competitor's shipyard contract. They were building some barges in some boats. They, you know... They needed to not do that, and we were able to step in and get a good deal with the shipyard. So those boats and barges, it's basically two boats with a bow thrusting unit that go with those and then four barges. We stepped into that contract for them. It was kind of underway, and the competitor couldn't couldn't i got it so we stepped into it and it's a good price we were happy with it um you know do we want building no um you know it new construction doesn't make sense now we we were able to get a decent price on these in and uh so we stepped into it so that's part of that growth capex and then we're doing some things in cni um for kds it's helping a little bit but uh The biggest part of our CapEx, as you know, is maintenance CapEx. We've talked about the maintenance bubble. It's real. It's real for the industry. It's real for us. So our CapEx is still pretty elevated with the maintenance side of things.

Okay. No, that makes total sense, and thank you for clarifying that. And then I guess maybe just to that last point, I guess as you think about new builds in 2024 for the industry relative to maybe anticipated retirements, Can you walk us through that? And then, you know, I know that a lot of the industry is going to be down for maintenance on the inland side in 2024. How much of your fleet do you think will be out for maintenance relative to your normal maintenance schedule in 2024?

Yeah, it's significant. You know, in any given day, we'll have 80 barges out. And, you know, I think for the industry, this is going to be a big year. Could be on the order of, well, I know it's north of 600 and maybe as high as 1,000 for this year. So it's a big number. I actually think this is positive for a number of reasons. One, it helps tighten up utility. But more importantly, people are busy maintaining their fleet. They're going to put their cash to that instead of going in and build new. It doesn't make sense to build new. So it Yeah, I think it actually helps the whole supply picture quite a bit. But it is a known bubble, and, you know, the good news is our customers understand it. They're sophisticated. They get it. They know what's going on. And inflation's not helping this either, as you might imagine. You know, shipyards used to be jacked. They'd run three shifts. Now, you know, A number of them can only crew two shifts, and shipyard costs have gone up, steel costs have gone up, labor costs are very high. So all that's factoring into keeping that supply in check. And I think that continues through 2025, to be honest.

And just on that first part of the question, you know, as you think about new builds for the industry relative to retirements, would you expect net capacity attrition in 24?

Absolutely. I think, you know, what we've heard, there's only about 20 barges, maybe 25 on dock for 2024. You know, I would imagine... don't have good data on retirements, but I could imagine, you know, you bring something into the shipyard and you see it's going to cost you a heck of a lot. You just soon retire it if it's only got, you know, five years left of its life. So we should see attrition of, my guess is 50 to 150 barges this year. So we should have a net decline this year in supply.

Okay. That's really encouraging. Thanks for the time, David. Hey, thanks, Jack.

And one moment for our next question. And our next question will come from Ben Nolan of Stiefel. Your line's open, Ben.

Thank you. Hey, David, Raj, good numbers. So my first question is on the DNS side, specifically on the industrial side. It seems like that business is just really grown well over the last number of years. And as I'm looking forward and trying to, you know, sort out how sticky that is, I'm just curious if you maybe talk to on the industrial side, how you think of that with respect to whether it's cyclical or maybe structural and you've changed your business mix and it's just resulted in more growth or have you captured share? how are you thinking about that industrial side of the business?

Yeah, no, thanks for the question, Ben. Look, on the CNI side, there's really three parts to it. There's, you know, on highway and marine repair, and then there's power generation. So I'd say the first two, marine repair and on highway, really are going to move with the economy, right? We've We saw a little pullback in the on-highway trucking space. You saw one of the truckers go bankrupt last year. We have seen a little pullback. That's in our guidance for 2024. On marine repair, we do both commercial marine and pleasure craft. Being an election year, we're seeing a little pullback in pleasure craft, but Commercial marine repair is pretty strong, as you would expect as you hear us talk about maintaining our vessels. But the real secular growth story is in power generation. I think it's pretty obvious everybody needs power 24-7 now. Every business runs using computing power. I think AI and machine learning is only adding to that demand. So we're seeing secular growth on our power generation side. As you know, we provide backup power to places like the New York Stock Exchange, J.P. Morgan, and others, as well as retail environments like Walmart, Costco, Target, and the like. as well as rentals. We rent power out. So, yeah, we're seeing a lot of growth there. We manufacture some of that equipment, so it helps the manufacturing as well as the distribution side, and that's more of a secular growth story.

Okay, so all in, if you were just to sort of take a high-level approach to it, does it Does it feel like the business is less cyclical than it used to be two or three years ago as a function of that power business?

Absolutely. Absolutely. You know, oil and gas is still going to cycle. You know, overall, you'll see, you know, 24 versus 23. We're seeing that revenue and DNS is going to be down to flat to slightly down. And that's that's really all based on oil and gas. Now, CNI is offsetting it. But I'm sure you've heard calls on the oil field side, whether it's pressure pumpers or EMP or service companies. They're all looking for a down year, 24 over 23. That's in our guidance, and that's why you're seeing kind of flattish revenue for DNS. Really, the strength of CNI is making that look not as bad.

Okay. And then for my second question, shifting gears a little bit, the coastal business looks like it's finally going to be in for a pretty good year. Although I was looking at it, I mean, you're down to, I think, like 28 coastal barges. I mean, there was a point which you were at 80. I know that has not been, obviously, a focus of growth for you. And you've said it, at least in the past, it hasn't been. But Is there a point where you just need sort of critical scale, or is there a point at which you maybe think about adding to that, or it remains sort of not the primary focus?

Yeah, well, I mean, you know our preference would be inland marine. You know, if we're going to grow anywhere, it would be an inland marine would be our preference. That said, coastal is going to be a great five-year story here. We are... Supply and demand are in balance now. As you saw in our prepared remarks, we saw spot prices up year over year in the mid 30% range and term contracts up in the low 20% range. That's going to continue in 25, 26, probably into 27 easily. We need it. The rates have been low. We've been bouncing along in our coastal business to break even. You know, this year for 24, we're going to be kind of mid-single digits, maybe even get to the high single digits in terms of operating income margins. And really, that should continue because the supply picture. As you know, these vessels are very expensive, 185,000-barrel units. We built five years ago for $80 million. Right now, if you were to build that, it would be $130, $135 million to build it. And nobody's got one on the books. And even if they did, you wouldn't get it until 2027. So we're very enthusiastic about the coastal business. Does that mean we want to go out and speculatively build? Absolutely not. I mean, we're... You know, there may be some contracts coming from customers that would get that. But, you know, we're not going to go. And just to comment on our fleet, you know, our actual high, I think, was 59 barges, not 80. But we took out a lot of wire barges. The customer demand for wire barges was low. They were older. We've got a much higher quality fleet now. And the other thing, just in terms of construct there, what happened to that business was the ban on exporting crude was lifted. So, you know, at one point we had 17 barges moving crude in the CoastWise business. Now we got zero. And that happened all across the industry. And that's why we've been in a protracted downturn in that business. And all that... All that excess supply has been retired, and it's in balance now, and we're pretty excited about it.

Okay. And you don't think there's any critical mass issues or economies of scale issues or anything where you are? Is planning large enough?

Yeah. No, I think we're still one of the largest players in the space on a barrel volume basis. We're probably... One or two. There is two of our competitors are trying to get together in a joint venture. So we'll see what that brings. But we're still one or two in the market in terms of size. So we've got the critical mass. And as you know, it's the same customers that we deal with on the inland side. So we have that scale just because our commercial team deals and our vetting team deals with the major customers every day. It's the same. same group, whether it's coastal or inland.

Gotcha. I appreciate it. And lastly, just congratulations to Joe Pine. That's a heck of a career.

Yeah.

Thanks for saying that.

I mean, Joe, he's an institution. He's basically been the father of our business for 46 years. He grew it from nothing into what it is today. He'll be missed. Thanks, man. Yeah.

in one moment for our next question. Our next question will come from Ken Hoekstra of Bank of America. Your line is open.

Hey, good morning, Dave and Raj. So just by the way, first let me throw it in as well, just long career, long time working with Joe, so best of luck as he moves on. And thanks for all the help over the years. Your Inland barge segment, right? If 4Q exits at 20% and most contracts renew in, or near 20%, sorry, and most contracts renew in the fourth quarter, has pricing stalled at Inland and thus we're not seeing acceleration in your margin target from basically fourth quarter run rate levels? I'm just trying to guess maybe where our spot levels now, is it possible to re-achieve the mid-20s kind of that you talked about, if pricing keeps accreting, you know, given your costs, you know, hopefully have decelerated on an inflation basis?

Thanks. Yeah, the short answer is, yeah, we'll definitely get to the mid-20s. But let me give some color, Ken. I think it's a great question. You know, the average for the fourth quarter was in the high teens. December was an okay weather month, so we touched that 20%. First quarter is always the worst weather. So we're anticipating margins will dip back down into the high teens the first quarter because of the weather. By the second and third, we'll be probably north of 20. Fourth quarter, we'll have to see. That's always a tough weather month. The way I look at margins, Ken, is, look, we will be up year over year. 300 to 400 basis points in margin. Because of weather, high water, low water, hurricanes, lock closures, it's just hard to get any one course too specific. But my view is that the whole entity will be up 300 to 400 basis points. And more importantly, we anticipate the same kind of improvement in that order of magnitude in 25. This is a runway, and it should take several years to play out. Now, in terms of pricing rolling over or even flattening, we didn't see that. Spot prices year over year in inland were up 15% to 18%. Term pricing was up 7% to 9% year over year. So there's actually a healthy gap between spot and term. You want spot above term, which we see. It's a pretty good gap. And then even sequentially, we saw from third to fourth quarter, spot pricing was up 2% to 5%. So we didn't see any flattening. Pricing needs to continue to go up. We're offsetting inflation. We're trying to get returns back up to where we can get a return on our invested capital. And we're still a long way away from justifying new builds. So it's very constructive. I think you'll see the margin progression of 300 to 400 basis points up this year, and then perhaps something similar in 2025.

So really the best way, I guess, to take away from that is you can't look at the fourth quarter as the exit rate, run rate. You've got to look at the annual as far as the improvement given the seasonality and repricing. I think that's fair.

I mean, you heard our term contracts were up in the high single digits, 7% to 9%. So that's going to roll through this year, and it'll progress.

And then did you mention where spot rates are now for two-toe barge?

No, I didn't. I shouldn't, or my attorney will kick me.

And then going to the ONG side, you keep mentioning supply chain delays. I just would imagine we're well past everything post-COVID and and supply chain issues. I mean, maybe Red Sea is now popping up now with rerouting, but what are the issues that you're still dealing with on the supply chain?

Yeah, no, it's gotten a lot better, Ken, for sure. You saw our deliveries. Well, you can probably infer our deliveries in the fourth quarter were pretty good out of our manufacturing facility. We were having problems with electronic componentry and one-off items holding up whole series of equipment, that's kind of worked its way out. What's really happening now is long lead time. Engine packages, for example. If we were to order engines today, we wouldn't get them until kind of mid-25. So that's, you know, the big componentry is the problem. The lead times on engines in particular have been a problem. And it's really about boundary constraints in the engine world. But it's just long lead times. So we're still dealing with that. If that was compressed, we would deliver better results. If we could get engines quicker, particularly on CNI for power generation, we're seeing a lot of demand for backup power. And, you know, if the engine packages could flow quicker, we'd have better numbers in DNS for 2024.

Dave, I just want to clarify two things. I want to, real quick, if I count on the first answer on the margins. So just the 300, 400 basis points, if December exited close to 20, does that mean December 23? Does that mean December 24 could exit close to 24% for that month, just given that seasonality? Is that kind of conceptual? I always think about it. Do we need to change the supply chain in any way to affect that change?

Yeah, on the margins, it depends on weather in December, right? But yeah, I mean, directionally, if we saw a mild December, I think absolutely we'd be close to that. That's great. That's great. Yeah. On the supply chain, you know, look, we use, you know, it's best for me not to name different engine companies, but we use all all kinds of different engines, and they're seeing it, you know, whether it's a German-based engine company or a U.S.-based engine company, they all have the same issues in terms of foundries producing blocks and getting it through. You know, there's not much we can do. It's their supply chain. You know, we're working with them, trying to preorder stuff and work that side of the But look, they're working hard to get the engines. They want to sell as many as they can as well. So, you know, we're working on it with them. Some of it's out of our control. You know, we're trying to do better job planning, as you would expect.

Thanks a lot, Dan. I appreciate the time.

Thanks again.

And one moment for our next question. Our next question will be coming from John Chappelle of Evercore ISI. Your line's open.

Thank you. Good morning. David, I'm going to ask you a bit of a longer-term question, but it ties together, I think, a lot of things we've been talking about for the last couple of years or so. When you lay out a path for 300, 400 basis points, both this year and next, that kind of gets us close to the mid-20s. You know, we had spoken maybe a year and a half ago now at this point about inflation really kind of pinching you and potentially precluding the inland margin from getting back to the cyclical peaks of 10 plus years ago. Is inflation easing at all now? And when you talk about the early innings, I would assume that would mean this has a couple more years of runway. Can we revisit then those kind of mid to high 20% inland margins, barring an extraordinary event?

Yeah, I'll take those in kind of reverse order. I do believe we could get to the high 20s in margin. We'll see. But inflation is real. We're seeing it... Even when you listen to the pundits out there, we're still seeing inflation, not deflation. I would tell you maintenance is... Maintenance inflation has gone up a lot. We talked a little bit about the shipyards having a hard time getting labor. Steel prices haven't abated at all. In our ecosystem, mariners are short, critically short across the entire industry. Fortunately, we have our own school where we train mariners, but We're still really tight on crewing. So we're seeing labor inflation. Everybody's seeing it. Things like paint and steel and all of that, we're still seeing inflation. Believe it or not, rental cars. We do a lot of crew moves in rental car. Inflation has hit us. So we're still offsetting that, I think, Everybody's been a little frustrated with the pace of our margin improvement, certainly us. We would like to have improved it faster, but it's really about this inflation and trying to offset it. Look, our customers are experiencing the same thing. They have inflations in their refineries, in their chemical plants. They're fighting steel costs, supply chain issues, and, of course, labor costs. Our sophisticated customers definitely understand it. They understand we're fighting inflation. We are getting some real price increases, but we need it to get to prices that could justify replacement capacity. It's a long, rambling response, John. Sorry, but inflation is there, but the fundamentals are such that we're going to get to the to the mid-20s at some point. And barring anything unforeseen, we should get to the high 20s. That's great.

For my follow-up, maybe a tag team here, tying two things together. So, David, you were able to pick up those barges that your competitor had to walk away from conceivably, and you're in obviously a great balance sheet position to do that. When I look at your buybacks in 23, as far as I can find, it's the second highest year for at least 15, 16 years after 2015, and a ton of free cash flow per year guidance for 24. So I guess the question is, picking up barges in the orders are, I think, a one-off event. But is the M&A market kind of bubbling up a little bit now where you're off the bottom? You know, no one wants to sell at the low, so maybe there's some activity brewing there. And how much dry powder do you want to keep for that vis-a-vis, you know, maybe using all this free cash flow to continue to ramp the buyback pace? So for David and Raj.

Yeah, well, I'll let Raj chime in here a bit too. You know, we still have liquidity available on our revolver and our, you know, debt to EBITDA is fine. We've got plenty of borrowing capacity. And to your point, we're going to have a lot of free cash flow this year, and we've been aggressive buying our stock. We like our stock where it's at, particularly when we look at the next three to five years, it's going to be a good run. So we're happy to buy back our stock. That said, we always like those inland acquisitions, but we're not going to lose our price discipline. We'll be very disciplined. They're hard to predict. We did pick up, you know, we bought some barges from a competitor last year as well. We'll look for those one-offs. You know, predicting a big deal, that's a lot harder. I would just tell you we're going to stay disciplined. We think we've got good borrowing capacity in any event. And, you know, we also like our stock. But Raj, you want to add anything?

Yeah, David, thank you. Thanks, Jonathan. I think, you know, you saw last year In 23, we dedicated about 80 plus percent of our free cash flow towards share repurchase. And to David's point, it's very difficult to predict any M&A. We always look at it. We have a rigorous approach towards looking at projects and M&A opportunities. But barring anything that's attractive, I think you can continue to see us progressing that trend of share repurchase similar to what we did in 2023. Okay.

Thank you, Raj. Thanks, David. Thanks, John.

One moment for our next question. And our next question will be coming from Greg Lewis of BTIG. Greg, your line's open.

Hey, thanks, and good morning, everybody. Hey, good morning, Greg. Good morning, Greg. David, and I guess this is for Raj, too. I did want to ask about... I guess the decision to kind of reintroduce full-year earnings guidance, I mean, it seems like we pulled it away a couple years ago. I mean, David, you're talking about, I guess, a multi-year run in terms of the operating environment. Is that kind of the genesis for what drove the full-year earnings guidance back into the equation?

No, I mean, you notice it's not numeric and we're not giving quarterly. You know, we debated a long time about whether we should give number. But, you know, I think in kind of the environment that there's a lot of moving pieces, we thought it would be good to give a little more specificity on it. You know, just at the outset of this year, you know, I don't think – know we're going to give quarterly guidance or anything like that or even a numerical pps it's just kind of we wanted to set that kind of the the range for the year given given everything we're seeing um but both at dns and marine okay and then um i i you know and then we kind of changed you know i guess we reported the late days

I guess they're obviously up sequentially because of weather. Any kind of way to quantify that EPS impact? I mean, was that a couple pennies? Was it more? Any kind of color around that? Yeah. Yeah.

I mean, delay days were up a lot, as you heard, sequentially. Sure. It's hard to quantify. There's so many moving pieces. So far, January has been brutal. You'll remember first quarter of 23 was a really tough quarter from a weather delay. January is as bad as last year. We'll see what February brings. It's hard to predict, but it has a real impact. You see our margins dip down in usually in the fourth quarter and the first quarter because of weather. It can be anywhere from a couple hundred basis points in that range. It's really hard to say. As you know, Greg, we have time charters and we have contracts of a freightman. Those contracts of a freightman hurt us a little bit in the winter weather, but they help us a lot in the summer weather. I would also say that you know, with respect to the first quarter, one of the things we did see, and that's reflected in our guidance here, is there was a freeze, and it impacted some of the refineries and chemical plants in January, and they're still coming out of that. So, you know, it's all in there. It's still multifaceted. Yeah, and that's why we kind of look at it from trying to rebase everybody here to look at it from a year-over-year for the whole-year average because there's so many moving parts with weather, lock delays, hurricanes. Hopefully we don't have a hurricane this year, but lots of moving parts. I hope that helps, Greg.

I wish I could do more. Yeah, like I said, it's just interesting because I think it kind of needs to be quantified with those numbers. And then I did, just in terms of the guidance, you mentioned the potential opportunity in chemicals. Is that a function of – and I don't follow the chemicals industry maybe as closely as I should. Is that a function of – could you kind of talk a little bit about broad strokes, why we could see maybe chemicals be a little better than – why that could help drive some upsides at the high end of the range?

Yeah. Look, in the fourth quarter, we saw the chemical industry pull back a little bit. The volumes pulled back a little bit. We haven't seen China reemerge in terms of chemical demand back to where they used to be. So if that started in earnest again, it would just help volumes. As you know, we move a lot of chemicals on the inland waterways, and it would just be very, very constructive for us to see some growth in that. If it came back, now we are seeing in January a little uptick in chemical movements, but it's kind of one of those things on the margin that could help us and get us closer to that high end of the range. Okay. Super helpful, guys. Thank you. Thank you.

Again, if you have a question, please press star 1-1 on your telephone. Again, for any questions, please press star 1-1. And one moment for our next question. Our last question will come from Greg Wisakowski of Weber Research and Advisory. Your line is open.

Hey, good morning, David and Raj. Thanks for taking the questions. Good morning. So I wanted to ask you, David, what are you seeing out there on the order book right now on the inland side of things? And I know rates are still a ways off of making that equation make sense to build new, but the movement's that you're seeing out there, does it give you any sense of concern at all? Or do you think it's kind of widely understood throughout the industry that, you know, any chunks of orders here would be a function of either, you know, owners biting the bullet for the sake of customer satisfaction or customer retention and or fleet renewal? You know, is there, where are we in terms of, not necessarily for the economics, but in terms of sentiment and, you know, making sure that nobody panics?

Yeah, no, this isn't precise, but we think there are only 25 liquid barges on order for 2024 delivery. Certainly nobody's panicked. I think I referenced this in some earlier comments, but most of our competitors, and including us, we're very busy just trying to maintain our fleet with this maintenance bubble that's hitting us. That's soaking up a lot of capital in finances for a lot of our competitors, including us. I mean, we're spending a lot more. You heard our maintenance capex is up a lot in the last couple of years. So nobody's really panicking and trying to go out and build any new equipment right now. Everybody's pretty absorbed and disciplined right now just trying to keep their current fleet running

Okay, great.

That makes sense. And then you kind of alluded to this before on labor and mariners' availability, but can you remind us how many or what percentage of towboats you guys are chartering in currently or expect to for the coming year? And then any commentary on labor constraints and wage increases kind of affecting the availability and cost of chartering in?

Yeah, look, mariners are stored across the board, whether it's in the charter fleet or own fleets. We operate probably 290 inland towboats and 28, 27 offshore. Our charter fleet, we don't get too specific on it, but it's in the 60 range. We're We're seeing labor pressure across the board, and just getting qualified mariners, I think what happened is kind of interesting. There was a trucker shortage, and there was a lot of shortages of labor, and a lot of people kind of moved away from maybe the marine side. They may be moving back now, but it's tough to find qualified mariners. That's why we have our own school. Um, it, you know, there, there, it's a very, um, skilled, uh, set of, uh, well, it's, it's a high set of skills to, to, to push a football field full of barges, uh, with a tow boat on a, on a river that's, that's moving with wind blowing. Uh, these are highly skilled individuals, um, uh, including the tanker men and the deckhands on that. So, um, I'm rambling a bit here, Greg. Sorry about that. But we are seeing labor pressure both on the charter side and on the own side. There's just a shortage of them. We're trying to train them as fast as we can, but it takes a while to train for these very specific tasks that are highly skilled.

Okay. Yeah, I appreciate that. How do you think it, like, how do you think the industry kind of solves that problem? I mean, I know you guys have your school and, you know, have a method, but just industry-wide, is it simply a function of rates getting to a place where wages can increase enough to attract additional labor back in to the industry? Or do you think Is it a solvable issue? Do you see it getting solved over time or do you think it's just a necessary evil in the future?

No, I mean, crewing is always a bit of a challenge. Look, I mean, living on a boat is a different lifestyle, right? I mean, some of our guys work 30 on and then 30 off or two weeks on, one week off. Not being home every night is a challenge. So if You know, it's a specific lifestyle that's hard to fell just because you're away from home and family a lot. So there's that natural tension away from it from kind of a life balance standpoint. That said, we do pay well. I think, you know, our industry plays really, really well. You know, we recruit in high schools regularly. Last year, we hired 300 new deck mariners, and we're doing everything we can. I think it solves itself. We'll keep running as a business, but that is part of the reasons rates have to go up, Greg, to your point.

With all the inflation and the training facility that we have, Greg, helps us a lot, and it's a differentiator for us.

Got it. Okay. Thanks, David and Raj. Appreciate it. All right. Thank you.

And this concludes our Q&A session. I would now like to turn the conference back to Mr. Kurt Nimitz for closing remarks.

Thank you, Operator, and thank you, everyone, for joining us. Any follow-up questions, please reach out to me directly.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.