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Quality Distribution, Inc. (NASDAQ:QLTY)

Q1 2014 Results Earnings Conference Call

May 05, 2014, 10:00 AM ET

Executives

Robin Cohan - Vice President, Controller

Gary Enzor - Chairman and Chief Executive Officer

Joseph Troy - Chief Financial Officer

Analysts

Allison M. Landry – Credit Suisse Securities LLC

Jack Atkins - Stephens, Inc.

Kevin Sterling - BB&T Capital Markets

John G. Larkin - Stifel Nicolaus & Co.

Ryan Cieslak - KeyBanc Capital Markets

Operator

Good day everyone and welcome to today's Quality Distribution First Quarter 2014 Earnings Conference. As a reminder today’s call is being recorded. At this time I would like to turn the call over to Ms. Robin Cohan, VP Controller. Please go ahead, Ms. Cohan.

Robin Cohan

Thank you, operator, and good morning, everyone. We’re delighted to have you join us today for our first quarter 2014 earnings call. Our speakers today are Gary Enzor, our 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, 2013, 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.

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 would now like to turn the call over to our CFO, Joe Troy.

Joseph Troy

Thank you, Robin and good morning everyone. Today we reported solid top and bottom line results which were consistent with our expectations. Consolidated revenues in the first quarter of 2014 were $234.5 million, an increase of 2.2% versus the same period last year.

The severe weather conditions during the quarter slowed or temporarily shut down operations in many of our key operating areas within each business segment, with highly unusual impacts in key southern markets such as Georgia and Texas. However, despite these conditions, we generated adjusted EPS of $0.14 per diluted share excluding the non-operating items mentioned in the release which was a penny above our first quarter expectations helped by a lower effective tax rate.

Excluding the non-operating items mentioned in our release, consolidated operating income for the quarter was slightly below last year and margins were down 30 basis points, driven primarily by an increase in insurance expense in our chemical business. Insurance expense in the current quarter as a percentage of revenue was 2.7% or approximately 60 basis points above the recent average levels. While this expense item was within our targeted range of 2% to 3% of revenue a recent increase in claim frequency and severity hurt results for the quarter. This negative item was offset in part by an improvement in our energy business this quarter.

Turning to our segments, as we described in the release we are now reporting corporate and shared services expenses separately which provides added insight into the operations of the Chemical Logistics business. We reclassified our historical segment data for each quarter in 2013 to assist the investment community. At chemicals, revenues excluding fuel surcharges rose 5% in Q1 versus last year resulting from higher volumes due in part to the opening of several new terminals during the first quarter of 2014. Later in the call Gary will highlight our Chemical growth opportunities.

After adjusting for items mentioned in our release, our Q1 Chemical operating income was down $1.7 million versus last year. We achieved positive income contribution from higher transportation revenues and cost controls in the quarter. However these improvements were offset by $1.7 million of increased insurance expenses.

At Energy, revenues in the first quarter were down 5.3% versus the prior year period primarily due to a year-over-year reduction in new drilling activity in the Bakken shale region combined with very severe winter conditions. We also saw a steep reduction in our Bakken disposal well service volumes. These declines were offset in-part by strong increases in oil and disposal water volumes in the Eagle Ford shale as well as organic growth from new shale markets in areas such as Wyoming and Colorado.

After adjusting for $1.1 million of cash and non-cash reorganization cost described in the release, first quarter adjusted operating income at Energy was $1.3 million, up $1.8 million over the prior year period and up $0.8 million sequentially from Q4 of 2013. Higher profitability and margins were achieved in nearly all shales due to lower operating cost and better asset efficiency. Energy Logistics adjusted EBITDA for the first quarter of 2014 was $3.4 million, up $0.09 million for the prior year period and up $0.08 million compared to the fourth quarter of 2013.

At Intermodal, Q1 segment revenue excluding fuel surcharges were up 2.5% primarily due to increases in transportation revenues. We typically see high single-digit organic increases in this business however, difficulties in nearly every market from severe storms hampered growth. Operating income at Intermodal in Q1 was down slightly over last year again due to adverse weather conditions which partially impacted our three largest Intermodal terminals. On a positive note however the loss of Q1 earnings rebounded very nicely on a sequential basis from a sluggish Q4 and all indicators continue to point towards solid revenue and profitability expectations going forward.

We generated operating cash flow in the first quarter of this year of $1.4 million versus $8.6 million in the same period last year, mostly due to an increase in accounts receivable resulting from growth in our Chemical segment. We typically build working capital in the first half of the year and generate free cash flow in the second half of year. We expect to see greater reductions and leverage during the second half of the year and further reduce our cost of capital as we position ourselves for a potential refinancing later this year.

At quarter-end, our borrowing availability was $86.3 million representing a substantial increase of $12 million from the end of 2013 and $21.6 million from March of last year. Asset utilization will continue to be a high priority for us especially in the energy business and we will continue to reposition or dispose of non-core or sub-optimal assets. These asset disposals may result in future non-cash operating losses but will strengthen our balance sheet and our profit profile.

As we stated in our release, our net CapEx spend in the first quarter reflected the needs of our growing chemical business and our objective to ensure we have adequate tank capacity to support our customers. Based on strong opportunities to expand our businesses organically, we revised our net CapEx spending expectations up slightly to a revised range of $10 million to $15 million. This upward revision resulted in an adjustment to our full year free cash flow target range to $46 to $50 million.

Turning to our expectations for Q2, we expect adjusted EPS to be in the range of $0.18 to $0.22 per diluted share assuming an effective tax-rate of 39% and excluding any impacts from reorganization expenses at energy or other non-operating items.

Our full year 2014 earnings expectation range remains unchanged. And on an overall basis we are managing cash closely and remained focused on allocating capital to growth opportunities and debt reduction in 2014.

That concludes my prepared remarks. And at this point I'll turn the call over to Gary.

Gary Enzor

Thanks, Joe. Q1 results came in about as expected with adjusted EPS a penny above the top end of our guidance with help from a favorable tax rate. We are pleased with Chemical revenues being up 5% however, the entire company was up 2% with Boasso up low single-digits and energy down mid-single-digits. Weather did have impact across all three business segments.

We're about five weeks into Q2 right now and revenue appears to be on track. Chemical revenues are running high single-digits above last year and Boasso is up low single-digits, still weather impacted in April. At Energy, we are running about $3.3 million in weekly revenue which is a better pace than last quarter's $39 million but below last year's $45 million. Overall our top line is shaping up as expected.

The high single-digit growth in Chemicals is being driven in part by our recently announced expansions in Sweetwater Texas, Houston Texas, Indianapolis and Eastern PA where one of our affiliates recently expanded via acquisition. We will continue to pursue targeted expansion as we position ourselves to gain share as the favorable feedstock from the unconventional oil and gas markets drive North American chemical expansion. Driver accounts at Chemicals are up 5.7% right now versus last year aided by the [Dunn] transaction which closed in late Q1.

Our Energy segment is making strides toward becoming a more profitable and stable business and we continue our efforts to convert company operations to our asset-light independent affiliate model. A key element of our strategy is to shift our mix of business toward oil hauling and the team is making real progress on that front. Although we still face more hard work moving through the year, the $3.4 million EBITDA generated by energy this quarter presents solid evidence of the progress the team is making.

Intermodal had a very strong first half of last year driven by substantial high margin heating and storage volumes. They will face tough comps all year and are spending their efforts to grow via market expansion later this year to position themselves well for '15.

As Joe discussed, we are managing cash flow carefully to allow us to continue reduce debt and position ourselves for the bond redemption opportunity in July and the potential refinance of our high cost debt later this year.

In closing, let me emphasize that Quality's profile has not changed. We are a cash flow and asset light story with excellent prospects for growth and we believe the company is well positioned to enhance earnings and deliver increased value for our shareholders.

With that, operator we will open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question today comes from Allison Landry of Credit Suisse.

Allison M. Landry – Credit Suisse Securities LLC

Good morning. Thanks for taking my questions.

Gary Enzor

Good morning, Allison.

Joseph Troy

Good morning, Allison.

Allison M. Landry – Credit Suisse Securities LLC

So I was wondering if you could discuss how we should be thinking about the progression of the top line and operating income for the balance of the year. I know that you gave a little bit of color on 2Q and so I think that was a little bit light relative to what we were thinking. So I don't know if that was mostly sort of driven by the weather impact in April for Intermodal but maybe if you could just sort of give some broad strokes around what we can expect going forward?

Gary Enzor

Yeah, I think if you look at Q2 particularly Alison we said chemical is currently running high single-digits and that's aided by the [Dunn Meyer] acquisition made by one of our affiliates. So that's our biggest business. We expect that to run at the high-single digit level. Boasso, which normally runs high-single digits, is low single-digits right now and some of that was weather impacted in April. So that looks like it's tracking closer to low single-digits for the quarter and then Energy will still be down a little bit versus last year. We kind of said it's above last quarter but below last year maybe a few million dollars.

So when you blend that all-in I would expect it more mid-single digit range than high single-digit range. And it's really too early to call the back half but we really haven't changed our view of mid to high-single digits once we came out of Q1 and we knew Q1 would be softer than by the weather.

Allison M. Landry – Credit Suisse Securities LLC

Okay, so maybe the potential for somewhat of a rebound in the back half but we will have to see?

Gary Enzor

Correct.

Allison M. Landry – Credit Suisse Securities LLC

Okay. Can you comment on the driver situation and what you are seeing in terms of Chemical Logistics and whether or not you are seeing any of the drivers leave with construction activity picking up in the housing market and so forth?

Gary Enzor

Yeah, I would say in our three businesses, Intermodal and Energy have an easier time attracting drivers, chemical's the larger business and it's a bit tougher there. The other two, one pays a lot more one probably has more home time. But again our turnover in our chemicals base tends to run in the mid to low 40s and it's still a pretty good driving environment because they do make more than the box world and they do get home more. But it's a dog fight to continue to recruit drivers every day for that business, that’s the biggest fleet with approximately 2,400 drivers and we have to work very hard to recruit there.

We’ve got some creative new programs in place that our recruiting team has implemented that help drivers get into some very nice Peterbilt Kenworths at a very affordable rate. And, overall the team just fights hard every day to make sure we continue to net up but it's not easy.

Allison M. Landry – Credit Suisse Securities LLC

Okay. Thank you so much for the time.

Operator

Up next from Stephens we go to Jack Atkins

Jack Atkins - Stephens, Inc.

Hi good morning guys. First of all congrats on a great quarter and thanks for taking my questions.

Gary Enzor

Morning, Jack.

Jack Atkins - Stephens, Inc.

So I’d like to ask you, Gary quickly start off here on the chemical side and you touched on this in your prepared remarks but we have seen a lot of announcement out of Quality over the last few months on the expansion in that chemical business. And I think it's pretty clear that your incentive structure, new incentive structure for the affiliates is working. Can you give us a sense for how we should be thinking about that particular piece of the business ramping? And I know we are going to see some elevated levels of growth because of the affiliate acquisition. But when you think about the new terminals coming on, how should we think about this business ramping in terms of revenue and then implemental operating income as we move through the year?

Gary Enzor

Yeah, Jack I mean, I think our position won’t change at this point. We don’t want to get out over ourselves. We’ve said that business historically can be a low single digit grower with IPI or GDP kind of tracking, and we’ve said we expect it to be mid-single digit. So you know it is aided this quarter by that acquisition flowing in incremental revenue. But I don’t want to get too far above mid-single digits at this point for that business?

Jack Atkins - Stephens, Inc.

That makes sense Gary. And then I guess just sticking with that segment for a moment, we have seen a lot of tightness in the truck load market over the last few months. And I am just curious to how that bleeds over into the bulk tank market and from a secular perspective it seems like your industry has a lot of tailwind, so when you go to your shippers and talk about rate increases do you think they are fairly receptive at this point and how should we be thinking about rates in 2014 for your chemical business?

Gary Enzor

Yeah I think Jack the way our business model works rate and volume are essential the same to our bottom line unlike other businesses rate has about five times the impact. And so we really take guidance from our affiliates, if they have got lanes or freight that they need help on then we’ll go take the rate increase to the customer and they do it judiciously. So we are usually able to achieve those rate increases. But I think our view is still low single digits on the rate increase side but customers do understand the tight dynamics at this time. So we are usually able to achieve the rate increases when we need them to make the freight compensatory.

Jack Atkins - Stephens, Inc.

Okay. That’s helpful Gary. And then last question from me I’ll jump back in queue. Joe, you mentioned the weather impact to the first quarter. I think on the 4Q conference call you said you above weather will be $0.03 to $0.05. Could you give us an update as far as the weather impact from our earnings perspective in the quarter was within that range, I think any color there would be helpful as we try to normalize things out?

Joseph Troy

Yeah somewhat high level I'd say will be on the lower end of the range of what you just stated. So somewhere in the $0.02 to $0.03 may be.

Jack Atkins - Stephens, Inc.

Okay. Thanks so much, guys.

Operator

We’ll go next to Kevin Sterling of BB&T Capital Markets.

Kevin Sterling - BB&T Capital Markets

Thank you. Good morning, Gary and Joe.

Gary Enzor

Good morning, Joe.

Kevin Sterling - BB&T Capital Markets

You guys highlighted you're raising your net capital expenditure expectations due to growth opportunities. Could you highlight where some of those opportunities might be?

Gary Enzor

Yeah part of that Kevin is some of the announcements that we’ve made about these expansions. We don’t have a tremendous amount of idle assets lying around the chemical business. So when we are expanding we literally have to go out and find additional tank capacity. So we knew part of that was coming and so we had orders and delivery schedules for Q1, so we know there will be a decent top there and Randy and his team continue to do a job of uncovering more growth opportunities really across the footprint. So we are having to look at those growth opportunities in relation to the CapEx spend and really needed to take it off but it's all for a good reason. These are not maintenance-related issues.

Kevin Sterling - BB&T Capital Markets

Okay. Yeah, no, that sounds like a good problem to have. So the capacity is so tight you got to get some way. That leads to my next question Joe you guys your increase in your tank capacity in chemical, is that driven by some of your recent acquisitions or is it customer demand or maybe a combination of both?

Joseph Troy

It's definitely a combination of both.

Kevin Sterling - BB&T Capital Markets

Okay. A follow-up there, if it is a customer demand are these new or existing customers?

Joseph Troy

Well we deal with most of the top chemical companies but we have had two or three incremental customers that Randy and team have been able to penetrate that previously we had, not so I would that would be on the smaller side of things but we do have some brand new customers that we're doing new incremental business for.

Kevin Sterling - BB&T Capital Markets

Okay, and then switching gears to your Energy Logistics, that was a nice surprise this quarter, I made a little bit of money there. What's the key to keep that momentum going? Is it asset utilization, how should we think about that?

Joseph Troy

Yeah, it really depends on each shale, but asset utilization is pretty critical, some cost controls that we had in the first quarter they really need to continue through the balance of the year. Some of the areas where we have got really good growth opportunities, especially in Texas we really need to be shifting assets into that area. It’s really to optimize utilization of the assets themselves. So that's really what needs to happen and executing every day is something that the group is doing a better job at today than we did say a year ago.

Kevin Sterling - BB&T Capital Markets

Yeah, definitely. And last question the higher insurance and claims you had this quarter, was that really weather-related or something else going on there?

Joseph Troy

You know I'd say a little bit of it but we did have a little bit of spike in claim frequency into the areas I said in the release. I wouldn't pack a tremendous amount yet to weather but it's undoubtedly we did have a few more [inaudible] then we normally would because of the weather. But we are still within the rate of 2% to 3% just at the high end of the range and hopefully that knock on wood, they will start coming back down to be in that lower 2% range where we like to see it.

Kevin Sterling - BB&T Capital Markets

Okay, great. Thanks so much for your time and congratulations on a nice quarter and challenging environment.

Gary Enzor

Thanks Kevin.

Operator

Stifel's John Larkin has our next question.

John G. Larkin - Stifel Nicolaus & Co.

Hi, good morning gentlemen.

Gary Enzor

Good morning, John.

John G. Larkin - Stifel Nicolaus & Co.

Thanks for taking the questions. The shared services, were those -- did I you understand correctly to say that those were formally reported entirely in Chemical Logistics?

Joseph Troy

Yes.

John G. Larkin - Stifel Nicolaus & Co.

Okay, that's helpful. You mentioned that there is possibility of disposing of some assets in Energy Logistics. Could you give an sort of order of magnitude of what we are talking about there is it low single digit millions dollars of assets or is it something bigger than that?

Joseph Troy

No, I think it will be a low single-digit millions.

John G. Larkin - Stifel Nicolaus & Co.

Got it. And the addition of trailers there was a time not so many years ago when Quality had a surplus of older used trailers which were disposed of and now you are adding branded trailers, is that correct?

Joseph Troy

That’s correct.

John G. Larkin - Stifel Nicolaus & Co.

In retrospect, you wish you had held on some of those older ones or is it possible to perhaps purchase used trailers in lieu of branded trailers to keep that CapEx down a bit.

Gary Enzor

John, it's Gary. No, the ones we got rid of we really wanted to remove from the fleet. They were higher maintenance expenses and older units. So we don't -- we are not regretting not having those. And then you really have a hard time finding trailers given supply and demand right now in the used markets. So we expect that most of our purchases will be the newer trailers over the near-term horizon.

John G. Larkin - Stifel Nicolaus & Co.

And most of these are in the price range you say 40,000 to 50,000 a year is that sort of the order of magnitude?

Gary Enzor

No, if you get a good stainless 407 chemical trailer, you are closer to 80.

John G. Larkin - Stifel Nicolaus & Co.

80 apiece?

Gary Enzor

Yes.

John G. Larkin - Stifel Nicolaus & Co.

Thanks for that. And then to cycle back on the seasonality of the business. Historically, I believe the second quarter was always the strongest quarter. The way the guidance kind of plays out here it looks like we're expecting a little more strength in the second half. Has the balance of freight flowing in the bulk liquid market changed quarter-to-quarter or is there something else going on here?

Gary Enzor

I think historically John when it was primarily just QC, your stronger quarters were Q2 and Q3 and they were fairly similar. I think when you add Energy and Boasso has been with us for several years. Boasso's strongest quarters are typically Q1, Q2 and then Energy is fairly normal throughout the year with a bit softer Q4. But as Joe and the team continue to make operating improvements we should have the opportunity to make that better as we get out there.

John G. Larkin - Stifel Nicolaus & Co.

Got it, and then just one final one, more constructional in nature. We talked earlier about the driver recruiting environment which is very challenging. How is the responsibility split between the affiliates and the company in terms of spearheading this effort to add more drivers into your fleet?

Gary Enzor

It's joint but we do have full time inside recruiters, outside recruiters and as I said we're constantly working on special programs such as the Peterbilt Kenworths I was speaking about. So we do a lot of work here to support the affiliates but they also interview the drivers and make sure the driver meets their requirements to be a part of their team. So it's very much a joint effort.

John G. Larkin - Stifel Nicolaus & Co.

Are the Peterbilt Kenworths trucks financed internally by Quality or do you have an external partner for that?

Gary Enzor

I'd say a little bit internally but mostly externally. We have a third-party source that we work with very directly.

John G. Larkin - Stifel Nicolaus & Co.

Got it. Thanks very much.

Gary Enzor

Thank you.

Operator

Ryan Cieslak of KeyBanc Capital Markets has our next question. Please go ahead.

Ryan Cieslak - KeyBanc Capital Markets

Thanks, good morning Gary and Joe.

Gary Enzor

Good morning.

Joseph Troy

Good morning.

Ryan Cieslak - KeyBanc Capital Markets

I guess first of on the insurance just want to take another stab at it Joe. I wanted to see what you guys had implied in your first quarter guidance with regard to the insurance levels and where it actually shook out and then for your second quarter guidance where you expect that to be -- what's implied in it?

Joseph Troy

Yeah. I'd say it would have been in the lower end of our typical range is where we would have expected it. So when we say 2% to 3% generally our expectations would be on the lower end of that range. And heading into Q2 I don't want to get too granular about it but it would be somewhere in the low to mid 2% range.

Ryan Cieslak - KeyBanc Capital Markets

Okay, that's helpful. Thank you. And then on the energy side of the business the EBITDA margins sit there are certainly better than what you were looking for. I know it seemed like you guys are making some traction there with the internal initiatives that you discussed at your Analyst Day. How should we think about the sequential progression with that business on the margin side Joe going into the second quarter with the seasonal activity maybe picking up and you guys continuing to gain some traction with some of the -- that you have?

Joseph Troy

Yeah, what I would say I'd be a little bit cautious about putting too steep of a curve on the number. We're making progress and a lot of that is coming in actual utilization and expense controls but we still have some soft spots in few of the shales particularly in the Northeast. We're still having some issues in the Bakken that we're grappling with. So as Gary said in his comments that we still have a tough year ahead of us. So we're not trying get too far out of our SKUs in expectations.

Ryan Cieslak - KeyBanc Capital Markets

Okay, and then on the chemicals side. Gary the year-over-year growth that you're seeing here in April it sounds like some of that is being aided by an acquisition one of your affiliates made. Can you break that out in terms of what maybe is the underlying organic growth right now within the business versus maybe some of the benefit on the driver side from the acquisition?

Gary Enzor

I think organically it would be closer to mid-single-digits and then the acquisition helps knock it to high single-digits.

Ryan Cieslak - KeyBanc Capital Markets

Okay, and then also within the chemical business. I think you guys had highlighted last quarter at your Analyst Day some incentives on the revenues share with your affiliates on the chemical side. Is that -- how should -- those numbers or is that impact fully reflected in the first quarter margins or how do you look at it or should that continue or should we see more of that maybe impact the second quarter trends going forward?

Joseph Troy

No, we had it in the first quarter. And again you are going to see marginal on an overall basis for overall margins very small impacts because still the base business is at our standard margins. But as growth starts to pick up then you will see some additional effects of this flowing through to the margin levels. Does that make sense?

Ryan Cieslak - KeyBanc Capital Markets

Okay. That does, yeah, that's helpful. I’ll get back in queue, thanks guys.

Gary Enzor

All right thanks.

Operator

(Operator Instructions). We’ll go next to [Sean Collins] with Bank of America.

Unidentified Analyst

Hey Gary, hey Joe, good morning, how are you?

Gary Enzor

Morning.

Unidentified Analyst

Hey just in general, on the M&A environment out there, for any of your three segments as you canvas the market and talk to buyer and sellers, are sellers' expectations in line or they continue to be kind of frothy and heightened and what are you seeing there?

Gary Enzor

I think the seller market is a bit frothy at this juncture.

Unidentified Analyst

Got you, okay, which I think is in line with what you’ve said at your Analyst Day. And second question, around the macro economy knowing that you are mainly talking to chemical guys and energy guys and their business is robust. But are you seeing any change in acceleration or de-acceleration around your end market?

Gary Enzor

No, I can’t say that we are seeing anything different right now than what has been tracking and what we expect.

Unidentified Analyst

Okay I understand. Okay well that’s great, that’s helpful. Thank you guys I appreciate it.

Gary Enzor

No, problem. Thanks.

Operator

Jack Atkins from Stephens has a follow up question. Please go ahead.

Jack Atkins - Stephens, Inc.

Yeah guys, thanks for taking the follow up. So just a question first for Joe on the refi that should be coming later this year. Joe could you give us a sense for how you would like to see that structured ideally in terms of your ability to prepay debt? And then sort of where you think the capital markets are in terms of the rate that you place on that debt going forward?

Gary Enzor

Well, let me add in, I had so many friends in the investment banking community until they figured out we were going to refi. But in all seriousness it's probably a little early to say where exactly we are headed with the potentially refinancing. Everything we are hearing from all of our bankers is the market continues to be very strong, a little choppy every once in a while when something like Ukraine pops up. But in general the markets have been strong. We do want to have pre-payable debt but at the end of the day it's really about flexibility, reducing our overall cost-of-capital, those will be our primary focuses.

So I’d say probably in the next quarter we’ll have a much better feel for where we're headed. This quarter it's probably still a tad early.

Jack Atkins - Stephens, Inc.

Okay, all right, that makes sense, and then last question from me. You referenced the growth that you are seeing your oil hauling business versus the water business. Could you give us sense for the mix in the energy logistics segment between oil and water hauling as it stands today?

Gary Enzor

Yeah the water hauling still is hovering around low 60% range and oil in the high-30’s will be creeping up a little bit in the oil side which is a good thing and that’s mostly been happening because of the growth that we’ve had in the Eagle Ford as well as some work we are doing out in the Permian Basin. We need more oil work in the Bakken, that will be a big driver of really moving the percentage in the right direction and moving further upward than where it is today. So that’s we’ve got plenty of business opportunity from Texas, it continues to run very robustly but what the area we need to increase in the Bakken.

Jack Atkins - Stephens, Inc.

Okay and then may be if I can just squeeze one more in there on the energy side. Joe could you give us an update on sort of where you all stand in terms of your process to affiliate your energy assets in the Bakken and I believe the Eagle Ford is still company owned as well?

Joseph Troy

Yeah, as we said at Investor Day and just for a recap the Bakken’s going to be backend loaded. We are really not focused on that right now as much as we are stabilization of the business and improving profitability. The next one on the docket really is in Texas, our water business in Texas. And so we are still in the throes of that and working on that diligently I think the expectation we put out was at some point in Q2 that may drift a little bit. But we are actively working on it.

Jack Atkins - Stephens, Inc.

Okay, great, thanks again guys.

Joseph Troy

All right, thanks.

Operator

And at this time I would like to turn the conference back over to Gary Enzor, Chairman and CEO for additional and closing remarks.

Gary Enzor

Okay. We would just like to thank everyone for participating in our Q1, ’14 earnings call and we’ll talk to you next quarter. Thanks.

Operator

Thank you and that does conclude today’s conference. Again, we thank you all for joining us.

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