INT
#Thank you, Scott.
Good evening, everyone, and welcome to the World Fuel Services second-quarter earnings conference call.
I am <UNK> <UNK>, World Fuel's Assistant Treasurer, and I will be doing the introductions on this evening's call alongside our live slide presentation.
This call is also available via webcast.
To access this webcast or future webcasts, please visit our website, www.wfscorp.com, and click on the webcast icon.
With us on the call today are <UNK> <UNK>, Chairman and Chief Executive Officer, and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
By now, you should have all received a copy of our earnings release.
If not, you can access the release on our website.
Before we get started, I would like to review World Fuel's Safe Harbor statement.
Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.
A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's Form 10-K for the year ended December 31, 2014, and other reports filed with the Securities and Exchange Commission.
World Fuel assumes no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events.
This presentation also includes certain non-GAAP financial measures as defined in Regulation G.
A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website.
We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.
And at this time, I would like to introduce our Chairman and Chief Executive Officer, <UNK> <UNK>.
Thank you, <UNK>, and good afternoon, everyone.
Today we announced second-quarter earnings of $29.9 million or $0.42 per diluted share.
Although results were significantly impacted this quarter by seasonality in Watson Fuels and low prices, coupled with reduced volatility in marine, our core business remains strong and we expect results to materially improve in the third and fourth quarters of this year.
We are well positioned financially with continued cash flow generation and our strong and liquid balance sheet.
Many on the call today who have been following the marine industry already know how poor the conditions remain overall in the marine marketplace, most specifically in the offshore, dry bulk, and container markets.
On the fuel side, the market remains oversupplied with inventory levels at historical highs and demand essentially weak.
Although we witnessed a slight increase in prices this quarter, fuel prices remained low and volatility dropped significantly.
The combination of these factors negatively impacted our price risk management sales activity and offshore specialty business, which was the principal driver of the lower profitability in the marine segment during the second quarter.
We did, however, produce record volume with healthy returns in our core business and our current annual run rate is 33.6 million metric tons.
I believe that our team did an outstanding job to again gain market share, which should serve us well when the market improves.
As we also discussed on last quarter's call, we expected that our land business would be materially affected by the seasonal decline in the Watson Fuels business, which had an outstanding result in the first quarter.
Watson generates practically all of their profits during the winter months, so we do not expect that the business will be a major contributor to the segment's overall profitability again until the fourth quarter.
Excluding the Watson seasonality factor, our land team continues to profitably grow the business domestically, as well as in the UK.
This segment is now at an annual volume run rate of 4.8 billion gallons and we continue our integration and consolidation efforts in order to scale this segment and achieve greater operating efficiencies.
As you have heard me say over the past few years, I am very excited about the abundance of opportunities that we have in the land segment.
We continue to grow our diverse US dealer, wholesale, and C&I businesses.
We now have a solid foundation in the United Kingdom and our prospects in the natural gas and power business and transaction management and payment processing spaces continues to grow.
In our aviation segment, our commercial business and general aviation businesses performed well as we witnessed the expected volume increases coming off of the seasonally weak first quarter.
The early results of this season's tender process are also positive.
As we enter into the peak season for our aviation business, our global footprint and expanding service offering will allow us to continue to capture market share and drive growth.
Results from our government-related activities continued to perform well and our industrial and government contracting logistics team continues to explore new opportunities in new regions around the globe.
Our diversified business model has traditionally insulated us from individual negative business cycles, but this quarter's significant seasonality and low volatility negatively impacted our results.
However, once again, I believe that we will rebound in the third and fourth quarter.
Our organic business development remains strong, and <UNK> and I are in the process of further building out our M&A team in order to put us in an even stronger position to capitalize on a very active acquisition pipeline.
As always, we appreciate the continued support from our shareholders, customers, and suppliers and we continue to be very enthusiastic about the opportunities to build out our global capabilities and sustainably grow our business over the long term.
And now, I will turn over the call to <UNK> for a financial review of the results.
Thank you, Mike, and good afternoon, everybody.
Consolidated revenue for the second quarter was $8.5 billion, up 16% sequentially, but down 25% compared to the second quarter of 2014.
Our aviation segment generated revenues of $3.2 billion.
That's up 10% sequentially, but down 28% year over year.
Our marine segment revenues were $2.8 billion, up 21% sequentially, but down 21% year over year.
And finally, our land segment generated revenues of $2.5 billion, up 18% sequentially, but down 26% year over year.
All of these year-over-year declines were due to lower oil prices, offset in part by increased volumes across all three of our business segments.
Our aviation segment volume was a record 1.6 billion gallons in the second quarter, up 120 million gallons or 8% sequentially and 170 million gallons or 12% year over year.
Volume in our marine segment for the second quarter was a record of 8.4 million metric tons, up more than 700,000 metric tons or 10% compared to last quarter and approximately 2.3 million metric tons or 39% year over year.
The increase in marine volume this quarter resulted from increases in our core resale business, where, despite broader profitability issues, our team continues to do a nice job growing market share, as well as increases in our brokered business, which now represents approximately 13% of total marine volume.
Our land segment sold record volume of 1.2 billion gallons during the second quarter, up 56 million gallons or 5% sequentially and 114 million gallons or 11% from the second quarter of 2014.
Total consolidated volume was a record of nearly 5 billion gallons, up 8% sequentially and 22% year over year.
Consolidated gross profit for the second quarter was $190 million.
That's a decrease of $25 million or 12% sequentially and $1 million or 1% compared to the second quarter of last year.
For the six months ending June 30, gross profit was $406 million, up $26 million or 7% compared to the first half of last year.
Our aviation segment contributed $85 million of gross profit in the second quarter.
That's an increase of $2 million or 3% sequentially and $3 million or 4% compared to the second quarter of 2014.
And for the first half of the year, aviation gross profit was $168 million, up $17 million or 11% from the first half of last year.
Sequentially, we experienced some improvement in our government business, while year over year our North American core commercial business was a leading contributor to growth.
While inventory average costing benefited us slightly in the first quarter, we experienced a negative impact of somewhere around $3 million in the second quarter.
Our [self] supply model's jet fuel inventory position was approximately 148 million gallons or $266 million at the end of the second quarter, compared to 138 million gallons or $230 million at the end of the first quarter, with our inventory investment down from $365 million at the end of the second quarter of last year.
Looking to the third quarter, which is traditionally our strongest seasonal quarter for aviation, we expect meaningful sequential improvement in results.
The marine segment generated gross profit of $42 million, a decrease of $12 million or 23% sequentially and $7 million or 14% year over year.
And for the first half of the year, marine gross profit was $96 million, down 1% or $1 million from the first half of 2014.
While we are obviously disappointed with our marine results this quarter, we are pleased with our continued ability to grow volume and market share.
Unfortunately, a sharp drop in market volatility resulted in a steep decline in our price risk management sales activity, and also a sustained low price environment contributed to a further reduction in higher-margin offshore activities.
Both of these factors were the principal contributors to our sequential and year-over-year declines in marine gross profit.
While the marine market remained sluggish, we have witnessed some modest increases in volatility in the early part of the third quarter, which could lead to improved results this quarter.
Our land segment delivered gross profit of $64 million in the second quarter.
That's a decrease of $15 million or 19% sequentially, but an increase of $3 million or 5% year over year.
And for the first half, land generated gross profit of $142 million, up $10 million or 8% compared to the first half of last year.
Consistent with guidance provided on last quarter's call, the sequential decline in gross profit was principally related to the seasonality of the Watson Fuels business, which generates a much higher level of gross profit during the cold winter season.
We also experienced some seasonal weakness in our domestic natural gas and propane businesses.
We don't expect the profit contribution from Watson, natural gas, or propane to increase meaningfully until the fourth quarter.
However, we do expect some improvement in our domestic core fuels business in the third quarter, which should translate to overall improvement in land results, with much sharper improvement in the fourth quarter driven again by seasonality.
Nonfuel-related gross profit associated with multiservice was $12 million in the second quarter, which was flat with the first quarter of the year.
Operating expenses in the second quarter, excluding our provision for bad debt, were $147 million.
That's up $4 million or 3% sequentially and $16 million or 12% year over year.
The year-over-year increase in operating expenses was principally related to expenses of acquired businesses and the impact of annual compensation increases and costs associated with strategic hires over the past 12 months, critical to the success of our growth strategies going forward.
As we look to the third quarter, I would assume overall operating expenses, excluding bad debt expense, will remain generally the same, in the range of approximately $146 million to $149 million.
Our total Accounts Receivable balance was $2.3 billion at the end of the second quarter, up approximately $150 million or 7% sequentially, principally related to increased volume across all three of our business segments, as well as somewhat higher average prices during the second quarter.
Our bad debt expense in the second quarter was $2.3 million.
That's up approximately $1.1 million from both the first quarter and the second quarter of last year.
The sequential increase was in part related to the 7% sequential increase in Accounts Receivable during the quarter.
Income from operations for the second quarter was $42 million.
That's down $30 million sequentially and $18 million year over year.
For the quarter, income from operations in our aviation segment was $26 million, a $2 million decrease sequentially and a $11 million decrease compared to the second quarter of last year.
Income from operations in the marine segment was $14 million in the second quarter, a decrease of $12 million sequentially and $7 million year over year.
And finally, our land segment had income from operations of $17 million, a decrease of $15 million sequentially, but an increase of $2 million year over year.
EBITDA for the second quarter was $57 million, down 34% sequentially and 27% compared to the second quarter of 2014.
Nonoperating expenses for the second quarter were $8 million.
That's an increase of $1 million sequentially and $4.8 million compared to the second quarter of 2014.
The year-over-year increase in nonoperating expenses is principally related to higher average borrowings during this past quarter, as well as the elimination of equity earnings related to our crude oil joint venture sold in the fourth quarter, which had contributed to second-quarter 2014 operating results.
Excluding any impacts from foreign exchange, I would assume nonoperating expenses to be approximately $6 million to $8 million for the third quarter.
Our effective tax rate in the second quarter was 15.5%, flat compared to last quarter, but down 18.1% compared to the second quarter of 2014.
The year-over-year decline in our tax rate was principally driven by a reduction in our US-based profitability.
We estimate that our effective tax rate for the full year of 2015 should be between 16% and 19%.
Our net income for the second quarter was $30 million, a decrease of $26 million from the first quarter and $18 million year over year.
Diluted earnings per share in the second quarter was $0.42, a decrease of 46% sequentially and 38% year over year.
Non-GAAP net income, which excludes intangible amortization and stock-based compensation and an executive nonrenewal charge in the second quarter of last year, was $38 million in the second quarter.
That's a decrease of $27 million sequentially and $20 million year over year.
And finally, non-GAAP diluted earnings per share was $0.53 in the second quarter, down 42% sequentially and 35% year over year.
We did generate $71 million of cash flow from operations in the second quarter, marking the 12th consecutive quarter of positive operating cash flow, totaling nearly $800 million over this three-year period.
We had nearly $500 million of cash at quarter-end, and sequentially we reduced our net debt by approximately $30 million to $280 million.
Net debt to EBITDA declined to 0.8 times, providing us with significant capacity to fund organic growth and future strategic investment opportunities, while continuing to maintain a strong and unleveraged balance sheet.
During the second quarter, we repurchased $30 million of our common stock in the open market, and on June 1 we announced that our Board of Directors had renewed our share repurchase program, authorizing the purchase of up to $100 million in common stock, which remains fully available for additional share repurchases.
As stated in the past, the principal objective of our share repurchase program is to offset the dilutive impact of employee stock awards, although we may also repurchase shares when we feel such shares are significantly undervalued.
As we previously announced, on June 8 we agreed to a settlement of all claims arising out of the tragic train derailment that occurred in Lac-Megantic, Quebec, in July 2013.
Under the settlement agreement, we will contribute $110 million to a compensation fund for victims of the derailment and we will receive the benefit of releases and injunctions contained in the US and Canadian bankruptcy plans in the MMA bankruptcy that will operate to bar all current and future claims against us relating to the derailment.
As stated in our press release announcing the settlement, we expect the $110 million payment to be fully covered by insurance.
The settlement payment and corresponding insurance reimbursement are reflected on our balance sheet in other current liabilities and other current assets, respectively.
As discussed in detail in our 10-Q, the settlement is conditioned upon final approval of bankruptcy plans in both the US and Canadian courts.
So in closing, despite disappointing results this past quarter, we generated record volumes in all three of our business segments and we expect a significant rebound in results in the second half of the year.
We again generated strong operating cash flow and our cash balance is now nearly $500 million, defining a very strong and liquid balance sheet.
This will continue to serve us well as we pursue additional organic growth opportunities, as well as strategic investments in what remains a market ripe with opportunities.
I would now like to turn the call over to Scott, our Operator, to open the Q&A session.
Thank you.
Thanks, <UNK>.
So the low price environment is interesting phenomena.
Obviously, has an enormous impact in the energy space, which has been headline news in terms of all the projects that had been impacted.
Our business model is asset light, but we are not completely immune to the impact of pricing.
So on the credit side, a lot was made out of OW, and with that unexpected drop in pricing, that certainly freed up a hell of a lot of credit capacity around the marketplace.
So a combination of low pricing and a reduction in the pressure on those credit lines, and there is certainly no lack of competition within the bunkering space from a lot of small, independent companies.
We, of course, feel that we have got one of the better platforms, if not the best, so it impacted margin, without question.
We are very conservative in terms of our credit disposition.
We have got a pretty tight net trade cycle.
A drop in volatility meant that we weren't selling risk management products.
A number of companies hedged, price dropped.
Obviously, that put them on the sidelines.
The sentiment is pretty bearish right now.
Market is significantly oversupplied, so that's started to come back now.
We are seeing an increase in that activity in July, so we're pretty optimistic about some improvement in margin and some increase in activity within the derivative side.
In terms of the market-share gains, we feel pretty good about it.
We have got an incredibly committed organization.
All the people in our Company, the senior people, have pretty much dedicated their lives to this Company.
This Company has got an incredible spirit and a determination to succeed.
So our platform, we think, is solid.
We continue to evolve our value proposition, so we feel good about those margin gains and we're pretty determined to grow market share.
Obviously, we're not going to be ignoring margin, but we feel positively disposed to that.
So, great observation, and <UNK> and I talked about this.
The beauty of our business model is that we had the variable-cost model, so it was self-regulating, and we still have that.
I must admit it's not as variable as it used to be.
But I think the other dimension is within some of our specialty marketing areas we got a significant amount of gross profit that is not associated to a significant amount of reduction in cost.
So, that has really impacted this drop in profitability without an associated drop in compensation expense.
So, you live and learn, and you design all sorts of different ways to orient the organization, and we have ---+ it is something that we reflect on.
We have been doing this for a long time, and we have been hitting singles and doubles and I think doing a pretty good job.
We have never bet the farm, not that we are intending to, but the Company is maturing and evolving.
We are handling acquisitions on a global basis.
Our integration practice is, I think, maturing significantly, but there is a lot of dislocation in the marketplace today with all of the geopolitical activity.
So, there are more and more opportunities.
We do have a significantly full pipeline in all of our business areas.
We are handling multiple acquisitions.
The discussion that <UNK> and I have been having is really trying to raise that focus not only to increase our bandwidth, but also to be looking at more sizable acquisitions, which means that you need to have a level of depth and maturity to make sure that you are not making mistakes on those more sizable acquisitions.
So, what that means is that you need additional horsepower.
We have been, I think, conservative in terms of acquiring companies that were in our wheelhouse and even if we made a mistake on them, which I don't think we have, nothing terrible would happen.
So, if we're going to start to play a larger game, we need to have a more senior M&A team to enable us to do that the right way.
So I think we have been clear in terms of the reasons for it.
Certainly the offshore activity, everyone knows that has been hit.
It is as bad as it's been in, I think, 30 years, so that area, which is a highly specialist logistics area, is an area that was a meaningful component of our activity.
We got a blip within this quarter where hedging basically just completely dried up.
It is a significant part of our activity.
We have been in that business since 1988.
Anybody who is in the oil industry understands risk management and that business basically disappeared because of the bearish sentiment and just complete lack of volatility.
It just basically fell off the screen.
As it relates to OW, frankly I think it was reasonably overblown.
A lot of those folks went into physical supply capabilities.
We do a little bit of physical supply, but it's really not our core competency, so those individuals are working in other companies and handling their business in those locations, and the price dropping has made it a lot easier for the marketplace to extend credit and that is some part of our value prop.
So some of that expected windfall really didn't materialize.
So, really it is business as usual for us and we are growing our market share.
We are confident that we are on the right path in terms of providing significant value-add to our clientele.
We feel good about the third quarter and the fourth quarter and this was an aberration.
Not really.
Rig mobilizations basically are ---+ have just fallen off the map and that's essentially what our focus was.
So, that business is significantly reduced.
So (multiple speakers)
<UNK>, it is very easy, very simple.
We have got a significant increase in volume and I think that this quarter's results in terms of risk management is an aberration.
So volatility is already up.
We are seeing our derivatives activity pick up already in July, so I'm not worried about it.
We're going to recover.
This is not any indication on what the rest of this year is going to be.
We have got a fantastic marine organization.
We have had a significant change in market dynamics, and if you look at how our Company has performed over years, the diversity of our business model has kept shareholders, investors completely satisfied through all sorts of different turns in the marketplace, but I guess we were going to have a quarter where things were going to get out of sync.
Coincidentally, tomorrow is a blue moon, so these things, I guess, were bound to happen.
We had turbulence this quarter, but we're pretty confident that we will finish the year and have a good third and fourth quarter.
Listen, I think that it is a good question.
What that means is that you have got to cut costs because you either ---+ it is [rate] volume, right, so I think the chances of serenity breaking out for any long period of time are not great, so we are already seeing a return of that, and we have gone to market share.
Listen, this is a balance of are you going for volume.
Are you going for margin.
We have picked up some additional volume.
Volatility has completely dropped off the chart.
This is just a simple fact, and what we are doing in our Company is looking to insulate it from commodity swings.
We are driving a diversified business model.
Our whole Company is a diversified business model in terms of different industries that we are focused on, different products.
We are adding more services to the equation, more value add, with the intention of getting a larger volume of business activity from our clientele.
So, I think that we're on the right path.
I know that we are on the right path.
But this quarter, various different pieces just conspired against us and I don't expect this to happen.
Certainly, we are working to bulletproof the Company such that we have got so many different drivers that are all synergistic with each other, both in the energy spaces, transportation spaces, commercial and industrial and governmental spaces, such that these types of events really are nonexistent.
Listen, I think that is an excellent question and I think the chance of that happening ---+ and listen, it could happen and we've got the ability to reduce costs.
So, that is always there.
We don't have an enormous amount of fixed assets, so our ability to scale back is pretty significant.
But you have got ---+ let's just look at what we have today, okay.
Look at aviation, okay.
Aviation ---+ and you got to look at how these businesses work.
Aviation is a contract business, so today you have got the low environment.
It is not really as susceptible to volatility or even low price.
We have got an extraordinary value prop.
We are continuing to grow our market share.
We are continue to add value.
We have grown in the business aviation space.
The Colt team is adding tremendous value to our organization.
You look at your land model, again, a lot of long-term contracts.
A lot of C&I.
We are in the logistics space.
Multiservice is starting to build up a significant pipeline in transaction processing.
That is an annuity, extremely stable income stream, so the only part of our business is the supply and trading side of it.
Our marine business is a spot business, and it is a good hedge because when you have got volatility, you are not really going to be able to capture that in the aviation space.
You are going to be able to capture that in the marine space because you are in the spot market.
So, this is the way the chips fell.
They fell pretty hard this quarter, but I think we got a fantastic business model.
I don't think it's a black box at all.
I think that we are in ---+ providing fuel to the transportation industries, commercial and industrial.
Our US Energy business on natural gas, this global energy management service, is a fantastic business.
We're going to take that global.
You are seeing natural gas; we're in the power space.
So we're into three different energy sources, the only three that have any amount of growth into the future, and that's natural gas, power, and diesel.
You look at the long-term forecast on aviation, you have got significant growth in air travel.
We are a dominant player in jet fuel supply.
So, this is certainly very unpleasant for everybody, but this is a pretty rare occurrence and you haven't seen this in a long, long time and I don't think you're going to see it ---+ as we get more and more of these business activities to mature.
We have added some additional folks to our management team.
We have brought on solid people in land, brought on a Chief Marketing Officer, head of strategy, an EVP of our land business.
We have built out our team in multiservice with finance, technology, sales, human resources.
So, we're making the investments to build our Company into the world-class services company, downstream diversified services company, that we are and to continue to flex.
If you look at Lac-Megantic, tragic event.
I think it speaks to the level of sophistication that is in this Company to be able to handle something as complex as that.
There is a significant overhang, and hopefully that will be accepted and that's behind us.
So, in any case, it is probably ---+ I don't know if that is answering your question.
I'm happy to tell you some more.
Yes, listen, we have done that before.
We know how to step on the brakes there.
Again, we don't ---+ we had made investments into different areas.
We think our global energy management business, our natural gas, and power is a great business.
We think our multiservice is a great business, and these are synergistic.
Going after global energy management, all of those companies are using diesel lubricants.
It is a perfect fit within our land C&I business.
Our multiservice transaction processing and payment system and financial technologies is a great business within the transportation side.
We haven't really invested enough in either one of those businesses and now we are doing that, so we have added some significant senior people there.
We will continue to acquire in those spaces.
On the derivatives side, we have been doing this for quite some time.
We have got, I think, a fantastic risk management organization.
We don't really break that out and I don't know if you want to break that out, <UNK>.
I could.
It's a little north of 15% of total gross profit in marine, on average over time.
The derivative ---+ profits from derivative activity, yes.
(multiple speakers).
Yes, go ahead.
Greg, it is <UNK>.
I could tell you, look, Q3 is early.
Today is July 30 and (multiple speakers) have data up to today, but based upon what we have seen so far in July, our performance has clearly improved on both the derivatives side and overall.
Is that sustainable.
We certainly hope so, but, again, it is still early.
But we have definitely seen some improvement.
Some volatility has returned to the marketplace, which has helped margins a bit overall.
So once again, based upon three weeks of activity we have reasons to be optimistic, but there's still a long way to go until September 30.
Nothing in particular, Greg.
I think overall the aviation team did a great job.
As you said, it is not the strongest seasonal quarter for us, but our North American business did pretty well.
We did very well ---+ I think Mike may have mentioned it earlier ---+ in the tender season, which is in the spring.
It is when we are normally renewing contracts for the following year, so our team did a nice job there.
We picked up some volumes.
In saying that, and also even the government business, which a lot of people thought was falling off the deep end, it actually improved a bit in the second quarter as well.
Looking to the third quarter, to add to that, that is generally the seasonally strongest quarter for aviation and we expect aviation to do even better than what you saw in Q2 and hopefully meaningfully better than what you saw in Q2, and we are already seeing some good, solid start to July in that segment as well.
Yes, there was a little bit ---+ it is a good question, but to be honest, it is probably somewhat marginal.
So the best way to answer that question is Watson Q2 to Watson Q2 of last year was a bit better, because the second quarter last year was probably one of the warmest periods historically.
So we did a little bit better, but nothing in comparison to what you see generally in the first quarter.
So the dropoff that we saw was pretty consistent with what we expected to occur when the quarter began.
Yes, I would say that it is absolutely certain that the results deteriorated over the course of the quarter.
We started out in pretty good shape and the derivative activity dropped off, I would say, most heavily in the second and third months of the quarter.
The offshore activity that Mike referred to was pretty weak most of the quarter, but the larger impact was derivatives, and that really got a whole lot worse as we entered into May and June than where we started out in April.
We did have a chat about it, but since we don't provide numerical guidance, we decided that wasn't necessarily the right thing to do and we have never done that before and weren't looking to set a precedent this quarter.
Hopefully, we don't have reasons to even talk about it ever again, but the decision was that, under our specific circumstances, was not something that was necessary.
Yes, I would say ---+ remember, I think it was 1998, the price in Fujairah didn't move for about six months, so obviously that is a bit challenging.
If everybody is trying to work off of the exact same price, it is a little bit difficult to get any type of spread.
So, listen, it is something that you always have to take into consideration.
That would be a little bit of an aberration in today's world.
Certainly you've got a heavily oversupplied marketplace, but I think that there are enough forces and there are enough geopolitics today that it is probably not likely to happen.
But like I said earlier, we have got the ability to dial back.
We have got an extremely flexible business model.
We choose not to because we are very oriented to building for long-term value, so we could get violent and try to make every quarter or we could be building for long-term value.
I don't think most of our investors are looking to make it every quarter, so we're using our judgment in order to drive long-term value.
Absolutely, <UNK>, and thank you for bringing that up.
We have said this time and again.
It is possible we are a little bit conservative.
It is a little bit tricky out there and we very much are oriented towards blue chip.
Our [net strate] cycle is very tight in marine and it is a little bit tricky out there.
So that's where we are hanging out, and, yes, that's not going to give you the fattest margins.
And just to add to that, <UNK>, if you look at it year over year, obviously we had a bit of a blip in the fourth quarter and the first quarter, but if you look at our margins in our core marine business in the second quarter versus the second quarter last year, they are virtually flat on a significant increase in volume.
So that would say we're basically ---+ and day to day, we are doing the same thing we were doing a year ago, but arguably doing it a bit better, but in this quarter was the factors that we've talked about several times already on this call that really had the most meaningful impact on profitability.
We appreciate the support of our shareholders and we look forward to speaking to you next quarter with better news.
