WORLD KINECT CORP (WKC) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto appearing within Part IV. Item 15. Notes to the Consolidated Financial Statements in this 2022 10‑K Report. The following discussion may contain forward-looking statements, and our actual results may differ materially from the results suggested by these forward-looking statements. Some factors that may cause our results to differ materially from the results and events anticipated or implied by such forward-looking statements are described in Item 1A – Risk Factors and under Forward-Looking Statements.

We have elected to omit discussion on the earliest of the three years covered by the Consolidated Financial Statements presented in this 2022 10‑K Report. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended December 31, 2021 (herein incorporated by reference), filed with the SEC on February 25, 2022, for management's discussion of the fiscal year ended December 31, 2020.

Business Overview

We are principally engaged in the distribution of fuel and related products and services in the aviation, land, and marine transportation industries. Our intention is to become a leading global energy management company offering a full suite of energy advisory, management and fulfillment services, technology solutions, payment management solutions, as well as sustainability products and services across the energy product spectrum. For additional discussion on our businesses, climate change and the associated risks, see Part I, Item 1. – Business and Item 1A – Risk Factors within this 2022 10-K Report.

Reportable Segments

We operate in three reportable segments consisting of aviation, land, and marine, where we offer fuel and related products and services to customers in these transportation industries.

See Part I, Item 1. – Business and Note 14. Business Segments, Geographic Information, and Major Customers for additional information about our business segments.

Aviation Segment

Our aviation segment has benefited from growth in our fuel and related services offerings, as well as our enhanced logistics capabilities and the geographic expansion of our aviation fueling operations into additional international airport locations. As part of our growth strategy, we have also increased the level of inventory that we hold in order to meet the needs of our customers. While we generally enter into financial derivative contracts to mitigate price risk exposure associated with our inventory, depending on market pricing dynamics, we may experience negative impacts on our results, particularly in a market pricing environment experiencing severe backwardation, such as in the first half of 2022, where oil futures forward prices traded at significantly lower levels than the current market price. Our results of operations in our aviation segment have also been significantly affected in recent years by the effects of the COVID-19 pandemic, as well as the withdrawal of the troops from Afghanistan by the U.S. and NATO that concluded in the third quarter of 2021. However, the relaxation of global travel restrictions has contributed to a substantial recovery in global aviation volumes as compared to pre-pandemic levels.

Land Segment

We believe our land segment is well-positioned to continue growing market share, both organically and through leveraging the capabilities of our acquisitions, including Flyers which we acquired in January 2022, serving to further enhance our business to deliver value-added solutions to our land fuel customers. See Note 3. Acquisitions and Divestitures for additional information.

We have also expanded our product and service offerings to include energy advisory services, sustainability solutions, as well as supply fulfillment for natural gas and power. We continue to focus on supporting the energy transition through various initiatives and expanding our sustainability offerings, including renewable fuel products, and carbon management and renewable energy solutions through World Kinect, our global energy management

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brand. We are continuing to invest in talent in this area, which we believe will help accelerate growth in these activities.

Finally, our land segment has also benefited from sales to NATO in Afghanistan in recent years, however, such activity materially declined and ultimately concluded in 2021 in connection with the withdrawal of the U.S. and NATO troops.

Marine Segment

Due to the generally spot nature of sales in our marine business, we have traditionally benefited from elevated fuel prices and volatility, supply uncertainty, and a constrained credit environment. Over the last several years, we have spent a considerable amount of time reorganizing our business to drive internal efficiencies so that we can generate relatively moderate levels of earnings in stable markets and yet remain poised to provide additional value in volatile and credit constrained markets. In 2022, our marine segment delivered exceptional results due to the market conditions arising from the dramatic increase in global oil prices and higher interest rates, as well as the disruption of traditional supply patterns and related price volatility. However, with lower global oil prices and reduced market volatility forecasted for 2023, we expect our marine segment's performance to be materially lower than the extraordinary results produced in 2022.

Macroeconomic Environment

After being relatively moderate in recent years, inflation in the United States and other jurisdictions in which we do business increased significantly in late 2021 into 2022, primarily driven by supply chain disruptions, labor shortages and increased commodity prices, which generally resulted in higher costs in 2022. However, to the extent that a rising cost environment impacts our results, there are typically offsetting benefits either inherent in certain parts of our business or that may result from proactive measures we take to reduce the impact of inflation on our net operating results. These benefits can include higher commodity prices that typically result in a constrained credit environment, often creating favorable market conditions that increase demand for our services, as well as our ability to renegotiate prices due to many of our sales contracts being 12 months or less in duration. Additionally, we take measures to mitigate the impact of increases in fuel prices through comprehensive hedging programs and the use of financial derivative contracts.

For these reasons, the increased cost environment, caused in part by inflation, has not had a material impact on our historical results of operations for the periods presented in this report. However, a significant or prolonged period of high inflation, particularly when combined with rising interest rates due to actions taken by governments to attempt to control inflation, could adversely impact our results if costs, including employee compensation driven by competitive job market conditions, were to increase at a rate greater than the increase in the revenues we generate. Higher interest rates also typically increase the interest expense associated with our credit arrangements with banks and other parties that serve as important sources of liquidity for us, which can therefore negatively impact our results of operations for a particular period.

See “We extend credit to most of our customers in connection with their purchase of fuel and services from us, and our financial condition, results of operations and cash flows will be adversely affected if we are unable to collect accounts receivable,” “Changes in the market price of fuel may have a material adverse effect on our business,” “Our business depends on our ability to adequately finance our capital requirements and fund our investments, which, if not available to us, would impact our ability to conduct our operations,” "Significant inflation and higher interest rates may adversely affect our business and financial condition," and “Our derivative transactions with customers, suppliers, merchants and financial institutions expose us to price and credit risks, which could have a material adverse effect on our business” in Item 1A. – Risk Factors within this 2022 10-K Report.

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Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Consolidated Results of Operations

The following provides a summary of our consolidated results of operations for the periods indicated (in millions, except per share amounts):

Revenue. Our consolidated revenue for the year ended December 31, 2022 was $59.0 billion, an increase of $27.7 billion, or 88%, compared to the year ended December 31, 2021, due to higher fuel prices and increased volumes in the aviation, land, and marine segments, respectively, as discussed further below.

Gross profit. Our consolidated gross profit for the year ended December 31, 2022 was $1.1 billion, an increase of $300.9 million, or 38%, compared to the year ended December 31, 2021, driven by increased gross profit of $174.9 million and $155.7 million in the land and marine segments, respectively, partially offset by a decrease of $29.7 million in the aviation segment, as discussed further below.

Operating Expenses. Consolidated total operating expenses for the year ended December 31, 2022 were $815.8 million, an increase of $170.2 million, or 26%, compared to the year ended December 31, 2021. The increase in operating expenses was partially attributable to increased compensation and employee benefit costs, the addition of Flyers' operating expenses of $66.3 million, as well as higher general and administrative costs as business activity continued to normalize. These increases were partially offset by a decrease in asset impairment and restructuring charges compared to the year ended December 31, 2021, principally in our land segment.

Non-Operating Income (Expenses), net. For the year ended December 31, 2022, we had net non-operating expense of $128.1 million, compared to net non-operating expense of $42.5 million for the year ended December 31, 2021. The increase of $85.6 million was primarily attributable to an increase in interest expense, driven by incremental borrowings related to the Flyers acquisition, higher interest rates, and an increase in fees associated with sales of accounts receivable under our Receivables Purchase Agreements ("RPAs"). In addition, during the year ended December 31, 2022 we recognized a loss related to the contingent consideration associated with the

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sale of our Multi Service payment solutions business ("MSTS"), as discussed in Note 3. Acquisitions and Divestitures, and a non-operating legal settlement as described in Note 11. Commitments and Contingencies.

Income Taxes. For the year ended December 31, 2022, our income tax provision was $29.2 million and our effective income tax rate was 20%, as compared to an income tax provision of $25.8 million and an effective income tax rate of 26% for the year ended December 31, 2021. The increase of $3.4 million was primarily attributable to an increase in income before taxes, partially offset by additional discrete tax benefits as compared to the year ended December 31, 2021. See Note 10. Income Taxes for additional information.

Aviation Segment Results of Operations

The following provides a summary of the aviation segment results of operations for the periods indicated (in millions, except price per gallon):

Revenues in our aviation segment were $26.8 billion for the year ended December 31, 2022, an increase of $14.0 billion, or 109%, compared to the year ended December 31, 2021. The increase in revenue was driven by higher average prices and increased volumes. Average jet fuel price per gallon sold increased by $1.53, or 73%, in the year ended December 31, 2022 compared to the year ended December 31, 2021 as a result of the rise in global oil prices. Total aviation volumes increased by 1.3 billion, or 22%, to 7.1 billion gallons in the year ended December 31, 2022 compared to the year ended December 31, 2021 as demand for air travel continued to recover from the impact of the pandemic, particularly among international passenger airlines.

Our aviation segment gross profit for the year ended December 31, 2022 was $357.2 million, a decrease of $29.7 million, or 8%, compared to the year ended December 31, 2021. The decrease in gross profit was primarily due to inventory losses driven by extreme backwardation experienced principally during the second quarter of 2022, together with the reduction in our government-related activity in Afghanistan, which concluded with the military withdrawal during the third quarter of 2021, partially offset by increased fuel volumes and higher profit contribution from service offerings as a result of the continued recovery in demand for air travel.

Our aviation segment income from operations for the year ended December 31, 2022 was $99.5 million, a decrease of $63.9 million, or 39%, compared to the year ended December 31, 2021. In addition to the decrease in gross profit discussed above, income from operations was also impacted by a $34.2 million increase in operating expenses. The increase in operating expenses was driven principally by higher compensation and employee benefit costs as well as higher general and administrative costs, primarily travel and marketing expenses, as business activity continued to normalize.

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Land Segment Results of Operations

The following provides a summary of the land segment results of operations for the periods indicated (in millions, except price per gallon):

(1)Includes gallons and gallon equivalents of British Thermal Units (BTU) for our natural gas sales and Kilowatt Hours (kWh) for our World Kinect power business.

Revenues in our land segment were $19.3 billion for the year ended December 31, 2022, an increase of $8.9 billion, or 85%, compared to the year ended December 31, 2021. The increase in revenue was principally driven by higher average prices and the acquisition of Flyers. The average price per gallon or gallon equivalent sold increased by 58% in the year ended December 31, 2022 compared to the year ended December 31, 2021. In addition, total volumes increased by 0.9 billion, or 17%, to 6.2 billion gallon or gallon equivalents in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the acquisition of Flyers and the increased activity in our natural gas and power businesses.

Our land segment gross profit for the year ended December 31, 2022 was $475.9 million, an increase of $174.9 million, or 58%, compared to the year ended December 31, 2021. The increase in gross profit was primarily attributable to Flyers gross profit of $137.8 million in the year ended December 31, 2022 as well as stronger performance across our businesses, principally in North America and our European power business. These increases were partially offset by the reduction in our government-related activity in Afghanistan.

Our land segment income from operations for the year ended December 31, 2022 was $125.6 million, an increase of $81.0 million, or 182%, compared to the year ended December 31, 2021. The increase in gross profit discussed above was partially offset by an increase in operating expenses, driven by the acquisition of Flyers, as well as higher compensation and employee benefit costs and general and administrative costs as described under Consolidated Results of Operations above.

Marine Segment Results of Operations

The following provides a summary of the marine segment results of operations for the periods indicated:

Revenues in our marine segment were $13.0 billion for the year ended December 31, 2022, an increase of $4.9 billion, or 60%, compared to the year ended December 31, 2021. The increase in revenue was principally driven by a 55% increase in the average price per metric ton of bunker fuel sold in the year ended December 31, 2022 compared to the year ended December 31, 2021. In addition, total volumes increased by 0.6 million metric

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tons, or 3%, to 19.1 million metric tons in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Our marine segment gross profit for the year ended December 31, 2022 was $256.0 million, an increase of $155.7 million, or 155%, compared to the year ended December 31, 2021. The increase in gross profit was primarily attributable to the impact of higher bunker fuel prices and rising interest rates, leading to an increasingly constrained credit environment, as well as higher market volatility.

Our marine segment income from operations for the year ended December 31, 2022 was $155.5 million, an increase of $134.8 million, or 652%, compared to the year ended December 31, 2021, principally due to the increase in gross profit, partially offset by a $20.9 million increase in operating expenses driven largely by higher incentive compensation as well as higher general and administrative costs.

Liquidity and Capital Resources

Liquidity to fund working capital, as well as make strategic investments to further our growth strategy, is a significant priority for us. Our views concerning liquidity are based on currently available information and if circumstances change significantly, the future availability of trade credit or other sources of financing may be reduced, and our liquidity would be adversely affected accordingly.

Sources of Liquidity and Factors Impacting Our Liquidity

Our liquidity, consisting principally of cash and availability under our Credit Facility, fluctuates based on a number of factors, including the timing of receipts from our customers and payments to our suppliers, changes in fuel prices, as well as our financial performance.

We rely on credit arrangements with banks, suppliers and other parties as an important source of liquidity for capital requirements not satisfied by our operating cash flow. Future market volatility, generally, and any persistent weakness in global energy markets may adversely affect our ability to access capital and credit markets or to obtain funds at reasonable interest rates or on other advantageous terms. In addition, since our business is impacted by the availability of trade credit to fund fuel purchases, an actual or perceived decline in our liquidity or business generally could cause our suppliers to reduce our credit lines, seek credit support in the form of additional collateral or otherwise materially modify our payment terms.

During times of high fuel prices, our customers may not be able to purchase as much fuel from us because of their credit limits with us and the resulting adverse impact on their business could cause them to be unable to make payments owed to us for fuel purchased on credit. Furthermore, when fuel prices increase our working capital requirements increase and our own credit limits could prevent us from purchasing enough fuel from our suppliers to meet our customers’ demands, or we could be required to prepay for fuel purchases, any of which would adversely impact our liquidity.

Conversely, extended periods of low fuel prices, particularly when coupled with low price volatility, can also have an adverse effect on our results of operations and overall profitability. This can occur due to many factors, such as reduced demand for our price risk management products and decreased sales to our customers involved in the oil exploration sector. Low fuel prices also facilitate increased competition by reducing financial barriers to entry and enabling existing, lower-capitalized competitors to conduct more business as a result of lower working capital requirements.

Based on the information currently available, we believe that our cash and cash equivalents as of December 31, 2022 and available funds from our Credit Facility, as described below, together with cash flows generated by operations, are sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months.

Credit Facility and Term Loan. On April 1, 2022, we entered into Amendment No. 8 to the Fourth Amended and Restated Credit Agreement, as further amended by Amendment No. 9 dated July 12, 2022 (as amended, the "Credit Agreement"), to: (i) increase the revolving credit facility provided under the Credit Agreement ("Credit Facility") to $1.5 billion and provide a term loan of $500.0 million ("Term Loan"), thereby replacing the then-existing term loan and increasing the total facility to $2.0 billion; (ii) modify the pricing of the loans, including the reference rates for various currencies to reflect the discontinuation of LIBOR; (iii) extend the maturity to April 1, 2027; and (iv) modify certain financial and other covenants to provide greater operating flexibility. Our availability under our Credit Facility is limited by, among other things, our consolidated total leverage ratio, which is defined in the Credit Agreement and is based, in part, on our consolidated earnings before interest, taxes, depreciation and amortization, and share-based compensation, with such adjustments as specified therein, for the four immediately preceding fiscal quarters.

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The Credit Agreement generally limits the total amount of indebtedness we may incur to a consolidated total leverage ratio of not more than 4.75 to 1.

As a result of the foregoing, as well as other covenants and restrictions contained in our Credit Agreement, our availability under the Credit Facility may fluctuate from period to period. In addition, our failure to comply with the covenants contained in our Credit Agreement could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the Credit Facility and our Term Loan, trigger cross-defaults under certain other agreements to which we are a party, and impair our ability to obtain working capital advances and issue letters of credit, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. See Note 7. Debt, Interest Income, Expense, and Other Finance Costs for additional information.

Other Credit Lines. Additionally, we have other uncommitted credit lines primarily for the issuance of letters of credit, bank guarantees and bankers’ acceptances. These credit lines are renewable on an annual basis and are subject to fees at market rates. As of December 31, 2022 and 2021, our outstanding letters of credit and bank guarantees under these credit lines totaled $523.1 million and $404.0 million, respectively.

Receivables Purchase Agreements. We also have accounts receivable programs under RPAs that allow us to sell a specified amount of qualifying accounts receivable and receive cash consideration equal to the total balance, less an associated fee, which varies based on the outstanding accounts receivable at any given time. The RPAs provide the constituent banks with the ability to add or remove customers from these programs in their discretion based on, among other things, the level of risk exposure the bank is willing to accept with respect to any particular customer. The fees the banks charge us to purchase the receivables from these customers can also be impacted for these reasons. See Note 2. Accounts Receivable for additional information.

See Item 1A. – Risk Factors in Part 1 within this 2022 10-K Report for additional information.

Future Uses of Liquidity

Cash is primarily used to fund working capital to support our operations as well as for strategic acquisitions and investments, such as the acquisition of Flyers discussed below.

As of December 31, 2022, our contractual obligations were as follows (in millions):

(1)Debt and interest obligations include principal and interest payments on fixed-rate and variable-rate, fixed-term debt based on their maturity dates. See Note 7. Debt, Interest Income, Expense, and Other Finance Costs for additional information.

(2)We enter into lease arrangements for the use of offices, operational facilities, vehicles, vessels, storage tanks and other assets for our operations around the world. See Note 13. Leases for additional information.

(3)As part of our risk management program, we enter into derivative instruments intended to mitigate risks associated with changes in commodity prices, foreign currency exchange rates, and interest rates. Our obligations associated with these derivative instruments fluctuate based on changes in the fair value of the derivatives. See Note 4. Derivative Instruments and Note 5. Fair Value Measurements for additional information.

(4)We have fixed purchase commitments associated with our risk management program, as well as a purchase contract, that runs through 2026, under which we agreed to purchase annually between 1.9 million barrels and 2.0 million barrels of aviation fuel at future market prices. See Note 11. Commitments and Contingencies for additional information.

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Future material cash requirements and off-balance sheet arrangements, in addition to the contractual obligations in the table above, include the following:

Acquisition of Flyers. During the year ended December 31, 2022, we closed the acquisition of Flyers as discussed in Note 3. Acquisitions and Divestitures. As of December 31, 2022, $100.0 million of the $795.0 million total purchase consideration remains payable to the seller, with one-half to be released on each of the first and second anniversary of the closing of the acquisition. On January 3, 2023, $50.0 million of the remaining purchase consideration was paid to the seller, with the remaining $50.0 million expected to be settled on January 3, 2024.

Capital Expenditures. During the year ended December 31, 2022, we incurred capital expenditures in the ordinary course of business of approximately $78.6 million. In 2023, we expect our capital expenditures to be generally consistent with the year ended December 31, 2022.

Unrecognized Income Tax Liabilities. As of December 31, 2022, we have recorded gross liabilities for unrecognized income tax benefits ("Unrecognized Tax Liabilities"), including penalties and interest, of $93.5 million. The timing of any settlement of our Unrecognized Tax Liabilities with the respective taxing authority cannot be reasonably estimated.

Letters of Credit and Bank Guarantees. In the normal course of business, we are required to provide letters of credit to certain suppliers. A majority of these letters of credit expire within one year from their issuance and expired letters of credit are renewed as needed. As of December 31, 2022, we had issued letters of credit and bank guarantees totaling $561.4 million under our Credit Facility and other uncommitted credit lines.

Surety Bonds. In the normal course of business, we are required to post bid, performance and other surety-related bonds. The majority of the surety bonds posted relate to our aviation and land segments. We had outstanding bonds that were executed in order to satisfy various security requirements of $59.7 million as of December 31, 2022.

Cash Flows

The following table reflects the major categories of cash flows (in millions). For additional details, please see the Consolidated Statements of Cash Flows.

Operating Activities. For the year ended December 31, 2022, net cash provided by operating activities was $138.5 million compared to net cash provided of $173.2 million for the year ended December 31, 2021. The $34.7 million decrease in operating cash flows was principally due to the impact of the overall increase in volumes, higher average fuel prices as well as higher interest rates that increased our interest payments in 2022. The increased prices and volumes compared to the prior year negatively impacted our inventory costs, increased both our accounts receivable and our accounts payable, and also drove an increase in our derivative-related activity and transaction tax payments. These negative impacts on our operating cash flow were partially offset by an increase in net income (see “Results of Operations” for further details of the drivers impacting our net income) adjusted for noncash items (primarily related to unrealized derivative activity and depreciation) of $252.6 million and an increase in sales of accounts receivable under our RPA programs (as discussed under “Sources of Liquidity and Factors Impacting Our Liquidity” above).

Investing Activities. For the year ended December 31, 2022, net cash used in investing activities was $724.9 million, compared to net cash used of $58.3 million for the year ended December 31, 2021. The net cash used in investing activities for the year ended December 31, 2022 was primarily driven by $643.9 million net cash paid for the acquisition of businesses, principally Flyers, as discussed in Note 3. Acquisitions and Divestitures, and $78.6 million for capital expenditures. Net cash used in investing activities for the year ended December 31, 2021 was primarily driven by $39.2 million for capital expenditures and $37.1 million cash paid for the acquisition of a business in the land segment in the fourth quarter of 2021, as discussed in Note 3. Acquisitions and Divestitures, partially offset by net cash proceeds of $25.0 million from the collection of a note receivable related to the sale of MSTS.

Financing Activities. For the year ended December 31, 2022, net cash provided by financing activities was $237.3 million, compared to net cash used of $113.6 million for the year ended December 31, 2021. Net cash provided by financing activities for the year ended December 31, 2022 was primarily attributable to net borrowings of $333.6 million, primarily driven by incremental borrowings under our Credit Facility related to the acquisition of Flyers and

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increased working capital requirements, partially offset by $48.7 million in purchases of our common stock and dividend payments of $31.0 million. Net cash used in financing activities of $113.6 million for the year ended December 31, 2021 was primarily driven by common stock repurchases of $50.5 million, dividend payments on our common stock of $28.7 million, and net repayments of debt under our Credit Facility of $23.9 million.

Critical Accounting Estimates

Management's discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included in this 2022 10‑K Report, which has been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to unbilled revenue and associated costs of sales, allowance for credit losses, goodwill and long-lived assets, certain accrued liabilities, and income taxes. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the areas described below as critical to our business operations and the understanding of our results of operations given the uncertainties associated with the assumptions underlying each estimate. For a detailed discussion on the application of these and other significant accounting policies, see Note 1. Basis of Presentation, New Accounting Standards, and Significant Accounting Policies.

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