RAND LOGISTICS, INC.
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RAND LOGISTICS, INC.
2008 Second Quarter Conference Call
November 14, 2007
9:00 AM ET
Operator: Good morning & welcome ladies and gentlemen to the Rand
Logistics Second Quarter Fiscal 2008 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
the 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. Good morning everyone, and thank you for
joining us for Rand's Second Quarter 2008 conference call.
After my opening remarks, Scott Bravener, President & CEO of
Lower Lakes, will discuss operational highlights for the
Second Quarter. Then, Joe McHugh, CFO of Rand, will cover some
financial points and Ed Levy, President of Rand will update
you on our acquisition of the two Voyageur vessels as well as
provide an update on the WMS time chartered vessels and the
related work stoppage, which recently concluded. Finally, I
will summarize our prospects for next year and we will open up
the call for questions.
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During the second quarter, our core operations, which include
the original eight Lower Lakes vessels, posted higher
operating margins before G&A with substantial improvement in
our four US flagged vessels. We are very pleased that all
three of the WMS vessels which were previously laid up due to
a work stoppage are now sailing and servicing our customers'
needs. In addition, we are pleased to have closed the
acquisition of two conventional bulk carriers from Voyageur
Marine Transport on August 27, which will provide significant
incremental cash flow to Rand. However, our second quarter
financial performance was significantly impacted by the lay-up
of the WMS vessels during the work stoppage, and the
subsequent August-September start up period during which WMS
recruited licensed officers. In addition, the quarter also
reflects a significant investment in Finance and
Administrative operations and IT infrastructure required to
support the growth in our business as well as to comply with
Sarbanes Oxley requirements.
Now I'd like to turn the call over to Scott. Scott?
Scott Bravener: Thanks Laurence.
First I'd like to discuss the factors that drove and hindered
our revenue growth in the second quarter. Year over year
revenue growth for the quarter, excluding the WMS vessels,
increased by $4 million, or 19% to $24.6 million due to the
improved performance of our US vessels, rate increases, and
revenue from our newly acquired vessels. Excluding the three
WMS time chartered vessels and the just acquired bulk
carriers; sailing days equaled 721 for the quarter ended
September 30, 2007 versus 727 for the quarter ended September
30, 2006. The maximum number of sailing days for the quarter
ended September 30, 2007 was 736. We lost 15 days during the
second quarter due to repair work being done on one of our
Canadian vessels.
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As you all know, on August 1st of last year, we entered into a
time charter agreement with Wisconsin & Michigan Steamship
Company for the exclusive use of three self-unloading bulk
carriers, which substantially expanded our shipping capacity
and further strengthened our market position. During the
second quarter, the three time chartered vessels generated
$1.8 million of revenue compared to $5.5 million during last
year's second quarter due to the work stoppage that commenced
on May 9, 2007. The three WMS time chartered vessels sailed
only 60 days for the quarter versus 183 in the year ago
period. We remain very optimistic about the long term benefits
that these three vessels will provide to our company.
Excluding WMS, our income before G&A Expense for the quarter
increased $1.3 million or 22% to $7.0 million. EBITDA growth
excluding WMS exceeded revenue growth due to efficiencies
realized in our US fleet, higher freight rates both in Canada
and the US and better optimization of backhaul opportunities.
I see no reason why these trends will not continue into the
future and may in fact accelerate as we are able to bring the
three WMS vessels up to their full potential.
We are well advanced in negotiations to renew our expiring
customer contracts for the upcoming 2008 sailing season. At
the present time, we have substantially agreed on terms
relating to the vast majority of our material contracts that
were due to expire in 2008 on economic terms that are
consistent with our expectations. In addition, I am pleased to
report that we have already been able to secure several new
pieces of business for the 2008 sailing season which should
further enhance the scheduling efficiency of our fleet. Given
the prohibitive cost associated with building new capacity
without a material increase in rates, we believe that the
overall shipping demand on the Great Lakes will continue to
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exceed available industry capacity for the foreseeable future.
As such, we anticipate price increases in excess of cost
increases for the foreseeable future. In addition, we have not
been affected by increasing fuel prices as we pass these
increases along to our customers.
Operationally, we were able to achieve significant
improvements in our performance within our US fleet thus far
this year. Investments we have made in personnel, preventative
maintenance, and capital expenditures for these vessels have
reduced repair costs, improved port efficiencies, and
generated increased revenues. We have continued to witness
significant improvement in the US fleets' performance in
October and early November relative to 2006 and are optimistic
that the performance of these vessels will continue to exceed
comparable periods from last year. While we have made
significant progress in improving the results of the four US
vessels, I believe that additional profit enhancement
opportunities still exist.
I am pleased with our base business' operating performance for
our first half and am happy to have regained the full capacity
utilization of the three WMS time chartered vessels. I'll now
turn the call over to Joe.
Joe?
Joe McHugh: Thanks Scott. I'm sure you've all read through our second
quarter news release and possibly even our 10-Q filed
yesterday, so I'm not going to reiterate all of the numbers.
Excluding the financial results of the Variable Interest
Entity WMS, for which Rand was the primary beneficiary under
GAAP rules even though Rand has no ownership interest in that
entity, EBITDA decreased from $5.5 million for the second
quarter of last year to $3.0 million for the second quarter of
this year. We incurred a loss of $1.4 million associated with
the vessels operated under the WMS time charter versus a
positive EBITDA of $1.4 million in the comparable quarter.
Excluding the WMS vessels, EBITDA for core operations would
have increased by $200,000 from 2006 to 2007, despite a $1
million increase in G&A expenses.
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Specifically, G&A at the operating company increased by $1.2
million to $2.0 million, primarily attributable to a number of
initiatives necessary to support the Company's growth. We
consider approximately $800,000 of the increase to be
non-recurring, including (1) the cost to significantly upgrade
the Finance and IT infrastructure, (2) expensing certain costs
arising out of the Voyageur Transactions, and (3) costs
related to the FIN-48 tax rule. Costs related to the IT
Infrastructure upgrade will continue through the end of this
fiscal year. The increase in operating company G&A was in part
offset by a $150,000 decrease in Rand's public company
expenses, including reduced legal expenses. We remain
committed to our goal of maintaining cash expenses at the Rand
level at $2.7 to $3.0 million per year.
Now I'd like to turn it over to Ed. Ed?
Ed Levy: Thanks, Joe.
We are pleased with the progress that we have made not only in
building Rand from 8 vessels in March of 2006 to 14 currently,
but also in the management and systems improvements that we
have implemented to support this growth. We believe that much
of the investment spending necessary to upgrade our management
infrastructure and support will be behind us at the end of
this fiscal year. As we have reported, Wisconsin and Michigan
Steamship's agreement with the American Maritime Officers
expired on July 31 pursuant to its terms and was not renewed.
Under the agreement, the AMO had provided the supervisory
positions on the WMS vessels and had been engaged in a work
stoppage since May 9th. Subsequent to the Agreement
expiration, WMS has recruited new supervisory officers to
operate the three vessels. We believe that with a full sailing
season and the new labor structure that WMS has put in place,
there is significant earnings growth potential associated with
these three vessels that is not currently reflected in our
financial performance.
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At the end of August we were pleased to announce the
acquisition of the two Voyageur Marine Transport vessels and
the signing of a long term contract of affreightment on a
third vessel, which includes a purchase option . Similar to
our self unloading vessels, there are a limited number of bulk
carriers on the Great Lakes and we do not believe that it is
economically feasible to add new capacity for the foreseeable
future. As such we believe that the supply demand imbalance
that currently exists in this market will continue. These
vessels not only leverage our existing customer relationships
but also expand the range of services that we can provide to
our customers and diversify our end markets served. Consistent
with our stated strategy, we were able to secure long term
contracts for the boats capacity through 2011 with a variety
of premier grain customers. Based on the $23.7 million
purchase price paid for the assets, we acquired these assets
at less than 5.0 times EBITDA. Similar to the three WMS
vessels, our recent financial results do not yet fully reflect
the benefit of the Voyageur assets.
As Scott mentioned we believe that overall demand on the Great
Lakes should continue to exceed available market capacity for
the foreseeable future. Consistent with our strategy to
capitalize on the market trends we are witnessing, we remain
focused on building upon our strong base business and are
actively pursuing a variety of "in-market" acquisition
opportunities, which we believe will continue to strengthen
our competitive position and create value for our
shareholders.
Finally, as we have mentioned previously, in the next 5 to 8
years our Canadian competitors will either need to
decommission their existing vessels or make a material
investment to refurbish them. Late last week, Seaway Marine
Transport announced that they will invest approximately $125
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million to rehabilitate two of their vessels. This compares to
our total acquisition price of approximately $53 million for
the original eight Lower Lakes vessels, a price of $18 million
paid by WMS for the three vessels purchased from Oglebay
Norton which we in turn have an option to acquire for a
comparable amount and our $23.7 million purchase price for the
two Voyageur vessels. We continue to believe we have acquired
very attractive assets at attractive valuations.
With that said, I would like to turn the call back to
Laurence.
Laurence Levy: Thanks Ed. We, as a management team, do believe that Rand is
at a positive inflection point and should enjoy a strong
financial year in calendar 2008. Our existing base business is
performing well with our US flag vessels performing
particularly well compared to last year. We expect this strong
trend to continue. Our WMS time chartered vessels are all
sailing again and servicing customer needs with a lower
operating cost structure than existed before the work
stoppage. We anticipate having them fully operational for the
whole of next year at significantly improved profit margins
compared to the current work stoppage interrupted year. Our
two bulk carriers are performing well and will contribute a
full year of profitability in calendar 2008. Thus far,
customer contract renewals and pricing have met our
expectations and we have added several new pieces of business
which will improve our fleet efficiency by increasing our
capacity utilization. Lastly, I would highlight that well over
half of our cash flow is generated in Canadian dollars, which
has been a strongly appreciating currency against the US
dollar, the currency in which we report results.
With that said, operator, could you please begin the Q&A
portion of the call?
Operator: Ladies and Gentleman if you would like to ask a question
simply press star then the number 1 on your telephone keypad.
We'll pause for just a moment to compile the Q&A Roster. Your
first question will come from the line of Arnie Ursaner with
CJS Securities.
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Fred Boniker: Good morning gentlemen. This is actually Fred Boniker on
behalf of Arnie. I actually have a few questions. I wanted to
start out with trying to get a sense for at what rate does it
make economic sense to actually build a new ship to try and
meet some of this excess demand that you're finding.
Laurence Levy: Fred, this is Laurence. I mean we don't have a specific number
there, but just in general terms, we have paid on average
about $8 million for each of our vessels in our fleet. And we
are earning what we believe is a satisfactory and fair rate of
return on that investment.
The replacement costs on our vessels today is somewhere in the
range of about nine to ten times our invested amount. So in
ballpark terms, I think it's reasonable to assume that the
EBITDA or cash flow would have to increase by a factor of
eight to nine times to justify earning a fair rate of return
on new investments.
Now clearly there wouldn't have to be an eight to nine times
increase in revenue since your operating costs are covered
already, but it would be a very significant increase in
revenue rates from where they are today.
Fred Boniker: I see. Relative to pricing terms, I mean given these favorable
supply demand dynamics can you elaborate a little bit more on
the kinds of pricing terms that you're getting and what you
expect for FY '09.
Laurence Levy: Scott could you address that please.
Scott: On recent renewals Fred, we've exceeded our expectations
certainly as we discussed last quarter well over double
historical norms out three to five years in duration. And
generally, in the first year or two of any agreement, we've
been able to get double-digit increases.
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Fred Boniker: Great and in light of that, can you remind us how long your
contracts typically run and maybe what percentage are up for
renewal in the next 12 months?
Scott: Typically, our contracts are anywhere from three to five years
in duration for the most part. And we have recently renewed
three or four of expiring contracts and we've got - we've only
got one or two remaining contracts that expire this year of
any materiality to be renewed.
Fred Boniker: Okay, great. I'll just ask one final question regarding
operating margins. How should we think about operating margins
for FY '09 once you've kind of have everything normalized in
the business?
Laurence Levy: Ed would you mind responding to that?
Ed: Fred, I think that we have given our investors direction that
if they're thinking about operating margin of approximately
$6500 a day, that's a good ballpark number to be thinking
about. Yes, that's the direction we've given people.
Fred Boniker: And that's per vessel.
Ed: Per vessel, correct.
Ed: $6000 to $6500 per day per vessel.
Fred Boniker: Okay thank you very much.
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Ed: Fred, to finalize the point Scott was making. On a couple of
contract renewals that we have remaining, we're already well
into dialogue with those customers and feel very confident in
terms of our success rate in getting those renewed.
Fred Boniker: Excellent. Thank you very much.
Laurence Levy: Thank you Fred.
Operator: Your next questions will come from the line of Paul Sonkin
with Hummingbird
Paul Sonkin: Good morning. I had a couple questions. One, it sounds like is
the December quarter going to be your first clean quarter with
Voyager and WMS and I guess would this be, or would the
December quarter be representative of the earnings power of
the business.
Laurence Levy: Paul we do not expect that this quarter will fully reflect the
benefits we anticipate next year. The primary reason is that
the WMS vessels, while they are getting up to speed and
sailing, they've been through a significant period of
recruiting new officers and have taken some time to get up
their full operational speeds.
They are still not at the full cost structure or at the cost
structure, we anticipate they will be operating at next year.
So while we will see some incremental benefit from them
compared to during the work stoppage period, by next year they
should be at a significantly improved margin.
Scott: Paul I'd just to add to that, also on the Voyager bulk vessels
that we recently purchased, there was a number of existing
contracts that expired at the end of this navigation season
that we had to honor as part of our renegotiation of those
contracts. So we expect the results from those vessels under
the newly renegotiated contracts to be much better next year.
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Paul Sonkin: So in the December quarter, we should see improvement over
last year, but there'll still be a little bit of noise in the
quarter.
Laurence Levy: I think that's probably a fair assessment Paul at this point.
Paul Sonkin: Can you also talk about your acquisition pipeline and also it
seems to me as though you've made all these investments, and
significant investments, in SG&A, I guess will this allow
incremental acquisitions to be more accretive to earnings as
more of the gross profit just falls to the bottom line.
Laurence Levy: Ed would you mind responding to that, please.
Ed: Good morning Paul. I think on the acquisition pipeline, we are
still -- we are very active in that area. We see a number of
accretive strategic acquisitions that we are pursuing at this
point, but continuing to maintain the disciplines that we
think we've shown historically. And we have, and I think the
Voyager transaction as an excellent example of this, we now
have the infrastructure in place to do these add on
acquisitions without adding incremental SG&A costs.
In the case of Voyager, we added one person. So we should get
tremendous operating leverage as we continue to add assets to
the business.
Paul Sonkin: Are you looking outside the Great Lakes or would it be fair to
say that Rand Logistics at this point is mainly Great Lakes
centric.
Ed: We have enough opportunities and we're seeing enough
opportunities in the market, Paul, where we are very focused -
entirely focused, at this point on the Great Lakes and we're
looking at a variety of different opportunities both
consistent with our existing fleet, as well as some add ons
which allow us to serve our existing customer base more
effectively.
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Laurence Levy: Paul the attraction of the Great Lakes is obviously we have a
tremendous management team there, we've got our infrastructure
there, we're able to extract synergies from any add on
acquisitions in that geographic market, we're servicing
similar customers so we see a lot of benefits to the extent
that opportunities are available in that market to continue to
focus there.
Paul Sonkin: And Laurence in conversations that we have had, that I've just
gotten the impression from you that since you originally made
the acquisition of Scott's company, that it seems as though
the opportunities that arise become even more robust, like it
just seems as though there were a lot of opportunities that
you weren't even aware of a year and a half ago.
Laurence Levy: I think that's probably a fair assessment Paul. As we become
more acquainted with the markets as the markets become more
acquainted with us opportunities have surfaced. We've been in
touch with numerous parties on the Great Lakes.
And as a result, over time we are starting to see response to
those efforts. So we are quite confident that we do have
prospects available to us. We don't want to rush into them, we
are very focused on acquiring them at rationale pricees if we
make any deals.
We think we've suddenly achieved that with WMS and Voyager
with both assets in essence once you cut through the numbers,
the investments have been made at less than five times EBITDA.
That's the kind of range we feel very happy at.
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Particularly in light of I think some of you may have seen at
one of our recent presentations where we spoke about Oceanex,
which is a company listed on the Toronto Stock Exchange, which
does shipping in the Canadian market.
It is just being sold right now at ten times EBITDA, or so.
And we think as long as we can continue to do accretive
acquisitions in the range of which we've been able to achieve
them that we are creating significant value for our
shareholders.
Paul Sonkin: And I guess I have a question for Scott. Could you comment a
little bit on water levels. I guess the natural ebb and tide
of the water levels and the dredging situation on the Great
Lakes.
Scott: Yeah certainly Paul, as we've discussed a number of times.
Historically, water levels in the Great Lakes have run on
roughly 15-year cycles. Right now, we're trending fairly close
to record lows on a lot of the lakes, 1998 was a record high
water levels for the Great Lakes so we feel that we're near or
at the bottom of a cycle right now. We've seen in Lake
Superior just in the last two months at a time when
historically water levels are dropping at this time of year in
their seasonal cycle, Lake Superior has increased by over
eight inches during that period which is a significant
improvement.
They went from a period of about two years of drought in the
western lakes to record rainfall over the last two months in
the Duluth Superior region and that's brought water levels on
Lake Superior back up to datum where they had been trending
very close to record lows for most of the year. We're in fact
carrying larger cargos right now on our main trade into Sault
Ste. Marie and Lake Superior than we have at any point this
season.
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And typically, this time of year you're reducing draft due to
the seasonal variation of water levels. We're still very
concerned about the effect of water levels.
Most of our contracts contain water level language that the
water level continues to fall below certain points where we're
able to adjust pricing.
As far as dredging, dredging on the Great Lakes for the last
number of years, the funds have not been available to the US
Core of Engineers and there's been a reduced amount of
dredging.
Congress just recently overrode the Presidential veto of the
Water Act that was just recently passed. We're hopeful that
both legislative bodies in the US are planning on passing that
bill. And we're hopeful that that's going to provide over the
next several years increased funding for dredging on the Great
Lakes.
Paul Sonkin: So it sounds like that you'll sort of have the winds at your
backs in terms of the water levels going forward.
Scott: We're hopeful of that Paul. As I say, historically, we've been
a 15-year cycles and if it holds true to pattern, the last
time we seen water levels this low on the Great Lakes.
There's a lot of talk of global warming, etc., and a lot - but
we've seen water levels in the 1930s and the 1960s that
resemble the levels that we have now on the lake.
So they have been there before and as I say as recently as
1998, we've seen record high water levels. So it's very
unpredictable, but also there is a natural cycle to it and we
expect that we are at or near the bottom of that cycle.
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Paul Sonkin: All right great thank you very much.
Laurence Levy: Paul, so just to follow-up on this, clearly if historic
patterns do hold and water levels do improve, it will have a
material positive impact on our bottom line. We are a fixed
cost business where we've covered all our fixed costs. In any
incremental tonnage, we all are able to carry as a result
improved water levels will not only reduce our revenue but
fall straight through to our bottom line. So hopefully things
can only get better from here on.
Paul Sonkin: Thanks.
Laurence Levy: Thank you.
Operator: Your next question will come from the line of Brett Fialkoff
with P2 Management.
Brett Fialkoff: Scott can you elaborate a little on the improvement you're
seeing in the US maybe if you could touch on margins and
specifically what are the issues there that have been kind of
hindering our performance.
Scott: Brett specifically on - within the US fleet, we've over the
past couple of seasons we had seen a lot of difficulty not
only in our fleet but in the US Marine industry in general
recruitment of crews and retention has been a major problem.
We beefed up our personnel on the engineering side last year
within the US fleet, spent a lot of money under capital
expenditures and in improving the unloading equipment on board
the vessels. And we've just seen the increased reliability
this year.
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Certainly, we've spent a lot of money on performance. We've
put in place performance award programs quarterly for the
performance of the US boats and we've seen a major improvement
since we instituted that program, both in reduced crew
turnover and now our operating efficiencies have greatly
improved. Our unloading rates are much improved from last
year.
And on a margin basis compared to year-to-date, it's been -
we've slightly exceeded our budget numbers for this year and
compared to prior year, we're almost a 10% improvement in the
margin of those US vessels.
Brett Fialkoff: Okay. And Ed you spoke about the Canadian competitor would
have to decommission or spend a lot of money down the road.
Can you just elaborate on their situation?
Ed: Brett what we know is what they have made available in press
releases. And we're aware of the fact that they're going to be
doing the refurbishing of their vessels over in China and
they've made it known that they're talking about $125 million
so they're going to be investing approximately $62 million per
vessel.
We appreciate that. That coincides with the same kind of
pricing that we have seen as we've looked at new vessel bills.
And we very much like the fact that as Laurence mentioned that
our cost of vessels are somewhere in the $8 million range and
our competitors price the vessel at a minimum of $62 million.
So we very much like what that does from a competitive dynamic
standpoint.
And hopefully they're going to be getting the kind of rates of
return on those vessels that they're shareholders are
demanding from them.
Brett Fialkoff: Okay, thank you.
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Laurence Levy: Thanks Brett.
Operator: Your next question will come from the line of Bobby Melnick
with Terrier Partners.
Bobby Melnick: Hi a couple of questions please. I wanted to follow up on your
comments about the Seaway. You're not suggesting that these
are comparable ships to yours are you?
Ed: We're suggesting that these are comparable ships to ours, yes
Bob.
Bobby Melnick: Well I think that's just disingenious and I think that's
misleading. Have you spoken to Seaway about why they did this?
Ed: We know the two vessels by name that they are ...
Bobby Melnick: But they put it in a press release so I mean that's not value
added. Have you spoken to them as to why they engage in this
CAPEX program?
Ed: All we have is the information that they have put forth in
their press release and we know the two vessels, which are
competitive with our vessels.
Bobby Melnick: Well, I've spoken to them and I would suggest that these are
not comparable vessels and I think it's very disingenuous and
misleading to suggest that these are comparable to yours.
These are vessels they intend to use 12 months of the year.
These are vessels that can use salt water. These are vessels
that will not be dried out three to four months a year when
the Great Lakes are shut in.
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These are vessels that are largely going to be used for their
integrated service carrying iron ore, they're larger vessels,
they're vessels that offer services that our ships could not
possibly offer. So I think it's a little disingenuous. It's a
lot of money $125 million. By the way, that's $125 million
Canadian so it's slightly more than $125 million US at this
point, but they're really not comparable vessels to our own.
And it's really very misleading to suggest that they're
competitors to ours so that they're comparable to ours. So I
don't think that's appropriate.
I wanted to ask a little bit about your reporting. In your
press release, you talk about proformas adjusted EBITDA
improvements. You don't talk about some things that are
mentioned in your 10Q, however.
In your 10Q, you cite that the company breached its covenants
during the quarter that you were in default of your financial
covenants and you required a waiver November 6, which you
received from your bankers, which is similar to the waiver you
received on August 6.
My question is when do you think you guys might have a quarter
where you don't breach your covenant and require a waiver from
your bankers, please?
Laurence Levy: Joe, could you respond to that.
Joe: Yes I can. I think there's a couple of factors Bobby that
impacted that. The quick change in the exchange rate did
impact the translation of our US earnings into Canadian
dollars, which are used in our bank covenants since most of
our debt is Canadian.
So, we had impact from the strike. We had some impact from
the strike on the core business despite that improving a bit
in the inefficiencies of those boats trying to meet the most
critical needs of the customers, which caused us some
inefficiency.
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We had the higher G&A costs which is a one time - most of
those are non-recurring, some of them in the quarter and some
of them after this year, And we also are entering a quarter,
in the third quarter, where anything can happen with the
weather.
So we're sitting here now almost halfway through the quarter
and barring some problem with the weather, we've got all our
ships in operation today as you know with the third WMS ship
back in service in early - all three of them sailing as of
November 1, and we also have the Voyager vessels which have
their best business - seasonal business - during this quarter
of the year.
So the fourth quarter - the fourth quarter which is our third
quarter, year-over-year should be an improvement over the
prior year.
Bobby Melnick: So you don't think you'll trip any covenants - I mean it's a
little unusual. You guys raised $11 million in new capital
during the quarter and then you blew your covenants.
Joe: Well, we had - a couple of things happen. - I mean we had the
exchange rate change. We also had the timing of when that
Voyageur agreement started. When we set our covenants with GE
the actual timing was off about a week and the vessels were in
a location where they had couldn't get to pick up their first
delivery and record revenue they way we record revenue until
about five to six days into - actually in the first week or
first day or two of September.
So we had that timing that was slightly off. We had the
currency change, we had the impact of WMS and we had just the
timing of the G&A costs some of which were one timers. And
when we set those new covenants with GE, we hadn't realized
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the benefit yet of some of the things from some of the
programs, nor the timing of the costs of what we had to do in
the second quarter to become complaint in SOX testing that
we're required to start for the management testing this
quarter.
Bobby Melnick: I don't understand something you guys, the three of you, have
consistently been talking about how this company has an
opportunity to leverage its high fixed cost.
Presumably that refers to the fact that you have approximately
$3 million in corporate which Joe said $2.7 million to $3
million in corporate and you've historically cited that you
have a $4 million operating expense which is Port Dover and
the Cleveland office.
So you've consistently that it's about $7 million but as the
company acquires new assets or even diversifies with other
Great Lakes assets that you will not be required to add to
your fixed costs in your infrastructure.
And the reason I'm puzzled about that is because you've
consistently cited the $4 million as your Canadian Port Dover
expenses. And yet in a presentation that you made October 12
to C.L. King very clearly on the chart you cite that your
operating SG&A of (Port Dover) in Cleveland is $4.5 million
which is a 12% increase from the $4 million you've
consistently cited.
So my question to you which is the truth. Is this a company
that can add revenues and assets and leverage its
extraordinarily high infrastructure costs or is it a company
that is consistently going to sort of tweak up and bleed
higher operating expenses that cut into the profitability?
Laurence Levy: Bobby, this is Laurence I'm not sure of the source of your
numbers ...
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Bobby Melnick: The source of the numbers is you. The source of the numbers is
-Ed- and the source of numbers if the C.L. King presentation
which is filed in an 8K dated October 12.
Laurence Levy: Okay. Why don't we discuss this off line and operator I'd
appreciate it any additional questions from other
shareholders. Thank you.
Operator: Your next question will come from the line of Chris Dudko with
the JDA Capital.
Chris Dudko: Hey guys, good morning. I saw you mentioned the $6500 a day as
I guess sort of the average EBITDA contribution per ship. I
was curious you talked about a lot of improvement with the US
ships but can you talk about the difference in EBITDA
contributions between the US fleet and the Canadian fleet and
how that has changed in the quarter.
Laurence Levy: Scott could you respond to that please.
Scott: Joe can answer that.
Joe: I'll be happy to do that Laurence.
Laurence Levy: Go ahead Joe.
Joe: If you're looking at the Canadian fleet in US dollars we've
had what I would call the EBITDA before G&A costs that was
approximately flat from about - both of them around $4.2
million for the quarter whereas - and that was impacted a
little bit by some of the factors that we talked earlier.
Whereas the US business - where we had a tough quarter a year
ago, we've almost doubled from a $1.5 million before G&A to
about $2.8 million.
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So that's a significant improvement on the US side. We did
have some inefficiency on the Canadian side this quarter in
matching the ships with the freight responding to the most
pressing customer needs of the ships of the customers during
the WMS strike.
Scott: Chris those Canadian operations for the second quarter
represent about 62% of our total EBITDA as a company
Chris Dudko: I'm sorry Canadian is 62%.
Scott: That's correct.
Chris Dudko: Okay and you think that the US will continue that $6500 number
that you gave sort of as a potential - I guess a potential
average. You see continued US improvement sort of baked into
that.
Scott:: We see further improvement in our US and as Joe touched upon
our Canadian operations are slightly off this year due to a
couple of incidents we've had on board the vessels.
On day-to-day operations, they're actually out performing last
years pace. If you subtract the incidents that we've had. So
we see further room for improvement on both sides next year.
Chris Dudko: Okay. And ...
Ed: Chris across the fleet though I think if you're thinking about
the $6500 per day operating margins across the entire fleet
because there are differences in the operating profitability
of each of the vessels ...
Chris Dudko: Right.
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Ed: Because that's a good number to be targeting.
Chris Dudko: Okay. And then how much of that estimate is based on higher
Canadian currency rates? Does that have much of an effect on
that?
Laurence Levy: We have not factored in much of a change and obviously,
currencies can move back and forth.
Chris Dudko: Right.
Laurence Levy: But certainly at the moment currencies can move back and
forth. But certainly at the moment the currency is helpful to
us to the extent we are reporting US dollars and as Scott said
over half our EBITDA is generated in Canadian.
Chris Dudko: Okay and what was the currency effect in the quarter?
Laurence Levy: Joe.
(Joe): Well I think there were a couple of effects for the quarter.
The Canadian currency effectively picked up I'm going to say
about $350,000 - of almost $350,000 of EBITDA. If you look at
the translation rates this quarter versus the translation
rates in last year's quarter which was helpful from an EBITDA
basis.
Now going the other way if you look at my US earnings
year-over-year, I lost about almost $250,000 in my Canadian
EBITDA translating the US unit's results when I was trying to
meet my bank covenants - EBITDA bank covenants which were in
Canadian. So while it's overall a good effect from a US
currency or US reporting basis, it had a slight impact, a
modest impact on my financial covenants.
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Chris Dudko: Okay. Great thanks.
Laurence Levy: Thank you.
Operator: And at this time there are no further questions. Please
continue with any closing comments.
Laurence Levy: Thank you very much operator. We continue to be optimistic
about Rand's longer-term prospects. We thank you all for your
inputs in Rand and we look forward to speaking to you all on
our next call.
Operator: Ladies and gentlemen this does conclude the Rand Logistics
second quarter 2008 Conference Call. You may now disconnect.
END