Kirby Corporation Stock

Good day, and thank you for standing by. Welcome to the Kirby Corporation 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Matt Kerin, VP of Investor Relations. Please go ahead.

Good morning, and thank you for joining the Kirby Corporation 2026 Second Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Christian O'Neil, Kirby's President and Chief Operating 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. 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. 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.

I will now turn the call over to David.

Thank you, Matt, and good morning, everyone. Earlier today, we announced second quarter earnings per share of $1.67, up 11% sequentially and in line with the prior year quarter. Our results reflected solid execution across both our businesses, supported by constructive marine transportation fundamentals, high asset utilization and ongoing momentum in key distribution and services end markets.

In Marine Transportation, customer demand remained healthy -- utilization levels were strong and inland marine pricing continued to improve. In Distribution and Services, results benefited from continued demand growth in power generation and strong marine repair activity. Overall, our businesses performed well during the quarter, supported by healthy end market conditions, disciplined execution and our continued focus on operating safely and efficiently.

In Inland Marine, market fundamentals strengthened during the quarter, supported by strong refinery utilization, increased refined product and crude-related movements and healthy petrochemical activity. These factors, combined with limited industry capacity additions supported barge utilization in the low-90% range. We continue to see positive pricing momentum during the quarter with spot market rates improving sequentially and term contract renewals increasing year-over-year. Notably, current spot market pricing has improved from recent lows in the fourth quarter of last year and has returned to levels last seen a year ago. You will recall that in mid-2025, a sharp reduction in heavy crude imports into the Gulf Coast, primarily from Venezuela weighed on refining activity and related byproduct movements.

Those conditions have since improved with Venezuelan imports now well above first half '25 levels. However, as previously communicated, rising fuel costs created a temporary margin headwind during the quarter, although we expect this impact to reverse in the third quarter as contractual recovery mechanisms take effect.

Overall, the inland business delivered operating margins in the high teens range, reflecting healthy demand, strong utilization and improving pricing. In Coastal Marine, customer demand remained healthy during the quarter with barge utilization in the high-90% range. Market-specific dynamics affecting certain small capacity ATBs in the 80,000 to 100,000 barrel range resulted in low single-digit declines in term contract renewal rates.

However, overall market conditions remained favorable, supported by strong refinery utilization, strong customer demand and limited availability of large capacity vessels. Our coastal business delivered operating margins in the low to mid-teen range, reflecting the impact of elevated shipyard activity as previously disclosed.

Turning to Distribution and Services. Our performance reflected the strength of our positioning across a diverse set of end markets. Segment revenues increased 6% year-over-year, supported by sustained growth in power generation and continued strength in our commercial and industrial business. Operating margins improved more than 300 basis points sequentially, reflecting a favorable mix, including greater activity on behind-the-meter power solutions in our power generation business.

In Power Generation, revenues increased 8% year-over-year with demand for behind-the-meter and backup power solutions continuing to be driven by durable secular trends. While demand remains robust, the timing of OEM engine deliveries continues to govern how quickly we can fulfill orders.

In Commercial and Industrial, revenues increased 12% year-over-year, supported by healthy marine repair activity and continued growth across several end markets. In oil and gas, revenues improved sequentially from the first quarter, but were still down year-over-year as activity remains subdued despite modest improvement in market conditions from recent lows.

Overall, the segment delivered solid results across the portfolio, demonstrating the strength of the company's market positions and the momentum in several key growth areas. In summary, Kirby delivered a solid quarter, underscoring the strength of our operating model and the momentum we are seeing across both businesses. In Marine Transportation, inland performance continued to improve, driven by pricing gains and healthy barge utilization, while coastal demand and utilization remained strong despite market-specific pricing pressure in certain areas of the fleet. In Distribution and Services, power generation remained a key growth driver. Commercial and industrial activity performed well and oil and gas showed sequential improvement from recent lows. Taken together, these trends reinforce our confidence in the outlook for the remainder of the year, which I will discuss in more detail later in the call.

But first, I will turn it over to Raj to walk through the segment results, balance sheet and capital allocation.

Thank you, David, and good morning, everyone. In the second quarter of 2026, Marine Transportation segment revenues were $537 million, and operating income was $88 million with an operating margin of 16.4%. Compared to the second quarter of '25, total marine transportation revenues increased $44 million or 9%, while operating income decreased $11 million or 11%. The year-over-year decline in operating income primarily reflected the temporary impact of higher fuel costs before contractual recovery mechanisms take effect as well as elevated shipyard activity in Coastal Marine.

Compared to the first quarter of '26, total marine revenues increased 8%, while operating income decreased 2%. Looking at the Inland business in more detail. Inland contributed 80% of Marine Transportation segment revenue, with average barge utilization in the low-90% range for the quarter. Long-term contracts or those with a term of 1 year or longer contributed approximately 65% of inland revenue with 57% from time charters and 43% from contracts of affreightment. Improved market conditions resulted in average spot market rates increasing in the low to mid-single-digit range sequentially, while remaining down in the low single-digit range year-over-year.

Term contracts that renewed during the second quarter increased in the low single-digit range year-over-year. Compared to the second quarter of '25, inland revenues increased 9%, while operating margins were in the high teens range.

Moving to the Coastal business. Coastal represented 20% of revenues in the Marine Transportation segment with average barge utilization in the high-90% range above both the first quarter of '26 and the second quarter of '25. For the quarter, the percentage of coastal revenue under term contracts was approximately 93%, of which approximately 100% were time charters. Renewals of term contracts were down in the low single-digit range year-over-year due to previously mentioned market dynamics in the 80,000 to 100,000 barrel ATB market.

Coastal revenues increased 10% year-over-year with operating margins in the low to mid-teens range. Coastal was impacted by elevated shipyard activity as anticipated and modestly lower year-over-year term pricing. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes during the second quarter as well as projections for the full year. This is included in our earnings call presentation posted on our website.

At the end of the second quarter, the inland fleet had 1,134 barges, representing 25.2 million barrels of capacity and is expected to be slightly up in 2026. Coastal Marine is expected to remain unchanged from the second quarter of 2026. Now I will review the performance of the Distribution and Services segment. Revenues for the second quarter of '26 were $385 million with operating income of $38 million and an operating margin of 10% -- compared to the second quarter of '25, Distribution and Services segment revenues increased by $23 million or 6%, with operating income increasing by $3 million or 8%. This growth was primarily driven by continued strength in the power generation business and higher marine repair activity. Compared to the first quarter of '26, revenues increased by $39 million or 11% and operating income increased by $15 million or 63%, reflecting improved activity levels, favorable mix and stronger performance across several end markets.

Moving through the segment in more detail. In Power Generation, we continue to see meaningful order activity for the behind-the-meter and backup power solutions for data centers and other industrial applications. This has supported continued growth in backlog. However, OEM engine availability continues to influence the pace at which demand converts to revenue.

Overall, power generation revenues increased 8% year-over-year with operating margins in the high single-digit range. Power generation represents approximately 40% of total segment revenues. In Commercial and Industrial, strong marine repair activity contributed to a 12% year-over-year increase in revenues and an 11% increase in operating income. The business represented approximately 50% of segment revenues and generated operating margins in the low double-digit range. In Oil and Gas, activity improved sequentially during the quarter, driven by better demand for parts and services. Revenues increased 20% sequentially and operating income increased 67% sequentially, although results remained below prior year levels despite the modest improvement we have seen in market conditions from recent lows.

Oil and gas represented approximately 10% of segment revenues and generated operating margins in the mid- to high single-digit range. Now I'll move on to the balance sheet. As of quarter end, we had $39 million of cash on hand and total debt of $1.04 billion with a debt to capitalization ratio of 23.1%. We ended the second quarter with $566 million of available liquidity. During the quarter, net cash provided by operating activities was $72.2 million and capital expenditures were $71.5 million.

The second quarter included elevated working capital requirements, primarily associated with stronger business activity and the timing of collections as well as higher fuel rebuilds in our Marine business. We expect these working capital requirements to normalize during the second half, supporting a meaningful improvement in free cash flow. With respect to capital expenditures, we continue to expect full year capital spending to range between $220 million to $260 million. Approximately $170 million to $210 million is associated with marine maintenance capital, including improvements to existing inland and coastal marine equipment and facilities.

Approximately $65 million is associated with growth capital spending across both businesses. For the full year, we remain on track to generate cash flow from operations of $575 million to $675 million. Our capital allocation strategy remains focused on maximizing long-term shareholder value, balancing disciplined investment in our businesses with consistent return of capital to shareholders.

In the second quarter of '26, we returned $59.7 million to shareholders through share repurchases at an average price of $142, and we have repurchased approximately $29 million of additional shares quarter-to-date in the third quarter at an average price of $140. These repurchases reflect our confidence in the long-term earnings power of the business and our view that at recent levels, share repurchases represent an attractive use of free cash flow.

At the same time, we continue to evaluate disciplined acquisition opportunities within our core businesses, particularly in Marine, where we see the potential to enhance our service capabilities, drive fleet efficiency and generate attractive long-term returns. Taken together, our balanced approach allows us to invest in high-return opportunities across our portfolio while consistently returning capital to shareholders.

With that, I will now turn the call back to David to discuss our outlook for the second half of the year.

Thank you, Raj. As we look at the balance of the year, we remain encouraged by the direction of the business. Across our portfolio, we are seeing the continuation of many of the same tailwinds that supported our second quarter results, including healthy demand, solid asset utilization and continued inland pricing improvement. While the broader operating environment remains dynamic, we believe our market-leading businesses and disciplined operating approach position us well for the second half of 2026.

As a result, we have reaffirmed our full year earnings per share growth guidance of 5% to 15% and currently expect results to trend toward the upper end of that range. Our confidence is supported by continued inland pricing momentum, the expected recovery of fuel cost timing impacts healthy utilization across marine transportation and improving second half conversion of power generation backlog as OEM engine availability improves.

In Inland Marine, we continue to see a favorable operating environment. Demand from refining and petrochemical customers remains healthy, supported by strong refinery utilization and steady petrochemical activity, while barge availability across the industry remains relatively tight and pricing momentum continues to build. With spot pricing continuing to lead term pricing, we believe the setup remains constructive as additional contracts renew through the balance of the year, particularly during the seasonally heavy fourth quarter renewal period.

Together, these factors give us confidence in our outlook for the inland business. Overall, inland revenues are expected to grow in the mid- to high single-digit range with operating margin in the high teens to low 20% range for the full year. Although the fuel-related headwind in the second quarter may make the upper end of that range difficult to achieve.

In Coastal Marine, underlying market conditions remain supportive with healthy customer demand and strong barge utilization. Overall, revenues are expected to increase in the mid-single-digit range for the full year with operating margin in the mid- to high teens range, reflecting the impact of lower margins in the second quarter due to elevated shipyard activity and the market-specific pricing dynamics for the 80,000 to 100,000 barrel portion of our fleet.

In Distribution and Services, growth in power generation and strong marine repair activity are expected to continue driving segment results. In power generation, customer demand remains exceptionally strong, particularly for behind-the-meter power solutions serving data centers and other industrial applications. While OEM engine availability continues to affect the timing of customer deliveries, our backlog and customer conversations continue to support a strong multiyear outlook. Importantly, growth in behind-the-meter power applications also creates longer-term service and parts opportunities as our growing installed base begins to operate at higher utilization levels.

Within commercial and industrial, marine repair demand is expected to remain healthy, while on-highway activity remains constrained. In oil and gas, activity is expected to remain subdued but has modestly improved from recent lows. Overall, we expect segment revenues to increase in the mid-single-digit range for the full year with operating margins in the mid- to high single-digit range.

To conclude, we delivered solid second quarter results and remain well positioned for the second half of the year. Marine transportation fundamentals remain favorable, supported by healthy demand, strong utilization and improving inland pricing. In Distribution and Services, power generation continues to be a key growth driver, while commercial and industrial activity remains healthy. Supported by our market-leading positions, enhanced service capabilities, fleet efficiency and disciplined operating approach, we remain confident in our outlook and our ability to deliver toward the upper end of our full year earnings per share growth guidance.

Operator, this concludes our prepared remarks. Christian, Raj and I are now ready to take questions.

[Operator Instructions] And our first question comes from Jon Chappell of Evercore ISI.

David, last quarter, you spoke to the potential for inland margins to exceed the last peak. Given what's been happening with the rate of change on both term and spot, what you're seeing from a demand perspective and also from a capacity add perspective, would you say that, that still holds? And if so, can you kind of help with your path on timing? Is that kind of a 12- to 18-month return to those types of levels? Or is it more of a prolonged kind of steady move higher?

Yes, it's the latter, Jon. Right now, supply and demand are imbalanced and tight. Nobody is really building any equipment. we're pursuing and getting slow, steady increases. You heard low to mid-single-digit increases. It's going to take a while to get up to the past peak in margins, which was about 28%.

I absolutely believe we'll get there. It's slow and steady. As you heard in our prepared remarks, we're setting up for a good fourth quarter renewal season, and that will bode well for '27. And we just see that continuing. You'll recall, we had the maintenance bubble that rolled off last year. Well, that maintenance bubble is going to start again in late '27 and '28. So I think we're set up for a multiyear slow march up. I would say this, new build economics are still 40% away.

So nobody really should be building equipment at these prices. So it should be a good long 5-year march up. I don't know exactly when we'll hit peak margins, but it's set up for a good long run.

Awesome. That's great. I hate to ask about this, but have to. The Jones Act waiver. Have you seen any impact either in coastal, I would imagine more in coastal than inland from the waivers? And I guess -- maybe more importantly, from some of your contacts in D.C., do you have a sense for if the waivers will continue to be extended? Obviously, the war headlines kind of change from day to day. But just any sense as we approach mid-August with the potential for another waiver extension, anything you're hearing on that?

Sure. There's been no impact at all in the inland side, just a tiny bit on the coastwise side for us, we're pretty termed up, and we don't have much exposure. Christian can chime in on that. But some of the industry participants have seen it. The waiver, there's probably been 150 non-Jones Act moves, maybe a little more. The vast majority, 85-plus percent of those have been really nothing to do with national security or homeland resilience, it's really just been traders making profits.

And so we don't think the waiver makes sense. We understand what the administration is trying to do, which is trying to help the consumer. But frankly, the Jones Act really doesn't add much cost at all, maybe $0.01 a gallon. So it's not achieving what I think the waiver was intended, which was to help prices at the pump. It's a blanket waiver. That's what we don't like. I mean we support the administration, but we think it should be a specific waiver.

In other words, -- if Jones Act equipment is not available, then sure, use non-Jones Act equipment. We certainly don't want to stand in the way of supporting the administration's goals. The waiver was extended another 90 days to August 16, I think, is the last day of the waiver. Obviously, with the conflict in the Middle East and the Straits of Hormuz, the administration is considering extending the waiver. We're hopeful that if they do extend it, it will be a specific waiver. You could even see it being as specific as Gulf Coast to the West Coast because the West Coast is where there may be a problem if there is a problem. So we'll see. The administration hasn't done anything yet. I know they're contemplating it. Our view is if they do it, it should be a specific waiver, not a blanket waiver.

We haven't really seen a big impact for Kirby. We have heard of a couple of participants losing some contracts because of non-Jones Act equipment. But so far, it's benign. I don't know, Christian, if you want to tell them about our exposure.

Yes. No, I think secularly, Kirby has really been unaffected, maybe some barrels on the edges, particularly in the offshore space. We're fully utilized at Kirby Offshore Marine. And David hit it on the head. There has been perhaps some ripples for some other competitors that are more exposed to the spot market. But we've been in a good spot. We remain in a good spot in our utility and our contract portfolio.

However, the waiver does need to go away, if not alone for the benefit of the hard work in American Mariner and the hard work and workforce that supports the American mariners. What's going on here is just -- while we understand the intentions and supporting the war effort, the effect of it is, I don't think, as advertised, and it's time for the waiver to end.

David and I have the pleasure of meeting with 50 captains here in the next day or so. And we got to look them in the face and explain this and explain why the administration has made this decision. And it's just very difficult on the workforce. We're out there recruiting and retaining and trying to motivate mariners and they see their jobs being taken by foreign mariners is just not fair. So time for it to end. I got a little political there, sorry. But from a supply-demand perspective, we haven't really felt it, but I think it's -- there are some competitors who have felt some pressure.

And our next question comes from Ben Mohr of Citigroup.

David, Christian, Raj and Matt, congrats on the beat and raise. I wanted to see if we could discern the drivers behind your raise towards the upper end. Can you maybe talk to rank and maybe kind of magnitude of the impact on your rates on the marine side from the Venezuela heavy crude imports perhaps stepping up further, Calcasieu Lock, maybe a higher impact than maybe what you thought before, crack spread widening may be sustained longer even after an eventual end to the Iran war and then petrochem exports with you being a part of the inland supply chain. And then on the D&S side, any impact from trucking capacity exits driving trucking spot rates?

Yes. Well, I'll start with Marine and go to D&S, and Christian can chime in here with some more specifics as well. Look, yes, we're comfortable with the high end of the range. We didn't bring up the low end because just the geopolitical dynamics out there could give us a curveball that we haven't anticipated. But we feel very positive as we enter the second half. And many of the things you mentioned are the reasons.

Venezuelan crude is up over 600,000 barrels a day from lows of 200,000. Calcasieu Lock is coming into play, and Christian can give you some color on that. Crack spreads are pretty much at a record. Even our petrochemical customers are doing a little better. So we're seeing good solid demand in the inland space, in particular. And given that we're capacity wise and nobody is really adding new capacity, rates are going up. And they're slow and steady. These aren't big double-digit raises. These are low to mid-single digit, which is what we're comfortable with. We're happy at those kind of price rises. They offset inflation a little bit. And inflation has been real, by the way.

But you hit on most of it. That is giving us a very solid backdrop in the inland side. It gives us a lot of comfort as we head into the second half. And the very important fourth quarter renewal period where about 40% of our term contracts renew is setting up nice, and that sets up for 2027 for that year.

D&S is very similar. We are seeing really healthy demand for behind-the-meter power systems. And we like that. Obviously, we're still getting standby diesel for backup, but the behind the meter has been the bulk of our inbound. And that we like because behind the meter is going to run 24/7 to generate power. And there's going to be a very nice service component that starts to kick in, in a few years once that equipment has seen a lot of duty cycles. So we're excited that power gen is obviously a big part of why we're comfortable in the second half.

But in commercial and industrial, on-highway, I'd say the trucking sector has bottomed finally, and we're starting to see a little sign of life there. Marine repair has been very solid. So a lot of things going right, right now, and we feel really good about it. I don't know, Christian, if you want to dive into a little more detail about some of the cracks in Calcasieu Lock and Venezuela.

Yes, Ben, I think about the 4 items you just referenced. I think about why PADD 3 refining and chemical manufacturing wins globally every quarter. Crack spreads, pet chem improving, Venezuelan crude imports and the Calcasieu Lock. All of those things baked together to represent why PADD 3 and why servicing PADD 3 as a marine transportation vendor is important and profitable and has a lot of momentum right now. Crack spreads, I want to say they touched $169 a barrel, an all-time record high last week. I'm sorry, I say $160 -- maybe it will get to $169.

We're all feeling bullish.

Thank you for the correction there. The Calcasieu Lock that you referenced, work continues on Calcasieu. It should wrap up September 18. Calcasieu Lock closes every day from 7:00 a.m. to 7:00 p.m. It creates a small traffic jam on the intercoastal waterway where there's a lot of traffic between Texas and Louisiana. Right now, they're working inside the gate. When they work inside the gate, it's a bit more disruptive. You have to have an assist boat to get through the lock. And so we'll see that increase here, but it will wrap up hopefully in September.

We're always battling something, whether it's weather or locks or ice or storms. So those types of delays are kind of par for the course in the industry, but Calcasieu Lock is an issue today. But yes, I think you hit all those tailwinds well, and I think it's just all part of being blessed to work in PADD 3 like we do every day.

Great. What is assumed for your buyback and other income as part of your guide?

Yes. Well, you've seen we've continued to buy back our stock. We were fairly aggressive in the second quarter. We like the stock price where it's at, and we're happy to continue to buy it. You've heard Raj talk before that we like using our free cash flow to buy back stock when we don't have acquisitions. We're always looking for our acquisitions, particularly in our core businesses. But in the absence of those, we're very happy to use our free cash flow.

I would say this, free cash flow was a little lower in the second quarter than we expect. We still think our full year guidance on free cash flow is going to be there. What's happened is good. We've had a lot of working capital build principally around receivables because business has been good, big portion of that is related to power gen receivables. And then we also have a lot of fuel rebuilds that are built up in the receivables. So as that working capital frees up, we'll have more free cash flow, and we're happy to buy back our stock with our free cash flow.

Now that said, again, we always prefer to do an acquisition or 2, and we'll take those as they come. They're hard to predict. In the absence of those, we're very excited to buy back shares. In terms of our guidance, we really don't include the benefits of the share buyback. But as you know, it's an average for the year. So as you get into the second half, it matters less in terms of this year's earnings, but certainly matters for next year's earnings.

Great. Appreciate that. Last one for me. You've noted the supply side is still very favorable with very low new builds. A concern is that it could increase eventually with the strong. You mentioned maybe roughly 5 years of continued spot rate increases. What's the range of your age of fleet, if you could share that currently versus kind of historical average? And then at what age do you typically currently retire your fleet?

Yes. There's 2 ways to look at this, both the barge and the boat side. Our average barge age is about 17, maybe 18 years old, somewhere in that ZIP code. We have 1,100 of them. So that's on the inland side. They typically can run until about age 30, you can stretch it to 35, but it starts to make less sense from a maintenance upkeep standpoint. So we're quite comfortable with the age of our fleet.

And then you have the towboat side, which is also important. towboats can go 35 years, roughly speaking. The average age of our towboat fleet has come down a lot from our purchases over the last 3 to 5 years. So we're very comfortable with the age of our fleet. I would say from an industry standpoint, as I've mentioned before, pricing has to be 40% higher to justify new capital deployment. we aren't seeing -- Christian can share what the actual number we think is in the shipyards, but it doesn't make sense to build right now.

I think we need those price rises for a number of years to get there. And Christian can comment on the shipyard capacity as well.

Yes. We think it's an inexact science, but we think we have line of sight of about 60 barges getting built this year. That represents pretty much replacement capacity for us and our competitors that are retiring equipment. Construction remains very much in balance with current capacity. David nailed it. The economics simply don't work to build a 2-barge tow, a new boat, 2 new barges, you're still 40% below where you need to be to earn an adequate return.

Also, shipyard capacity is somewhat reduced from the pre-COVID era when you saw a lot of construction. It's just expensive labor in the shipyard and the price of steel itself remains highly elevated. A lot of these inflationary pressures that weigh on our transportation business, labor, paint, steel, electronics, those remain very high. And so we still face some pretty tough inflationary pressures. And so the rates still have a way to go. I mean 40% more before you really get to the economics that would justify a new build cycle in earnest.

And our next question comes from Bascome Majors of Stephens.

David, I know there's not much that you can say in specificity, but I was wondering if you could walk us through your thoughts on the high-level value creation for yourselves and shareholders from the D&S segment, including power generation. Like what's the long-term thought process on capitalizable earnings potential when you get to the point where the aftermarket is really starting to flow through in that business versus -- and how do you balance that nearer term versus the ability or interest in something that's growing really heavily along with any cash flow or tax leakage considerations on that side?

Yes. Tough question, but good question, Bascome. I appreciate it. Look, we always look at our portfolio and our capital deployment. Look, over the years, you've seen Kirby do a lot of acquisitions in the marine side, probably in the last -- I think Christian and I have worked on 25 marine acquisitions in the last 10, 15 years and probably a dozen KDS acquisitions. We're always looking to add.

But look, we've got 2 very different businesses here. So at the Board level, we talk about what makes sense. I would say what drives us and the Board is shareholder value. Is there a way to to increase shareholder value, we're going to do it. We're going to look at it. That said, we are very happy with our portfolio. The marine business is rock solid. The power gen business just continues to surprise to the upside from our expectations. I think you hit on it. There is going to be a massive service annuity that's going to emerge from this installed base.

I think you've heard us talk about our power gen installed base doubling in the next 18 months. That is absolutely going to happen when we look at our backlog and our deliveries. I'll use this opportunity to update our backlog. I think I said on the last call, we were between $500 million and $1 billion and then update it when we go through the top end, and we have.

So our new backlog guidance is $1 billion to $1.5 billion. And the good news is most of the inbound has been behind the meter power, which is what we like. If you think about the engine business, standby diesel, they're not really running. They're sitting at data centers waiting for a blip in the power, and they don't run a lot. They're still service related to them, but it's not as much service as you get with natural gas recips that are running 24/7 to provide prime power. Those engines will run. They'll have a lot of what we call balance of plant equipment around them, which would be things like cooling systems, after treatment systems, sound attenuation systems.

And they're all going to get duty cycles. So in about 4 years, maybe 5 years, all of those engines that we're putting out in the behind-the-meter space will need some service. We're working hard. And I think Christian has got a project he should tell you about right now.

Yes. When you look at the opportunity in the aftermarket, our data center and our power service customers are looking for turnkey solutions for uptime. Downtime is the absolute enemy. Chad Joost and his team are putting together an enhancement and operation called Kirby Integrated Power Systems, which I'm very excited to announce on this call. We will be going after that aftermarket. We believe that the CapEx cycle is amazing. We're enjoying it now, but we think we can generate value exceeding the original product value in the aftermarket in the out years.

And so when you look at the urgency of data centers, the uptime required for data centers, there's an outstanding service opportunity here. We do this every day. We're just enhancing it with some talented techs and a focused management team. The job site for these techs will be the data center, and we're going to go after and get that aftermarket opportunity that you referenced on high-level value creation through the cycle. And so this is just one little piece of it that we're highly focused on.

And our next question comes from Scott Group of Wolfe Research.

So a couple of things on pricing. I wanted to ask. Where are we on spot relative contract in inland right now? When do you think we start -- do you think we can accelerate out of this low single-digit contract range?

And then I guess I understand you had the Jones Act question earlier. All the stuff that you're talking about in terms of the Q2 issue with coastal pricing down, is this related to this Jones Act waiver? Or is this a separate issue? I just want to understand exactly what's going on in Coastal right now.

Yes. Let me take your coastal question right now. I think we spoiled everybody with 4 years of continuous rate increases at coastal. Let me frame this up. So what we talked about in the announcement is just the normal ebb and flow of negotiation. We had a couple of units trade off their all-time highs. This is what happens. Fundamentally, the fleet remains in a great spot. We're fully utilized. This is not a Jones Act associated issue on price pressure. This is just normal ebb and flow negotiation and a slight tick down from all-time highs ever earned while we've owned these 80s and the 100s.

Yes. The other thing is you asked about spot versus contract. Spot rates are a good 10% to 15% above contracts right now. We like that. That's the way to head into the contract heavy renewal in the second half. We're very constructive around that.

I hear you about double-digit increases instead of single-digit increases. We're all for increases, but slow and steady kind of wins the race. We have very sophisticated customers. They know what kind of inflation head we have, and they know the supply and demand market.

And so we like the slow and steady because it's easier to achieve. That doesn't mean we're not trying to push for higher price rises. It's just -- the market is the market. And -- but we are not unhappy with slow and steady.

And just following up on Coastal like what percentage of the market is this $80,000 to $100,000 market? And is this -- is this -- I don't know, is this your view? Is this a temporary? We had a couple of things that sort of renewed down slightly and this is up -- or is this sort of like is coastal getting to a peak around this 20% margin, which we've really never been at before. So maybe we are peaking. I don't know. I'm curious your thoughts.

No. I think when you break down the offshore fleet, you have different sizes, different classes. You have a class of equipment that's $150,000, $180,000 and we compete against MR tankers that are $330,000. All of those rate renewals this year have increased. We called out a very small subsection here, 20% of the market-ish that is the 80s and the 100s. These trade and refined products, many of them in the Northeast, that's a very competitive part of the world.

There's been some supply dynamics changing with European imports that get moved around in the New York Harbor and up on the Northeast that impacted these particular trade lanes and these particular deals. So I wouldn't read too much into these 2 renewals that we're talking about as far as the whole fleet. The rest of the fleet did enjoy rate increases year-to-date.

Yes. And when we give rate increases, it's an average. Remember, it's an average. It's a simple average, not a weighted average. We actually did have a couple of 80s that renewed higher, but the simple average brought the 80s and 100s down a little bit. So I think it's a temporary thing. We're -- nobody is building capacity in the offshore side.

Even if they started now, it would be 3 years before any capacity is delivered. So we're still very constructive about the long term for coastal. We don't like price declines, but this is kind of, as Christian described it, the ebb and flow of renewals after 4 years of up renewals.

And if I can just ask Raj, one quick one. Some years, we got the full year guide. Some years, Q3 is higher than Q4, some years, Q4 is higher than Q3. Any just like thoughts on like the cadence in the back half of the year?

Yes. I know, Scott, I probably don't want to get into the quarterly flows here. Just what I'm going to say is the second half is looking really strong, right? With everything that's happening right now and the comments that David and Christian made, I mean, pricing should continue to go up. The supply dynamics are very favorable. If I could give you some color, I'll say Q3 is probably better than Q4. But overall, very excited as to what we're seeing in the second half of the year.

And our next question comes from Gregory Lewis of BTIG.

I was hoping you could talk a little bit about the impact in the higher diesel prices and the fuel pass-throughs. I mean, I guess just looking at diesel prices, I guess they ripped like 30% like March and April. Just kind of curious, how should we be thinking about just if we are going to be in a more volatile oil price market, given, I guess, who knows. But like how should we think about the time lag of that?

And just as we think about where we are now, I mean, I guess, just looking -- is like the New York diesel price a good proxy to be looking at just as we try to understand this?

And then I don't know how much color you can provide, but kind of curious how much of a headwind that the higher fuel prices was the Q2 numbers?

Yes. Greg, we did talk a little bit about it in the second quarter call. I think we said $0.05 to $0.10 headwind in the second quarter. And that's about what it was, probably on the higher end of that. That -- we'll catch all that up in the third quarter or the fourth quarter, most of it in the third quarter. We work really hard to make fuel a pass-through. We don't want to make money on fuel. We don't want to lose money on fuel. Our customers, by and large, are -- they trade in fuel. They're best able to absorb fluctuations in fuel.

So we work really hard with them on our contract escalation and de-escalation clauses to make sure we come in neutral. There is a lag. Some of them reset 30 days, some 60, some 90, and we have 1 or 2 that are longer than 90, which we should probably look at. But we can get pencil whipped. We buy it and then there's a lag and get reimbursed for it. But by and large, we think we'll come out neutral on fuel this year.

Third quarter is going to be a good third quarter, and part of that is the fuel coming back in and collecting that. I would not use New York fuel prices, though. Gulf Coast is where we buy the bulk of our fuel. And it's been pretty sporty, as you said. We'll see what happens with the war and where fuel prices go. But we work -- just to keep reiterating it, we work hard to be neutral. And we don't want to make money on fuel. We don't want to lose money on fuel.

And in our history, we've actually gone back to customers and said, "Hey, we need to adjust the fuel clause because we made a little money in fuel. So they get it. They work with us, and we try and stay neutral. I know that's a long-winded answer to say that we're pretty neutral.

And our next question comes from Ken Hoexter of Bank of America.

So kind of a big change of tone, I guess, in 2 directions on the call, right? So the outlook seems to jump to the top this quarter, but it sounds like you're now talking about 5 years to get to peak in inland versus, I think, what was expected to be maybe a faster move given the tight supply/demand. Why do you think the changing thought process here just given from quarter-to-quarter, it seems like this may be a longer lead time to get to those peaks.

Maybe some conservatism, but also the realization of what we saw last year, Ken. I mean we -- you saw us lose a little pricing even though we were in a supply demand kind of balance situation. So we got a little more conservative because last year was a bit of a surprise to us. And really, what drove it was the lack of heavy crude into the Gulf Coast refineries.

And it just hit us and spot pricing was down in the second half of last year. So we got a little more conservative here. Could it go faster? For sure. We'd certainly be in favor of that. But slow and steady is also okay with us. What funny way to look at slow and steady for us, the free cash flow just continues to come in, and we use it to buy back stock. So slow and steady feels pretty good to us.

We do get the urgency to try and get margins up, but I would tell you the change in tone is really driven by what we saw last year. And we don't think that will repeat, but you never know, particularly given the global political and crude market dynamics right now. They're just -- I don't want to say unpredictable, but certainly can get a curveball thrown here or there.

Yes. There's a management team across the nation that doesn't struggle with some of the geopolitical and administrative challenges. There's just more volatility, Ken, when you try to get the crystal ball out. But I mean, fundamentally, things are very, very good in all the businesses.

And we're still fighting inflation. I mean that continues to be an issue. You keep pushing price, but you're still fighting inflation.

Yes.

So what's leading to the improving outlook, right? If I'm hearing things are at peak at coastal and maybe rolling a bit, margin pressure at inland, you got the fuel contracts are going slower than expected. I know this issue with the 80,000 to 100,000 barrel on the coastal, I right in terms of seeing some of the all-time peaks going down. So where is the upside and confidence?

And by the way, power gen seems to be a big deceleration in growth this quarter, right, from 45% to single digits. So what's giving you the confidence that the top of your target given all those commentary?

Well, I wouldn't -- let me take each one of those, and Christian and I will tag team this. But certainly do not believe we are peaked out at margins on coastal. -- gosh, I fully expect coastal margins to get north of 20% in the next couple of years. There is no equipment being built. It's a very tight market. There is some noise around the 80s and 100s. The 80s and 100 are probably the most commodity kind of area in coastal.

So that's the one that has the most noise in it. But certainly believe strongly that coastal margins are going to continue marching up. Look at it from a year-over-year standpoint, and I fully expect coastal margins will go up next year.

Inland is not decelerating. We got through the second half of last year. There was a little headwind there. If anything, I think inland is improving. Certainly, the war helps a bit, but it's really more a supply-demand picture. And I don't see that changing in the near term or -- and I only see it improving in the longer term.

Power gen is -- look, I mean, the backlog grew a lot. We've got a ship to produce the revenue, and we will. You'll notice margins improved. We're working on margins. We are constrained by engine deliveries. But I would tell you that the inbound is the key. That inbound continues to grow, and it's the right inbound. It's the behind-the-meter stuff that's going to have a service deal. So yes, we're not Dow at all. We're quite the opposite. We're very excited about what's in front of us.

And our next question comes from Greg Wasikowski of Webber Research.

Just a higher level one on inland. I'm just curious your overall thoughts on efficiency gains in the market over the years just from an asset performance perspective, overall technology, AI, whatever it is. I'm just curious, do you think that, that's had a material impact on like the net demand or impacted the rate of improvement that we've seen in spot and term markets?

And maybe this is a contributing factor to Ken's question on the dichotomy between the sentiment improving, but the slope seems to be flattening. And maybe that's not a bad thing as you've outlined in the past, David. But just curious on your overall thoughts there.

I'll go ahead and jump on this one, Greg. While we do see every customer trying to gain efficiency using AI in various ways, one of the wonderful things about the Kirby value proposition is we bring that efficiency every day with our scale, with the diversity of the bottoms of our barges, with our linehaul network, with our ability not to dedicate as much horsepower as our competitors.

And so we deliver this efficiency and this value proposition every day. It is a big part of what we do, our geographic footprint and just the depth of our relationships and the range of cargoes that we're capable of moving. So you might think there's always optimization -- when you're running a refinery or a chemical plant, you are always optimizing, you're always messing with the inputs, looking at the right crude oil to run and barging is an essential part of sort of balancing the refineries and servicing the chemical plants.

So I don't think, in my opinion, we've seen any major reduction in the need for barges because we already are really, really highly efficient at Kirby. That is the value proposition that we deliver every day.

And then when you get to the technology side, fuel, Tier 4 engines are a little more fuel efficient than their ancestors. You see some efficiencies like that in technology. Electronics are better, safer. The industry as a whole is safer. There's some gains like that when it comes to technology.

Okay. And then another one, just going back to the maintenance schedule that you guys brought up a little bit. Can you give your thoughts on the other end of that, the redelivery schedule? I know we're getting out into like the 2030s here, so it's a bit of crystal ball. But I think just this past redelivery cycle seemed to impact the market a little bit more than we were expecting at least. And maybe that's just because it was combined with other factors. But with this next one coming up in a few years in the back half of the decade, I just wanted to get your thoughts on that chunk versus what we saw last year.

Yes. What you get into in the 2027, 2028 is barges that are 5 years older. And so the intensity of the work and the level of the U.S. Coast Guard major that you have to do is higher. And so you could see longer -- the barges will be in the shipyard for longer periods of time. They'll require more steel replacement, they'll require more paint.

And so in theory, not knowing the subjective condition of everybody's barge that's going in, you should see a cycle where the length of the shipyard has increased, meaning more available days are consumed.

I'm showing no further questions at this time. I'd like to turn it back to Matt Kerin for closing remarks.

Thank you, Didi, and everyone on the call for participating in our call today. If you have any additional questions or comments, please feel free to contact me. Thank you, and have a good day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day and thank you for standing by. Welcome to Kirby Corporation 2026 First Quarter Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Kerin. Please go ahead.

Good morning and thank you for joining the Kirby Corporation 2026 First Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Christian O'Neil, Kirby's President and Chief Operating 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. 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 in 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. 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. I will now turn the call over to David.

Thank you, Matt, and good morning, everyone. Earlier today, we announced first quarter earnings per share of $1.50, a 13% year-over-year increase compared to 2025's first quarter earnings per share of $1.33. Our first quarter results reflected improving market fundamentals in marine transportation with utilization and pricing strengthening as the quarter progressed, alongside continued strength in underlying demand for Power Generation in Distribution and Services.

While results were partially impacted by weather-related disruptions and navigational delays in our inland marine transportation operations and ongoing OEM-related supply constraints in Distribution and Services, underlying demand conditions remained strong across both segments.

Overall, our combined businesses executed well and generated positive momentum entering into the second quarter. In inland marine, market fundamentals improved throughout the quarter as customer demand strengthened, refinery utilization increased and barge availability remained limited. As expected, operations were impacted by typical seasonal weather, lock delays and other navigational disruptions.

However, market conditions became increasingly constructive with barge utilization strengthening as the quarter progressed and averaged in the low 90% range for the full quarter. Spot pricing improved in the low single digits sequentially. Term contract renewals were flat to slightly up year-over-year and pricing momentum continued to build during the quarter. Overall, the inland business delivered strong operating margins in the high-teens range for the quarter, driven by improved pricing and disciplined execution. Entering the second quarter, demand visibility has continued to improve, supported by strong refinery utilization and improving conditions across petrochemical markets, contributing to strong utilization and improved pricing.

Coastal marine transportation fundamentals remained strong throughout the first quarter with barge utilization averaging in the mid-to-high 90% range, which was supported by steady customer demand and limited supply of large capacity vessels. This favorable supply-demand dynamic continued to drive pricing gains with term contract renewal rates rising in the 20% range year-over-year. Our team delivered strong operational execution and maintained a disciplined focus on cost and efficiency, and this resulted in operating margins in the high teens range.

Turning to the Distribution and Services segment results reflected mixed conditions across our end markets with Power Generation remaining a key growth driver. Segment revenues increased 12% year-over-year, but declined sequentially due to OEM engine availability and continued softness in conventional Oil and Gas activity. Operating income increased modestly year-over-year, though declined sequentially as margin performance varied across our businesses.

In Power Generation, revenues grew 45% year-over-year from solid backlog execution and significant demand for behind-the-meter power solutions. However, revenues declined sequentially as OEM engine deliveries were lower in the quarter. Operating income increased year-over-year with margins remaining in the mid-single-digit range.

In Commercial and Industrial, revenues increased 8% sequentially and operating margins were in the high single-digit range, supported by strong marine repair activity and disciplined execution.

In Oil and Gas, revenues improved 13% sequentially, though results continue to be pressured by softness in conventional oil and gas markets and resulted in margins in the mid-single-digit range.

Overall, the segment remains well positioned with steady execution across a diverse portfolio of end markets. In summary, Kirby continues to operate from a position of strength. Marine transportation fundamentals remain constructive with high utilization and improved pricing across both inland and coastal markets.

In Distribution and Services, strong activity in Power Generation and Commercial and Industrial markets continued to offset softness in our conventional Oil and Gas business. With this backdrop, combined with solid execution and ongoing cost discipline, we announced in this morning's press release that we are increasing our EPS guidance range for the year to up 5% to up 15%, which is up from flat to up 12% previously. I will discuss our outlook in more detail on the call. But first, I will turn it over to Raj to discuss the first quarter segment results, balance sheet and capital allocation in more detail.

Thank you, David, and good morning, everyone. In the first quarter of 2026, Marine Transportation segment revenues were $497.2 million and operating income was $89.7 million with an operating margin of 18%. Compared to the first quarter of 2025, total marine transportation revenues increased $21 million or 4% and operating income increased $3 million or 4%. When compared to the fourth quarter of 2025, total marine revenues increased 3% and operating income decreased 11%.

As David mentioned, typical seasonal winter weather produced a 25% sequential increase in delay days and negatively impacted operations and efficiency in the first quarter. Looking at the Inland business in more detail. The Inland business contributed approximately 79% of segment revenue. Average barge utilization was in the low 90% range for the quarter, which was an improvement over the fourth quarter of 2025 and in line with the first quarter of 2025.

Long-term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 65% of revenue, with 56% from time charters and 44% from contracts of affreightment. Improved market conditions resulted in spot market rates moving up in the low single digits sequentially but were down in the mid-single-digit range from a year ago. Our term contracts that renewed during the first quarter were flat to slightly up.

Compared to the first quarter of 2025, inland revenues were flat but increased 4% compared to the fourth quarter of 2025 due to improved market conditions. Inland operating margins were in the high-teens range.

Now moving to the Coastal business. Coastal revenues increased 23% year-over-year, driven by strong customer demand and limited availability of large capacity equipment. Overall, Coastal had an operating margin in the high-teens range, benefiting from higher pricing and effective cost management. The coastal business represented 21% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid-to-high 90% range, which was in line with both the first quarter of 2025 and the fourth quarter of 2025.

During the quarter, the percentage of coastal revenue under term contracts was approximately 92%. Renewals of term contracts were on average approximately 20% higher 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 first quarter as well as projections for the full year. This is included in our earnings call presentation posted on our website. At the end of the first quarter, the inland fleet had 1,124 barges, representing 25.1 million barrels of capacity and is expected to be slightly up in 2026.

Coastal Marine is expected to remain unchanged from the first quarter of 2026. Now I will review the performance of the Distribution and Services segment. Revenues for the first quarter of 2026 were $347 million with operating income of $23.3 million and an operating margin of 6.7%. Compared to the first quarter of 2025, the Distribution and Services segment revenue increased by $37.4 million or 12%, with operating income increasing by approximately $1 million or 3%. This growth was primarily driven by Power Generation and strong marine repair activity. When compared to the fourth quarter of 2025, revenues decreased by $23.2 million or 6% and operating income decreased by $7 million or 22% as a result of lower power generation shipments due to OEM engine availability, weakness from on-highway repair and continued softness in the conventional frac market.

Moving through the segment in more detail. In Power Generation, we continue to see meaningful order activity for the behind-the-meter prime power and backup power solutions for data centers and other industrial applications. This has resulted in continued growth in our backlog. However, engine availability from OEMs is limiting how quickly some of that demand converts to revenue. Overall, total Power Generation revenues were up 45% year-over-year with operating margins in the mid-single digits. Power generation represented 44% of total segment revenues.

On the Commercial and Industrial side, activity was strong in marine repair. And as a result, commercial and industrial revenues increased 1% year-over-year and 8% sequentially. Commercial and industrial made up 46% of segment revenues and had operating margins in the high single digits.

In the Oil and Gas market, we continue to see softness in conventional frac-related equipment as lower rig counts and fracking activity softened demand for new engines, transmissions, service and parts throughout the quarter. Revenue in oil and gas was down 25% year-over-year, but increased 13% sequentially, while operating income was down 53% year-over-year and down 28% sequentially. Oil and Gas had operating margins in the mid-single digits in the first quarter and represented 10% of segment revenue.

I will now move to the balance sheet. As of quarter end, we had $58 million of cash with total debt of $983.4 million, and our debt to capitalization ratio was 22.3%. We ended the first quarter with $635.4 million of available liquidity. During the first quarter, we entered into an amended and restated credit agreement that extended the facility maturity date to March 26, 2031, and increased the revolving credit facility commitments to $750 million, and eliminated the term loan credit facility.

During the quarter, net cash provided by operating activities was $97.7 million and capital expenditures were $48.3 million, resulting in free cash flow of $49.4 million. In the first quarter of 2026, Kirby returned $52.7 million of capital to shareholders through share repurchase at an average price of $123.18. We continue to execute on our focused and disciplined acquisition strategy by agreeing to acquire 23 barges and three high horsepower boats from an undisclosed seller in the Inland Marine business for $95.8 million, of which $81.4 million was paid during the first quarter. With respect to CapEx, we continue to expect capital spending to range between $220 million and $260 million for the year.

Approximately $170 million to $210 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and for facility improvements. Approximately $65 million is associated with growth capital spending in both our businesses. We remain on track to generate cash flow from operations of $575 million to $675 million for the year, resulting in expectations for another year of very strong free cash flow generation. As always, we remain committed to a balanced capital allocation approach using free cash flow to return capital to shareholders while pursuing long-term value-creating investment and acquisition opportunities. I will now turn the call back to David to discuss our full 2026 outlook.

Thank you, Raj. We are off to a solid start in 2026. Global macro and geopolitical developments, including the Iran conflict, the Venezuelan oil situation and the broader geopolitical uncertainty continue to create near-term variability. That said, the current conditions are proving somewhat supportive for our operations.

In Inland Marine, we anticipate positive market dynamics driven by limited new barge construction and strong demand from refining and petrochemical customers. Barge utilization is expected to be in the low 90% range as we move through the year. This is supported by strong -- strong refinery utilization and improving chemicals activity. However, we do expect near-term cost headwinds in our inland marine operations during the second quarter due to rising fuel, particularly diesel costs. We currently expect the cost escalators and rate recovery mechanisms in our contracts will lag the near-term fuel cost increases during the second quarter, but will ultimately be realized in the following quarters in the second half. As most of you are aware, there is generally a 30- to 120-day delay or lag before term contracts adjust for fuel.

We anticipate this timing issue could result in approximately $0.05 to $0.10 of earnings per share impact in the second quarter.

Overall, we expect inland revenues to grow in the low to mid-single digits on a year-over-year basis with margins averaging in the high-teens to low 20% range for the full year.

In Coastal Marine, market conditions remain favorable with balanced supply and demand across the fleet. Steady customer demand is expected to continue through the balance of the year with barge utilization in the mid-90% range. While we anticipate elevated shipyard activity in the second quarter, we continue to expect mid-single-digit revenue growth year-over-year and operating margins in the high-teens, driven by gradual pricing improvements as term contracts renew.

In Distribution and Services segment, ongoing demand in power gen and marine repair activity is expected to help offset softness in on-highway service and repair and low levels of Oil and Gas activity with results remaining mixed overall. In Power gen, underlying demand fundamentals remain strong. Results, however, continue to be impacted by engine availability. Delayed OEM engine deliveries continue to contribute to variability. And as a result, we expect approximately $0.10 to $0.15 of earnings per share impact in the second quarter as certain projects shift into the second half of the year due to delayed engine deliveries from OEMs.

As we have discussed in the past, engine availability rather than end market demand continues to be the primary constraint in this business. Within Commercial and Industrial, marine repair demand remains healthy, while on-highway service and repair demand continues to be constrained.

In Oil and Gas, results continue to be pressured by lower overall activity as the shift away from conventional frac continues and customers maintain a disciplined approach to capital spend. However, the current Oil and Gas ecosystem may become a potential upside if it persists much longer. Overall, the Distribution and Services segment continues to benefit from its diversified end market exposure and in particular, the power gen ecosystem. Overall, the company expects segment revenues to be flat to slightly up for the full year with operating margins in the mid-to-high single digits.

To conclude, we're off to a solid start in 2026 and have a favorable outlook for the remainder of the year. With a strong balance sheet and solid free cash flow, we continue to allocate capital in a disciplined manner, balancing share repurchases with opportunistic investments and acquisitions. Overall, we expect solid financial performance this year as is reflected in our decision to increase full year EPS guidance, and we see supportive fundamentals driving continued earnings growth beyond 2026 and well into '27 and '28. Operator, this concludes our prepared remarks. Christian, Raj and I are now prepared to take questions.

[Operator Instructions]

Our first question comes from the line of Greg Lewis from BTIG.

Congrats on a good quarter. Question around the inland barge business. Clearly, it seems like things are strengthening. Like I guess what I'm kind of curious about is what is kind of driving that incremental tightness? Is it those -- it looks like Venezuelan barrels are up over the last couple of months. Crack spreads are obviously higher, so refiners are making more money. Is it -- are we seeing actual incremental volumes? Or is it just everybody else is making more money?

Yes. Greg, thanks for the question. Yes. No, throughout the quarter, we started January kind of a continuation of what we were seeing in the fourth quarter. the Venezuelan crude was starting to come in. We started to see that as a positive impact. So we started in January pretty strong. And then crack spreads started to gap out and refinery volumes just got really tight. So it built throughout the quarter. And so it's actually more volumes moving. Also, we're very pleased to see some more chemical activity. Some of the chemical companies' supply chains were disrupted in the Middle East, and there's more volumes moving here in the U.S. because of that. It's been very constructive. We were happy to see it. And the good news is it's continued. We're seeing momentum actually build a little bit right now.

Okay. Great. And then I did have a question, and you kind of called it out about engine availability to kind of keep driving the power gen market higher. Is there any kind of way to think about like Kirby's or KDS' visibility around, like what kind of lead times do you get from the OEMs about engine availability? Is it yes, I'm just trying to understand like clearly, we've raised guidance. We're confident we're going to be getting them. But I'm just kind of curious about that visibility around being able to get engines and turn around and put them in customer hands.

Yes. We have good visibility through '27. And I would tell you, in certain OEMs we're sold out through '27. So we have a good idea. A lot of it's in the backlog. Some of it we know we've got sales for. The good news here is the engine OEMs are flat out. They're running hard. They're all trying to increase capacity. They're sold out to '29, most of them. So we feel really good about our allocation. We're considered one of the premier system integrators out there, and we continue to get good allocation. It's just really tight. And that's the good news. They're very tight. Everybody wants the engines.

The fun thing for us is it's not just standby diesel applications anymore. It's behind-the-meter. And we love the behind-the-meter stuff. It's more sophisticated. It's highly engineered. We have a great offering in it. We stemmed. It started really with our e-frac offering, but we have a good set of engineering capabilities in behind-the-meter 24/7 power. And the great thing about that is it's going to run -- the equipment is going to run is going to have a repair and parts replacement cycle that's going to come in the outer years. So it's all about good demand that's shifting engine deliveries, and we see that lasting for quite some time.

These behind-the-meter contracts that some of our customers are having, some of them go for seven to, in one case, we know of a 15-year contract. So the co-locators and hyperscalers are not using behind-the-meter power as bridging anymore. This is becoming prime. So we're pretty excited about the way it looks. And when we look at our backlog, behind-the-meter is now eclipsing just standby diesel generation.

Which means a lot more service.

I was just going to add, Greg, with the behind-the-meter, as we've always talked about it, the margins are better than the backup stuff, right? And David referenced the service revenue, that's going to be even better margins.

And Raj, I mean, not to paint you in a corner, but any kind of sense you can disclose about -- I mean, when we say better, is it single basis points or tens of basis points?

So it's -- this is how I'll describe it. On the behind-the-meter on the prime side, you're probably looking at low double-digit margins. And when I talked about the service revenue, that's -- you're looking at about a couple of years out, that's probably going to be north of that.

Our next question comes from the line of Ben Mohr from Citi.

Congrats on the great results and also the raise. Just wanted to piggyback on Greg's first question there, looking at the drivers from crack spread widening, petchem exports, Venezuela heavy crude imports that you mentioned and possibly the Valero fire, bypass moves. Just wanted to get a sense of those contributors. Can you tell us how is it that you're able to raise your EPS target range but maintain your revenue and margin targets? And maybe talk to some of those contributors on what's driving the guide raise, but maintaining the revenue and margin.

Yes. I mean the revenue and margin -- Ben, thanks for the question. The revenue and margin guidance is a range, and this just moved it up to the higher end of that range, in my opinion. We'll see. The good thing about pricing on the inland side is it does fall through the bottom line. So the margin side is where we'll see it. Anyway, I think the more important thing on the inland is the supply and demand dynamic. I'm going to let Christian give you some color there because that's really what's driving this, the raise and also it portends really well for '27 and '28.

Christian, why don't you give them some color on supply and demand?

Yes, you bet. Thank you, David. Yes, what we see right now is a tremendous amount of momentum that started building in March. We've already referred to the conflict in the Middle East and what that's done to crack spreads and to an awakening in petrochemical margins and activity. Beyond that, the supply side is still in great shape. There were only 66 barges built last year. It's an inexact science. We think maybe 70 on the books for this year. That's replacement capacity. We don't see anybody measurably growing the fleet. And some of that building is for a shipper, their own internal moves, and they're going to retire some older equipment.

So we feel really good about the supply setup. Barges are still very expensive.

It's still $4.5 million to build a typical plain vanilla clean 30,000-barrel tank barge.

We see capital discipline in the market. And so supply is in a great spot. Beyond the petchem momentum and the refining margins, we see some other nuanced things like on the horizon, the Calcasieu lock will shut down daytime hours only in May. And that's going to be another tailwind for us. That will unfortunately cause some congestion on the Intercoastal Canal, but that is the most highest traffic lock in the inland waterway system, and we'll add a day transit either East or West when that goes down. So it's a very constructive setup for inland as well as coastal, and we're feeling really good about the momentum we have right now.

That sounds great. And you mentioned that it portends well for '27, '28. And maybe if I could just ask where could you see your inland and coastal roughly 20% margins and your power gen roughly 5% to 10% margins. Where could they go in a strong market?

Yes. Look, last really up cycle before people started building, we got to, I'd say, 27% margins for a quarter or so. I think it will be slow and steady. We won't pop there next year. It will take a couple of years, but I certainly believe that we'll go above the last cycle peaks margin on the inland side. I think on the coastal side, it probably won't get that high. The cost structure is a little different, but it certainly can move into the mid-20s in terms of margin. As Christian referenced, there's just no building. It doesn't make sense to build right now.

The cost of new barges and the cost of new boats is very expensive. Rates need to be -- if you have good capital discipline, rates need to be a good 40% above where they are right now to justify new builds. So we look at a slow and steady ramp into '27 and '28. It's hard to predict exactly when we'll get to peak margins. I would just add, in the last couple of years, we had a maintenance bubble. These barges have a 5-year maintenance cycle. So starting at the end of '27, the beginning of '28, we're going to have another maintenance cycle. So things could get pretty sporty in '28. We'll see.

On the power gen margins, as Raj talked a little bit about, behind-the-meter power systems have a higher margin than just standby diesel. So I'd like to see our KDS business get to high single digits and ultimately into the low double digits. But that's going to take some time. It is very mix sensitive. As you've seen, our margins were down a little bit sequentially because of mix. But it should be building. And then when you get to out years, as Raj said, there's the service component that's going to start kicking in. These behind-the-meter running 24/7 engines, they're going to need serious maintenance after about 3, 4 years of running heavy. So that's a long-winded answer, Ben. I hope it gives you some color.

Really appreciate that. Long-winded is always great. Maybe if I can squeeze one last one in. Last quarter, you gave that your power gen backlog grew 30% year-over-year. And then you guided to power gen revenue growing 10% to 20% with the bottleneck coming from the OEMs. Could you give us an update on that? Any changes up or down on both those numbers, the 30% backlog growth and the 10% to 20% revenue guide?

Yes. I think I gave -- I mentioned backlog. We don't want to get into the backlog announcing backlog every quarter, but I gave a range you could drive a truck through, I said $500 million to $1 billion backlog. We may have to update that because we're going to go at the top end of that range, but we're not just ready to do that just yet. But it continues to grow is what I would say. Book-to-bill is well above 1. Things look really positive in the space.

Our next question comes from the line of Ken Hoexter from Bank of America. Adam Roszkowski on for Ken Hoexter.

Adam Roszkowski on for Ken Hoexter.

I guess to start, maybe just remind us what portion of the inland book is going to reprice in 2Q, 3Q, 4Q? And anything that you're seeing on early renewals, so flat to slightly up, trending better? Any thoughts there?

Yes. Sure, Adam. Christian and I'll tag team this a bit. As we've indicated in the past, term renewals are very fourth quarter heavy. About 40% of the term portfolio reprices in the fourth quarter. Just to give you some quick numbers, term contracts are about 65% of our revenue right now with the other spot. Christian, do you want to talk some more about the pricing dynamic and how term and spot roll?

Yes. You asked about what the flow is through Q2 and Q3. Excuse as far as renewals.

Christian got choked up. You choked them up. So sorry, he's got a frog in his throat. Yes, the term contracts, as I said, 40% in the fourth quarter. So the remaining 60% kind of gets spread between the other three quarters. As you would expect, the third quarter is probably heavier than the first and second quarter. In our prepared remarks, we said the term pricing so far was flat to up just slightly. The good news is that spot pricing is a good 10% above term pricing, maybe even more. And that's a healthy market when the spot usually leads term, both on the way up and on the way down. So we're very constructive about how term contracts should renew throughout the remainder of the year. But the fourth quarter is the bigger piece. I think Christian has got his voice back. Anything you want to add?

No, I think you covered it.

Glad to have you back, Christian. Maybe just on the recent strength, you mentioned improved conditions in petrochem markets, stronger refinery utilization. Clearly, you called out a Venezuela kind of incremental impact. It sounds like some Middle Eastern activity or flow-through is favoring this as well. So is there any sense of what is being driven by which or how much is being driven maybe by incremental Venezuela impacts or Middle Eastern activity? Any broad thoughts there?

It's hard to exactly kind of put a number on it. I will say we do see moves that we know of from refineries that are chomping through a lot of Venezuelan crude, creating more intermediates and more heavies. We have seen some refiners term up some equipment that has thermal capability, the ability to move the heavier residual barrel. So we definitely have seen the impact, but it's hard to sort of peg the exact amount of crude oil that's going through -- Venezuelan crude oil that's going through any refinery on any given day. So it's just sort of more of a nuance. We see more volumes. We see more intermediates, we see more heavies.

A couple of other interesting demand anecdotes. With the release of the SPR and the Venezuelan crude coming into the Gulf of Mexico, we have seen the traditional crude pipeline capacity that moves crude around the Gulf of Mexico get sort of overwhelmed. So we have seen incremental crude oil barge movements as a result of the pipeline capacity being oversubscribed at this point. Probably not something that goes on in perpetuity, but just thought I would mention it as an interesting demand driver that's sort of tied to Venezuelan crude in your question.

Yes. I mean shale crude, if you look at WTI, Brent, the spread has opened back up. And generally, when that -- when the spread between WTI and Brent starts to gap out, we start to see some incremental U.S. crude moves. So we watch that. I mean if you're looking for crude moves for us on the inland waterways, just look at that spread and you can pretty much get a feel for where -- what direction it's headed.

That's helpful. And just one last follow-up. Jones Act waiver was recently extended for another 90 days. It seems like this isn't impacting fundamentals in a major way or at all at this time. But just any thoughts on near or medium-term impacts if this is extended further?

Yes. I mean the near-term impacts are almost nonexistent, as you would expect, Adam, on the inland side, there's really no foreign tonnage that can come into the inland waterways. So we feel pretty good about that. And as you know, inland is about 80% of our Marine segment. The blue water side is a little different. MR tankers and foreign tonnage can come in and trade. And we have seen it come in a bit. But as you know, we're booked up. Our fleet is essentially 100% contracted on the blue water side. Those contracts run about a year. If waivers go beyond that, we could start to see some impact. We have seen a number of non-Jones Act moves in the market.

I would characterize -- well, let me back up. We know what the administration is trying to do. They're trying to deal with the war. They're worried about national security and military readiness and getting fuel where it needs to be to support their efforts, and we're all for that. But I would say the blanket waivers that are out there, we'd rather see it be a specific waiver. So we have seen some Jones Act moves that I would call arbitrage related where traders are making some money rather than actually serving military readiness. So we watch it. We're not concerned about it if it's short term, but if it starts to extend past a year, it could have some impact. And I think Christian has some anecdotes about some mariners asking about it. Why don't you hear that?

Yes. No, I think the "elephant in the room", I know I personally have seen no impact on the price of gasoline or I fill up my car as a result of the waiver of the Jones Act. But I have 40 captains in today that I'm going to have lunch with and looking forward to that. I caught up with one this morning, had a cup of coffee. And unintended consequences, I'm sure, is the administration has been a strong advocate for the blue-collar worker, but this captain was worried about the Jones Act Waiver, was worried about his job, was worried about his son that wants to get into the industry. So these type of things can have a chilling effect on the merchant mariner, which is a real strength of this country and a chilling effect on our ability to recruit and retain. So I think the administration has good intentions, but we certainly don't want to do anything to disincentivize our hardworking merchant mariners. And there's units out there on the West Coast and some other places that have lost jobs to foreign flag tonnage. And I don't -- let's get back to targeted waivers, as David mentioned, if anything, rather than this blanket waiver. Sorry, I can get on a soapbox on this topic. I'm going to get off and get back to the call.

Our next question comes from the line of Scott Group from Wolfe Research.

So helpful color on spot. I just have a couple of follow-ups. So where is spot trending on a year-over-year basis? And that 10-point spread of spot over contract, I'm just curious, like where did that trough last -- middle of last year when things were challenging. When -- like when a couple of years ago, when things were really, really good in terms of pricing, where was that spread? I just want to put some context around this sort of double-digit spread.

We'll try and give you some color here. Scott, 10% is a healthy gap above spot. I think when it really gets sporty, it's more like 10% to 15%. Obviously, when it's going down, spots below term. Last year, we -- as you know, we -- third and fourth quarter were a little tighter. And I would say that, that gap was more like 5% to 10%, maybe 7.5% on average, if I had to pick a number. But right now, we're at least 10% and probably growing a bit. And I think Christian can add some more color.

Yes. I think the recent momentum as of March and what we're seeing, the pace at which we're pushing spot rates and achieving that is clipping pretty good, and David pegged it right at 10% and it's probably headed to 15% in the not-too-distant future.

Okay. That's helpful. And then maybe just a little bit of an update on the M&A environment. So we did some tuck-in barge -- acquired some barges. Do you think that's going to continue? Is that more likely than doing something larger? Just any sort of overall thoughts on barge acquisition?

Yes. Well, Scott, as you know, we love acquisitions in our core businesses, particularly in the inland space. Our ability to integrate them is really powerful. I think Christian had this latest little tuck-in integrated within four hours.

That's right.

All the barges were working within four hours of the closing. So we love those inland transactions. We're always looking at them. We still have 25 or so competitors out there. We'd be happy to buy any one of them. But we remain very capital disciplined. And so there's always a bid-offer spread. Predicting a larger one is difficult at best. We certainly have the balance sheet capacity for it. You'll -- you'll see like our debt-to-EBITDA is probably 1.1, 1.2. So we have plenty of balance sheet capacity. Raj upped our revolver from $500 million to $750 million. We'd certainly -- well, we're always looking at acquisitions. We're certainly open-minded to them.

But I would just add on capital deployment, as Raj mentioned in his prepared remarks, we -- as we generate free cash flow, if we can't put it to work in a good acquisition, you'll see us buy back our stock. We like our stock where it's at, and we're happy to deploy our free cash flow back that way. That said, we always do prefer acquisitions, particularly in the inland space, but any of our core businesses, we are always looking. It's just hard to predict though, Scott.

Okay. And then one last thing. I apologize if I missed this during the prepared comments. So I know you said there's going to be some pressure on coastal margins in Q2, but any sort of color around like the magnitude of that or maybe just overall sort of margin expectations for the quarter?

Yes. We just have a -- actually, we got -- our margins in the first quarter were a little better in coastal. One of the big units moved from first quarter into second quarter. And as you know, these big units can run $60,000 a day. So when they're out, they can be impacted. I don't have good guidance for coastal on the margin. I think maybe Raj and Matt can give you some color there.

Yes. I think, Scott, I mean, it depends on the shipyard, right? How long the shipyard is going to last for. And as David mentioned, this could be quite long. What we do well is we try and manage the duration of the shipyard, working very closely with them, and we do a very good job. We had some good progress last year. I think we talked about it the last time where in the Q2, Q3 time frame, we were able to get out of the shipyard quicker than what we expected. We'll see how it goes in Q2, but that's what we're going to do. We control what we can control.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Matt Kerin for closing remarks.

Thank you, James, and everyone on the call for participating in our call today. If you have any additional questions or comments, please feel free to contact me. Thank you, and have a good day.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Kirby Corporation 2025 Fourth Quarter Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Kurt Niemietz, Vice President of Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining the Kirby Corporation 2025 Fourth Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Christian O'Neil, Kirby's President and Chief Operating Officer; and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer.

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.

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.

A list of these factors can be found in Kirby's latest Form 10-K and in other filings made with the SEC from time to time. I will now turn the call over to David.

Thank you, Kurt, and good morning, everyone. 2025 was a record year for Kirby, capped off by a solid final quarter. During the fourth quarter, we navigated typical seasonal weather and year-end softness with exceptional execution by both our Marine Transportation and our Distribution and Services teams. We also continued to return capital to shareholders with over $100 million and share -- $100 million in share repurchases, and we further strengthened our balance sheet by paying down $130 million in debt. 2025's record year of earnings supported another consecutive year of generating more than $400 million in free cash flow. We closed the year with strong operational and financial momentum combined with improving market conditions. And as we look ahead, we expect steady growth and solid performance in 2026.

In inland marine, early quarter market softness from muted demand and high barge availability gave way to improving conditions as the quarter progressed. Barge utilization strengthened during the quarter, averaging in the mid- to high 80% range and overall market activity became increasingly constructive with utilization exiting the year close to 90%. Pricing was mixed with early quarter softness, giving way to firmer prices as utilization improved. Term renewals were down in the low single digits and spot prices declined in the low single digits sequentially. At the end of the quarter and thus far in January, we've seen spot prices rebound in the low to mid-single digits sequentially. With these market conditions, our teams worked hard on controlling costs, operating safely and protecting margins. With this disciplined execution, the inland business delivered solid operating margins in the low 20% range for the quarter. In coastal, Market fundamentals remain solid with our barge utilization levels running in the mid- to high 90% range.

Throughout the quarter, customer demand was stable, supported by limited availability of large capacity vessels. Our teams delivered strong operational execution and maintained a disciplined focus on cost efficiency, and this resulted in an operating margin of approximately 20%.

Turning to Distribution and Services. Overall demand tracked in line with the prior quarter. We continue to see strong activity in power generation, stable marine repair demand, a slowly recovering off-highway market and persistent softness in the conventional frac market. In Power Gen, total revenues grew 10% sequentially and 47% year-over-year, driven by execution on existing backlog, which was further supported by strong order flow and multiple large project wins as customers continue to prioritize reliable power solutions.

In our Commercial and Industrial market, revenues were down sequentially and driven by seasonal slowness in marine activity and ongoing slow recovery in the off-highway market. In oil and gas, revenues continued to be pressured by a very soft conventional oil and gas business, yet we continue to maintain profitability in this part of the segment. In total, we exceeded our expectations in the -- as the segment grew operating income 20% for the full year.

In summary, Kirby closed the fourth quarter and year on solid footing despite the usual seasonal challenges in both segments. So far, in the first quarter, we've seen stable refinery activity, improving inland utilization and spot rates that have early signs of an upward trend. In coastal, market conditions remain stable. Our barge utilization is strong, and pricing continues to move in the right direction. In Distribution and Services, even though demand is expected to remain mixed across our product lines, power generation continues to be a standout performer, helping to offset softness in the other areas. Overall, we expect to deliver steady financial performance in 2026 with earnings projected to strengthen year-over-year. I'll talk more about our outlook later, but first, I'll let Raj discuss the fourth quarter segment results and the balance sheet in more details.

Thank you, David, and good morning, everyone.

In the fourth quarter of 2025, Marine Transportation segment revenues were $482 million and operating income was $100 million with an operating margin in the low 20% range. Compared to the fourth quarter of 2024, total marine revenues inland and coastal together increased $14.9 million or 3%, and operating income increased $14 million or 17%. When compared to the third quarter of 2025, total marine revenues decreased 1%, and operating income increased 13%. As David mentioned, typical seasonal winter weather along the Gulf Coast produced an 82% sequential increase in delay days and negatively impacted operations and efficiency in the fourth quarter.

Looking at the inland business in more detail. The inland business contributed approximately 79% of segment revenue. Average barge utilization was in the mid- to high 80% range for the quarter, which was an improvement over the third quarter of 2025, but down from the fourth quarter of 2024. Long-term inland Marine Transportation contracts or those contracts with a term of 1 year or longer contributed approximately 70% of revenue with 59% from time charters and 41% from contracts of affreightment. Global market conditions contributed to spot market rates that were down in the low single digits sequentially and in the mid-single-digit range year-over-year. Our term contracts that renewed during the fourth quarter were down in the low single-digit range due to the short-term softness in the market.

Compared to the fourth quarter of 2024, inland revenues decreased 1% primarily due to lower utilization. Inland revenues increased 3% compared to the third quarter of 2025 due to higher utilization from improved market conditions. Inland operating margins were in the low 20% range. Margins improved sequentially driven by aggressive cost management, which helped offset softer pricing, lingering inflationary pressures and challenging operating conditions caused mainly by weather delays.

Now moving to the coastal business. Coastal revenues increased 22% year-over-year, driven by steady demand, higher contract prices and limited availability of large capacity equipment. Overall, coastal had an operating margin around 20%, benefiting from higher pricing and effective cost management. We do expect to see some margin headwinds going into the first quarter of 2026, given the higher number of planned shipyards. The coastal business represented 21% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid- to high 90% range, which was in line with both the fourth quarter of 2024 and the third quarter of 2025.

During the quarter, the percentage of coastal revenue from under term contracts was approximately 100%, all of which were time charters. There were no term contracts scheduled for renewal in the fourth quarter.

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 an outlook for the full year 2026. This is included in our earnings call presentation posted on our website. At the end of the fourth quarter, the inland fleet had 1,105 barges, representing 24.5 million barrels of capacity and is expected to be flat in 2026. Coastal Marine is expected to remain unchanged for the year.

Now I'll review the performance of the Distribution and Services segment. Revenues for the fourth quarter of 2025 were $370 million, with operating income of $30 million and an operating margin of 8.1%. Compared to the fourth quarter of 2024, the Distribution and Services segment revenue increased by $35 million or 10%, with operating income increasing by $3 million or 12%. This growth was driven by the power generation business. When compared to the third quarter of 2025, revenues decreased by $16 million or 4% and operating income decreased by $13 million or 30% due to the year-end softness in marine repair and off-highway activity and continued weakness in the conventional frac market.

Moving through the segment in more detail. In power generation, we continue to see significant power generation orders from backup and prime power data centers and other industrial applications, resulting in higher backlog. Overall, total power generation revenues were up 47% year-over-year, with operating margins in the high single digits. Power generation represented 52% of total segment revenues. This is the second quarter in a row that power generation increased its contribution to the overall segment. We anticipate this trend to continue given the strength we are seeing in the data center and backup power markets.

On the Commercial and Industrial side, activity remained steady in marine repair and on-highway. As a result, Commercial and Industrial revenues were almost in line with the prior year. However, revenues were down 11% sequentially due to seasonal softness in marine repair and on-highway activity. Commercial and Industrial made up 40% of segment revenues and had operating margins in the high single digits. In the oil and gas market, we continue to see softness in legacy conventional frac-related equipment as lower rig counts and lower fracking activity tempered demand for new engines, transmission, service and parts throughout the quarter.

Revenues in oil and gas were down 45% year-over-year and 33% sequentially and operating income was down 30% year-over-year and 54% sequentially. Even with the declines in revenue, oil and gas was able to aggressively manage costs and maintain profitability. Oil and gas had operating margins in the high single digits in the fourth quarter and represented 8% of segment revenue.

I would like to take a moment to call out a few other items that have had an impact on the income statement in the quarter. We have seen an increasing trend in our medical costs and expect this to continue in 2026. This impacted fourth quarter operating margins in both of our segments. Conversely, moving down the income statement, our general corporate expenses declined in the quarter as we experienced lower claims losses driven by our strong focus on safety and execution. The medical cost increases were largely offset by the lower claims losses. We will continue our relentless focus on strong safety and operational excellence, but we expect continued higher medical costs going forward and we expect general corporate expenses to normalize in 2026 at a similar level to the first 3 quarters of 2025.

I'll now turn to the balance sheet. As of December 31, 2025, we had $79 million of cash with total debt around $920 million, and our debt-to-cap ratio was 21.4%. During the quarter, we had net cash from operating activities of around $312 million. Fourth quarter cash flow from operations benefited from working capital reduction of approximately $127 million. We used cash flow and cash on hand to fund $47 million of capital expenditures, primarily related to maintenance and [indiscernible] equipment.

Free cash flow generation during the quarter was just over $265 million. We used $102 million to repurchase stock at an average price just under $99 and reduced our debt by around $130 million, further strengthening our balance sheet. As of December 31, we had total available liquidity of approximately $542 million.

For all of 2025, we generated cash flow from operations of $670 million driven by higher revenues and earnings and our continued focus on working capital. Having said that, we still see some supply constraints posing some headwinds to managing working capital in the near term especially to support the growth in the power generation space and expect to build in working capital at least in the first half of 2026.

With respect to CapEx, our total capital spending was $264 million for 2025. Approximately $220 million was associated with marine maintenance capital and improvements to existing in-land and coastal marine equipment and facility improvements. Approximately $45 million was associated with growth capital spending in both of our businesses. For 2026, we expect CapEx to fall into the $220 million to $260 million range.

We generated $406 million of free cash flow in 2025, which exceeded the high end of our guidance, driven in part by a favorable working capital release in the fourth quarter. We expect 2026 to be another good year for free cash flow generation with operating cash flow expected to be ranging from $575 million to $675 million. As always, we are committed to a balanced capital allocation approach and we'll use this cash flow to return capital to shareholders and continue to pursue long-term value-creating investment and acquisition opportunities.

I will now turn the call back to David to discuss our full 2026 outlook.

Thank you, Raj. 2026 is off to a strong start. While macro factors, including Venezuelan oil flows and ongoing tariff developments may create some near-term noise that could also present upside for demand. We exited the year with solid momentum. Refinery activity is steady, inland barge utilization is improving and spot rates are showing early signs of firming. Coastal market conditions remain constructive, with pricing continuing to move in the right direction. In Distribution and Services, even though demand will vary across product lines, our power generation business remains a stand up. Our expanding backlog, continued strength in customer demand and the rising importance of reliable 24/7 power are driving sustained performance in this segment. These tailwinds are helping to balance softness in other parts of the business, but they do position us for continued growth.

Overall, we expect to deliver consistent year-over-year earnings growth in 2026, supported by stable operations, improving market fundamentals and strong execution across the company.

Moving to specific detail on the segments. In inland marine, limited new build activity continues to keep equipment supply and balance and supports constructive market fundamentals. We expect refinery utilization to remain healthy and see early signs of strengthening petrochemical demand, which together should support higher fleet activity. For the full year, we anticipate barge utilization to average in the low 90% range, with pricing improving steadily as demand improves. In addition, 2026 is expected to be a lower maintenance year for the fleet, providing more barges available for service. Overall, inland revenues are expected to increase in the low to mid-single digits year-over-year.

As is typical, seasonal weather -- winter weather as set in, and that will weigh heavily on both revenues and margins in the first quarter. However, as we move through the year, we expect operating performance to strengthen. Margins should gradually improve with better utilization, firmer pricing and lower maintenance, ultimately averaging in the high teens or low 20s for the full year. In coastal, market conditions remain favorable and supply and demand remained balanced across the industry fleet. Steady customer demand is expected to keep our barge utilization in the mid-90% range.

While we expect elevated shipyard activity to persist throughout the year, we still anticipate mid-single-digit revenue growth versus 2025, which has been helped by gradual pricing improvement as new contracts renewed. Coastal operating margins are expected to be in the high teens range on a full year basis with some pressure in the first part of the year due to heavy shipyards. In the Distribution and Services segment, we expect stable growth supported by rising customer demand in several areas, offsetting weakness in others. We anticipate that deliveries will continue to be somewhat uneven due to persistent availability constraints and long OEM lead times, which are affecting the timing of equipment and parts flows, but fundamental demand trends continue to show strength.

Power generation will continue to be a core engine of growth for the segment driven by a robust order pipeline, expanding backlog and rising customer focus on reliable prime power and backup power solutions across industrial and energy applications. In Commercial and Industrial, the outlook remains stable with solid marine repair activity and ongoing improvement in on-highway service and repair activity. In oil and gas, we expect revenues to be down in the double-digit range as demand continues to be soft. But more importantly, we expect to continue to remain profitability in oil and gas driven by strong cost control. Overall, the company expects total segment revenues to be flat to slightly higher year-over-year with strength in power generation helping to offset lower oil and gas activity. Operating margins are projected to be in the mid- to high single-digit range on average for the full year with continued discipline on cost management.

To conclude, overall, 2025 was another record year of earnings, and we remain encouraged as we look to this year and beyond. Despite the softness we saw in the inland market in the second half of limited new build activity in the marine market continues to keep industry supply in check and our customer demand remains solid. The demand for our power generation equipment is strong and growing as we continue to receive new orders and build backlog. Our balance sheet is in excellent condition, and we expect to generate significant free cash flow again in 2026. Overall, we anticipate solid financial performance for this year with solid earnings growth and supportive fundamentals extending into the coming years.

Operator, this concludes our prepared remarks. Christian, Raj and I are ready to take questions.

[Operator Instructions]

And our first question will be coming from Reed Seay of Stephens Inc.

I just had a question on 4Q term contract pricing. It was down slightly, but I would assume that these have some type of forward-looking conversation when you get into the room with these customers. Is this somehow a read into maybe their demand outlook into 2026? Or is this solely a function of near-term pressures and then if you can give any color on how these conversations are going so far in 1Q, as you say, you've seen a bottoming in spot rate, that would be very helpful.

Sure. Yes, thanks for the question. Chris and I will tag team this a bit. Yes, the fourth quarter, we had a pretty weak demand early in fourth quarter. It was carrying over from the third quarter being a little weaker on demand. So we had a little more barge availability than we would have liked that puts some short-term pressure on term pricing. As you heard, it was down low single digits. That's just part of the normal renewal cycle. The good news is that we've already seen spot prices retrace and are probably up more so far in January than they were down in the fourth quarter.

So that bodes well for the renewal cycle going into this year. I think it was -- is really demand softness in the latter half of last year kind of set the tone for the price renewal term renewals. But so far, the tone is much, much improved this year. Part of that is weather, for sure, we're tighter because of weather, but we are seeing more volumes. I don't know, Christian, what was our utility this morning? It was...

We were 94% this morning, so utility is tight.

Anything you want to add on pricing?

Yes. No. Thank you, Reed, for the question. I think your observation that near-term pressure was probably more of what we saw in Q4. I don't think it reflects an outlook of our customers on 2026. We definitely feel some momentum as we enter this year, and we exited last year. We were just in a window there where we were fighting for rate increases, and we ended up kind of slightly below that single digits. In light of where the refining industry was with running the light crude slates, where the chemical markets are with some of the distress and the malaise that you hear about in the headlines.

We feel okay about those Q4 renewals, but we definitely are optimistic that as we enter Q1 pricing stabilized. The team's executed very well. Utilization, as David just said as mentioned, is 94%. So feeling okay as we enter Q1, your question was about Q4, but short answer was about the near-term pressure in the market.

Yes. I would add, Reed, that the refinery complex is doing better. We have seen the lighter crude slate get a little heavier. We remain hopeful on Venezuelan crude, it's still early days to see what impact that has. But I would just add that chemicals have been really tough for the last couple of years, almost the last several years. Boy, if we got a little upturn in chemicals, we could be extremely tight very quickly. So we're feeling that tightness, and I think our customers are starting to feel the tightness.

So we're very constructive about how this year looks. And the good news is nobody is building equipment as well. So that's -- it's a really constructive market as we head into full year '26.

Got it. That's helpful. And then on the coastal side, revenue is expected to be up in the mid-single-digit range. You don't have a lot more room on your ships to increase volumes. It seems like it could be almost a proxy for price increases in 2026, but is there some impact in there from maybe your increased shipyard that you talked about? And then, I guess, what cost impact should we expect from increased shipyards in the first part of this year?

Yes. No, this will be a heavier shipyard year for sure. The number of shipyard days are up at least 10% plus. So as you know, with shipyards, we don't get the revenue, but we still have the cost so that there is a margin impact which you have. So when you hear we're up in terms of revenue, that's all price, it's all price. And because obviously, when you're in the shipyard, you're not moving the volume. So we -- it's a very constructive market in the coastal business. Nobody is building any new capacity, pricing to justify new builds is still 40% plus away. So nobody is thinking about building. Even if they were to build, it would take 3 years from kind of deciding to build. So we're very constructive on the coastwise business. I will say that we've had several years now of double-digit price increases. So the law of large numbers is coming into play.

So seeing double-digit 20% type price increases, probably won't see those going forward. But we are still getting price increases. The market is really tight and the high -- in the large capacity vessels. So we're very optimistic about coastal.

Our next question will be coming from Ken Hoexter of Bank of America.

So you guys had a pretty big range for EPS, right, 0 to 12, maybe drive a barge through there. So maybe you could talk a little bit about the bottom expectations or thoughts in, I don't know, is that more on the deliveries for power gen and the timing of that? Is it unknown about the -- I mean, I guess, most of your contracts, I thought were done in the fourth quarter for inland. Is there still a lot of debate given the flux of what's going on with rates. So maybe just walk through your thoughts on the range, why so large and then where the opportunities lie.

Yes. No, I think you hit the key reason. There's a couple of reasons for the breadth of the range. And power gen deliveries are a big part of it. As you know, the OEMs still are supply chain constrained. We get lumpy deliveries from them, and then we've got to process them through our manufacturing facility. So the cadence of power gen deliveries is a big part of it. And then to a lesser extent, is the inland market and how much pricing improves throughout the year.

We're very optimistic, but we don't want to be too optimistic given we saw a little demand pull back last year when the crude slate went a little lighter. So far, we're seeing a heavier feedstock slate come in, and that's certainly helping. Our refining customers are having really good years in -- I think they like tracking the heavier crude. And this Venezuelan is just part of it. But given Venezuelan coming back in is also making mine and Mexican crude slates a little cheaper, so there's some good dynamics coming, but we're a little cautious given what we saw in the third quarter in terms of demand. So that's part of our guidance range, Ken.

Yes. So maybe clarify just the inland part of that, right, because that caution, right? So your inland turned the corner and seems to be accelerating into the start of the year [ with ] the high teens to low 20s maybe a little bit lighter than, I don't know, are you thinking some capacity coming back just given the lack of yard work? Or is it slower start to rates. I'm just wondering why because you seem so bullish on getting at least that 20s level before.

Yes. Let me take a shot at that, Ken. So on the inland side, I think supply and demand remain in excellent condition. I want to just tighten up one thing that you mentioned, the percentage of contracts that were used in Q4 was probably 30%-ish of the portfolio that just repriced that single digits down. So that takes through the forecast. But I think we're feeling pretty good today about where spot markets can go, what we'll see and maybe that puts you at the higher end of that range. All that continues. As David referenced the Venezuelan crude dynamic, that could be significant. Not sure how much of that is really priced into the forecast. It's hard to do that. I was joking with David and Raj. I wish we would have gone a day or 2 after all these big refiners calls today, we would sound a lot wiser about all that. But I don't know if that answers your question, but inland has got some positive optionality upside with spot rates as we go through the [ year ].

Yes. I guess a caution on the margin. We fully would expect to be in that 20% range. But we are seeing some inflation. One of the things that's actually helping the marine dynamic market here is mariners are still very tight. And so we are seeing wage pressure, and there's still some inflation that's impacting. So yes. Maybe we're being a little conservative, but we thought it better to be prudent given the inflationary environment in knowing that it's going to take a little more spot market improvement.

David, we saw the medical costs this quarter inching up. They're trending higher. So inflation is real there, Ken.

Yes. Last one, if I can just sneak one more in. Your capital allocation, right, Dave, you mentioned all the time like when you never want to sell at the bottom. Now that D&S or at least the power gen market is really taking off and establishing itself, is that now part of core? Do you view it this quarter? Is that something you still look at opportunities? Maybe just your big picture thoughts on the business?

Yes. Well, we're really excited about power gen. It's been a lot of fun. With that said, we're always looking for ways to enhance shareholder value. And if there's a transaction that that really adds to shareholder value we would go after. That said, we're very excited about power gen. We're starting to get into higher power nodes. The percentage of behind the meter equipment that we're providing is going up. Just standby backup power has got a little lower margin. But when you get behind the meter, it's natural gas-driven, lot more engineering involved. And so we're excited about that. And then as you look out, all this equipment that's going in is going to provide some service annuities for us. So we're pretty excited about where power gen is going. So it's hard to say, but we've always been focused on how can we maximize shareholder value.

Appreciate the time and thoughts. Good luck in '26.

And our next question will be coming from Jon Chappell of Evercore ISI.

David, when we hear you talk about all 3 core businesses kind of getting to that guidance range seems ultra conservative. I mean you spoke to being conservative on inland margin and I think that makes sense with the inflation in the medical side. Venezuela, you noted as being a big air pocket driver back in June, July, August, maybe. Now you mentioned the potential for that to be upside. Power Gen is obviously driving the bus on D&S, that was a high single-digit margin business in 4Q and D&S overall margin guide mid- to high single digits, and you bought back $100 million stock in '25. So just trying to flush out in this flat to 12% guide, is there any buyback? Is there any Venezuela upside why wouldn't D&S be better than mid-single-digit margins if power gen, which is a high single margin -- high single-digit margin business is doing so much better than oil and gas and C&I. If you can just help out with that?

Yes. Yes. Let -- we'll tag team that a little bit. Let me break that down in a couple of things. On the D&S margin, let me break that down a little bit. I alluded to it a little bit here with behind the meter versus just back up. One of the things with power gen, if it's just a backup engine. Now there's some backup diesel engine for a data center, for example, there is some engineering component tree there, but our input there. But it's a pretty basic piece of equipment. We add bells and whistles to it, cooling and fuel tanks and software to control it and stuff like that. But the big piece of that is the engine, and unfortunately, the whole market knows what every engine costs.

So our ability to mark up the price on engines is constrained. So when we're shipping a lot of data center backup power, it's going to be lower margin. Conversely, when we start shipping behind-the-meter type stuff. That's all natural gas recip engines, very highly engineered, a lot more sophisticated, higher margins. So part of our margin progression for '26 is lower margins in the first half when we're shipping a lot of kind of backup power and then the second half is when some of our behind-the-meter backlog will start to ship. So we're melding that together and giving you our best thought on margins.

The good news is revenue is growing, yes, the margins are a little lower, but this is still a really good growth market. And then when you look out '27-'28, as service and parts start to grow, I mean there's a lot of equipment going out there right now. We'll see margins improve in the outer years. We provide service and parts to not just the equipment we've deployed, but the equipment that some of our competitors have deployed.

We've got a very large technician base. And frankly, we'll continue to grow our service capabilities. And that gets to kind of the acquisition and the capital allocation, if you will. And I do know Christian is going to add some more color here in a minute on power gen. But on capital allocation and share repurchases. The conversations we're having in M&A are more frequent as we look at our free cash flow, it will be like it was in '25. I think we did over $400 million in free cash flow. And then '25, we put $360 million of that free cash flow to share repurchases. So we definitely like buying back our stock. So absent some acquisitions you should see us deploy free cash flow. So we've got a little bit of share buyback in that guidance, not a lot because we're constructive on where we think M&A might go. But as you know, and you've seen Jon over the years, it's really hard to predict that M&A. We remain very disciplined on our capital returns. And so that bid offer spread is what comes into play. But I think, Chris, do you want to add a few more thoughts on power gen.

No, I appreciate the question, Jon. And thank you, David. Just a little more information on the behind-the-meter power system in the D&S profitability, it's obviously a mix piece, as David referenced, between the standard backup diesel power generation for a data center in our behind-the-meter power system. And the key there is that it's an entire system. It's got more value integrated power. It's not just a generator.

Several -- I mean, it's a highly engineered product. We include our own advanced power distribution units that go with the system, our power management and control systems add value. It requires a lot more extensive balance of plant. And as David referenced, the service opportunity on behind the meter power where the gens are running 24/7 and not just firing up on a standby basis, represents a significant long-term service opportunity.

And so I think David touched on all this, but I just wanted to give a little more color on that behind-the-meter power system. And then I think you asked about Venezuela and [ current impacts ], I'll touch on that, David. So Venezuela crude in large volumes in the Gulf of Mexico has historically been a really good story for us barge guys. Heavy crude in general for PADD III creates bottom of the barrel residuals that have to move by barge, produces intermediates and mediums that are better moved by barge and move between refineries to balance them.

Also, you're starting to see the evidence that this Venezuelan crude is going to be discounted other crude. So the price is cheaper. If our refiners are happy and crack spreads are better and they're more profitable as they go, we go. And we have seen a small sample set already of some refiners taking positions on equipment, particularly our thermal fluid hot oil pieces of equipment we own and operate the largest black oil heater fleet in the industry. And we've seen some small -- just a small sample set today of people taking positions in advance of Venezuelan crude. So again, I'm not sure we're really...

Part of the problem, Jon, is we haven't seen the volumes yet. I mean there's a lot of talk of the Venezuela [ law ], volumes coming. The refinery complex is pretty big and they process a lot of crude. And so far, it's just been a drop in the bucket. But there's a lot of good discussion out there, but we haven't really seen the barrels come in yet.

I imagine we'll all be a little wiser after the refiners do their calls today.

Yes. That all makes sense. That's super helpful context. And just a 2-part follow-up, too -- my apologies, so many questions. One, you talked about a potential kind of price holiday, so to speak, for some of your biggest customers as they struggled a little bit in mid-'25, that I think you were supposed to get back in '26. So I just want to see if that's going to shake out as you had expected and baked into the guide. And then two, seems like there's a lot of surging demand in gas turbine production, and some of maybe your biggest customers in the U.S. So I don't know if that's a '26 event or a '27 or beyond event. But any way you can kind of talk to that potential as well.

Let me touch on the rates on what we had. There were some opportunities for us to help some very large long-term customers who were going through austerity measures, and we did the right thing and took a haircut on some rates in '25. Those rates will come back in '26. And we continue to just be good partners where we can. We're in it for the long run. So I guess the rate holiday, as you refer to it, I don't see any of that today that we need to talk about.

Yes. On the larger power nodes you heard us talk about it. Part of that is larger recips coming from the OEMs, but there is a portion of gas turbines. We are working actively right now packaging some larger gas turbines, but that's -- those are revenue in '27. And then assuming that goes well, it could become very meaningful in '28 and '29.

Our next question will be coming from Sherif Elmaghrabi of BTIG.

Just one for me. Spending some time on the CapEx guidance, $65 million is earmarked for growth, but we're not baking any acquisitions into our estimates for the size of the inland fleet -- on the inland side. So I'm wondering if you have any line of sight on opportunities in inland? And if you could please give us an update on how new build pricing is trending this year versus a year ago?

Yes, we'll jump into that. Yes, Raj outlined the CapEx. But we don't bake in into our CapEx guidance any acquisitions. The acquisition pipeline is probably more bolt-on than transformative in what we're looking at. On the inland side, they could be in the order of $100 million type deals, but probably not $1 billion deals this year. We always remain hopeful, but we're being a little more pragmatic there about what the bid offer spread could narrow to and what opportunities that gives us. On the D&S side, those would be very small bite-size kind of under $50 million type deals that get us more service capabilities more longevity in terms of recurring revenues in D&S. But to your direct CapEx, that growth CapEx is really just helping us expand some internal capabilities. For example, in our power gen, we're building a new building that handles these higher power nodes. It's not a big CapEx. It's under $20 million kind of expenditure. But it's a bigger taller building with bigger cranes that can handle some of these bigger equipment. Those are the kind of growth CapEx that we're talking about.

And I can talk about newbuild price. Sherif, newbuild pricing is consistent with where it's been in prior quarters. Still really hasn't moved much in the cost input for labor at the shipyards. I continue to hear from our good friends that operate the major shipyards, they still have some challenges around labor and labor costs are still running pretty hot. You're looking at about $4.5 million to build a 30,000 barrel to cut a clean barge, and that's consistent with where it's been. So -- and on the new construction windshield and looking in arrears, we saw about, we think 50 to 60 barges get built last year probably somewhere in that same realm 50 to 60 barges to 2026. And we do follow retirements as closely as we can. It's not an exact science, but we do think retirements did outpace new construction in 2025.

And so I think the shipyard dynamic pricing supply, the ability of shipyards to supply a larger volume of barges is still constrained. And so I think the -- all that's pretty consistent with what we've said in prior quarters.

Our next question will be coming from Benjamin Mohr of Citi.

Great. Thanks all for your great insights. Maybe just on the storm impact in 1Q, could you share your views on that on your inland and coastal volumes and pricing. And you mentioned utilization at 94%. Can you kind of parse out how things are looking so far into the quarter and how that might progress the rest of the quarter stepping up.

Yes, thanks for the question. I'll let Christian answer that on the weather impacts of the Marine. But just anecdotally, the winter storm here helps our power gen business, believe it or not, we rent large trailers that have, say, 1 megawatt's worth of power and they go out to customers like Walmart, Target, Costco. So that's a little hedge against some of the negativity that comes with the a winter storm, but I just want to add that little bit before Christian talks about how it impacts the Marine business.

Yes. Thank you, David. So Ben, starting north to south, you're seeing ice build on the Illinois River which does affect navigation, slows down navigation. We do have contractual protection against risks like that, ice class and whatnot. So it shouldn't be a real factor other than that it might chew up some more barge days and maybe some trips get a little less efficient. In the Gulf of Mexico, I was pleasantly -- I was pleased to see the refiners and the chemical plants that have had some real issues in freezing weather and ice storms below in their continuity. I don't think we saw any really major interruptions to production of chemicals, refineries that we're -- can be attributed to the cold weather. There was 1 unit sea drift that I know shut down. But beyond that, we didn't see a sort of anomalistic industry demand effect from the cold weather. If anything, you could argue it might be a net positive as really, there wasn't much traffic moving for a couple of days, which really tightens up the market from a utility perspective. So not a nonevent, but nothing that would significantly move the needle in Q1 as I sit here today.

Great. Really appreciate that. And maybe going back to you shared some great insights on the overall Venezuelan oil complex. Can you share, you've got possible crude inbound northbound into the U.S. that you could be a part of. And then the refined product from that, that you can be a part of. Can you also discuss going outbound down south being part of the supply chain of dilutants like C5 and naphtha into Venezuela to lower their viscosity coming out of the store.

Maybe discuss each of these sort of up down and all-around type movements that could drive potentially kind of offsetting the [indiscernible] recession and drive growth in Marine over the next couple of years?

No, that's a great question. The international pieces of what you described, the diluent going down to Venezuela and the heavies coming up, probably we'll leave that to some of the larger ships that are kind of -- that their business is moving crude internationally. We will, I think, for benefit from the refining portion of -- if you put 1 barrel of Venezuelan crude versus 1 barrel of light sweet, what does that mean to a barge line? It means there's going to be more opportunities for us to move the heavies and intermediates just history just proves that out. And I do think the constructive pricing discounts for the major refiners and other refiners, they'll take advantage of that. And that means they'll heavy up even more. There's maybe some knock-on effects that are -- we'll have to watch a while to understand. But as Canadian crude gets backed out of PADD III, if Venezuela starts coming in significant volumes then maybe you'll see some Canadian move into PADD I and some other places and maybe produce some similar opportunities in those refining complexes where they're running heavy enough their slate a little more. So it's definitely going to have some kind of ripple effect. It's very early innings, very hard to tell. But short answer, yes, we like the prospects of what happens in the Gulf. We probably won't be participating in the international moves.

Great. Appreciate that. And maybe just 1 last 1 for me. Sorry for the 3 questions. Back to Ken's question on the step-up in power gen growth in 4Q. Can you maybe as best as you can kind of parse out what portion of that is just lumpiness? And what portion is sustained acceleration and growth? And would you adjust your previous outlook of up 10% to 20% year-over-year in power gen revenue higher?

Yes. Let me try couple of things to answer that. Part of our constraint is the OEM supply. I'd love to adjust up our revenue growth the problem is just getting the engines. But the growth is there for the longer term into '27 and '28. And particularly if we add some service components and perhaps some higher power nodes should add revenue as well because they do just more expensive pieces of equipment. And certainly, with the gas turbine side, and we're already doing some service on gas turbines. So that growth should happen over time, but to accelerate it, it would take bigger supply chain. Now that said, some of our OEMs have announced capacity expansions, but those capacity expansions are going to take a couple of years to come to the front come forward. And the second part of your question was?

Yes, the 4Q strength maybe parsing out what you think is lumpiness versus sort of sustained acceleration?

Yes. We did have some -- we're going to have lumpiness throughout the year. And we'll -- it will depend whether shipping backup power or behind the meter power. I would focus on just kind of the full year and not worry about the quarter-to-quarter lumpiness. I know that's not a very satisfying answer, but that's the way we look at it. We're expecting that 10% to 20% kind of growth in power gen, when we look at our backlog, we haven't given backlog, but sequentially, backlog was up 11%. And then year-over-year, our backlog was up about 30%. So that's the way we look at it. The market continues to grow. We continue to participate in it. It will be lumpy just because of the way the supply chain works. We get a batch of engines and then we've got to build out our kit on them and then get the shipments out. And it's just going to be lumpy quarter-to-quarter.

Great. So 10% to 20% for next 1, 2 years until the OEMs add capacity and then that could step up from there.

Yes. I believe that's true. Everybody does wonder about is this an AI bubble, but I would say this power need is real. All these AI and data center guys are actually generating real cash flow. It's a lot different than the dotcom era when they weren't -- they didn't have cash flow. These guys have real cash flow and what we're hearing is our customers are talking about their customers and saying it's real demand. So our customers' customers are really talking about real demand. So we're -- yes, we're very constructive on this.

From what we're seeing, it does look like it's still very nascent, very early innings.

Our next question will be coming from Greg Wasikowski of Webber Research and Advisory LLC.

I just wanted to keep going off that last question. You just talked about the OEM capacities. But can you give us an idea of your capacity just there and power generation as a whole. If we look ahead to [ '26, '27 and '28 ] we model in x megawatts to growth or x percentage of growth. Is there a natural ceiling there for you guys that you're able to physically handle? Or is there been a call for reinvestment on your end in order to grow the segment's capacity?

No, great question, really. We have 2 major manufacturing facilities. We do a lot of -- our branches do a lot of support work and service work, but we have 2 major manufacturing facilities, 1 in Oklahoma, 1 in Houston. We're not running 24/7, so we do have a lot of capacity left. That said, they're very busy. And that's good. Our constraint really is adding service techs. We just continue to need to add service techs. Electric equipment has got a little more sophistication and a little more need for specialized technicians. And so that's what we're working on growing. I did mention earlier in the call that part of Raj's description of growth CapEx included expanding a larger building to handle this bigger equipment. We're doing that in the Houston plant. That's -- it's not large CapEx. Like I said, it's less than $20 million, but we need to do it not because we couldn't get more throughput through the existing facility, but because we needed to hire crane heights to handle the bigger power node pieces of equipment.

We've got the capability to go 24/7 at shifts. Sometimes we run evening chips, but we're not running a nice shift now. We do occasionally work. A lot of times we work out through the weekend. So we're not 24/7, so we do have more capacity as a short answer.

And also, the bigger the installed base gets the bigger our parts and service opportunities.

Yes. Makes sense. Okay. One more follow-up on inland. David, you mentioned chemicals being a little bit of a weaker spot. It's something that we tend to hear every quarter as well. I'm just curious to hear your thoughts on why it's been a little softer and then what you're looking at for it to potentially turn around either this year or just eventually in the future?

Yes. I think the chemical customers are global customers, and they've got plants all over the world. And if you -- I don't want to specifically name some customers, but multiple numbers of customers have been shutting down European chemical facilities. They're just feedstock disadvantaged and over the years, they keep those plants open because it's so expensive because of labor situations to shut those plants down, they would cut back a little bit in the U.S. and just so they could keep their European plants running. And now that they're shutting those down, we get more constructive. That said, we haven't seen a big pop or anything yet.

I do believe they're taking the right moves. We've heard some Asian plants getting shut down as well. So we're optimistic. But you're right, we do talk almost every quarter about how tough it is in the chemical space, they've really had a tough several years. Now part of that is, as you know, in the U.S. is new home construction and auto construction is a big part of their intermediates. That's picking up a little bit. So yes, a lot of good things are happening, right? We're seeing more homebuilding in the U.S. and auto production is still kind of flat, but that may be coming back. They're shutting down their European and cost disadvantaged plants around the world. the U.S. chemical plants are the most efficient ones. And they're most efficient because they're newer and then also because the feedstock situation is so good in the United States.

So we're pretty optimistic that they're closer to a bottom than anything else. They're not -- it doesn't feel like there's much more downside in terms of chemicals.

And our next question will be coming from Scott Group of Wolfe Research.

I know we're past the hour. So I'll just ask one just quick one. Can you just share with us where are we now both for inland and coastal on just spot price for contract price? Like what's the spread? What's normal? Where do we want the spread to be? Where are we?

Yes. No, we're in a constructive area. Let me there's not much spot and we're essentially termed up in coastal. So there's no spot work that we're doing there. On the inland side, spot prices are good 10% above term, which is a very healthy market. We're happy there. The bigger picture is we need 40% higher pricing to justify new builds. So there's still some room here and nobody is really building new equipment. So the construct as both Chris and I have talked about is pretty positive for 2026.

So I guess, ultimately, do you think that Q4 renewal is an anomaly? Or is that a new trend?

No. I think the Q4 renewals -- I mean, this is a big basket of 30% of our portfolio. Some of it was up. Some of it was down. The net of it is just we bake it all together and we're down low single digits. I think that was a reflection of the the market at the time, the snapshot in time that we were negotiating those deals. It was coming out of the backside of when the crude lightened up, and there were barges excess in the market. And just unluckily, it happened to be the time we were negotiating those contracts. That said, Q1 renewals looking favorable, spot market looking favorable, but I wouldn't read too much into low single-digit renewals at the end of Q4, honestly as far as trying to use that as a proxy for where we're headed. I don't think that reflects where the market is headed right now. I like the optimism and I like the momentum we have going into Q1 here.

And I would now like to hand the conference back to Kurt for closing remarks.

Thank you, operator, and thank you, everyone, for joining us. As always, feel free to reach out to me throughout the day and next week for any questions.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Kirby Corporation 2025 Third Quarter Earnings Conference Call. [Operator Instructions].

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Kurt Niemietz, Vice President of Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining the Kirby Corporation 2025 Third Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer; and Christian O'Neil, Kirby's President and Chief Operating 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. During this 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.

They're 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. A list of these risk factors can be found in Kirby's latest Form 10-K and in our other filings made with the SEC from time to time.

I will now turn the call over to David.

Thank you, Kurt, and good morning, everyone. Earlier today, we announced third quarter earnings per share of $1.65, a 6% increase year-over-year. In the third quarter, we delivered steady results in total, driven by robust customer demand and power generation and disciplined operational execution across all our businesses. .

With near-term headwinds in the inland market and softness in some parts of distribution and services, our teams demonstrated adaptability ensuring sick continuity and performance. These efforts underscore our ability to navigate challenging conditions while maintaining momentum. Overall, our combined businesses achieved another solid quarter, reinforcing the strength of our core businesses and positioning us well for sustained growth as the market conditions improve and normalize.

In our inland marine transportation business, market conditions experienced near-term softness during the third quarter, primarily due to favorable seasonal weather, improved navigational conditions a lighter feedstock mix for our refinery and chemical customers and fewer barges ongoing maintenance across the industry.

At the same time, petrochemical customer activity remained muted. These factors contributed to our barge utilization averaging in the mid-80% range. On the pricing front, we observed temporary weakness in the spot market. Spot market rates declined in the low to mid-single digits, both sequentially and year-over-year due to previously mentioned headwinds. Term contract renewals were flat when compared to the prior year.

The combination of pricing softness in lower demand conditions led to operating margins in the high teens. In the fourth quarter, we are already seeing market conditions improve and expect this trend to continue. We also continue to see constraints in long-term barge construction, keeping new supply in check. Coastal Marine transportation fundamentals remained strong throughout the third quarter, with barge utilization consistently in the mid- to high 90% range, which is supported by steady customer demand and a limited supply of large capacity vessels. This favorable supply/demand dynamic continued to drive meaningful pricing gains with term contract renewals increasing in the mid-teens year-over-year underscoring both market strength and our leadership position.

Our operations team executed exceptionally well, ensuring high service reliability. The combination of strong pricing, high utilization and operational excellence was reflected in the financial performance with operating margins for Coastal around 20%. Turning to distribution and services. Our teams delivered another outstanding quarter, achieving solid year-over-year growth in both revenue and operating income with strong contributions across nearly all end markets.

In power generation, revenues were up 56% year-over-year, driven by robust demand for data centers and prime power customers. Inbound order momentum continued further expanding our backlog and positioning us well for continued growth into 2026. We project wins for backup and behind-the-meter power applications, reinforcing our leadership in this space. Power generation has emerged as the leading contributor to growth in both revenue and operating income within the Distribution and Services segment.

In our commercial and industrial market, revenues increased 4% year-over-year, reflecting steady marine repair activity and an ongoing recovery in on-highway service. This performance highlights both the durability of our customer relationships and the effectiveness of our service platform. In oil and gas, operating income grew 5% year-over-year despite revenue declines driven by continued softness in conventional activity. This performance reflects strong execution, disciplined cost management and sustained execution in e-frac equipment, which remains the bright spot in an otherwise challenging oil and gas market. Overall, the segment continued to perform well, showcasing strength in power generation and our agility in responding to changing demand patterns with total segment operating income advancing 40% year-over-year.

In addition, we remain focused on cost management, thereby enhancing operating margins, which reached 11% and for the quarter. In summary, our third quarter results reflected fair performance for inland and continued strength in coastal and power generation. In inland marine, we encountered some near-term headwinds due to demand and supply chains, while long-term supply remains constrained.

In coastal, market conditions remain favorable, enabling us to maintain strong utilization levels and secure significant rate improvements on term contract renewals. In distribution and services, robust demand for power generation, particularly from data centers and industrial customers allowed the segment to deliver solid financial performance. We expect positive trends to continue into the fourth quarter, partially offsetting the normal seasonal slowdown.

I'll talk more about our outlook later, but now I'll turn the call over to Raj to discuss the third quarter segment results and the balance sheet in more detail.

Thank you, David, and good morning, everyone. In the third quarter of 2025, Marine Transportation segment revenues were $485 million and operating income was $89 million with an operating margin of 18.3%. .

Total marine revenues, inland and coastal together decreased $1.2 million compared to the third quarter of 2024, and operating income decreased $11 million or 11%. Sequentially, compared to the second quarter of 2025, total marine revenues decreased 1.5% and operating income decreased $0.11. As David mentioned, high feedstocks good weather, fewer lock delays and less barge maintenance in the industry, exerted some downward pressure on utilization and spot market pricing.

These effects were partially mitigated by strong execution and continued effective cost management. Looking at the inland business in more detail. The inland business contributed approximately 80% of segment revenue average barge utilization was in the mid-80% range for the quarter, which was down from the utilization seen in the second quarter of 2025.

Long-term inland marine transportation contracts or those contracts with a term of 1 year or longer contributed approximately 70% of revenue with 57% from time charters and 43% from contracts of freight. Spot market rates experienced sequential and year-over-year declines in the low to mid-single-digit range, reflecting the impact of market conditions. Term contracts renewed in the quarter at rates consistent with prior year levels. Inland revenues declined 3% compared to the third quarter of 2024, primarily reflecting lower utilization and a moderating spot pricing, which offset the benefits of improved weather conditions. Sequentially, revenues decreased 4% versus the second quarter of 2025.

Now moving to the coastal business. Total revenues increased 13% year-over-year and increased 11% sequentially due to the combined impact of pricing and fewer planned shipyards in the quarter. Overall, Coastal had an operating margin around 20% due to improved pricing and continuing efforts to leverage costs. The coastal business represented approximately 20% of revenues for the Marine Transportation segment. Average coastal dark utilization was in the mid- to high 90% range, which is in line with the third quarter of 2024.

During the quarter, the percentage of coastal revenue under term contracts was approximately 100% of which approximately 100% were time charters. Renewals of term contracts on average higher year-over-year in the mid-teens range. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes in the third quarter as well as projections for 2025. This is included in our earnings call presentation posted on our website. At the end of the third quarter, the inland fleet had 1,105 barges, representing 24.5 million barrels of capacity. We expect to close 2 with a similar fleet size and capacity at 105 inland barges, representing 24.5 million barrels of capacity. Coastal Marine is expected to remain unchanged for the year.

Now I'll review the performance of the Distribution & Services segment. Revenues for the third quarter of 2025 were $386 million with operating income of $43 million and an operating margin of 11%. Compared to the third quarter of 2024, the Distribution & Services segment revenue increased by $41 million or 12% with operating income increasing by $12 million or 4%. When compared to the second quarter of 2025, revenues increased by $23 million or 6% and operating income increased by $7 million or 21%.

In power generation, revenues increased 56% year-over-year, while operating income increased 96% year-over-year driven by demand for backup and prime power as well as behind-the-meter power applications. Our orders from data centers and other industrial customers for power generation and backup power installation continues to show strong growth. This has contributed to a very healthy backlog of power generation projects.

Compared to the second quarter of 2025, power generation revenues increased by 24%, and operating income increased by 87%. Operating margins for power generation were in the low double digits. Power generation represented 45% of total segment revenues. On the commercial and industrial side, Activity levels in marine repair remained consistent while we saw a modest recovery in our on-highway business. As a result, commercial and industrial revenues were up 4% year-over-year and operating income increased 12% year-over-year, driven by favorable product mix and ongoing cost savings initiatives.

Commercial and industrial made up 44% of segment revenues, with operating margins in the high single-digit range. Compared to the second quarter of 2025, commercial and industrial revenues decreased by 3%, with steady activity in marine repair and some improvement in our on-highway business. Operating income was down 13% over the same period, driven by unfavorable product mix.

In the oil and gas market, we continue to experience softness in conventional frac-related equipment as lower rig counts, temper demand for new engine transmissions and parts throughout the quarter. This decline in conventional activity was partially offset by revenue from e-frac equipment, which remains a bright spot in the segment. As a result of this mixed demand environment, revenues declined declined 38% year-over-year and were down 9% sequentially. I Importantly, despite the revenue decline, we achieved strong profitability gains with operating income increasing 5% year-over-year and flat sequentially.

These results were driven by revenue in our e-frac business and the benefits of disciplined cost management initiatives. During the quarter, oil and gas represented 11% of total segment revenue, and the business delivered operating margins in the low double digits. Now I'll turn to the balance sheet. As of September 30, 2025, we had $47 million of cash with total debt of around $1.05 billion our debt-to-cap ratio improved to 23.8% and our net debt to EBITDA was at 1.3x.

During the quarter, we had net cash flow from operating activities of $227 million. While year-to-date, we had working capital build of approximately $200 million, driven by underlying growth in the business in advance of projects, especially in the power generation space. We started to see some of this unwind in the third quarter as free cash flow improved to $160 million for the quarter. We expect to unwind more of this working capital during the fourth quarter and into next year. We used cash flow and cash on hand to fund $67 million of capital expenditure, primarily related to maintenance of equipment.

During the third quarter, we also used $120 million to repurchase stock at an average price of $91 with an additional $40 million in repurchases since the end of the quarter. As of September 30, 2020, we had total available liquidity of approximately $380 million. We remain on track to generate cash flow from operations of $620 million to $720 million on higher revenues and EBITDA for 2025. We still see some supply constraints posing some headwinds on to managing working capital in the near term. Having said that, we expect to unwind this working capital as orders shipped in the fourth quarter and into 2026.

With respect to CapEx, we expect capital spending to range between $260 million and $290 million for the year. approximately $180 million to $210 million of CapEx is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements. up to approximately $80 million is associated with growth capital spending in both of our business. As always, we are committed to a balanced capital allocation approach. We will use this cash flow to opportunistically return capital to shareholders and continue to pursue long-term value-creating investment and acquisition opportunities.

I will now turn the call over to David to discuss the remainder of our outlook for the fourth quarter.

Thank you, Raj. We've delivered strong performance through the first 3 quarters of 2025, and 2025 will be a record earnings year for Kirby. As global economic and geopolitical conditions continue to evolve, we remain vigilant in assessing potential volume impacts and are committed to proactive strategies that mitigate risks, safe ad performance and position us for long-term growth.

Importantly, despite near-term challenges in the inland market, we remain confident the inland barge still has years to go, given the supply constraints. Our structural advantages in marine and growing backlog in power generation provide meaningful upside potential. With our strong balance sheet and robust free cash flow, we are well positioned to pursue strategic investments whether through targeted capital projects, selective acquisitions or returning capital to shareholders. This financial strength provides us with the flexibility to manage near-term uncertainty while remaining focused on creating long-term value.

In the inland marine, we anticipate market conditions to remain stable with some early signs of improvement evident in the fourth quarter. Barge utilization has improved entering the fourth quarter and is now running in the high 80% range. Seasonal weather factors could work to further reduce barge availability across the industry what should support higher barge utilization for the full quarter. Our team is closely monitoring for any softness in demand for refined products and chemicals and we'll continue to adapt to shifting market dynamics.

But for now, markets appear stable. While term contract rates are expected to continue improving over the long term, driven by the slow pace of new build activity and tight vessel availability Spot market pricing could continue to face modest pressure in the near term if demand softness reemerges.

However, thus far in the fourth quarter, we have seen a meaningful improvement in demand. Our team continues to exercise cost discipline in response to shifting market conditions, which has helped us preserve operating margins despite volatility. At the same time, we are selectively holding certain costs steady in anticipation of a robust market recovery, ensuring we remain well positioned to scale efficiently as demand improves. Overall, inland revenues and margins are expected to improve modestly from the third quarter levels that is assuming tighter barge availability holds in the fourth quarter.

In coastal, market conditions remain robust, underpinned by limited large capacity vessel availability across the industry. This constrained supply side environment continues to drive pricing momentum and is supporting higher term contract prices. Steady customer demand is expected to continue through the rest of the year with our barge utilization in the mid- to high 90% range.

With our coastal fleet fully committed under term contracts, we expect to offset any seasonal weather-related impacts and maintain both revenues and margin in line with the third quarter levels. In our Distribution & Services segment, our outlook reflects strength in expanding markets, supported by our team's disciplined execution and focus on growth opportunities. Power generation continues to be a key driver, fueled by strong sales and order activity from data centers and industrial customers.

In commercial and industrial, demand for marine repair remains steady. The on-highway service and repair market has shown a modest recovery and is expected to continue its gradual improvement into 2026. In oil and gas, we anticipate revenues to decline in the low to mid-single -- mid double-digit range, driven by the ongoing transition from conventional frac to eFrac technologies, and continued capital discipline among the oil and gas customers. Despite the revenue headwinds, profitability has improved, supported by disciplined cost management and increased e-Frac deliveries. Overall, we now expect total D&S segment revenues to grow in the mid-single-digit range for the full year, with operating margins in the high single digit.

To conclude, we delivered solid performance through the first 3 quarters of 2025, and we maintain a steady outlook for the remainder of the year. Our balance sheet remains strong, and we expect to generate significant free cash flow in the fourth quarter. In the absence of acquisitions, we plan to continue allocating the majority of that free cash flow towards share repurchases. With favorable market fundamentals in place, we expect our businesses to deliver solid and improving financial results for the next several years.

We remain confident in the strength of our core businesses and the effectiveness of our long-term strategy. We are committed to capitalizing on our growth opportunities and driving sustainable shareholder value.

Operator, this concludes our prepared remarks. We are now ready to take questions.

[Operator Instructions] First question comes from the line of John Chappell of Evercore ISI.

David, I want to start with Power Gen. It's still relatively new to the business and to see the type of growth that you put up in the third quarter is pretty eye-catching. So just kind of help us understand, is this going to be a lumpy business going forward?

I mean, obviously, I'm not asking you to underwrite 56% revenue or 96% operating income rate of change going forward. But are there going to be quarters where there's big lumpiness associated with contract wins? Or at the point now where the backlog starts to transition to revenue and you're going to see at least directionally a continued ramp in this business, both from the top line and the EBIT contribution.

Yes, there will be some lumpiness, but it won't be as bad as it has been. You know this, John. We get different delivery schedules from different OEMs in terms of engine supply. And so that can make deliveries a little bit lumpy. But to your point, the backlog is is, well, frankly, it's a record backlog right now. I think it's up in mid-teens year-over-year and sequentially, by the way. So it will be smoother, but there will still be some quarter-to-quarter fluctuation. Keep looking at the full year versus the full year last year, and you'll see it continue to grow. The pace of orders we're seeing is really robust. We're getting orders from all of our customers, whether they're behind the meter or power modules. It's been very encouraging. We like what we're seeing. .

Okay. Great. And then to turn to inland, I know we don't like to focus too much on the short term, especially given your commentary that there's several years to go in the cycle. But can you help us just understand what's gotten a little bit better in the fourth quarter. I mean, the weather is not there yet, but it should be coming. It looks like Venezuelan imports are really kind of spiking and I think crude slate was part of the reason that you got down to the mid-80s. But just any other comments from the chemical customers, line of sight on how we could potentially either maintain these high 80s utilizations or even get to the as you maybe get a little bit of help from mother nature.

Yes. No. Look, you've heard us say the third quarter was kind of a confluence of a number of things. One, great weather, as you point out, very few lock delays, the refiners cracking, although the refiners are very busy, they're cracking a very light feedstock. And then there's a rent arbitage that gets them to directly export a lot of refined products. So -- and then the chemicals, as you know, have been a bit weak.

So all of that plus less maintenance in the industry kind of put a damper on the third quarter. I wouldn't tell you right now look, we got our first cold front here today in Houston. The refiners are definitely trying to get more heavy feedstocks. So that's very positive. We are seeing a little strength in chemicals come back strength is probably too strong of a word. If things go well in China, it could actually get robust, which would be very meaningful for us. But you probably saw one of the major -- one of our major customers announced earnings today, and they had a pretty good chemical results. So that could come back. We are seeing utility come up. I don't know, Christian, what utility is doing. Give them a little more color.

So we definitely bottomed out in Q3, but today, we sit comfortably at 87.6% utility in the inland fleet. So we definitely see positive momentum positive activity in the markets, the crude slate, the heavy crude is on the way. Our chemical customers, although still in austerity mode and under the rest sound a little more optimistic. And I think we're all waited with bated breadth is what happens this week with the executive branches negotiations. So some positive bobs on the horizon, feeling certainly better than we did in Q3.

Our next question comes from the line of Reed Seay of Stephens.

Certainly encouraging to hear some positivity coming on the horizon. Also to kind of focus on the near term -- can you give us an update on how spot rates are trending in October, maybe sequentially from September and on a year-over-year basis. I think last quarter also, you had noted that the spread between SPY and contract was still maybe in like a 10% range. If you could give an update on what the gap between spot and contractors on the inland side as well?

Yes, for sure. You saw in our -- or heard in our prepared remarks, spot pricing was down 4% to 5% in the third quarter. Term contracts were flat. As Christian said, we bottomed in terms of utility, things are firming up now. We may see a little spot price pressure in the fourth quarter, but it's starting to firm up. And of course, we've got the fourth quarter renewals, which are important on the term side. We're pretty constructive. Christian could give you some numbers on new builds.

But the market is very constructive right now. And we feel pretty good about where kind of the direction that pricing should take in the next few quarters. So Christian, do you want to add anything on the new builds and the other comments.

David. Thanks, or for the question. Yes, I think we do see some positive momentum in spot pricing as we get into the fourth quarter here. The first cold fronts here, we feel like we're going to get some momentum. We had a bellwether major term contract for new recently at a slightly positive increase. And so we're feeling good. It might be a mixed bag as we go into the fourth quarter. But the really important thing is that the total construct for the industry is extremely positive still. In our numbers, we think there's 50 barges delivered this year and an order book of only about $30 million next year. And it's a little subjective and hard to get to the exact numbers, but we think more than fit barges have retired. So the supply to in balance remains very positive, very constructive.

The long-term outlook, very positive, very constructive. So I think the industry is still in a really, really good spot for the long run in a good cycle. Yes. And just to cap it off, Reed, spot pricing is still above of term pricing.

Got it. I want to ask about the guidance that you all talked to last quarter with earnings. I think you said the low end was still achievable if you had the softness that you were seeing in July, continue through the rest of the year. We have definitely seen it continue in 3Q and maybe some improvement here in 4Q would be great. Apologies if I missed it, but I didn't see any update on your guidance or your ability to hit the low end of that? I just wanted to get...

We'll be around the low end. Yes, no real change. we didn't update it because there was no real change. We -- with the spot pricing coming down will be in that low end of the range. .

Our next question comes from the line of Scott Group of Wolfe Research.

So you said that utilization today is 87.6%. Do you have some sense of -- or can you say where it troughed in Q3? And then just bigger picture. I'm a little confused, right? You mentioned in the press release, conditions are stable, but you also said demand is improving meaningfully. And then just on the last question, you said at spot pricing, we're very constructive and we're also saying it could be down sequentially. So I'm just a little confused at the messaging are things stable? Are they getting better? Are they getting worse? Just I'm hearing a little bit of both. I'm just not really sure what's going on.

Yes, Scott, let me take a shot at sort of framing that for you. So to answer your initial question, the market troughed at 80% in Q3, and we are at 87.6% today. So we are seeing an improvement in utilization. Certain of our specialty fleets are fully utilized today. So there is positive momentum month-over-month, quarter-over-quarter when it comes to utility. And we're starting to see that get some of that pricing power, but we're very cautious about how optimistic we are about that. It is in a positive direction. It is moving in a positive direction. Utility is moving in a positive direction, but there's things beyond our control that we still -- the macro, the chemical market and some of the things that we're trying to navigate. .

And so if spot price moving higher or lower? Because I guess I've heard -- both.

Spot pricing has moved higher since it troughed out in the '80s in Q3. Spot pricing has moved higher as I sit here today.

Okay. I understand. And then I guess we got some like directional color on the power gen backlog. I know most companies that have this are sort of disclosing a backlog, I think it would be helpful. Like can you give us some sense of what -- how big that backlog is in Power Gen and maybe where it was last quarter, just so we have some sense of...

Sequentially, we're up mid-teens year-over-year up kind of mid-teens as well. Look, it's at a record we just don't want to get into the quarterly backlog game, but it's between $0.5 billion and $1 billion kind of range, and it continues to grow. So we're pretty constructive and excited about what's going on in the power gen space. The behind the meter growth is becoming more meaningful Obviously, the power nodes that are being desired out there continue to grow. We have some low-power node stuff, but we're working on some high-power node offerings as well, and it's getting a lot of traction.

I mean, you read the news every day on the demand for power driven by AI. It's not abating. Our customers range from data centers to behind the meter bridging power to industrial uses. So it's been good. We will consider in the future, maybe disclosing backlog and our book-to-bill. But book-to-bill is well over [ 1 ].

And Scott, if I can add, a lot of the things that we're doing in terms of execution with regards to power generation, all the lean the lean manufacturing that we've done, you're starting to see the results of that play out in terms of the margins and how we're performing.

Our next question comes from the line of Ken Hoexter of BofA.

David, if I look at results, right, you got $77 million or give or take, I guess, maybe it's my forecast for next quarter on inland 20 coastwise 40. I mean, you're almost half the business is now away from inland. So maybe a little more outlook on that power gen stability. I know you were talking about the fluctuations before. Is there less concern about ability to get equipment? Are you now mailer. Is this 1 customer driving this? You mentioned a couple of different customers, but is it -- we've heard of 1 large customer that's been sizably ordering from you. Maybe just delve into the power gen given the the importance now to the company and the speed at which we're watching it grow.

Yes. Well, first, let me -- your first comment, inland is still a powerhouse in terms of earnings. And you'll see that it's not going away and it's going to grow. And as I said in my prepared remarks, we see years left on the inland cycle. If anything, this little third quarter malaise, if you will, is going to extend the inland cycle and generating huge free cash flow from the inland cycle, which is obviously very beneficial to the company.

But to your other part of your question, the pipeline is is huge in terms of power gen. And we used to have just a handful of customers, and I would tell you that the customer portfolio just continues to grow. We're doing more and more with the co-locator data centers. And unfortunately, we're on NDAs on a lot of these, so we can't even mention the customer names. And then you've got some of the hyperscalers -- the hyperscalers like to go direct with the engine suppliers and -- but they still need some of our help. And so look, the portfolio is growing.

It looks pretty robust. We're continuing to invest in it. Obviously, we have some capabilities around service, which many people don't have. The engine suppliers, they can go direct, but they don't have the service offerings that we do. So that's a big plus for us. It will be lumpy because of the engine supply from the OEMs. They're trying to balance their load. They're there -- I don't want to say sold out, but they're producing as fast as they can and those sales are happening. So we're -- we still have to manage that supply chain with the OEMs.

So should we look for like sequential growth in that mid-teens if that's the order book growth? Or is it lumpy still...

It's still lumpy. I would say you're going to see that mid-teens on average for the full year kind of grow. Maybe it could get up into the 20%, but it will be between 10% and 20% on a full year basis kind of growth. It will be quarterly lumpy based on deliveries. I mean take a 60-megawatt type order, that's a lot of engines. We've got to get all those engines in delivered from 1 of the OEMs and then kind of package it and get it out.

So it can be lumpy based on when we receive the engines. And then Ken, just remember that power gen not just generators. One of the great things is in our e-frac business, we did a bunch of micro grids and that included what we call PDUs, power distribution units, when these customers need to gather all that power that's being generated, they have to handle the power. We have a very robust offering in our distribution and the software that controls it.

And so that is really helping us in our offering, managing the Harmonic for example, of a bunch of natural gas recips running together and load balancing. That takes some sophisticated software and equipment in -- so it's not just the engines and the generation, the engine power, if you will. It's the whole ecosystem. And unfortunately, we've developed that over the last decade with e-frac, and -- it's a natural extension into this power gen ecosystem.

So if I could switch -- it's helpful to understand the breakdown. So if I looking at inland, I think you mentioned contract rates flat. I think that's the first time since maybe 2021 that we've seen that backdrop. And I guess maybe increasing concern as we move into the fourth quarter, given you renewed so much in the fourth quarter.

So I want to follow up on Scott's question here, where you're talking about up flat down and the state of that Petroca market. What's going to lead this? Is it -- if the weather has been fine, as you mentioned at John, is it now increasing flows, increasing demand from chems? Is it the market? Maybe just give a little bit more color on what gets that and what's the status of the fleet, your fleet? Is it flat? Is it going to increase?

Thanks, Kim. Let me take a shot at that. I guess the overarching theme here is the market has stabilized going into Q4. We do have a slate of renewals ahead of us. If utility can stay up in that high 80%, 90% range. We'll just have to see how everything goes, but there's a positive opportunity there and some momentum there. as far as what the drivers are, the chemical market is a huge driver for us.

The -- our customer base there has really slogged through some tough times. The macro markets around chemicals need to improve, and there's some optimism that they will start to improve, and they have troughed as well. So that, coupled with the crude slate changing and heavying up again, getting more heavy feeds will absolutely be net positive. How that exactly plays out, we're in the middle of those negotiations. We're in the middle of the fourth quarter Mala.

In the early innings, we've got some wins. Hard to say exactly, but the macro is around the overall health of the chemical market. And again, refiners are very busy. That's a very good thing. They've just been running a very light crude slate, which doesn't throw off as many byproducts that we tend to feed on. So there's some positive optimism there for us, and we'll just have to see how it plays out here. I wish I could give you the definitive answer, but the macro things we don't control, we watch very closely, but there is positive momentum around utility going into these negotiations. The market has stabilized.

Great. And your fleet expectations?

Our fleet is in great shape, the best shape [indiscernible]

No. I mean -- I'm not staying stable at number of barges, Are we holding -- are you on...

We're running about 1,100 some-odd barges today, and our fleet is at a very stable place. We're through the eye of the maintenance bubble and in a good spot.

Our next question comes from Greg Wasikowski of Webber Research & Advisory.

So David, you mentioned the term book renewals on the inland side a couple of times. I think this is something that you've given us in the past. So I was wondering if you could remind us that the general percentage of your inland term book that does roll over in Q4, maybe versus Q3 or the rest of the year if you're able to?

Yes. Generally, it's around 40% of the term contract portfolio. right? So remember, we've got 30% of our book is spot, which means it's under a year. The 70% is over a year or a year or longer. Most of it is a year -- of that 70%, about 40% kind of renews in the fourth quarter towards the end of the fourth quarter, actually. And then sometimes what happens is those renewals will get pushed a week or 2 and may end up in the first quarter. But it is very fourth quarter heavy. And I would say a good number is around 40%.

Okay. Great. That's very helpful context. Okay. And then on data centers, I have a 2-parter if you don't mind. Can you remind us what the revenue cycle is like for that business from timing from order and backlog to actual delivery and revenue recognition? I know it probably varies, but just generally some color there would be good.

And then second part of that is -- what is your capacity to participate in chunk year orders for larger projects and thinking maybe of the more gigawatt scale variety. -- does Kirby have operational limits there for larger orders? Or is it more of an OEM supply limitation?

Let me break it down a little bit. It could -- just the first part of the question, it could be 1 to 2 years depending on the engine supply, these are kind of 2.5 megawatt to 3.5 megawatt type increments on the engine side. And depending on the delivery time from the OEMs, it could be a year or longer, could stretch to 2 years depending on the backlog and the complexity.

We -- on your second part of your question, the bigger ones, I alluded to it in 1 of the questions, we are working on higher power node offering right now, not at liberty to discuss much of it. But the natural gas recip engines in the diesel engines are in that 2.5 megawatt stuff. We are working on stuff that could be up in the 15 to 20-megawatt kind of range per offering. I can't go into much more detail, but higher power nodes, power density, if you will, can get us to play in that bigger leak. And as you can tell, we have quite a bit of capability on the power side from our pack experience. So in the future, you'll hear us talk about it, but it's not ready for prime time.

Okay. Got it. And just timing on revenue recognition, maybe more of a question for Raj, but does that happen closer to the end of the cycle with delivery? Or do you...

We don't generally use POC. It's pretty much as shipped. And that's why that contributes to the lumpiness. Don't get me going on why I don't like accountants, but...

Our next question comes from Sherif Elmaghrabi of BTIG.

First, I'd just like to follow up on Ken's question about the fleet, has the pocket of softness we're seeing in inland raised more strategic opportunities, just thinking some operators might have less robust balance sheet or the too small of a pocket.

Short answer is a little bit. Yes, there are some people that maybe don't have a strong balance sheet. But look, it's still a pretty good time in the inland market right now. I mean we're at high teens margins. And the other industry may be a little lower than us in margin, but it's still a pretty good market.

The cash flow profile of most of our competitors is probably pretty good. That said, these little dips and changes kind of make them reevaluate whether now is a good time to sell. So on the margin, maybe it's a positive towards acquisitions. Gosh, I wish it was a nice easy formula, but the acquisitions are hard to predict I would tell you that we are more than ready to do 1 in -- or 2 if they show the way forward on it.

It's just hard to predict. I wish I had a better answer for you. Between Christian and I, we talk to basically everybody in the industry and know what opportunities are out there, and we're always looking -- everybody knows that Kirby is willing to transact. So we'll just have to see how it goes.

No, that's helpful. And then on the coastal side, that business has really progressed over the last couple of years. Given it's a longer cycle business, do you think the coastal market is sensitive to the crude slate, similar to what we're seeing in inland?

Not as much. No, not as much. The coastwise business is is more concentrated in terms of capacity sizes. In the inland side, we have 10,000 barrel barges and 30,000 barrel barges and there's 4,000 of them. And the coastwise ATB market, there's probably less than 200 units. So it's a little more concentrated a little little more stable when there's no new capacity coming in. And Christian can share with you, but we are unaware of any new capacity coming in -- and if some was to come in, I don't know, how long would it take? .

Yes, at least 2, 3 years for any meaningful new build capacity to hit the market. So the coastal cycle is in a great spot, extremely tight vessel supply -- the shipyard capacity is constrained right now. There's a lot of those bigger shipyards that can build the offshore units are highly focused on some governmental projects as the U.S. desire to grow our shipping presence globally, continues, and you see momentum in the shipyards there. So yes, coastal is in a great spot. Those big assets that are in our customers' portfolios, they're going to keep those utilized, and it remains that way today.

[Operator Instructions] Our next question comes from the line of Bascome Majors.

David, a follow-up on the last question on M&A. It sounds like this sort of blip in demand and spot pricing hasn't really adjusted seller expectations in any meaningful way. But when you look back at prior cycles and when you've had real opportunities. If this does go in the direction you don't hope it does cyclically and that gets worse and not better, how long of a downturn has really opened up sellers' eyes to the opportunity to perhaps look at partnering with Kirby. And is it cash flow stress? Or is it just kind of a peak market and fear of what might be below that's really been that catalyst?

Yes, it's actually been both. Sometimes it's cash flow. And we've got a few where in prior cycles, they were close to bankruptcy or close to insolvency and we've stepped in. In the other cases, it's the cycles doing okay. I'm not selling at the bottom. Let me go ahead and transact instead of waiting for the next real big problem. So it's a little of both. We bought them on both ends of that spectrum. So it's just on the seller. I would just tell you, our balance sheet is the best it's ever been. I think our debt-to-EBITDA is 1.2x, 1.3x.

As Raj said, our free cash flow is really strong. I mean this quarter, we should be north of $200 million of free cash flow. As you've seen in the absence of acquisitions, we've been repurchasing shares. I think we've repurchased 1.3 million shares in the third quarter. And so far in the fourth quarter, we've repurchased over 400,000 shares. So we're buying a good barge company by buying back our shares. We'd be happy though to by a competitor and consolidate a bit. But we'll be patient. And we've got the balance sheet to do whatever we need to do when the opportunity arises.

This concludes the question-and-answer session. I would now like to turn it back to Kurt for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. As always, feel free to reach out to me throughout the day for any follow-up questions. .

All right. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.