Quality Distribution's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Quality Distribution, Inc. (QLTY)
by: SA Transcripts

Quality Distribution, Inc. (NASDAQ:QLTY)

Q4 2013 Earnings Conference Call

February 26, 2014 10:00 ET

Executives

Robin Cohan - Vice President, Controller

Gary Enzor - Chairman and Chief Executive Officer

Joe Troy - Chief Financial Officer

Analysts

Jack Atkins - Stephens

Ryan Cieslak - KeyBanc

Donald Broughton - Avondale Partners

Alex Johnson - JPMorgan

Operator

Good day and welcome to the Quality Distribution Fourth Quarter Year End 2013 Earnings Conference Call. Today’s conference is being recorded. At this time I’d like to turn the call over to Robin Cohan, VP Controller. Please go ahead.

Robin Cohan - Vice President, Controller

Thank you, operator, and good morning, everyone. We’re delighted to have you joined us today for our fourth quarter and year end 2013 earnings call. Our speakers today are Gary Enzor, our Chairman and CEO; and Joe Troy, our CFO.

Before I turn the call over to Joe, I’d like to caution all participants that comments made by Quality’s employees during this conference call may contain forward-looking statements. Actual results could differ materially from those projected or expected in these forward-looking statements.

Listeners are urged to carefully review and consider the various disclosures made by the company in this conference call and the Risk Factors disclosed in the company’s Annual Report on Form 10-K for the year ended December 31, 2012, as well as other reports filed with the Securities and Exchange Commission.

Copies of the company’s Annual Report on Form 10-K and other SEC reports are available on our website at www.qualitydistribution.com and on the SEC’s website. The company disclaims any obligation to update any forward-looking statements after this conference call.

I also want to remind everyone that we refer to certain non-GAAP measures such as adjusted EPS and adjusted EBITDA that management uses to evaluate the business and to help provide additional measures of earnings and cash flow that may be important to the investment community.

At this time all participants have been placed in a listen-only mode. The forum will be open for questions following the presentation.

With that I’d like to turn the call over to our CFO, Joe Troy.

Joe Troy - Chief Financial Officer

Thank you, Robin, and good morning everyone. Yesterday we reported Q4 and 2013 results and announced our intention of our initiation of earnings and cash flow guidance ranges for 2014. As we stated in the release we felt it was important to provide more clarity on our expectations for 2014 with respect to earnings as well as free cash flow generation.

Revenues in the fourth quarter increased 4.7% versus the same period last year and we reported annual revenues of $930 million up 10.4% versus 2012. We generated adjusted EPS of $0.13 per diluted share which excluded the non-operating items mentioned in the release. While our overall results for Q4 met our expectations of moderate growth over the prior year period we did experience weather-related issues during the latter part of the quarter and also generated lower than expected results within our Energy business.

Although we had indications of stabilization at Energy coming out of Q2 and Q3 revenues and operating income declined more than the typical seasonal slowdown that we anticipated in Q4 especially late in the quarter. A bit later Gary will outline some of the action plans we had underway to improve margins at Energy going forward. In Q4 consolidated operating income on an adjusted basis was $13 million and adjusted operating margin was 6.6% with both measures relatively flat versus the prior year period.

On a sequential basis adjusted operating margin was down primarily due to the lower fourth quarter seasonality we typically experienced in each of our business segments. Before I discuss our segment results I want to reiterate some significant cash flow and debt reduction achievements for this year. During 2012 we reduced our total indebtedness by $36 million utilizing significant levels of free cash flow plus proceeds from asset sales. We also generated a record $46 million of operating cash flow in 2013 and reduced our debt to adjusted EBITDA leverage ratio by 12% or 4.4 times at year end on a year-over-year basis.

These improvements were achieved in a year when earnings on an adjusted basis were relatively flat from the prior year. We used nearly 80% of our free cash flow to reduce debt this year which is consistent with our stated long-term goal of being less than 2.5 times levered. Our borrowing availability was $74.3 million at December 31, 2013 and representing a significant increase of $19.1 million from the end of last year. This liquidity enhancement is important as we would plan to use our ABL facility to facilitate the potential bond redemption in July of this year to further reduce our overall cost of capital.

Turning to our segments Chemical Logistics revenue excluding fuel surcharges rose 5% in Q4 versus last year due to increased pricing and higher volumes. As a result of nearly awarded business and growth with existing customers we recently expanded our footprint by opening two new affiliate terminals in the Texas Gulf Coast region which is an area with strong growth prospects. Chemical shipment demand continues to be strong with a favorable price environment. We continue to refine and improve our efforts in driver recruiting and retention and tomorrow we will share more of our plans to expand driver capacity to capture the upside we see in chemical manufacturing over the next several years.

After adjusting for items mentioned in our release our Q4 chemical operating income was up $0.8 million versus last year driven in part by gains on asset sales and the slight improvement on operating margins related to the re-affiliation of terminals during 2013. As we stated previously we expect margins from these converted terminals to start picking up as we move through 2014.

Our Q4 Energy revenues were $42.2 million up $3.1 million or 7.9% over the prior year quarter driven by organic growth in the Eagle Ford shale region and the on-boarding of our new affiliate in the Marcellus shale. On a sequential basis, Q4 revenues were down slightly due to reductions in fresh and production water hauling revenue in the Eagle Ford and Marcellus shale regions partially offset by modestly higher revenues in the Woodford shale.

After adjusting for items noted in our release Q4 operating income at Energy was down $0.3 million from last year’s quarter and down $1.5 million versus Q3 of 2013. This unanticipated sequential decline which was primarily driven by profit decreases in our company operations within the Bakken and Eagle Ford led us to carefully review our Energy business and its prospects going forward. After the review we determined it was appropriate to impair 100% of the goodwill in nearly all of the intangible assets associated with this segment.

These actions while necessary have not diminished the efforts of our management team, drivers, employees and stable group of independent affiliates to satisfy our customers and improve operations. In conjunction with our reorganization efforts within our Energy business and our transition to an asset-light business model, in late December we affiliated our Oklahoma company business to the same affiliate that operates in the Marcellus and Utica shales. And this same affiliate also recently took over our Wyoming operation. We’re presently developing action plans to affiliate our Eagle Ford water hauling business with one or more new independent affiliates which we expect to complete in Q2.

At Intermodal Q4 segment revenues excluding fuel surcharges were up $1.5 million or 5.6% due to increases in trucking revenue and stronger storage and rental service revenue. Our New York New Jersey facility which was adversely impacted by the hurricane last year has rebounded nicely though current severe weather conditions this year are posing a challenge for this and other locations. Operating income at Intermodal in Q4 was down – was slightly down over last year and sequentially as customer orders primarily during November declined more than anticipated. However volumes rebounded in December and margins remained healthy.

Turning to our guidance for 2014 we expect Q1 diluted earnings per share to be in the range of $0.09 to $0.13. The recent severe weather conditions are having an impact on all of our business segments which is baked into our guidance. At this juncture we have already seen approximately $0.02 of adverse earnings impact from the weather and we have not yet seen final February results. At Chemical and Intermodal major disruptions in our Midwest and Northeast regions as well as highly unusual storms in Texas and the Southeast have hurt volumes. At Energy we’ve been impacted greatly in the Bakken and Woodford shales with some more moderate impacts in the Eagle Ford.

For the full year we expect annual revenue growth to be in the high single digit range driven by growth in all segments of our business and Gary will touch on that momentarily. We expect diluted earnings per share for the year to be in the range of $0.70 to $0.80 and this earnings guidance range is consistent with our free cash flow guidance range of $48 million to $52 million. We expected decline in free cash flow from 2013 to 2014 primarily reflects higher projected net CapEx spending this year of $8 million to $12 million as we will need to deploy capital primarily in our Chemical segment to achieve projected growth opportunities.

Going forward we will remain focused on growing organically, improving asset utilization, increasing operating results, affiliating our Energy business and continuing the positive momentum we had in 2013 by generating strong free cash flow and reducing our leverage. That concludes my prepared remarks.

And at this point I’ll turn the call over to Gary.

Gary Enzor - Chairman and Chief Executive Officer

Thanks, Joe. Revenues grew about 6% excluding fuel in Q4 and 12% year-over-year. And we generated $0.13 of adjusted EPS versus $0.11 adjusted last year. However the headwinds in our Energy segment became more challenging in Q4 and I’ll discuss our action plans a little later.

We’re about eight weeks into Q1 right now and like many we’re seeing pretty significant weather impacts on the top and bottom line. At Chemical revenues are running about 1% higher versus last year same quarter which was about three points below our growth expectation. Boasso is running low single digits growth versus the same period last year which was about four points below our expectation.

At Energy we’re tracking about 10% to 15% below last year’s revenue as production water hauling volumes are down and many new drilling projects mostly in the Bakken were deferred principally due to weather. Taken together these revenue impacts represent a drag on EPS of about $0.03 to $0.05 expected in the quarter. At this point we expect to experience our normal seasonal pickup during Q2 especially with some pent-up activity. Given the challenges in Energy I want to take a few moments to share some of the recent actions we’ve taken, we’ve shed nearly all of our idle 110s in the Marcellus and repositioned excess Marcellus and Bakken assets across other shales to improve utilization.

We’ve also closed 300 performing terminals, affiliated six terminals and shifted our product mix to where oil is running about half our revenue with more room to improve. We’ve built a national sales force and they’re focused on increasing oil revenue and our IT team has developed an e-ticketing solution that is attractive to our customers. Going forward we’re in the process of affiliating our Texas company operations in cutting approximately an additional $1 million of overhead across our footprint. We’re ramping our Wyoming crude hauling terminal and starting up our new Colorado and New Mexico operations which together were previously discussed – with the previously discussed terminals replaces (intense) shales consistent with our objective of becoming the go-to provider of services to customers across multiple shales while providing us a benefit of more stability be a diversification.

Once we’ve the vast majority of Energy operated by independent affiliates we expect the asset intensity and customer service levels to operate much more like our Chemical segment. However this business will require a highly disciplined focus and attention to detail as exploration and production activity moves rapidly and equipment across shales is not (indiscernible). As to Chemical and Intermodal which combined represented 96% of our 2013 profitability top-line drivers remains strong. Chemical demand is positive and we’ve added several new affiliate terminals with more on the way this year.

And at Boasso we will continue to benefit from this shift out of drums and into ISO tank containers and we’re also looking at footprint and product line expansion opportunities. As we’ve been preparing for our Investor Day I become increasingly encouraged about our business especially as it relates to our asset-light business model in future growth and profitability prospects. As Joe discussed our 2013 results speak to the cash flow generating power of our model and we expect similar levels of free cash flow in 2014, which we plan to use to further reduce debt and position us well for the bond redemption opportunity in July and the potential refinance of our high cost debt later this year.

Tomorrow we’ll showcase over a dozen of our key executives to help investors understand that we have the skilled management team necessary to deliver on our objectives. All three of our businesses are market leaders and share compelling growth opportunities including the unconventional oil and gas revolution that we believe will produce mid to high single digit organic growth at the QDI level.

We will provide insights into the strength of our asset-light high ROIC model that is fully implemented in the Chemical and Intermodal segments and how we’re driving the Energy Logistics segment to that model over the next year. As we’ve said Quality is a cash flow and asset-light story with excellent prospects for growth and as we transition through 2014 especially at Energy we believe the company is well positioned to enhance our (news) in 2015 and beyond to deliver increased value for our shareholders.

With that operator we will open it up for question-and-answer.

Question-and-Answer Session

Operator

Thank you, sir. Today’s question-and-answer session will be conducted electronically. (Operator Instructions) And we’ll take our first question today from Jack Atkins with Stephens.

Jack Atkins - Stephens

Good morning guys. Thanks for the time. So I guess a couple of questions here. First on the guidance Gary or Joe could you maybe talk about the assumptions that are baked in just in terms of broad strokes between the low end of your guidance of $0.70 and the upper end of your guidance of $0.80 just we kind of know what you guys are thinking about from a revenue and margin standpoint there?

Gary Enzor

Yes. On the revenue side Jack again as we said in the aggregate we would be baking in mid to high single digit growth and you did hear us talk about how Q1 growth is being pretty substantially impacted due to the weather. But I think on the growth side you’d have mid to high single digit growth assumption for the year and I’ll kick it over to Joe on some of the margin points.

Joe Troy

Yes. So on the margins Jack from a Chemical perspective we’re still expecting to see improvements in margins albeit slow and improvements from margins from the terminal conversions. Some of the high margins that we had last year at Intermodal, a lot of it was from a high level of service revenue and we probably wouldn’t be projecting as robust of a rate but still improvement there, but margins could ebb and flow with the service component and then in Energy question you know we’re grappling with there. So when we had declines in revenue as we’ve talked about with some severe weather in our company operations there is a lot of operating leverage in those particular parts of the business. So we could see potential low to high levels of the EPS range could be somewhat driven by the Energy margins in the potential misses there.

Jack Atkins - Stephens

Okay. That makes a lot of sense. And then I guess shifting gears from a follow-up into the Chemical business which to me that’s really exciting piece of the story and clearly you guys are investing there for growth in the out-years. But could you maybe talk Gary about how you view the growth profile in your Chemical business and not so much in 2014 but in 2015 and beyond and the puts and takes there with driver improvement I understand you’ll talk about that at the Analyst Day tomorrow. But just sort of curious how you think about the longer term sort of revenue growth opportunity at Chemical and then would you expect to see any sort of incremental operating leverage just as you leverage your back-office with revenue growth?

Gary Enzor

Yes, Jack, I think the way we thought about it without the unconventional oil and gas catalyst as you thought about it more in line with industrial production or GDP so low single digits. I think with a lot of the feedstock opportunity and Randy will break that out in detail on Investor Day of how that impacts probably 80% or so of what we move, you get closer to being able to double that opportunity instead of low single digits you go to mid to high single digits. And I think that’s really what he will be laying out how it impacts the products that we move. I also think we will work with our affiliates to make sure we capture share early so that as there is additional market growth we’re sort of the first mover and we capture a lot of that incremental market growth and we’ll probably work with them on their coupons and give them some incentives. We may throw them three or four points to just help us take share. So you may see margins up slightly but not huge incremental variable flow because we want to incent them early to go help us make sure we capture an extra share of the volume growth.

Jack Atkins - Stephens

Okay. That’s really helpful guys. Thanks again for the time.

Joe Troy

Thanks, Jack.

Operator

And we’ll take our next question from Ryan Cieslak with KeyBanc.

Ryan Cieslak - KeyBanc

Hi guys. Good morning.

Joe Troy

Hey, Ryan.

Gary Enzor

Hi Ryan.

Ryan Cieslak - KeyBanc

Hey Gary just a follow-up on that last point on the Chemical business with the splits incentivizing the affiliates maybe a little bit more to gain share. Are you talking primarily with new affiliates you might bring on or also the current sort of base or network of affiliates?

Gary Enzor

It’s probably more the current days Ryan I mean in really simple terms if you think about it if they own all the trailers then our coupon is 15. – if we give them three or four points maybe we would be closer to 12 without trailers. If we rent the trailers all to them then we have another five to eight points of opportunity to increase margin. So I think we just want to be careful going forward that if they already own all the trailers and we’re incenting them to go take share maybe it flows closer to 12 points if they’ve got a bunch of trailers maybe we have another five to eight points from the trailer rental opportunity.

Ryan Cieslak - KeyBanc

Okay.

Gary Enzor

That’s how to think about it.

Ryan Cieslak - KeyBanc

I’m sure you’ll touch more on this tomorrow at the Investor Day but I mean is that something strategically you guys are looking to implement this year and maybe more so in the early part of next year as some of the secular tailwinds come on board, in coming years how should we be thinking about I guess that the margin flow within that Chemical business based on that expectation?

Gary Enzor

Yes. I think we will implement it immediately because as we get ready for the incremental volume from the feedstock advantage on the unconventional oil and gas we want to be getting terminals in place. And when you think about it if you are an affiliate you got to go help us take on another $5 million of revenue, you may need to buy 25 trucks and that’s a significant capital investment. So again that’s on the incremental volume above the baseline but we want to make sure we help them help us capture more of this market opportunity than we would otherwise.

Ryan Cieslak - KeyBanc

Okay. And then it is fair to say that it would be something within the agreements or I don’t know how that would be placed out, but where it eventually come back up to the normalized split you guys have had over time or how does that work? And maybe also in particular with maybe some of the affiliate activity you guys are doing within Energy and the incentive there. Does that over time that split should get back up to normalized level, is that the right way to think about it?

Gary Enzor

I think we want to see how we’re playing through the incremental market opportunity and we would probably be making that call two to three years from now than right now. But we just want to make sure as additional revenue is coming on we give them some growth support to help us be on the front-end of that. So we’ve got terminals in the right places. We know where a lot of the right places are now as we’re seeing the chemical companies make investments and we want to make sure they’re growing. Quite honestly if they have a little extra margin and they’re healthier and can grow better and we’re still hitting our margin objectives I may want to see the model that way over the long run. But we haven’t made that decision, we just want to capture extra share for the next couple of years to take advantage of the extra volume, the extra market growth and then we’ll assess that.

Ryan Cieslak - KeyBanc

Okay.

Gary Enzor

We’ll leave ourselves the option to assess that.

Ryan Cieslak - KeyBanc

Okay.

Joe Troy

And I would say Ryan on the Energy side it’s a different situation. So it’s the affiliates there depends on the type of business that they run but the assets are more highly efficient or they can be more highly efficient, we’re not as efficient as we need to be with our assets but they can be more efficient than some of the chemical. So we don’t have to do as much from an incentive perspective on the Energy side just want to make sure you’re clear on that.

Gary Enzor

And in simple terms in the Energy space you can still adjust in more – you just put a lot more revenue on the truck, you put 250 to 400 grand a year on the truck in the Energy space and in the chemical space it’s more like 170 to 200.

Ryan Cieslak - KeyBanc

Okay. That makes sense. A couple of other ones I have and then I’ll get back in the queue. With the Energy segment maybe if you could just give us some color where as a percentage of the business that is affiliated right now and maybe where you think you want that to be by year end or maybe the ultimate goal?

Gary Enzor

Basically it’s all but two locations right now primarily that are not affiliated. Our goal will be to affiliate our company operation in Texas in the second quarter and that will only leave the Bakken and our goal would be to figure that out during the course of the year.

Ryan Cieslak - KeyBanc

Okay. Got it. And then the last I had is with the guidance, wanted to see if there is any assumption for the mid year redemption that you’re baking into that in terms of this overall reduced interest expense or how should we be thinking about that?

Joe Troy

Yes. We baked it in. It’s about $700,000 or $800,000 of savings for the balance of the year post the redemption and we did bake that in.

Ryan Cieslak - KeyBanc

Okay. I’ll get back in the queue.

Joe Troy

Alright. Thanks, Ryan.

Gary Enzor

Thanks, Ryan.

Operator

And we’ll take our next question from Donald Broughton with Avondale Partners.

Donald Broughton - Avondale Partners

Good morning everybody.

Gary Enzor

Good morning Donald.

Donald Broughton - Avondale Partners

Just wanted to – look forward to seeing you this afternoon, evening, but just wanted to check how dynamic are – is the Energy business, but with the price of that gas spinning over six, spin at five, have you seen any change in the behavior in any of the shales whether be the gas shales or oil shales as a result?

Joe Troy

Yes we have. And I’d say in particular Donald within the Marcellus region for a while it had been under a lot of pressure, downward pressure. We saw some competitors leaving the market and I’d say over the last few months or so we’ve started to see a pickup of activity that our affiliate is starting to garner and we have customers asking us to make sure that we’re positioning sufficient assets for a potential uptake. So I don’t want to get you too excited about that but it is we’re going to be very well positioned if that resurgence really does materialize.

Donald Broughton - Avondale Partners

Great. Thank you.

Operator

(Operator Instructions) We’ll go next to (Sean Collins) with Bank of America. Mr. Collins, please check your mute button.

Unidentified Analyst

Yes, hello, the mute button is on. Good morning Joe, good morning, Gary, how are you?

Gary Enzor

Good morning, Sean.

Joe Troy

Good morning, Sean.

Unidentified Analyst

Good. Can you just comment on the driver dynamic that you’re seeing and if driver shortage in retention, how much of an issue that is and how you’re handling that?

Gary Enzor

Yes, Sean. I mean you kind of have to look at the segment-by-segment and we’re going to talk about that tomorrow in detail. But it’s still fairly easy in the Energy space just because that market you can get more revenue on the truck and the compensation is substantially higher. In the Intermodal business again that short length of haul and Scott and (Scott and Robby) who run that business are able to really match their driver needs to their demand curves. The place that’s most challenging is the Chemical business is because it’s the biggest business and we have the most drivers.

And it’s a lot of work like you hear in the rest of transportation, I would say we have a bit of an advantage, our turnover is typically in the mid 40s and that’s really because even in our Chemical market the length of haul is much shorter than other transportation modes. So they get home more, our market does pay better than the general transportation market. And so I think one of the key places for us to get drivers from is the other market, the other truckload market is a market that’s 100 times a size of our market. So one of the things we want to do is help drivers understand the benefits of the tanker space and historically we’ve been able to get drivers from over there. We also require a year of driving experience as opposed to coming straight in from school. So we tend to have to find experienced drivers as well.

Unidentified Analyst

Okay, great. That’s helpful. Thank you. My second question is more general in macro, but can I ask what are you seeing in the overall macro-economy not company specific I know that weather is having a big impact on you guys and lots of your peers, I know that you guys are in the midst of making some changes for the businesses. But from a demand perspective overall what are you seeing and can you compare that to other strong periods of economic growth that we’ve had?

Gary Enzor

I think this weather makes looking at the first two months of this year complicated. I would just say tracking into the year and really our understanding and our interaction with our customers I think particularly in the chemical space which really impacts Boasso and QC demand is solid I mean even strong, we really have been at a position where every driver we could add had freight to haul.

Operator

(Operator Instructions)

Gary Enzor

I think we lost Sean.

Operator

We’ll go to Ryan Cieslak at KeyBanc.

Ryan Cieslak - KeyBanc

Okay. I guess just a couple of follow up questions for you guys if you don’t mind. The one thing I do want to take a stab at Gary is maybe what is any – looking at the quarter the Chemical revenue growth was ahead of our expectations and it sounds like certainly that’s an environment that’s favorable right now. What currently has been driving the demand out there I know secular trends and tailwinds will come about in coming years. What’s – what are some of the major drivers right now within the Chemical business that you’re seeing?

Gary Enzor

Again I think Ryan it’s been pretty much across the board I mean when we call all of our Chemical customers at the end of every year to get a feel for the next year. And generally some people based on their product lines would be high single-digits and some would be low single-digits but it was pretty across the board. You’ve seen the stats for the housing and the auto industry and what they’ve been doing of late and we haul a fair amount of products that go into both of those industries. As we come into spring we move products that support agriculture such as herbicide. So we expect a normal seasonal uplift in the second quarter as those products come on stream. And so but I would say generally every truck and driver we can add we can put freight on it.

Ryan Cieslak - KeyBanc

Okay. And there was some commentary about the capacity environment within Chemical and I just want to maybe get a sense of is, is something there changed over the last quarter or so we are seeing maybe more of a reduction in overall industry capacity within the industry or is that more of just a function of what we have been seeing with regulations and driver availability at this point?

Gary Enzor

Yes I mean from where we sit I can’t specifically comment to some trend that is dramatically reducing capacity I mean I know the new hours of service particularly in the (dry) segment, they quantify those as mid to high single-digits. I think with our length of haul our view was we could cover what we had but as volumes increase, we need more drivers. So I don’t think we felt like – we took a negative hit but it aid up some of the capacity that might have been pent-up that would have enabled us just to pick up more so we really have to add more drivers. But I can’t point to any major shifts other than as you said more retirements, the driver force is ageing, we’ve all got to work to attract new drivers into the industry.

Ryan Cieslak - KeyBanc

Okay. And then I guess the last one I had Gary I think a quarter or two ago you had laid out some longer term targets within Energy on the top-line I think it was roughly $250 million to $300 million of revenue and sort of a doubling potentially EBITDA, I know maybe things have changed a little bit and may be you’ll talk a little bit more about this tomorrow but are you guys standing by those targets or is that how should we be thinking about maybe the longer term opportunity within Energy?

Gary Enzor

Well I still think this business has been running along at about $170 million clip or so annually and has the potential to get us to $250 million as we’re working through stabilizing the business, I think we had targeted I think the last time we talked about that it was over two or three years. So I still think we need to get this business over $250 million and we’ve got a lot of work to do on the profitability of the business but as we get it all affiliated and get it stabilized and you understand how the model works. We will still be dramatically improving earnings, I don’t have exact numbers on that but you know how the coupon works on an affiliate model.

Ryan Cieslak - KeyBanc

Right. Okay. Thanks guys.

Joe Troy

Thank you.

Operator

And we’ll take our next question from Tom Wadewitz with JPMorgan.

Alex Johnson - JPMorgan

Hi, good morning. It’s actually Alex Johnson on for Tom.

Gary Enzor

Good morning, Alex.

Alex Johnson - JPMorgan

Good morning. So, just want to ask you slightly different direction here. With the – there’s been some elevated volatility in foreign exchange rate more so I think in terms of relative to some of the emerging markets but our understanding of that can be fairly meaningful driver for Boasso and so I’m just wondering if there is any impact you see there?

Gary Enzor

I can’t say we’ve seen impact at this stage but generally Boasso benefits – if the economies that are fluctuating have substantial chemical production or substantial imports. You’ll see it typically one it’s been the U.S. and Europe you see the chemicals moving back and forth. If it’s South America, it depends on their consumption and what they’re making. So, that’s generally a very good driver of volumes for Boasso but again the market has to be a large producer or consumer of the chemicals.

Alex Johnson - JPMorgan

Sure. Okay. And then just in terms of the potential reemerging opportunity in Marcellus or I don’t know if I’m characterizing that exactly right. But would there be repositioning cost necessary to meet the customer demand that might develop in the Marcellus or are you already positioned in a way that you can serve that demand?

Joe Troy

They would be very nominal if any repositioning costs, Alex. We’ve got sufficient amount of assets, our affiliate in the North East has got a good level of 100 barrel and 110 barrel assets to really satisfy the pickup in demand. So unless it really has a massive step function I wouldn’t see any share.

Alex Johnson - JPMorgan

Great. Thanks for the time this morning and look forward to seeing you guys later this afternoon.

Gary Enzor

Thanks, Alex.

Joe Troy

Thank you.

Operator

And that does conclude today’s question-and-answer session. At this time I would like to turn the call back over to Gary Enzor, Chairman and CEO for any additional and closing remarks.

Gary Enzor - Chairman and Chief Executive Officer

We just like to thank everybody for participating in our Q4 call and we will see many of you tonight and tomorrow. Thank you.

Operator

Thank you. And that does conclude today’s conference call. Thank you for your participation.

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