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Edited Transcript of RLOG earnings conference call or presentation 15-Aug-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 Rand Logistics Inc Earnings Call

New York Aug 18, 2017 (Thomson StreetEvents) -- Edited Transcript of Rand Logistics Inc earnings conference call or presentation Tuesday, August 15, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Annemarie P. Dobler

Rand Logistics, Inc. - Director of Corporate Communications

* Edward Levy

Rand Logistics, Inc. - CEO, President & Director

* Mark S. Hiltwein

Rand Logistics, Inc. - CFO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Rand Logistics Fiscal Year 2018 First Quarter Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Annemarie Dobler, Corporate Communications Director. Please go ahead, ma'am.

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Annemarie P. Dobler, Rand Logistics, Inc. - Director of Corporate Communications [2]

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Thank you, Alan. Good morning, ladies and gentlemen, and welcome to Rand Logistics Fiscal 2018 First Quarter Conference Call.

On the call today from the company are Ed Levy, Rand's President and Chief Executive Officer; and Mark Hiltwein, Rand's Chief Financial Officer.

A live audio webcast is available on the Rand website at www.randlogisticsinc.com/presentations.html. For our first quarter call, we will not have an accompanying presentation.

Before we begin, we would like to remind everyone that this conference call contains forward-looking statements which reflect management's current views with respect to certain future events and Rand's operations, performance and financial condition only as of the date hereof. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated.

Participants are directed to our SEC filings and press releases for a more detailed description of certain business issues and risks. We may refer to certain non-GAAP measures such as EBITDA, which we define as operating income plus interest, depreciation and amortization. Please see our press release dated August 14th, 2017 filed on Form 8-K for a reconciliation of certain non-GAAP measures.

With that, I'd like to turn the call over to Mr. Ed Levy. Please go ahead, Ed.

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Edward Levy, Rand Logistics, Inc. - CEO, President & Director [3]

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Thank you, Annemarie, and good morning, everyone. Thank you for joining us on today's call.

Our results for the first quarter were consistent with our expectations. As previously disclosed, planned vessel life extension projects completed after April 1, 2017 on certain of our U.S. flagged [self-unloading] vessels resulted in a delayed start to the sailing season. Certain of these capital expenditure projects extended the useful life of the fleet. For our fiscal quarter ended June 30, 2017, we reported adjusted EBITDA before lender fees of $10.2 million versus $11.2 million in the prior year period. We were pleased with our operating performance once the entire fleet was deployed, specifically May and June 2017 EBITDA before onetime financing charges increased by approximately 9% versus the same period last year.

We define sailing days as days a vessel is crewed and available for sailing. We operated for 1,005 sailing days in the quarter versus 969 days in the prior year, with 13 vessels in operation during each quarter. Canadian flagged vessels sailing days increased by 15.8% on a quarter-over-quarter basis. This increase was offset by a 15.6% decrease for the same time period in U.S. flagged vessel sailing days. The decline in U.S. flagged sailing days resulted exclusively from winter projects whose completion extended beyond the start of the sailing season. We are making a number of changes that are intended to eliminate delays in completing our future winter work maintenance projects on time.

Management believes that each of our operated vessels should achieve a theoretical maximum of 275 sailing days in the sailing season. Assuming average weather conditions, no major repairs, incidents or vessel layups. The company's vessels sailed on average of approximately 77 sailing days during the 3-month period ended June 30, 2017 compared to an average of 75 sailing days during the prior year period. Fleetwide, we operated for 85% of the theoretical maximum sailing days for the first quarter compared to 81.9% of the theoretical maximum sailing days for the prior year period.

For the quarter ended June 30, 2017, our U.S. fleet operated for an average of 63 sailing days versus a theoretical maximum of 91 sailing days or 69.5% of the theoretical maximum. And our Canadian fleet operated for an average of 86 sailing days or 94.6% of the theoretical maximum.

As we have discussed on previous calls, vessel margin per sailing day is a key indicator that we monitor to evaluate fleet performance. Compared to the same quarter last year, in local currency, our Canadian fleet experienced a 17% increase in vessel margin, primarily due to the increase in sailing days. Vessel margin per day from our Canadian fleet increased by approximately 1%. In U.S. dollars, vessel margin per day from our Canadian flagged vessels decreased by 3%. This was due to the decline in the Canadian exchange rate relative to last quarter -- last year last quarter.

Overall, trade pattern inefficiencies, particularly in April and for the first half of May caused by the delayed start of certain of our U.S. vessels, along with increased vessel delays, resulted in a decline in vessel margin per day from $14,438 for the quarter ended June 30, 2016 to $12,582 for the comparable quarter this year.

Vessel reliability remains a top priority for our company. For the 3 months ended June 30, 2017, we had a total of 2 days out of service or 0.2% of total sailing days. This compares to our 5-year average of 1.5% of total sailing days and close to 60 days as recently as the first quarter of fiscal year 2013.

Regarding the operating reliability of our fleet, we also measured delay days, which we define as the lost time incurred by our vessels while in operation and includes delays caused by inclement weather, dock delays, traffic congestion, vessel mechanical issues and other varied events. We experienced 101 delay days during the 3-month period ended June 30, 2017 compared to 61 delay days during the prior year period. Such delay days represent a lost time factor calculated as delay days as a percentage of total sailing days of 10% during the first quarter compared to 6.3% during the same quarter last year. Of the 39-day increase in delay days on a quarter-over-quarter basis, 30 resulted from vessel mechanical and weather delays. The vessel mechanical delays related to 2 specific shifts, and we addressed these issues in the quarter. We were disappointed by the vessel mechanical delays that we incurred in the quarter and have placed a high emphasis on returning to the delay levels that we have been achieving for the last several years.

Demand for our services is improved versus this time last year, which is allowing us to increase the percentage of time that our vessels are in revenue-loaded condition. Unlike last year when we laid up a U.S. flagged vessel for the month of August, our contractual revenue backlog for the remainder of the sailing season is strong. We'll be reintroducing a bulk carrier back into service in the next 15 days for the remainder of the sailing season. This reentry back into service is consistent with our expectations. As previously mentioned, because of delays in completing certain of our winter maintenance projects, we expect to sail approximately 50 days less or 3,550 days in the 2000 (sic) [2018] sailing season versus our previous guidance of 3,600 days. Given demand conditions, we are reaffirming this guidance.

Based in part on improved scheduling technology, we have been awarded 18% of the spot business that we have pursued thus far this sailing season. As we evaluate these new business opportunities, we are aggressively pursuing business in which we can leverage our scheduling efficiencies. This is consistent with our primary focus of creating efficient trade patterns to maximize percentage of time that our vessels are in revenue-generating condition. We did not carry any tonnage on third-party vessels in the first quarter of fiscal year 2018. All tonnage carried was on vessels we own.

Now I'd like to discuss the specific quarter-over-quarter changes in our commodity tonnages. Our aggregate tonnage was down 36.4% on a quarter-over-quarter basis. Aggregates represented approximately 41.7% of our total tonnage in the first quarter of fiscal 2018. The decline in our aggregate tonnage is a result of the delayed start of our U.S. flagged fleet and a conscious decision to pursue longer duration trips where our empirical analysis supports there being less operational execution risks. Based on our current demand forecasts, we are projecting that our aggregate tonnage hauls for the entire 2017 sailing season will be comparable to tons hauled in the 2016 sailing season.

As we have mentioned previously, the majority of our aggregates are used in construction and markets, primarily in Michigan and Ohio. We continue to be optimistic about future aggregates demand due to a legislative bill in Michigan, which is aimed at increasing funding for roads and infrastructure. We are observing that the stone quarries that we service are positioning themselves for future demand by shifting more of their production towards infrastructure and away from industrial aggregates. Iron ore represented approximately 18.6% of our total tonnage in the first quarter of fiscal 2018. Tons shift increased by 46.7% during the quarter as compared with the same period last year. We expect iron ore tonnage to be up in our second and third quarters compared to the same quarters last year.

Coal comprised approximately 11.9% of our total tonnage. Our coal shipments increased by approximately 110.3% during the quarter. This substantial increase is primarily a function of delivery timing. We are projecting our coal tonnage to be relatively flat on a year-over-year basis. Salt, which is used for road de-icing in the winter, represented approximately 13.7% of our total tonnage. Our salt tonnage increased by 9.2% during the quarter versus the year ago fiscal first quarter. Grain represented approximately 8.5% of our total tonnage during the first quarter. The grain tonnage that we carry increased by approximately 11.4% during our fiscal first quarter versus the prior year period. We expect to continue to experience growth in our grain tonnage haul throughout the sailing season. As previously mentioned, we'll be reintroducing one of our bulk carriers into service in the next 15 days for the remainder of the season to service our customers in the grain market.

With that, I'd like to turn the call over to Mark Hiltwein for a review of the financial results. Mark?

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Mark S. Hiltwein, Rand Logistics, Inc. - CFO [4]

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Thanks, Ed. I would like to provide a more detailed explanation of our financial results for the quarter ended June 30, 2017 compared to the prior year first quarter. For the first quarter of fiscal year 2018, our net loss was $5.6 million compared to $3 million last year, a decline of $2.6 million. Net loss per share on a diluted basis was $0.30 compared to a net loss per share of $0.16 in the prior year period. The main items impacting our net loss was the increase in interest expense related to our second-lien debt as well as the reduction in vessel operating profit due to delayed start of the sailing on our U.S. vessel fleet.

Adjusted EBITDA prior to lender fees decreased 8.9% or $1 million from $11.2 million in the first quarter of last year to $10.2 million in the first quarter of this year. Inefficient trade patterns resulting from reduced aggregate demand, vessel maintenance and weather delays were the main drivers impacting the business. In addition, vessel life extension projects completed after April 1, 2017 on certain of our U.S. flagged vessel unloading vessels resulted in delayed start to the sailing season. Total revenue during the 3-month period ended June 30, 2017 was $32.3 million, a decrease of 4.4% compared to $33.8 million during the year-ago period. This decrease was primarily attributable to inefficient trade patterns, increase in delay days and a weaker Canadian dollar. These factors were partially offset by contractual price increases and higher fuel surcharge.

On a constant currency basis, our total revenue decreased 1.6% or $600,000. Freight and other related revenue, which excludes fuel and other surcharges, decreased $2.8 million or 8.5% to $30.3 million compared to $33.1 million in the prior year. On a constant currency basis, freight and other related revenue decreased 6.1% or $2 million. Freight and related revenue per sailing day decreased $4,035 per day or 11.8% to $30,129 per sailing day from $34,164 per sailing day, primarily due to a change in the mix of cargoes and inefficient patterns as well as increased delay days. On a constant currency basis, freight and related revenue per sailing day decreased $3,230 per sailing day.

Vessel operating expenses increased $100,000 or 0.8% to $19 million during the 3-month period ended June 30, 2017 compared to $18.9 million during the year-ago period. This increase was primarily due to increased sailing days and increased fuel prices offset by operating efficiencies as a result of cost efficiency initiatives undertaken during the quarter. Vessel operating expenses per sailing day decreased $554 or 2.8% to $18,891 per sailing day during the first quarter of fiscal year 2018 from $19,445 per sailing day during the year-ago period. On a constant currency basis, vessel operating expenses decreased 3.6% or $700,000.

Our general and administrative expenses were up approximately $800,000 to $4.7 million in our first quarter of fiscal year 2018. Approximately $1.1 million of the increase in general and administrative expenses relate to onetime lender fees and legal expenses associated with obtaining waivers from our lenders under our credit facilities. Excluding onetime lender fees and legal expenses, G&A decreased by 8.3%. Our general and administrative expenses, excluding the onetime lender fees, equaled 11.7% of freight and related revenue for both periods.

We are encouraged with the progress that we are making with our cost-savings initiatives. We have set a goal and have identified $1 million to $2 million of annualized cost savings in our current fiscal year in addition to what we achieved during our last fiscal year. We are tracking to the annual cost savings range that we have targeted. The cost reduction opportunity includes savings in a number of areas, including insurance, provisions, spare parts and general and administrative expenses.

Depreciation expense was flat at $5.3 million during the 3-month period ended June 30, 2017 compared to 2016. Interest expense, which is net of capitalized interest and includes $3.8 million of amortization of deferred financing costs, increased $4.4 million to $8 million during the 3-month period ended June 30, 2017 from $3.6 million during the year-ago period. This increase in interest expense was primarily attributed to accelerated amortization of deferred financing cost of $3.8 million related to second-lien debt, additional paid in kind interest of $600,000 related to the covenant breach of our credit facilities and a higher average debt balance compared to the same quarter last year.

Cash interest expense during the 3-month period ended June 30, 2017 equaled $3.6 million compared to $3.3 million for the year-ago period. Our effective tax rate was 3.9% on a pretax loss of $5.3 million during the 3-month period ended June 30, 2017 compared to 14.8% on a pretax loss of $3 million during the same period last year. None of our U.S. federal income tax is payable in cash due to our net operating loss carryforwards. Our income tax provision was a benefit of $200,000 for the 3-month period ended June 30, 2017 compared to a benefit of $400,000 in the prior year period. The change in income tax benefits was due to a lower net income before income tax.

Our operating income equaled $2.7 million for the first quarter of fiscal year 2018 compared to operating income of $600,000 in the year-ago period, an increase of $2.1 million. For the quarter ended June 30, 2017, the Canadian dollar weakened by approximately 4.1% compared to the U.S. dollar from $0.776 per Canadian dollar last year to $0.744 per U.S. -- Canadian dollar this year.

We had total debt outstanding of $229.4 million at June 30, 2017, up from $200.3 million at the year-end and $203.1 million in the prior year period. The increase in our debt balance related to our second-lien lender fees; capital expenditures related to vessel life extension projects completed after April 1, 2017, and the use of working capital related to accelerated payments to vendors. The second quarter and third quarters are when we typically generate cash flow from operations to pay down debt.

As of July 14, 2017, the waivers previously obtained from the first-lien lenders and second-lien lenders expired, resulting in the reinstatement of the previously waived events of default under our credit facilities.

The company, with the help of its advisers, remains actively engaged in discussions regarding a recapitalization transaction, and there is no assurance that a transaction will occur. We remain committed to continuous improvement in all aspects of the business with the goal of generating cash flow, recapitalizing our balance sheet and paying down debt.

With that, I'd like to open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And at this time, I'm showing no questions over the phone lines again. (Operator Instructions) And once more, I'm showing no questions or comments over the phone lines. (Operator Instructions) And sir, at this time, I'm showing no questions or comments over the phone lines.

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Edward Levy, Rand Logistics, Inc. - CEO, President & Director [2]

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Okay. Thank you, operator. Thank you all for your continued interest in Rand. To the extent you have questions, please don't hesitate to contact us. We're certainly available to answer any additional questions or inquiries you may have. We'll try to do so in a timely fashion as possible. Thanks again for your participation today, and have a great rest of the day.

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Operator [3]

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And ladies and gentlemen, that does conclude today's conference. I'd like to thank everyone for their participation. You may now disconnect.