Kirby Corporation (NYSE:KEX) Q3 2025 Earnings Call Transcript

Kirby Corporation (NYSE:KEX) Q3 2025 Earnings Call Transcript October 29, 2025

Kirby Corporation beats earnings expectations. Reported EPS is $1.65, expectations were $1.6.

Operator: 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.

Kurt Niemietz: 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 and 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.

David W. Grzebinski: 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 in 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 service 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 and 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 secured additional 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% 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 remained 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.

Raj Kumar: 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 11%. As David mentioned, light 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 affreightment. 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 third 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. Coastal 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 barge 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 were 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 2025 with a similar fleet size and capacity at 1,105 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 and 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 and Services segment revenue increased by $41 million or 12% with operating income increasing by $12 million or 40%. 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 tempered demand for new engines, 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 38% year-over-year and were down 9% sequentially. 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, and 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, 2025, 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 to managing working capital in the near term. Having said that, we expect to unwind this working capital as orders ship 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.

David W. Grzebinski: 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, safeguard performance and position us for long-term growth. Importantly, despite near-term challenges in the inland market, we remain confident the inland barge cycle 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 inland marine, we anticipate market conditions to remain stable with some early signs of improvement evident so far 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, which 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 will 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, and 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 and 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 e-frac 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 growth opportunities and driving sustainable shareholder value. Operator, this concludes our prepared remarks. We are now ready to take questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of John Chappell of Evercore ISI.

Jonathan Chappell: 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 are you 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?

David W. Grzebinski: Yes. There will be some lumpiness, but it won’t be as bad as it has been. We — 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 — 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.

Jonathan Chappell: 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. 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 90s as you maybe get a little bit of help from mother nature.

David W. Grzebinski: 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 RIN arbitrage 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 would 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 result. 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.

Christian O’Neil: 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 duress, sound a little more optimistic. And I think we’re all waited with bated breath to see what happens this week with the executive branches negotiation. So some positive bobs on the horizon, feeling certainly better than we did in Q3.

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

Reed Seay: 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 spot and contract was still maybe in like a 10% range. If you could give an update on what the gap between spot and contract is on the inland side as well?

David W. Grzebinski: 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 can 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 other comments?

Christian O’Neil: Yes. Thanks, David. Thanks, Reed, for the question. Yes, I think we do see some positive momentum in the spot pricing as we get into the fourth quarter here. The first coal fronts here, we feel like we’re going to get some momentum. We had a bellwether major term contract renewed 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 next year. And it’s a little subjective and hard to get to the exact numbers, but we think more than 50 barges have retired. So the supply-demand balance remains very positive, very constructive. The long-term outlook, very positive, very constructive. And so I think the industry is still in a really, really good spot for the long run and a good cycle.

David W. Grzebinski: Yes. Just to cap it off, Reed, spot pricing is still above of term pricing.

Reed Seay: Got it. All right. 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…

David W. Grzebinski: Yes. 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, we’ll be in that low end of the range.

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

Scott Group: 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 about spot pricing, we’re very constructive, but you’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. So I’m just not really sure what’s going on.

Christian O’Neil: 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 other things that we’re trying to navigate.

Scott Group: And so is spot price moving higher or lower? Because I guess I’ve heard both.

Christian O’Neil: Spot pricing has moved higher since it troughed out in the 80s in Q3. Spot pricing has moved higher as I sit here today.

Scott Group: 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…

David W. Grzebinski: Yes. I mean 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 yes, 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. Yes, 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.

Raj Kumar: 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 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.

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

Ken Hoexter: 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 million ] coast-wise, [ $40 million ] D&S. 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 major supplier? Is this one customer driving this? You mentioned a couple different customers, but is it — we’ve heard of one large customer that’s been sizably ordering from you. Maybe just delve into the power gen given the importance now to the company and the speed at which we’re watching it grow.

David W. Grzebinski: 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 we’re 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 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 where — 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 supplies from the OEMs. They’re trying to balance their load. They’re — 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.

Ken Hoexter: So should we look for like sequential growth in that mid-teens, if that’s the order book growth? Or is it lumpy still?

David W. Grzebinski: 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 one 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. Ken, just remember that power gen is not just generators. One of the great things is in our e-frac business, we did a bunch of microgrids and that included what we call PDUs, power distribution units. When these customers need to gather all of that power that’s being generated, they have to handle the power.

We have a very robust offering in power distribution and the software that controls it. And so that is really helping us in our offering. Managing the harmonics, for example, of a bunch of natural gas recips running together and load balancing, that takes some sophisticated software and equipment and — so it’s not just the engines and the generation, the engine power, if you will. It’s the whole ecosystem. And fortunately, we’ve developed that over the last decade with e-frac, and it’s a natural extension into this power gen ecosystem.

Ken Hoexter: So if I can 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 petrochem market. What’s going to lead this? Is it — if the weather has been fine, as you mentioned to 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?

Christian O’Neil: Yes. Thanks, Ken. 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 heavy 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, melee. 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.

Ken Hoexter: Great. And your fleet expectations?

Christian O’Neil: Our fleet is in great shape, the best shape it has been in.

Ken Hoexter: I mean are we staying stable at number of barges? Are we holding? Are you adding?

Christian O’Neil: Yes. 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.

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

Gregory Wasikowski: 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 of 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?

David W. Grzebinski: 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 tail 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%.

Gregory Wasikowski: 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 chunkier orders for larger projects? I’m 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?

David W. Grzebinski: 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 one of the questions, we are working on a higher power node offering right now, not at liberty to discuss much of it, but the natural gas recip engines and 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 e-frac experience. So in the future, you’ll hear us talk about it, but it’s not ready for prime time.

Gregory Wasikowski: 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…

David W. Grzebinski: We don’t generally use POC. It’s pretty much as shipped. And that’s why it contributes to the lumpiness. Don’t get me going on why I don’t like accountants, but…

Operator: Our next question comes from Sherif Elmaghrabi of BTIG.

Sherif Elmaghrabi: 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 sheets or is it too small of a pocket?

David W. Grzebinski: Yes. Short answer is a little bit. Yes, there are some people that maybe don’t have as 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 margins, 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 there was a nice, easy formula, but acquisitions are hard to predict. I would tell you, we’re more than ready to do 1 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.

Sherif Elmaghrabi: 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?

David W. Grzebinski: Not as much. No, not as much. The coastwise business is more concentrated in terms of capacity sizes. In the inland size, we have 10,000 barrel barges and 30,000 barrel barges and there’s 4,000 of them. In the coastwise ATB market, there’s probably less than 200 units. So it’s a little more concentrated, a 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?

Christian O’Neil: 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: [Operator Instructions] Our next question comes from the line of Bascome Majors.

Bascome Majors: David, to 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 peaky market and fear of what might be below that’s really been that catalyst?

David W. Grzebinski: Yes. It’s actually been both. Sometimes it’s cash flow. I mean 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 cycle’s 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 just depends 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 in free cash flow. As you’ve seen in the absence of acquisitions, we’ve been repurchasing shares.

I think we 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 buy 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.

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

Kurt Niemietz: 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.

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