Exhibit 99.1
Rand Logistics Inc.
Transcript of Conference Call
Friday, March 10, 2006, 9:00am
Operator: Good morning & welcome ladies and gentleman to the Rand Logistics
Investor Conference Call. At this time I would like to inform you that this
conference is being recorded and that all participants are in a "listen only"
mode. At the request of the company we will open the conference up for Questions
& Answers after the presentation.
This conference call may contain forward-looking statements (within the meaning
of the Private Securities Litigation Reform Act of 1995) concerning Rand
Logistics and its operating subsidiaries. Forward looking statements are
statements that are not historical facts, but instead statements based upon the
current beliefs and expectations of management of Rand Logistics. Such
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ from the results included in such forward-looking
statements.
At this time, it is my pleasure to turn the conference over to Laurence Levy,
Chairman and CEO. Please go ahead Sir.
Laurence Levy: Thank you operator and good morning everyone. With me
today is Scott Bravener, President of Lower Lakes. We
have scheduled this call to update our existing
shareholders and potential investors about the Company.
We are delighted to have consummated the acquisition of
Lower Lakes and Grand River effective last Friday. As I
have described previously, I believe Lower Lakes is a
very attractive operating company. The primary
attributes of the business include:
1. Significant barriers to entry - the company
operates under both the Jones Act, which requires
U.S. built, owned and operated vessels, as well as
the Canada Marine Act, which is the equivalent
Canadian legislation. No significant new capacity
has come onto the Lakes for over 20 years.
2. A low cost structure - Lower Lakes and Grand River
have had the advantage of being built from the
ground up and do not have the legacy costs and
crewing inefficiencies that most of our
competitors are burdened with. Lower Lakes has a
non-unionized workforce and Grand River has been
able to put in place attractive labor agreements
that are conducive to achieving the efficiencies
required to operate competitively. As a result, we
believe the company has a lower operating cost
structure than our competitors.
3. A diversified secure customer base - we have about
50 customers operating in a variety of industries.
Customer contracts are normally for between 2 and
7 years and contain fuel surcharge clauses. The
company has had extremely stable customer
relationships, which subject to weather conditions
results in highly predictable revenue.
4. A great management team - the team that founded
and built the company have all joined Rand. That
team is headed up by Captain Scott Bravener, who I
would like to ask to update you on the company's
operations and outlook.
Capt. Scott Good morning. We are very pleased that this transaction
Bravener: has closed and are optimistic about the company's
outlook with Rand's access to the capital markets and
its strategic guidance.
We have recently completed the annual process of booking
cargo for the upcoming shipping season. I anticipate a
strong season, as we have committed almost all of our
capacity to our existing customer base. Most of the
renewal contracts signed recently call for favorable
price increases over the next several years which are
above our historical norms. We already have over 90% of
our budgeted revenue for the upcoming sailing season
under contract. This reflects the strong demand for
shipping capacity on the Great Lakes and the limited
capacity available on the existing fleets.
With Rand's encouragement, we invested a significant
amount of capital in our fleet over the past few months.
The amount invested approximates $6 million, about $2
million of which has been expensed and the balance will
be capitalized. The investment not only maintained our
fleet but also enhanced it in meaningful ways.
Enhancements this season include:
1. The completion of our protective coatings program
on the M/V Cuyahoga to protect it against
corrosion from the transportation of salt and to
significantly reduce the associated maintenance
costs.
2. Completion of the first half of a two year renewal
of the unloading equipment on the M/V Maumee. This
will materially improve performance during the
upcoming shipping season and ensure that the
vessel operates efficiently.
3. Replacement of steam auxiliaries to significantly
reduce fuel consumption and the continuation of
our steel renewal program to extend the longevity
of other boats in our fleet.
The net result is that we start this year with our fleet
in excellent condition and our book of business full. It
should be a strong year.
This week, we started our 2006/2007 navigation season
with the loading of the McKee Sons. This is earlier in
the season than normal as we generally start our season
in the last week of March, weather and ice conditions
permitting. However, our customer base has requested
that we start shipping as early as possible due to their
significant current and future needs, and the warm
winter which resulted in minimal ice formation in the
Great Lakes enabled us to do so.
I would now like to comment on our third fiscal quarter
financial results which represent the period October
through December 2005. The complete results for the nine
months ended December 2005 are available in our Form 8-K
filed yesterday with the Securities and Exchange
Commission. Revenue in the third quarter of 2005 was
$17.8 million, an increase of approximately 25% compared
to the revenue of $14.3 million for the same period
ended December 2004. However, about $1.3 million of the
$3.5 million revenue increase was attributable to an
increase in the fuel surcharge received by the Company
from customers. Excluding this increase in fuel
surcharge recovery, revenues increased by approximately
17% from the three months ended December 31 2004 to the
three months ended December 31, 2005. Our operating cash
flow for the 2005 period is approximately $2.2 million
which was about $500,000 below the same period ended
December 2004. The primary reasons for this decline in
operating cash flow are:
1. The Maumee which was reactivated in May 2005 did
not perform well. It is common for a vessel
introduced in mid season to under perform due to
equipment related issues and the training
adjustment for the crew. We estimate that this
under performance cost the company about $750,000
in the third quarter which was much more than we
expected. To address the Maumee's under
performance, we initiated a number of corrective
measures, including investing approximately
$700,000 over this past winter season to replace
its starboard unloading tunnel equipment and to
maintain the remaining equipment. Additionally,
Grand River has instituted a number of senior
management changes as well as significant changes
to the operating personnel of this vessel. We
believe these actions will result in a successful
upcoming shipping season.
2. The weather on the Great Lakes during November and
December was some of the worst shipping weather we
have encountered on the Great Lakes in a decade.
During the quarter ended December 2005, the
Company lost approximately 44 sailing days over
and above the sailing days lost for the same
period ended December 2004. This resulted in
delays which we estimate cost the company
approximately $250,000 of margin. Once again,
based on history, we believe that weather
disruption of this magnitude is a non-recurring
event.
Considering the series of events that occurred in the
third quarter, I am actually quite pleased with the 2005
results compared with 2004. Our revenue trends are
strongly positive and the issues that impacted us in
2005 have either been addressed or are non-recurring.
Accordingly based on our customer commitments for this
year, our early start to the season, our favorable
pricing trends and the condition of our vessels, I
expect us to have a very strong sailing season this
year.
I look forward to both this upcoming sailing season and
the longer term growth opportunities that our
partnership with Rand offers. I would now like to turn
it back over to Laurence.
Laurence Levy: Thanks, Scott.
We start off with our new investment with a solid
balance sheet. We have equity (including common and
preferred stock) of about $45 million and debt of about
$22.5 million. We are conservatively leveraged. Our cash
resources which fluctuate over the sailing season
currently exceed $5 million.
Our balance sheet gives our company the ability to grow,
which we intend to do both organically and through
acquisition. We view Lower Lakes and Grand River as a
platform acquisition representing a strong base off
which to grow the company. Our senior team is already
working on opportunities for growth and we are
optimistic about our ability to expand.
Our initial focus for acquisitions will be on Jones Act
assets both on the Great Lakes and elsewhere. We have
identified some opportunities and are pursuing them.
Additionally we will be seeking to identify other assets
that meet our criteria of predictable cash flows and
barriers to entry.
I'd like to point out that we are not providing
financial guidance at this point in time in light of the
recent closing of the acquisition. It is however a
subject that we will revisit in the future.
I should also mention that we are working on
transferring our listing for our common stock, warrants
and units from the Bulletin Board to Nasdaq. We
anticipate this occurring in the near future.
Additionally, we are planning an investor outing to
visit Lower Lakes' operations in Ontario, likely in the
second half of April, so please call or email Lauren
Till at The Equity Group if you have an interest in
joining us for the trip - 212-836-9610 or
LTill@equityny.com.
I will also continue to be proactive with the investment
community in terms of reaching out to the buy and
sell-side.
And now we would like to open the call for questions.
Operator, could you please assist us with that?
QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions].
Our first question comes from the line of Bobby Melnick with Terrier Partners.
Please go ahead, Mr. Melnick.
<Q - Bobby Melnick>: Thank you, good morning gentlemen.
<A - Laurence Levy>: Good morning Bobby.
<A - Scott Bravener>: Good morning Bob.
<Q - Bobby Melnick>: I appreciate you hosting this call, I think that's
shareholder friendly. And as one owner, I endorse not offering any guidance, may
distinguish me from the investment community, but I, this is an unpredictable
business as you know - short-term given some of the volatility that you
discussed, and I think if you set out some of the parameters, investors should
be able to make their own conclusion. So, I don't think guidance is necessarily,
a good thing for investors, point one.
Point two; my question you spoke about the pricing outlook for 2006 being higher
than historic norms of the company. I recognize that you have unique contracts
with each of your customers, but if you could flesh that out a little bit and
give us some indication about either what that represents broadly for 2006, or
give us some indication about what those historic averages were Scott, and we
might have a sense of sort of what to anticipate in terms of our ongoing
contracts, again this would be precluding the fuel surcharge, which I assume is
a cost pass-along?
<A - Scott Bravener>: That's correct Bob. Historically, our contracts have
either been tied to cost-of-living increases, or increases in the neighborhood
of 2% to 3% per annum against the vessel component of our freight rates, which
represents 85% of the freight rates, 15% is the component of which the fuel
surcharge is based. On, in the last half of last season, and going into this
season, any renewals we've done, we've seen increases roughly double what we
have historically seen.
<Q - Bobby Melnick>: Right thank you.
Operator: [Operator Instructions]. Your next question comes from the line of
Brett Fialkoff with Performance Partners. Please go ahead Mr. Fialkoff.
<Q - Brett Fialkoff>: Hi guys given what's going on with the rates, are you able
to sign up longer-term deals?
<A - Scott Bravener: Typically Brett all of our agreements are, have been 2 to 7
seven years in duration. In this market right now we are looking at 3 to 5 years
on anything that we are renewing currently.
<Q - Brett Fialkoff>: Okay given, but given that rates are double would you look
favorably on going a little longer out, meaning you would like to sign up 4 or 5
year deals given where rates are or just keep it as it is?
<A - Scott Bravener: With what we see happening with capacity in the market I
think we have intended to go a little shorter than longer at this period with
the potential for even more favorable increases in the future.
<Q - Brett Fialkoff>: Is any capacity coming out the market or its just demand
is so strong?
<A - Scott Bravener: It's a combination of demand and there has been some
capacity removed from the market with vessel retirements in both the Canadian
market and the U.S. market.
<Q - Brett Fialkoff>: Can you give us any indication of how much is coming out
of the fleet?
<A - Scott Bravener: I think in the Canadian market there has been one vessel
removed from the market for use in foreign operations of the operator that owned
it, that's going to remove approximately 2 million ton of capacity out of the
Canadian market and there was one vessel retired in the U.S. market last year
which removed about a 1.5 million ton of capacity from the U.S. market.
<Q - Brett Fialkoff>: And just to refresh my memory, how much total tonnage is
there in U.S. and Canada in our markets?
<A - Scott Bravener: Off the top of my head, I couldn't answer that question but
it's, I believe in the 45 million ton range.
<Q - Brett Fialkoff>: Okay great. And I also second Bobby's comments about
guidance. Thanks guys.
<A - Scott Bravener: Thank you.
<A - Laurence Levy>: Thanks Brett.
Operator: Your next question comes from the line of Bill Fellows with Turnberry
Capital Management. Please go ahead Mr. Fellows.
<Q>: Hi, good morning. I had a question about utilization rates, I recognize on
your outbound trips if you will, utilization up in the high 90% and on the
backhaul portion it's a bit lower. I just wanted to know what are the
possibilities you might have to improve the utilization on the backhaul segment?
<A - Scott Bravener: We have strengthened our backhaul business this past winter
we just concluded a contract with an electric utility in the Michigan market to
service all their requirements over the next couple of years. And our existing
customers have indicated stronger backhaul patterns going into the season, which
are mainly salt customers and coal customers.
<Q>: Where - I mean, in your ideal case or realistic case how high do you think
you could get the utilization rates up on the backhaul part and roughly where
are they at today?
<A - Scott Bravener: Typically we look at the utilization on the basis of the
amount of time spent in the loaded condition and the amount of time the vessel
is in ballast. Some trades, if you are in a shuttle type trade pattern you are
going to be close to 50:50 but in most of our trade patterns we're looking at
65:35 with the vessel in the loaded condition versus ballast. Last season that
would have been much closer to 38, 39%- or I should say the loaded condition was
greater than that last year. We have improved upon that and we think that will
improve - much closer to a 70:30 mix this year.
<Q>: Okay. Thank you.
Operator: At this time there are no additional questions. I will now turn the
conference back to Mr. Levy.
I am sorry we do now have a question from question from Gary Lehrman. Please go
ahead.
<Q>: Hi good morning guys, Gary Lehrman. I have a question and I apologize in
advance if you addressed this in your prepared remarks, but I was wondering how
much you guys have to pursue further acquisitions in terms of cash and available
capital?
<A - Laurence Levy>: Gary for us to pursue further acquisitions, we will be
sourcing additional capital from our existing and new capital product. We do
have a very supportive equity base that is aware of our strategic plan and has
indicated that they would be receptive to investing additional capital in our
company. We have as part of this initial acquisition placed a $15 million
preferred stock note and have received indication from several parties that they
would be receptive to investing in a similar note and clearly our debt providers
are receptive to supporting us. Having the flexibility of a public stock also
gives us the option of issuing stock to a seller if we find an appropriate
situation. But clearly we are very sensitive to dilution of our existing
shareholder basis; our management team are significant shareholders in the
company. So, when we find an appropriate acquisition opportunity we do not
believe that capital will be a significant constraint on our capabilities.
<Q>: Great. Thank you.
Operator: There are no additional questions at this time. I'll now turn the
conference back to Mr. Levy.
Laurence S. Levy, Chairman and Chief Executive Officer
Okay. Thank you all very much for taking your time to participate on this call
and for the support that you do provide to our company. Our management team is
dedicated to maximizing the value of this company and we are going to be focused
on doing that. So, thank you all and we look forward to speaking with you soon
and hopefully we would encourage as many of you as can to come and visit Ontario
with us during the month of April. Thanks operator.
Operator: Thank you, sir. And this concludes our conference call for today.
Thank you all for participating and have a nice day. All parties may now
disconnect.