Rand Logistics' (RLOG) CEO Ed Levy on Q4 2016 Results - Earnings Call Transcript

| About: Rand Logistics, (RLOG)

Rand Logistics, Inc. (NASDAQ:RLOG)

Q4 2016 Earnings Conference Call

June 16, 2016 08:30 ET

Executives

Annemarie Dobler - Corporate Communications Director

Ed Levy - President and Chief Executive Officer

Mark Hiltwein - Chief Financial Officer

Analysts

William Horner - BB&T Capital Markets

Jon Tanwanteng - CJS Securities

Alex Silverman - Special Situations Fund

Gene Garfield - Revere Securities

Tristan Barr - MTB Asset Management

Paul Sonz - Sonz Partners

Presentation

Operator

Good day and welcome to the Rand Logistics Incorporated Fourth Quarter Fiscal Year 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Annemarie Dobler, Corporate Communications Director. Please go ahead.

Annemarie Dobler

Thank you, Taylor. Good morning, ladies and gentlemen and welcome to Rand Logistics fiscal 2016 year end conference call. On the call today from the company are Ed Levy, Rand’s President and CEO and Mark Hiltwein, Rand’s Chief Financial Officer. A live audio webcast and accompanying slide presentation is available on the Rand website at www.randlogisticsinc.com/presentations.html.

Before we begin, we would like to remind everyone that this conference call contains forward-looking statements, which reflects management’s current views with respect to certain future events and Rand’s operations, performance and financial condition only as of the date hereof. For all forward-looking statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Participants are directed to our SEC filings and the press releases for a more detailed description of certain business issues and risks.

We may refrain from certain non-GAAP measurements, such as adjusted EBITDA, which we define as operating income plus depreciation, amortization, loss or gain on foreign exchange, certain one-time equity-based severance costs and lease termination costs. Please see our press release dated June 15, 2016, filed on Form 8-K for a reconciliation of certain non-GAAP measures.

With that, I would like to turn the call over to Mr. Ed Levy. Go ahead, Ed.

Ed Levy

Thank you, Annemarie, and good morning everyone. For our fiscal year ended March 31, 2016, we reported adjusted EBITDA of $32.4 million, a decrease of 3.7% from fiscal 2015. We were generally pleased with our operating performance in fiscal 2016, which was achieved despite certain factors that were beyond our control, including suboptimal weather conditions in April 2015, a 13.2% year-over-year decline in the average value of the Canadian dollar, which negatively impacted adjusted EBITDA by approximately $2.7 million, and the filing for bankruptcy protection of one of our largest customers. On a constant currency basis, adjusted EBITDA increased by 4.2% in fiscal 2016. Net loss per share was $0.31 for the year ended March 31, 2016 compared to a net loss of $0.59 per share in our fiscal – in our prior fiscal year.

We achieved a number of important objectives over the last 12 months. I would like to highlight two in particular. First, safety is one of our company’s core values and we recently received our membership in the National Safety Council, spanning our North American operations. Additionally, in June, our Canadian operations successfully achieved its interim certification under the International Safety Management Code. These achievements speak to our commitment and dedication to protecting our employees, our customers, the environment and the communities in which we operate. This also has the added benefit to lead to decreased workers’ compensation expense and insurance based on incidents.

Second, as part of our commitment to meet our customers’ needs and improve our market position, we introduced our newest vessel into service in November 2015. This vessel is the first new river class self-unloader to be introduced into Great Lakes service in over 40 years, has the largest carrying capacity of any existing river class self-unloader and is anticipated to be the most efficient vessel of its class on the Great Lakes. The vessel sailed 58 days in fiscal year 2016 and we have been pleased with its operating performance to-date in the 2016 sailing season.

For the sixth consecutive year, we increased marine freight revenue per sailing day. In the 2015 sailing season, it equaled $31,601, the highest in the company’s history. We achieved this notwithstanding the aforementioned 13.2% year-over-year decrease in the value of the Canadian dollar. Our tonnage carried increased by 5.3% to 23.5 million tons and we experienced a 10.5% reduction in vessel operating expenses per sailing day. We continue to improve all of the metrics associated with the operating efficiency of the fleet and we have successfully renewed all of our expiring contracts, achieving on average mid-single digit price increases. We also recently added a meaningful piece of new business, which begins this sailing season.

As we have discussed on previous calls, vessel margin per sailing day is a key indicator that we monitor to evaluate fleet performance. For the year ended March 31, 2016, vessel margin per day was $11,743, up 2.7% compared to $11,430 in the same year ago period. On a constant currency basis, vessel margin per day increased by $1,364 or 11.9% year-over-year. For the fiscal year ended March 31, 2016, our total sailing days decreased by 195 days or 4.7% to 3,911 sailing days from 4,106 sailing days during fiscal year 2015. Our vessel utilization decreased from 99.5% in fiscal year 2015 to 93.9% in fiscal year 2016 based on a theoretical 4,164 maximum sailing days available to us.

One of our primary objectives in the 2000 sailing season was continuing to build on our improvements in operational execution. We were able to offset challenging weather conditions at the beginning of the sailing season and a decline in the Canadian dollar by further improving the operating reliability of the fleet. In the 2015 sailing season, we experienced 3 days out of service compared to over 120 days during the 2012 sailing season and an average of 35 days in each of the 2013 and 2014 sailing seasons.

We also measure Delay Days, which we define as the lost time incurred by our vessels while in operation. Delay Days occur due to mechanical issues, inclement weather, dock delays and traffic congestion. We experienced 343 Delay Days during the year ended March 31, 2016 compared to 434 days during our fiscal year ended March 31, 2015, which is a 21% improvement. Delay Days as a percentage of total sailing days equaled 8.8% in fiscal 2016 compared to 10.6% for fiscal 2015. We continue to believe that the opportunity exists to realize further improvements in certain of our key operating metrics. To further drive the reductions in mechanical delays, for example, we recently increased the number of vessel superintendents managing our ships.

Now, let me turn to our commodity tonnages. In fiscal 2016, tonnage carried increased by 5.3%, including tons carried on third-party vessels. On the vessels that we own, tons carried were down 2.3%, primarily due to the customer liquidity issues in the third quarter, leading to trade pattern inefficiencies and capacity constraints as mentioned in our previous investor conference call.

Our aggregates tonnage carried on our own vessels was up 8% on a year-over-year basis to 10.8 million tons from 10 million tons. Aggregates represented approximately 50% of our total tonnage in our fiscal year 2016. Aggregates tonnage, including tons carried on third-party vessels increased 12.9% to 11.3 million tons. A portion of this increase is due to growth in our market share with the remainder due to organic growth. We believe we hauled a majority of the infrastructure aggregates transported on the Great Lakes. Based on preliminary 2016 sailing season nominations, we are optimistic about our future aggregates demand due to the recently approved legislative bill in the State of Michigan, which is aimed at increasing funds for roads and infrastructure. We anticipate that this is likely to have a positive impact on aggregate demand for the foreseeable future.

Iron ore represented approximately 14.7% of our total tonnage in fiscal year 2016. Including iron ore tons moved on third-party vessels, our iron ore tonnage was up from 3.3 million tons last year to 3.5 million tons in the 2015 sailing season or 4.3%. Coal comprised approximately 10.1% of our total tonnage in fiscal year 2016. Our coal shipments decreased by approximately 15.2% during the year, including tonnage carried on third-party vessels. The decrease, in large measure, was due to weaker demand. Salt represented approximately 12.9% of our total tonnage. Salt tonnage was up 10.2% year-over-year from 2.7 million tons to 3 million tons, including tonnage carried on third-party vessels. Grain represented approximately 9% – 9.8%, excuse me, of our total tonnage during the year, the grain tonnage that we carried decreased by approximately 3%. Total tonnage carried, including tonnage on third-party vessels increased 0.5% from last year.

For the month of April 2016, we sailed for 242 days compared to 318 days in the same period in 2015. The start of the 2000 sailing season has been consistent with expectations and weather conditions were much improved in comparison to both 2014 and 2015. In April 2016, Delay Days were reduced by 76.1% compared to April 2015. We did however, experienced a delayed start to the sailing season, which in part was the reason for only sailing 242 days in the month of April. The slow start was due to high inventory levels at certain of our customers’ locations. In addition, because of the mild winter in the Great Lakes region, as previously disclosed, our salt tonnage volumes are down versus last year. We expect this trend to continue throughout the entire 2016 sailing season.

As Mark will discuss further in his comments, we remain confident in achieving our goal of reducing expenses by between $2 million and $4 million annually across a number of spend categories. We are also beginning to see tangible benefits from our efforts to reengineer and streamline our internal processes. This effort is beginning to reduce inefficiencies and drive improved profitability.

With that, I would like to turn the call over to Mark Hiltwein, for a review of the fiscal 2016 financial results. Mark?

Mark Hiltwein

Thank you, Ed. I would now like to provide a more detailed explanation of our financial results for the year ended March 31, 2016, compared to the prior year. For fiscal 2016, our net loss decreased from $10.6 million last year to $5.6 million this year, an improvement of over $5 million or 47%. Net loss per share on a diluted basis was $0.31 compared to a net loss per share of $0.59 in fiscal 2015. Total revenue for the year was $148.4 million, a decrease of 3% compared to $153 million during the year ended March 31, 2015. This decrease was primarily attributable to a weaker Canadian dollar, reduction in fuel surcharges and a 195 day decrease in sailing days, which we define as days a vessel is crewed and available for sailing. These were partially offset by contractual price increases, higher order levels and an early time charter termination payout, reduced Delay Days related to ice coverage in fiscal year 2015 and a $13.3 million increase in outside vessel charter revenue. The increase in outside vessel charter revenue relates to the previously mentioned customer that experienced liquidity issues in the fiscal third quarter. On a constant currency basis, our total revenue increased 6.6% or $10 million during the year ended March 31, 2016, compared to the year ago period.

Freight and other related revenue generated from the company operated vessels decreased $5.5 million or 4.3% to $123.6 million during fiscal year 2016 compared to $129.1 million during the prior year. The decline was primarily a result of the aforementioned bankruptcy filing and a change in the supply chain of a significant customer, a 195 day decrease in sailing days and a weaker Canadian dollar. On a constant currency basis, freight and other related revenue from company operated vessels increased 3.7% or $4.7 million during the year ended March 31, 2016, compared to the year ended March 31, 2015.

Marine freight and related revenue per sailing day increased $158 or 0.5% to $31,601 per sailing day during the fiscal year 2016 compared to $31,443 per sailing day during the fiscal year 2015. This revenue increase was primarily due to cargo mix, lower Delay Days and improved trade patterns offset by the weaker Canadian dollar. On a constant currency basis, freight and related revenue per sailing day increased 8.8% or $2,782 per sailing day during the year compared to the prior year period.

Vessel operating expenses decreased $14.5 million or 14.8% to $83.4 million during the fiscal year ended March 31, 2016, compared to $97.8 million during the prior fiscal year. The decrease was primarily due to weaker Canadian dollar, reduced sailing days and reduced fuel prices during the fiscal year 2016 compared to the fiscal year 2015. Vessel operating expenses per sailing day decreased $2,509 or 10.5% to $21,315 per sailing day during the fiscal year 2016 from $23,824 per sailing day during fiscal 2015.

Our general and administrative expenses were $13.9 million during fiscal year 2016 compared to $13.3 million during the fiscal year 2015. We incurred one-time expense of approximately $600,000 associated with accelerated vesting of equity based severance cost for two executives. Excluding this one-time charge, compensation and benefits expenses increased modestly but were offset by weaker Canadian dollar. Our interest expense equaled approximately $12.3 million in fiscal 2016. This represents a 4.9% decrease from $12.9 million in the prior year. The decrease in interest expense results from the refinancing we completed in 2015. As a result, we lowered our cost of capital to a blended rate of 6.6%.

The Canadian dollar weakened by 13.2% compared to the U.S. during the fiscal year ended March 31, 2016, as compared to the fiscal year 2015, averaging approximately $0.76 per Canadian dollar during the fiscal year 2016 compared to approximately $0.88 per Canadian dollar during fiscal year 2015. The change in the exchange rate resulted in a reduction of adjusted EBITDA of $2.7 million as compared to the prior year period. For the year ended March 31, 2016, our effective income tax rate equaled to negative 5.8% versus a negative 4.7% in the previous year. The primary reason, the effective income tax rate for fiscal 2016 is lower than the statutory U.S. federal tax rate, is due to the change in the federal U.S. and foreign valuation allowances.

At March 31, 2016, the company had unused U.S. federal net operating loss carry-forwards totaling $60.5 million as well as unused Canadian net operating loss carry-forwards totaling CAD16,136,000 that expired in various fiscal years between now and 2036. Adjusted EBITDA decreased $1.3 million or 3.7% to $32.4 million from $33.7 million during the prior year period. Turning to the three-month period ended March 31, 2016, adjusted EBITDA loss decreased $4.3 million or 43.5% to a $5.6 million loss for the fourth quarter versus a $9.9 million loss during the year prior period.

Freight and other related revenue generated from company operated vessels, which excludes fuel and other surcharge, increased $0.4 million or just under 10% to $4.9 million during the three-month period compared to $4.4 million during the year ago period. The increase in revenues was mainly due to an early time charter termination payout, an improvement in Delay Days partially offset by less sailing days.

For the fourth quarter of fiscal 2016, we sailed for 113 sailing days compared to 256 days in the prior year period. Historically, vessel margins from sailing days in our fiscal fourth quarter are less profitable relative to the average for the sailing season because of the weather related delays. Our disciplined approach to the January sailing season and a mild weather we experienced enabled us to perform much more efficiently and profitably in January. We will continue this discipline into the current sailing season and into January 2017.

In regards to debt, we remain focused on utilizing our free cash flow to pay down debt. Q4 is a challenging quarter to accomplish this as we typically will stop billing on or about January 15 and not startup again into late March, leaving 2 to 3 months of little to no cash receipts. This occurs at a time in the season we are making our largest capital investments into our vessels. Our debt balance increased from $184.3 million at December 31, 2015 to $194.6 million at March 31, 2016. With the new sailing season underway, we anticipate that we will continue to accomplish a reduction in debt. Also note that we have made a $40 million plus investment in our newest vessel, which while impacting debt, has not had a meaningful contribution to our EBITDA. Starting in Q1, we will finally begin to recognize earnings for the new vessel. We are currently projected to operate 13 of our 16 vessels for 3,405 sailing days in our fiscal 2017 year. This compares to 3,911 sailing days in fiscal 2016. Given that we are continuing our disciplined service model after January 1, we have only budgeted sailing days in our fiscal 2016 fourth quarter that we are currently contractually obligated to provide.

Next, I would like to provide an update on our cost savings initiatives that were announced last year. The spend categories ranged from maintenance, repairs and operations, general and administrative contract services, and other industrial supplies and equipment. We believe that we can save in the range of $2.4 million on an annual basis. The focus thus far has been on the largest dollar categories with the most efficient and least difficult implementations. We are well on our way to achieving our targets and we are optimistic that we will achieve the higher goals as we move into our new wave – the next wave of our spending categories.

In general and administrative expenses, we have targeted insurance, legal fees, accounting fees and consulting services. And in the area of contract services, we are focused on engineering services, waste removal and electrical services. The opportunity for savings has led to the hiring of an additional purchasing resource that has started within the last month to assist in identifying and executing on existing and potential cost savings. We are in a good position as it relates to achieving our cost savings targets and we will continue to look for additional opportunities for savings and report progress each quarter.

As a leading provider of bulk freight shipping services throughout the Great Lakes region, our business is not comparable to foreign flagged dry bulk shipping companies, although a correlation of our stock chart with the international dry bulk index would lead you to believe that we are similar. We operate under long-term contracts with geographic and legislative barriers to entry. In addition as rates in the foreign flagged dry bulk industry continues to decline, we have seen stability in our rates due to length of our contracts and restricted dock access. We believe that the stock has been impacted by sector cloud that is not relevant to our business. As of Wednesday, June 15, the company’s common stock had closed above $1 for a minimum of 10 consecutive business days. We anticipate receiving written confirmation from NASDAQ that we are now in compliance, so the matter will be closed.

Now, I will turn the call back over to Ed.

Ed Levy

Thanks Mark. Over the past year, we have been fortunate to attract and retain a number of talented managers to our company to augment the existing team and capitalize on the depth and breadth of their knowledge. Both the Chief Commercial Officer and Chief Human Resources Officer positions are new to our company and reaffirm our commitment to our customers and our employees. Our new Vice President, Procurement and the recent promotion of two of our strongest captains supports our goal of operational excellence and a detailed focus on operational metrics management.

Mark Hiltwein, our CFO, has been with us for 13 months and is improving our commitment towards cost and capital accountability. We have expanded some of our short side functions for enhanced services to our employees and our vessels. And earlier this year, we announced that we moved our headquarters office from New York to New Jersey, not only reducing costs, but also providing additional opportunities for collaboration and innovation. The retooling of our management team has been the catalyst for many of the improvements that we are beginning to see.

We remain focused on executing initiatives to maximize return on invested capital and pay down debt. These initiatives are intended to drive operational excellence, capture cost savings opportunities, improve the efficiencies of our capital spending, leverage our market position and seamlessly integrate our newest vessel into service. We look forward to continuing to report on the progress that we are making in achieving these objectives.

With that, we would like to open the lines up for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will take our first question from Kevin Sterling with BB&T Capital Markets.

William Horner

Good morning, Ed and Mark. It’s actually William Horner on for Kevin.

Ed Levy

Hey, Will.

William Horner

Hey. One thing that jumped out of me was your revenue in Q4. As you said, your freight revenue was up about 10% and your sailing days were down considerably. Just trying to get a sense of the order of magnitude, the benefit you saw during the quarter from the favorable time charter buyout compared to maybe some of the operating efficiencies and gains that you have seen?

Mark Hiltwein

Sure. Well, the impact of that time charter buyout was about $1.7 million, so that was the impact to the quarter, so certainly had a meaningful impact to the quarter. We had great operating around – our Delay Days were down nicely, as Ed talked about. The weather conditions obviously allowed for that in both January and March, but certainly the biggest impact was that time charter buyout.

William Horner

Got it. I know that’s fair, but all else being considered, I would imagine that having the new vessel in the fleet is allowing you to have more ratable demand and more optimal fleet efficiencies and patterns – sailing patterns?

Ed Levy

It’s also, Will, allowing us to pickup all the volume that we were doing last year on third-party vessels, where we were generating very little profitability on that. It was effectively a pass-through and we had talked about that several times last year, as you are aware. We knew we were going to experience that as the timing between the introduction of the new vessel and new contracts that we had signed for that – for the new vessel came together.

William Horner

Yes. Absolutely, we are pleased to see those third-party time charters behind us, so good work on that. Ed, you did mention in your prepared remarks, April sailing days being consistent with expectations, I know it was a little bit slower start to the season, but can you give us any indication on how May performed and if you can, June to-date?

Ed Levy

Sure. May was right on expectation in terms of sailing days. The slowness that we felt coming out of the blocks on April 1, as we got through – as we have gotten further into the quarter that has abated. We have got all of our self-unloaders operating today, both the Canadian and the U.S. side. And as you are aware, those are the high margin assets for us. So we are pleased with where demand is consistent with our expectations right now, Will.

William Horner

Alright. Okay, that’s fair. And sticking on the demand front for a moment, obviously the domestic steel markets appear to be coming back into focus, we are seeing strong capacity utilization levels, starting to hear some mines, iron ore mines coming back online, with that in mind, are you seeing incremental opportunities in the market to either service existing customers or maybe pick up new customers, I know a lot of your budget is pretty much locked in for the year, but just trying to see how things are trending this year and if you are getting calls from customers maybe for potential increases in volume nominations?

Ed Levy

It’s – that’s a great question. What we are seeing is that our customers don’t have an enormous amount of conviction, yet the demand right now is steady. And we are seeing a consistent level of inbound inquiry from the customers. And now we are in the process of converting that inquiry into firm orders. But certainly, the inquiry is out there. But you would love to see more conviction, I would say, as – Will, is how we would characterize it right now.

William Horner

Okay. I mean, so the way to frame it, I would think is, right now things are – again, demand overall is kind of progressing as expected, things are steady and hopefully as some of these inquiries will materialize into firm commitments, but to be determined?

Ed Levy

Correct. I think that’s a good way to characterize it.

William Horner

Fair enough. One more then I will pass it over. Mark, I appreciate the color you gave on the cost savings initiatives, I know you are making a lot of headway there and looking for that $2 million to $4 million long-term goal, can you maybe – you talked about a lot of the different buckets where you have had success, but can you maybe just give us one or two line items to-date where you have seen the most success, some of the low-hanging fruit where you have been able to come in and really kind of quickly drive some incremental savings.

Mark Hiltwein

Yes. I think one of the areas we talked about a little bit in G&A and I think it’s a testament to how well the vessels have performed and how well our captains have performed as well, is that we have been able to save almost $0.5 million on our insurance line. And it’s basically the result of us not having incidents with our vessels, knock on wood, obviously. But we have performed nicely and that has led to reduction in expenses. And obviously, in expense like insurance is a large expenditure for us. So we have seen savings there. We have seen savings on the professional services front as well. We have talked to our – and negotiated with legal, with accounting. We have looked at a number of items in our cargo handling areas, conveyor idlers, rollers. We are looking at all of our equipment on vessels, whether it’s our generators, our winches. And we are really trying to leave no stone unturned as it relates to all of the expense items.

William Horner

That’s fair, I appreciate it. Go ahead.

Mark Hiltwein

And as we mentioned, we know we have got 13 of the 16 vessels out there and this is the year that we are going to need to do more with less here. And we know that cost is a big part of it. And operational excellence is also a big part of it. So we are keenly focused every day on expenses and running our business the best that we can.

William Horner

Absolutely, that’s fair. Well, Mark and Ed, I appreciate it.

Ed Levy

Thanks Will.

Mark Hiltwein

Very good Will, have a nice day.

Operator

And we will take our next question from Jon Tanwanteng with CJS Securities.

Jon Tanwanteng

Good morning guys. Thank you for taking my question.

Ed Levy

Good morning Jon.

Jon Tanwanteng

First one, how much excess capacity do you guys gain from SR going back to the old sailing pattern with Cliffs and can you sail those extra days contractually on the spot market and is that budgeted or included in the current outlook for 3,911 sailing days?

Ed Levy

The projection that we put out there for sailing days is reflective of the discussions that we have had and the nominations that we have had from the customer and reflects the point of origination of pickup of the material for the customer, Jon. So it’s already baked into those numbers. And so potentially, as SR changes there are trade patterns that could free up incremental days for us, which we would then, obviously, go out to re-sail, but that’s not something that we have factored into our results at this point.

Mark Hiltwein

And Jon, we have got to take what the market bears, right, so we are hoping that it leads to additional capacity and hopeful that steel markets continue to improve and that ore demand continues to improve. So it’s – we are hopeful, but it’s really tough to commit to fill in that additional capacity at this point. But that’s certainly the goal for the sales and marketing team, for sure.

Jon Tanwanteng

Okay, great. Thanks. Second, what are the long-term plans for these vessels that are currently laid up, is there – which ones are leased versus owned and what were you thinking over the longer timeframe?

Ed Levy

Sure. All of our vessels are owned. We have no direct lease on any specific vessel. We have got three vessels, two bulk carriers and one self-unloader that are not in operation this year as we have announced. And the sales and marketing team are aggressively speaking with customers in terms of putting those vessels back to work. And to the extent that we are able to generate an appropriate return on invested capital on those assets Jon and that our customer demand exists for those assets, we are very keen to get them back to work. But again, it’s going to be based on a disciplined return on invested capital approach as opposed to just putting them out there and not getting the kind of return that we all want to have from our assets.

Jon Tanwanteng

Okay. If the demand is light for a projected, shorter to medium term, would you sell those vessels where they were?

Ed Levy

We have not considered selling them, Jon, so I don’t – we don’t have any answer for you on that. At this point, we don’t foresee that to be the case.

Jon Tanwanteng

Okay. Mark, any update to the free cash flow outlook and the use of cash to pay down debt?

Mark Hiltwein

I think we are – we anticipate between cash interest and CapEx, probably about a $12.5 million number for each one of those. And based on a low to mid-30s EBITDA number, you are probably looking at an $8 million to $10 million free cash flow number, so that’s what we are currently looking to utilize for debt repayment. And if circumstances change and there is more demand, then hopefully that will improve. But that’s what we are – that’s what our projection forecast is today.

Jon Tanwanteng

Okay. Finally, just going back to the cost savings, how much of those have you already realized, I guess as one-time items versus things progress as you go through the year?

Mark Hiltwein

Well, I think there is two answers. I think one is I think we have identified the opportunities, okay. And I think that starting in Q1, we are realizing on those opportunities. So, we have got a hit list of 14 items that we track and track weekly. So, we feel very good that the opportunities that we have on earth are certainly executable, which is why we brought the additional resource on. So, up to this point, there has been – through the P&L, there has been little to no contribution from that, but I think you will start to see that certainly as we move forward into fiscal 2017.

Jon Tanwanteng

Okay, great. Final question, just the $600,000 you mentioned in equity and severance cost, that’s going to hit in Q1, right?

Mark Hiltwein

No, that hit in Q3, actually.

Jon Tanwanteng

In Q3 of – okay, got it.

Mark Hiltwein

I just mentioned that on a full year basis.

Jon Tanwanteng

Yes, got it. I would expect there will be some severance costs in Q1 from the departure of certain executives.

Ed Levy

Yes. We will carry that for the next 24 months, Jon. Contractually, we have an obligation to carry that for the next 24 months.

Jon Tanwanteng

Got it, okay. Any idea what the quarterly impact will be?

Mark Hiltwein

I would say it is – yes, I think it’s about 100 a quarter, it’s a little less than 100 a quarter over the next 24 months.

Jon Tanwanteng

Okay, great. Thank you very much.

Ed Levy

Thank you, Jon.

Operator

And we will take our next question from Alex Silverman with Special Situations Fund.

Alex Silverman

Hey, good morning.

Ed Levy

Good morning, Alex.

Alex Silverman

So, most of my questions have been asked and answered, but can I assume that the best chance of putting those two bulk carriers back to work would be a strong Canadian grain harvest?

Ed Levy

That’s correct.

Alex Silverman

And any indications at this point?

Ed Levy

At this point, we prefer not to make a guess. It’s a little too early yet. I think we will have a better sense for the next 30 days or so and we will certainly be communicating that to our shareholders as soon as we know something.

Alex Silverman

Okay. Just to bounce around here, you mentioned all of your major contracts have been resigned with price increases for the most part and you said you added a large piece of new business. Can you give us any details there?

Ed Levy

It’s a piece of business that we are very pleased to be handling. It’s something that we think fits right into our wheelhouse and we think we will see the benefit of it in 2016 sailing season. It’s not something that we had forecasted originally. And so beyond that, I prefer not to disclose anything more. But I think the key takeaway is that it will have an impact on our 2016 sailing season.

Alex Silverman

Can you give us a sense of what type of cargo it is?

Ed Levy

I prefer not to.

Alex Silverman

Okay, fair enough. And then I apologize, I may have – I think I heard you mentioned, but I may have misheard. Did you actually say how much you hope to pay down debt this year?

Mark Hiltwein

Yes. We talked about a free cash flow number, Alex, of $8 million to $10 million range.

Alex Silverman

Great. That’s all I have. Thanks so much.

Ed Levy

Thanks, Alex.

Operator

[Operator Instructions] And we will take our next question from Gene Garfield with Revere Securities.

Gene Garfield

Hi, thanks for the opportunities.

Ed Levy

Good morning, Gene.

Gene Garfield

Hi, good morning. Everything I wanted to ask has already been asked except for one thing, which was the April, May EBITDA hurdle under the credit agreement that were amended back in February. I didn’t see anything mentioned on that in the 10-K that you filed this morning. So, could you just update me on what happened with that?

Ed Levy

Sure. So Gene, we are actually still on the close of May, so I don’t want to commit to that number, but our April results versus prior year were in a positive tone. So, I think that – although, I don’t want to certainly answer the – I don’t want to not answer the question directly, maybe a little premature, but I think we are cautiously optimistic on the April, May covenant.

Gene Garfield

Okay, alright. Fair enough. Thanks very much.

Ed Levy

Thank you, Gene.

Operator

And we will take our next question from Tristan Barr with MTB Asset Management.

Tristan Barr

Hi, guys. How are you doing?

Ed Levy

Good. Good morning.

Tristan Barr

The free cash flow guidance seems rather conservative.

Mark Hiltwein

I mean….

Tristan Barr

Sorry.

Mark Hiltwein

Go ahead.

Tristan Barr

Well, you just said 32.4% that was with the trade pattern efficiencies without the Manitoulin and it seems like your 12.5% interest estimate is conservative as well.

Mark Hiltwein

Yes. Well, I think, Tristan, what we are trying to do is balance the – Ed had mentioned the, what we will call, lack of conviction as it relates to our customer. So, we certainly are trying to take the opinion of under-promising and over-delivering. Perhaps, it’s a bit conservative and we will if we adjust that throughout the year, we will certainly update on these calls. But certainly, we want to take a conservative approach and try to under-promise to investors and over-deliver.

Tristan Barr

I understand that. But I do think that you gain credibility by setting reasonable targets and exceeding them, not putting the bar on the floor and then walking over it?

Mark Hiltwein

Yes. Well, I mean, I don’t know if that’s a bar on the floor, but we have got a couple of items as it relates to the foreign currency, if you tell me where the foreign currency is going to end up. And each quarter, I may give you some more conviction on that, but there are certainly some things that are out of our control. What I will tell you, Tristan, is that the things that are under our control, we are managing on a daily basis, we have got keen focus on the cost, key focus on the operational excellence, and there is things that are out of our control that we are going to try to manage through as well, so….

Tristan Barr

But on an apples-to-apples basis for a couple of years now, we have been hearing somewhere around $5 million in incremental EBITDA from the Manitoulin. And you just guided to low to mid EBITDA – sorry, low to mid 30s in EBITDA, which is essentially flat with the year that you just reported with negative trade variances in Manitoulin?

Mark Hiltwein

Yes, we also had 13 vessels that we are sailing. We issued that press release a couple of months ago that we are going into the year with 13 of the 16 vessels sailing. So, I think that needs certainly to be taken into the calculation as it relates to comps over last year. The sailing days are down quite a bit year-over-year, so that also needs to be taken into account. So, I understand if you think that is a lowball conservative number, but again, I think based on conditions and the things that we are controlling, I think we feel comfortable with that number.

Tristan Barr

I hope so. Thanks, guys.

Operator

[Operator Instructions] And we will take our next question from Paul Sonz with Sonz Partners.

Paul Sonz

Good morning. My question is this – good morning. I have two questions. The first is could you go into a little more depth into your description of demand for this year? I have had the opinion that demand was actually building, especially considering the demand for aggregates in the Midwest, but it sounds like you are – from what you are saying is that your estimate of demand is you are not quite sure of demand as I thought we might be. So, could you expand on that, please?

Ed Levy

Sure. On the aggregate side, our conviction previously is the same as it is today, Paul. Demand is steady on the aggregate side, continues to build. But again, we want to be cautious. We are not seeing enormous conviction out there, but we are seeing steady demand. We are seeing a high level of inquiry on the aggregate side. On the salt side, that will be down tonnage wise, about 25%, 25% to 30% this year, exclusively as a result of the mild conditions on the Great Lakes this past winter and we can about that. Iron ore business is relatively steady for us. All the other commodities are relatively steady for us at this point. And we are waiting on the grain harvest to see where that falls out. Preliminary, we are hearing that the Canadian grain harvest could be relatively large, but again it’s preliminary yet and we don’t want to get too optimistic at this point. We will know better in the next 30 or so days.

Paul Sonz

Alright. The second question is, I am sorry if I am going to put you guys on the spot here, but in the beginning of the call, I think one of you mentioned that you thought that the price of the stock was sort of unusually low, which I would agree with which raises the question of, well, when are we going to see more significant buying by insiders and management?

Ed Levy

We have been in a blackout period for the better part of the last let’s say, six weeks to eight weeks, just given the way our fiscal year ends, Paul and when we disclose our results. So the company and senior executives have been able to purchase the stock in this period.

Mark Hiltwein

And Paul just historically, if you look at the last few open periods of open market purchases, there have been I know upper management and myself had bought probably in the last three quarters and I know our Board has purchased as well. So I think there is definitely conviction as it relates to management and Board. To Ed’s point, we have been in the blackout period and because of where the year end falls here in relation to the first quarter, we may be in a continued blackout period. But I think that if you look at the last three quarters in open periods there have been management purchases.

Paul Sonz

Alright. Excellent and just one last thing, is there any comment you can make on attempts to sort of renegotiate pieces of the debt?

Mark Hiltwein

I think that’s a little premature Paul, to talk about that. I think that we can all identify where we think we have some opportunities, but we certainly like to get a little further down the road before we have any firm discussions on that. But certainly, appreciate the question.

Paul Sonz

Alright. Thank you very much. Good luck.

Mark Hiltwein

Thank you, Paul.

Operator

And we have no further questions. And at this time, I would like to turn the call back over to Ed Levy for any additional and closing remarks.

Ed Levy

Thank you, ladies and gentlemen. We very much appreciate you spending time with us on today’s conference call. And as always, if you have any additional questions, please don’t hesitate to reach out to anybody at the company. We look forward to speaking with you at the end of our June quarter.

Operator

And this concludes today’s conference. Thank you for your participation. You may now disconnect.